SHAHID MASOOD MANZAR, (CHAIRMAN).---- Through this appeal the impugned order dated 16.08.2018 passed by the learned Commissioner Inland Revenue, Zone-IV , Large Taxpayers Unit, Lahore, has been assailed by the appellant on the following grounds:
1. That appellant being Tier-1 retailer had rightly opted to pay sales tax @ 2%. The option of appellant has wrongly been rejected by the Commissioner Inland Revenue.
2. That the Commissioner Inland Revenue has wrongly held that appellant cannot opt to pay sales for 2%.
2. Brief facts of the case are that the taxpayer , a private limited company , derives income from manufacture and sale of garments through its own sales outlets at Lahore and other cities in Pakistan. As per subsection 9(A) to Section 3 of the Sales Tax Act, 1990 which was inserted in the said statute by the Finance Act, 2017 whereby Tier- 1 retailers shall pay sales tax at the standard rate of 17% as prescribed in Rule 5 of the Sales Tax Rules, 2006.
Subsection 9(A) through its First proviso provides that the retailers making supplies of finished goods of the 5 sectors specified in Notification No. SRO 1125(1)/201 1 dated 31.12.201 1 shall pay sales tax at rates prescribed in the said notification which at that time was 5% but subsequently increased to 6% with ef fect from July 01, 2017.
The taxpayer under Third proviso to subsection 9(A) of section 3 of the Sales Tax Act, 1990 applied to the Chief Commissioner Inland Revenue, Large taxpayers Unit, Lahore, for exercise of its option to pay sales tax, under turnover regime @ 2% of their total turnover without adjustment of any input tax whatsoever in lieu of net tax payable at the applicable rate. The request of the taxpayer for exercising the aforesaid option of paying sales tax under turnover regime was rejected by the Commissioner , Zone-IV , Large Taxpayers Unit, Lahore vide order dated 16.08.2018 on the ground that First proviso to subsection 9(A) to section 3 of the Sales Tax Act, 1990 clearly bars the appellant to file the option to pay sales tax under turnover regime @ 2%. The appellant is in appeal before this Tribunal against the impugned order of the Commissioner .
3. The learned AR of the taxpayer while arguing the case submitted that a cursory glance on section 3 of the Sales Tax Act, 1990 and insertions subsequen tly made in the said statute would facilitate in resolution of the issue involved in this appeal. He has stated that Section 3 of the Sales Tax Act, 1990 pertains to "Scope and Payment of Tax." It states that: Subject to the provisions of this Act, shall be charged, levied and paid a tax known as 'Sales Tax' @ 17% of the value of:
(a) taxable supplies made by the registered person in the course or furtherance of any taxable activity carried on by him; and
(b) goods imported into Pakistan. Accordi ng to the learned AR there are specific provisions for payment and rate of tax for small and larger retailers.
In order to appreciate the scheme of Section 3 of the Act definition of retailer and Tier 1 retailer is essential which is as under: Retailer As per section 2(28) of the Sales Tax Act retailer is defined as under: "2(28) --retailer-II means a person 1[**] supplying goods to general public for the purpose of consumption 2[:].
[Provided that any person, who combines the business of import and retail or manufacture or production with retail, shall notify and advertise wholesale prices and retail prices separately , and declare the address of retail outlets 4[***].] Tier-1 Retailer "2(43A) T ier-1 retailers means,--
(a) a retailer operating as a unit of a national or international chain of stores;
(b) a retailer operating in an air-conditioned shopping mall, plaza or center , excluding kiosks;
(c) a retailer whose cumulative electricity bill during the immediately preceding twelve consecutive months exceeds Rupees six hundred thousand; and
(d) a wholesaler-cum-retailer , engaged in bulk import and supply of consumer goods on wholesale basis to the retailers as well as on retail basis to the general body of the consumers;] It is contended by the learned AR that comparison of both these definitions of retailer and Tier-1 retailer shows that retailer is the one who is owning a particular retail outlet and does not have multiple outlets at different air- conditioned malls or shopping malls and the accumulative electricity bills does not exceed Rs.6 lacs.
A Tier-1 retailer is the one who fulfills the condition laid down in section 2(43A) of the Act (as enumerated above).
Retailer and Tier 1 retailer are both retailers but operating in different types of sales outlets. Keeping in view the definition of retailer and Tier-1 retailer the specific provisions for payment and respective taxability is as under:
(A) Retailer Tax shall be charged as per section 3(9) of the Act which states: Subsection (9) of the Section 3 states: that tax shall be charged from retailer through their monthly electricity bills, @ 5% where monthly bill amount does not exceed Rs.25,000 and @ 7.5% where the monthly bill amount exceeds the aforesaid amount etc .
Provided that the tax under this subsection shall be in addition to the tax payable on supplies of electricity under subsection (1) etc.
(B) T ier-I Retailer Subsection 9(A) and provisos to section 3 were inserted by Finance Act, 2017 which states that Tier-1 retailer shall pay sales tax @ 17% and shall observe all the applicable provisos of this Act and the rules made thereunder .
The First Proviso to subsection 9(A) provided that the retailers making supplies of finished goods of 5 sectors specified in Notification SRO 1125(1)/201 1 dated 31.12.201 1 shall pay sales tax in respect of such supplies at the rates prescribed in the said Notification which at that time was 5% and thereafter increased to 6% with effect from July 01, 2017.
Learned AR has submitted that 5 sectors specified in SRO 1 125(1)/201 1 dated 31.12.201 1 were as under:
1. Leather and articles thereof including artificial leather footwear .
2. Textile and articles thereof excluding monofilament, sun shading, nylon fishing net, other fishing net, rope of polyethylene and rope of nylon, tyre cord fabric.
3. Carpets
4. Maize (corn) starch
5. Mucilages and thickness, whether or not modified, derived from locust beans locust been seeds or guar seeds.
The rate of sales tax was 5% as per initial notification which was later on increased to 6%. The benefit of this proviso is available to all retailers i.e. retailers having single outlet and does not have multiple outlets at different air-conditioned malls and shopping malls etc. and Tier-1 retailers covered under definition of section 2(43A) of the Act. In other words the benefits of this proviso are neither restricted nor specific.
The Second Proviso to subsection 9(A) states: Provided further that Tier-1 retailers, in lieu of net tax payable at the applicable rate, shall have an option to pay sales tax under turnover regime @ 2% of their total turnover , including turnover relating to exempt supplies, without adjustment in input tax whatsoever .
The Third Proviso to subsection 9(A) states: Provided also that retailers opting to pay sales tax on the basis of total turnover shall file an option to the Chief Commissioner of Regional Tax Office or Large Taxpayers Unit having jurisdiction by 15th of July opting to pay sales tax on the basis of turnover and such an option shall remain in force for the whole financial year .
The learned AR argued/stated that an important legal aspect in this case has been ignored by the learned CIR that the function of Proviso in a section is to restrict the scope of section. Second Proviso to section 39(A) of the Act restricts the scope of application and certainly creates a special class of persons who opt to pay sales tax on turnover basis. The function of Proviso is to exclude the application of other section as held by Hon'ble Supreme Court of Pakistan in a case reported as 2011 SCMR 1560 . Relevant, Page 1578 of the judgment reads as under: "the very object and purpose of legislature by inserting a proviso with a section/ subsection is to provide an exception, and control or bar the application of main section/ subsection in certain cases. Thus natural presumption of providing such proviso is to exclude the general application of the relevant section/subsection in the matter notified under the proviso. In the words of Hadayatullah, J. "As a general rule, a proviso is added to an enactme nt to qualify or create an exception in what is in the enactment, and ordinarily , proviso is not interpreted as stating a general rule" (see: IRE 1961 SC 1596 ). It is, therefore, understandable that proper function of the proviso is that it qualifies the generality of the main enactment by providing an exception and taking out as it were, from the main enactment. Thus, to say that proviso shall normally be construed not merely to limit or control, but nullifying the enactment and taking away completely a right conferred by the enactment, is incorrect. We may add here that application of well recognized rule of harmonious interpretation of statute, to the facts of these cases, also does not lend any support to the arguments of Mr. Gillani, keeping in view that there is no such inconsistency or conflict in various provisions of Ordinance of 1999, and the principle that, unless inevitable, no redundancy can be attributed to any part of a statute, which is to be read and interpreted as a compact and complete single, document."
The learned AR on the basis of the above arguments and case law has requested to allow the appeal.
On the other side learned DR is supporting the impugned order of the Commissioner .
4. We have heard learned representative from both the sides and have perused the impugned order of the Commissioner , relevant record available, provision of law relevant to this case and the case law. We has given our consideration to the arguments of both the parties. In our view the only issue involved in this appeal is, whether the taxpayer as per the provisions of law is eligible to exercise option for payment of sales tax @ 2% under the turnover regime on its total sales. The learned AR are fully supported by the authoritative judgment of the Hon'ble Supreme Court of Pakistan reported supra. We are of the candid view that a taxpa yer who falls within the Second Proviso to subsection 9(A) of Section 3 of Sales Tax Act, 1990 shall be entitled to exercise option of payment of 2% sales tax on turnover basis. The taxpayer is a Tier-1 retailer having multiple sales outlets in various air-conditioned malls in Karachi, Lahore. Islamabad and Peshawar and has rightly exercised its option as per the Third Proviso to subsection opting to pay sales tax on turnover basis.
5. In view of the above discussion and respectfully following the dictum l did down by the Hon'ble Supreme Court in its judgment referred supra, the appeal is accepted and it is held that appellant has rightly opted to pay sales tax on turnover basis.