ORDER: MR. SHAHID MASOOD MANZAR (CHAIRMAN). --(1). The Titled appeal has been filed under section 46(1)(a) of the Sales Tax Act, 1990 at the instance of appellant/registered person against order-in-appeal No. 74 of 2021 dated 01-07-2021 passed by the learned CIR (Appeals-II), Multan, on the grounds as set forth in the memo of appeal.
2. Succinct history of the case are that the appellant is registered under the Sales Tax Act, 1990 as a manufacturer engaged in making of taxable supplies. During scrutiny of sales tax return for the tax period June, 2020, it was observed that the appellant has made supplies to un-registered persons in excess of prescribed limit as provided in sub-section (4) of section 73 of the Sales Tax Act, 1990, according to which, a registered manufacturer shall not be entitled to deduct input tax credit, adjustment or deduction of input tax which is attributable to such taxable supplies exceeding, in aggregate, one hundred million rupees in a financial year or ten million rupees in a tax period as are made to certain person who is not a registered person under this Act. The appellant did not apportion the input tax on such aggregate supplies to un-registered persons and adjusted whole amount of input tax and this lapse resulted in short realization of sales tax worth Rs. 2,640,528/-. The appellant was confronted through show cause notice issued under section 11(2) of the Sales Tax Act, 1990 for violations of sectio ns 3, 6, 8, 8(1)(m), 26 and 73(4) of the Act. The contravention proceedings initiated against the appellant culminated in passing an assessment order dated 07-04-2021 whereby the alleged demand was reduced to the extent of Rs. 1,446,135/-. Being discontented and aggrieved by the said order , the appellant went in appeal before the learned CIR(A) and assailed the treatment meted out at assessment stage but the learned CIR(A) vide impugned order dismissed the appeal hence, this second appeal filed before-this Tribunal.
3. Learned counsel appearing on behalf of appellant contended that the learned CIR(A) has acted illegally in passing the impugned order on a date i.e. 01-07-2021 which was not fixed for hearing without furnishing with the appellant with requisite notice for that date. He argued that the impugned order of the learned CIR(A) is illegal and unlawful as neither provisions of section 38B of the Act was primarily invoked nor any charge of violation of this section was leveled in the show cause notice nor the same was confronted during adjudication proceedings and even nor the same was adjudged through adjudication order therefore, dismissal of appeal on this charge stands beyond scope, stance and contents of show cause notice. He placed reliance on the judgment of Hon'ble Supreme Court of Pakistan in case of Collector of Central Excise and Land Customs vs. Rahim Din reported as (1987 SCMR 1840 ). The learned AR asserted that impugned show cause notice was issued by a higher rank of an officer
(DCIR) whereas assessment order was passed by an officer lower in rank (ACIR) without any written authorization or general delegation of powers giving the specific authorization to the ACIR to exercise powers of the DCIR as provided under section 32 of the Act therefore; the order is illegal, void ab initio and without lawful jurisdiction. To substantiate his contention, reliance was placed on (PTCL 2014 CL. 262). It was urged on behalf of the appellant that the provisions of section 8(1)(m) of the Sales Tax Act, 1990 are not attracted in the instant case because the appellant has duly shown CNIC and NTN numbers of all the buyers hence, denia l of input tax in the presence of CNIC or NTN of the un-registered buyers is illegal. In support of his stance, learned counsel produced copy of sales tax return for the tax period of June, 2020 showing CNIC and NTN of the un registered buyers as well as levy of sales tax @ 17% alongwith further tax @ 3%. Learned counsel argued that the term "registered person" is defined in section 2(25) of the 1990 Act to mean a person registered or liable to be registered under the Act therefore, any person who is liable to be registered under the Act but is actually not registered, is to be considered as a registered person and those persons being wholesalers, dealers and distributors, who are liable to be registered under the Act, are mentioned in section 14 of the Act. In support of his contention, reliance was placed on (PTCL 2018 CL. 381). Learned counsel assailed that this contention of the appellant was neither recorded nor considered nor decided by the learned CIR(A) in the impugned order which was passed beyond scope, stance and contents of the show cause notice. It was also the contention of the learned AR that Rule 6 explained and laid down the procedure for carrying out the spirit of the Statute that if a person could not register himself voluntarily , thereafter , it was duty of the CIR to register the defaulting person compulsorily . It was pointed out by the learned AR that the department should try its level best to broaden the tax base and register the unregistered persons but the appellant could not be made responsible for any default of the department in failing to register the unregistered persons. On the strength of these assertions, learned counsel seeks vacation of the impugned orders passed by the authorities below .
4. On the other -hand, the learned DR appearing on behalf of department although opposed the contentions of the learned Advocate and supported the impu gned orders of the officers below but failed to put-forth any explanation to justify any deviation from the arguments and judgments advanced by the learned Advocate for the registered person however , simply supported the impugned orders of the authorities below except to reiterate earlier set of contentions, has been put forth by her .
5. We have heard arguments of both the rival parties and have also examined the relevant provisions of law as well as the available case record. The controversy between the parties revolves around the interpretation of the different provisions of the Sales Tax Act, 1990 and the rules made thereunder and in order to assess and analyze those provisions, it would be advantageous to reproduce section 2(25), section 14, section 8(1)(m), section 73(4) of the Act and the rule 6 of the Sales Tax Rules, 2006 which read as under:-- S. 2(25).-- "registered person" means a person who is registered or is liable to be registered under this Act: Provided that a person 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 .
S. 14--Registration (1). Every person engaged in making taxable supplies in Pakistan, including zero-rated supplies, in the course or furtheranc e 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) a manufacturer who is not running a cottage industry;
(b) a retailer who is liable to pay sales tax under the Act or rules made thereunder , excluding such retailer required to pay sales tax through his electricity bill under sub-section (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; Rules 6 of the Sales T ax Rules, 2006.
Compulsory Registration.--( 1). if a person. who is required to be registered under the Act, does not apply for registration and the CIR or any other officer as may be authorized by the Board, after such inquiry as deemed appropriate, is satisfied that such person is required to be registered, he shall issue notice to such person in the Form set out in Form STR-6.
(3). Where the person to whom a notice is given under sub-rule (1), does not respond within the time specified in the notice, the Commissioner shall cause to compul sorily register the said person through computerized system under intimation to the said person through courier service.
S. 8(1)(m)-- the input goods or services attributab le to supplies made to un-registered person, on pro-rata basis, for which sale invoices do not bear the NIC number or NTN as the case may be, of the recipient as stipulated in section 23.
S. 73(4).-- A registered person shall not be entitled to deduct input tax (credit adjustment or deduction of input tax) which is attributable to such taxable supplies exceeding, in aggregate, one hundred million rupees in financial year or ten million rupees in a tax period as are made to certain person who is not a registered person under this Act.
(Underlining for emphasis)
A bare perusal of the above quoted provisions of law clearly reveal that a person who was liable to be registered but not actually registered, was to be deemed as a registered person since under section 2(25) of the Act, the definition of the term "registered person" included the 'persons actually registered' and 'those who were liable to be registered'. This interpretation is also quite in line with the express provisions as contained in section 2(25) read with section 14 of the Act whereby persons who were liable to be registered, are not registered, were deemed to have been registered when become liable to be registered and those persons who were liable to be registered under the Act are mentioned in section 14 of the Sales Tax Act, 1990. In nutshell, the supplies made by the appellant to the persons not actually registered, were to be construed, supplies made to registered persons since the buyers even if not so registered were deemed to be registered under section 2(25) of the Act. The law further depicts that if the department is of the opinion that a certain person is liable to be registered but is not voluntarily obtaining sales tax registration, it has to resort to the procedure of compulsory registration rules in order to assign sales tax registration number to a person liable to be registered but what happened in the instant case, despite providing of all necessary information of CNIC and NTN numbers of the un-registered buyers which were actually liable to be registered, the department instead of registering them compulsorily or otherwise, has disallowed the whole amount of input tax of the appella nt which is illegal and against the expres sed provisions of law. It is well- settled proposition of law that a party should not be made to suffer on account of act/omission on the part of the tax functionaries. Thus a wholesaler , dealer and distributor to or through whom supplies are made directly/indirectly or through commission would constitute to be a person liable to be registered under section 14 of the Act and would fall within the scope of a "registered person" as defined in section 2(25) of the Sales Tax Act, 1990 therefore; the supplies made by the appellant would have to be considered to have been made to the registered persons under the Sales Tax Act, 1990. For such transactions; section 8(1)(m) and section 73(4) of the Act were totally inapplicable and the appellant could not be charged for any violation in this regard hence, recovery of sales tax is illegal, unlawful and contrary to the provisions of law .
We are also of the considered view that where a person is liable to be registered, departmental authorities are required under rule 6 of the Sales Tax Rules, 2006 to register him compulsorily instead of disallowing the amount of input tax of a registered supplier particularly when the supplier has duly charged and levied sales tax @ 17% under section 3 of the Act and further tax @ 3% under section 3(1A) of the Act to all the un-registered persons. It is very astonishing that no action whatsoever against the un-registered buyers for not obtaining sales tax registration number has so far been taken however , recovery of input tax adjusted by the appellant during the period in question, which is an easy job, has been ordered keeping aside all the legal aspects of the instant case. A registered taxpayer could not be made responsible for any default on the part of the department in failing to register the unregistered persons. Just because these persons, who are liable or deemed to be registered, are not actually registered, can be no justification to penalize the supplier who is a registered person. Since, department has not discharged its onus therefore, no responsibilities lies on appellant's shoulders under the law. The onus of responsibility and obligation resting upon the department, has intricately been shifted on the shoulders of the appellant, which is clear violation of the provisions of section 2(25) and section 14 of the Act read with Rule 6 of the Sales Tax Rules, 2006. This situation has beautifully been dealt with by the Division Bench of ATIR, Lahore in the case of "The CIR (Legal), RTO, Faisalabad vs. M/s. Seth Muhammad Tufail & Sons, Faisalabad" reported as (PTCL 2018 CL. 381) wherein it was held as under:-- "If a person could not register himself voluntarily , thereafter , it was duty of the sales tax department to register the defaulting person compulsorily as per the provisions of Rule 6 of the Sales Tax Rules, 2006 at the material time. If the provisions of section 2(25) of the Sales Tax Act, 1990 are dilated upon, it would indicate two conditions (i) a person who is registered (ii) or liable to be registered. The person liable to be registered falls within the scope of compulsory registration . The sales tax registration rules indicate that this job is to be done by the sales tax department. The wordings of Rule 6 are also quite clear that if the department, "is satisfied that such person is required to be registered, it shall issue notice to such person" . Thus, Rule 6 itself carries the interpretation of section 2(25) of the Act by stipulating that if department is of the opinion that a person is liable to be registered then a notice has to be issued."
The other line of argument adopted by the appellant is also convincing that the Sales Tax Act, 1990 provides penalty for a person, who was required to apply for registration under the Sales Tax Act, 1990, failed to make an application for registration, before making taxable supplies. Under the provisions of section 33(7) of the Act, such a person is liable to pay penalty of ten thousand rupees or five per cent of the amount of tax involved , whichever is higher , provided he fails to get registered within sixty days of commencement of taxable activity and he may also earn conviction from the Special Judge concerned who can order imprisonment for a term which may extend to three years , or with fine which may extend to an amount equal to the amount of tax involved, or with both.
Based on what has been discussed hereinabove, the instant appeal is accepted and the impugned show cause notice and consequent orders of both the authorities below , being devoid of legal substance are set aside.
6. The appeal filed by the registered person is disposed of in the manners as indicated above.