RAHEEL KAMRAN, J.---This judgment will decide the instant petition as well as the connected Writ Petition No. 34877 of 2021 as these cases raise common questions of law and facts.
2. The Petitioners are engaged in production and sale of "ice" which admittedly stands exempted under section 13 read with item No.27 of the Sixth Schedule to the Sales Tax Act, 1990 ("the Act"). For running their factories, the Petitioners have been provided electricity connections by the Lahore Electric Supply Company ("LESCO "). The Petitioners in W.P.No.30936/21 have additionally obtained gas connections from Sui Northern Gas Pipelines Limited ("SNGPL "). The Petitioners are paying sales tax on the supplies purchased by them including electricity and gas, however , they have hereby assailed the applicability and charging of "further tax" under section 3(1A) of the Act at the rate of 3% of the value in addition to the rate specified in sub-sections (1),(1B),(2),(5), (6) of section 3 and section 4, and "extra tax" pursuant to the Notification SRO 509(1)/2013 dated 12.06.2013 issued under section 3(5) of the Act at the rate of 5% of the total billed amount excluding the amount of federal taxes in addition to the tax payable under section 3(1) of the Act on the taxable supplies made to them by LESCO and SNGPL on account of their non-registration.
3. It is case of the Petitioners that they do not make any taxable supplies under section 2(41) of the Au but only exempt supplies, therefore, they are not obligated to obtain sales tax registration under the Act. When they are not required by law to be registered, they are also not liable to pay "further tax" and "extra tax" for their non- registration. Learned counsel for the petitioners contend that respondents LESCO AND SNGPL have been acting illegally and without lawful authority in charging the above taxes from the petitioners in their utility bills. In support of their arguments, while referring to section 14(1) of the Act and rule 4 of Chapter 1 of the Sales Tax Rules, 2006 ("Rules ") they have relied upon the cases of Messrs Zia Brother v. Federation of Pakistan and others (2015 PTD 175); Messrs Al-Zarina Glass Industries v. Federation of Pakistan and others (2018 PTD 1600 ) and Messrs Ashrafi Bread Industries v . Federation of Pakistan and others (2019 PTD 1858 ).
4. While opposing these petitions, learned counsel for the revenue authorities states that "further tax" and "extra tax" are being levied on supplies of electricity and gas which are taxable supplie s. He adds that only those recipients who fall within the definition of "registered person" as envisaged in the Act are not liable to pay the said taxes, which the Petitioners admittedly are not. According to him, sections 3(1A) and 3(5) of the Act do not provide any concession or margin for those persons who are involved in making exempt supplies, therefore, the petitioners are bound to obtain registration or else pay "further tax" and "extra tax". He refers to the definition of "registered person" and section 14(2) of the Act to contend that even if a person is not involved in the making of taxable supplies in Pakistan, it may nonetheless apply for registration. In support of his arguments, learned counsel for respondents Nos. 2 and 3 has relied on judgment dated 10.02.2021 passed by this Court in W.P. No. 65871/21 titled Messrs Haidery Flour Mills v . Federation of Pakistan and others.
5. Arguments heard. Record perused.
6. First question that requires determination in this case is: whether or not a person who is involved in the making of only exempt supplies is liable to be registered under the Act?
7. In support of his contention for an answer in affirmative to the above question, learned counsel for respondents Nos.2 and 3 has relied upon the provisions of sections 2(25) and 14(2) of the Act, which are reproduced herein below: S.2. Definitions. --In this Act, unless there is anything repugnant in the subject or context,
(25) "registered person" means who is registered or is liable to be registered under this Act: Provided that a person who is liable to be registered but not registered under this Act shall not be entitled to any benefit available to a registered person under any of the provisions of this Act or the rules made thereunder .
The word "liable" used in the above provision has not been defined by the legislat ure in the Act. The word "liable" has been interpreted by the august Supreme Court of Pakistan in the case of Noon Sugar Mills Limited v.
Commissioner of Income Tax (PLD 1990 SC 1156) to mean "subject to an obligation". Applying the above interpretation to the expression "liable to be registered" as used in Section 2(25) of the Act would mean the person who has an obligation to be registered under the law .
8. Turning now to section 14 of the Act, relevant provisions whereof are reproduced herein below: S.14. Registration.- (1) Every person engaged in the making of taxable supplies in Pakistan, including zero rated supplies, in the course or furtherance of any taxable activity carried on by him, falling in any of the following categories, if not already registered, is required to be registered under this Act, namely:-
(a) manufacturer who is not running a cottage industry .
(b) a retailer who is liable to pay tax unde r the Act or rules made thereunder , excluding such retailer required to pay sales tax through his electricity bill under subsection (9) of section 3;
(c) an importer;
(d) an exporter who intends to obtain sales tax refund against his zero rated supplies;
(e) a wholesaler , dealer or distributor; and
(f) a person who is required, under any other Federal law or Provincial law, to be registered for the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected under this Act;
(2) Persons not engaged in making of taxable supplies in Pakistan, if required to be registered for making imports or exports, or under any provision of the Act, or any other Federal law , may apply for registration.
9. It is apparent that subsection (1) of Section 14 of the Act stipulates compulsory registration of persons involved in the making of taxable supplies, including zero rated supplies", in the course or furtherance of any taxable activity carried on by them if their businesses fall in one or more of the categories specified therein. Subsection (1) has no application to the case of the Petitioner as they are not involved in making any taxable supplies, including zero rated supplies.
10. Subsection (2) of section 14 of the Act, on the other hand, enables the maker of an "exempt supply" to apply for registration in the following cases:
(i) If such a person is required to be registered for making imports or exports;
(ii) If such a person is required to be registered under any provision of the Act;
(iii) If such a person is required to be registered under any other Federal law .
11. Although Petitioners are very much involved in the making of exempt supplies of "ice" under section 13 read with Item No. 27 of the Sixth Schedule to the Act yet none of the above scenarios is applicable requiring them to register . Firstly , the Petitioners herein are engaged in making of exempt supplie s of "ice" locally and import or export thereof is out of question. Secondly , there is no provision of the Act that requires Petitioners to be registered, and the learned counsel for the tax author ities has pointed out none. Thirdly , the Petitioners are not required by any other Federal law to be registered under the Act. Therefore, registration of the Petitioners is not warranted even under section 14(2) of the Act. Argument of the learned counsel for the tax authorities is thus fallacious.
12. Now I turn to the main question whether any person, who makes "exempt supplies" and is not liable to be registered under the Act, has been burdened with payment of "further tax" and "extra tax" for non-registration?
13. The object and purpose of section 3(1A) of the Act imposing "further tax" on a person who fails to obtain registration number is to incentivize that person to register or else pay more tax. This is based on underlying assumption that the person' to be burdened with "further tax" is under a lawful obligation to obtain registration number and has for some reason failed to do so. This carrot and stick policy is to induce a person to register and enforce the legislative intent of registering persons making taxable supplies. On a policy level, the wisdom behind this is to move towards a more documented economy and help expand the tax base. "Further tax" under section 3(1A) of the Act is not intended to apply to and penalize those who make only exempt supplies and are not liable to be registered under the Act, otherwise the same would defeat the very intent, object and purpose of the levy.
Reliance is placed on Messrs Zia Brothers v . Federation of Pakistan and others (2015 PTD 175 ).
14. From perusal of the Notification S.R.J 509(1)/2013 dated 12.6.2013, issue d by the Ministry of Finance, Economic Affairs, Statistics and Revenue, Government of Pakistan, under subsection (5) o. section 3 of the Act, it appears that levy of extra tax at the rate of 5% of total billed amount excluding the amount of federal taxes in addition to the tax payable under subsection (1) of section 3 of the Act, has been imposed on supplies of electric power and natural gas to persons having industrial or commercial connections, and whose bill for any month exceeds Rs.15,000/- but who have either not obtained sales tax registration number or are not on the active taxpayers list maintained by the FBR. Again, the purpose of levying "extra tax", in addition to the tax under subsection (1) of section 3 of the Act, is to charge the said tax from those persons who, despite being liable to be registered under the Act, have failed to do so.
15 The Petitioners are making payment of sales tax on taxable supplies purchased by them from SNGPL and LESCO, however , their supplies of "ice" are exempt from the levy of sales tax under section 13 read with Item No. 27 of the Sixth Schedule to the Act. Section 13(1) of the Act provides that notwiths tanding the provisions of section 3, supply of goods or import of goods specified in the Sixth Schedule shall, subje ct to such conditions as may be specified by the Federal Government, be exempt from tax under the Act. Words used in section 13(1) of the Act are very specific and provide for exemption from any taxable import or taxable supply of any goods from the whole or any part of the sales tax chargeable under the Act and not merely under Section 3(1) of the Act. This would mean that the provision of section 13(1) of the Act has an overriding effect on the chargeability of tax including "further tax" and "extra tax" under sections 3(1A) and 3(5) of the Act read with Notification No. SRO 509(I)/2013 dated 12.06.2013. As the supplies produced by the Petitioners have been exempted and they are under no legal obligation to obtain registration under the Act or to appear on the active taxpayers list maintained by the FBR, therefore, they are not liable to the payment of "further tax" and "extra tax". Reliance is placed on the case of Messrs Ashrafi Bread Industries v . Federation of Pakistan ( 2019 PTD 1858 ).
16. Reliance of learned counsel for the respondent tax authorities on the judgment dated 10.02.2021 passed by this Court in W.P. No. 65871/21 titled Messrs Haidery Flour Mills v. Federation of Pakistan and others is misconceived for the said case is distinguishable on facts. The imposition of "further tax" or "extra tax" was not the subject matter in the said W rit Petition which essentially related to General Sales Tax.
17. To hold that a person, who is not liable to be registered under the Act, is burde ned with "further tax" and "extra tax" would undermine the scope of exemption under Section 13(1) of the Act, defeat the legislative intent and purpose of the two levies, as explained above and also expose such taxes to be declared void for being in violation of fundamental rights and constitutional guarantees available to the Petitioners.
Persons who are not registered under the Act fall in two distinct classes: firstly , those who are not required by law to be registered under the Act; secondly , those who are liable to be registered under the Act but have failed to register . For the purposes of "further tax" or "extra tax" under the Act, any interpretation that refuses to take into account the above classification and purports to impose these taxes on both classes of persons renders the same taxes ex-facie discriminatory thus in violation of Article 25 of the Constitution of Islamic Republic of Pakistan, 1973 ("the Constitution"). Needless to add here that discrimination in such a case would ensue from the lack of classification and similar treatment extended to dissimilarly or differently placed persons. Reliance is placed on Kunnathat Thathunni Moopil Nair v. State of Kerala (AIR 1961 SC 552); State of Andhra Pradesh v. Nalla Raja Reddy (AIR 1967 SC 1458) and State of Kerala v . Haji K. Kutty Naha and others (AIR 1969 SC 378).
Likewise, burdening those with imposition of "further tax" and "extra tax" who are not liable to be registered under the Act results in violation of the fundamental rights to property , as guaranteed by Articles 23 and 24 of the Constitution. Reliance is placed on Federation of Pakistan v . Shaukat Ali Mian (PLD 1999 SC 1026 ).
18. Theory of reading down is a rule of interpretation resorted to whenever a statutory provision, when read literally , leads to any violation of a fundamental right, or renders it without legislative competence, and courts read such a provision narrowly to save it from invalidity . Reading down is squarely applicable in this case to prevent violation of Articles 23, 24 and 25 of the Constitution. Resulta ntly, a restrictive meaning is to be assig ned to the application of section 3(1A) and section 3(5) of the Act read with Notification SRO 509(1)/2013 dated I 12.06.2013 to those cases where the person was liable to be registered but has failed to register . Reliance is placed on Indus Jute Mills Ltd. through Chief Executive v. Federation of Pakistan through Secretary Finance, Islamabad and 3 others (2009 PTD 1473 ), Al-Karam CNG and others v.. Federati on of Pakistan and others (2011 PTD 1) and Syed Mushahid Shah v . F.I.A. (2017 SCMR 1218 ).
19. The upshot of above discussion is that the petitioners are not liable to pay "further tax" and "extra tax" on taxable supplies purchased by them from SNGPL and LESCO in view of the fact that the supplies of "ice" are exempt from the levy of sales tax and they are not liable to be registered under the Act. Resultantly , these writ petitions are allowed.