SYED ARSHAD ALI, J. This consolidated judgment shall dispose of/answer the question raised in the instant reference as well as the connected STR No.15-P/2016, STR No.16-P/2016 and STR No.18-P/2016 arising out of the judgment of the learned Appellate Tribunal dated 27.10.2015 in terms of Section 47 of the Sales Tax Act, 1990 ("the Act").
2. M/s Chashma Sugar Mills (Pvt) Ltd the respondent is a Company in terms of Section 2 (5AA)[1]of the Act and is a registered person under the regime of the Act. The Inland Revenue Audit Officer while scrutinizing/monitoring monthly sales tax and federal excise returns of the respondent' company for the disputed period i.e February, 2013 to March, 2014; found certain discrepancies in the said statement which, inter-alia, includes withholding of short/less amount of sales tax as withholding agent while making purchases etc.
3. Accordingly, on 17.05.2014 a show cause notice was issued to the respondent/company to explain the said discrepancies. The show cause notice was contested by the respondent company before the adjudicating officer, however, the adjudicating officer being unsatisfied with the response of the respondent, has held it responsible for short levy/less recovery of the withholding sales tax in terms of Section 11(2)[2] of the Act and an amount of Rs.30,021,316/- was ordered to be payable to the Government Revenue along with penalty of 05% of tax involved under Section 33(5) of the Act vide Assessm ent Order dated 10.09.2014.
4. On appeal, the Commissioner Inland (appeals), Peshawar vide order dated 18.06.2015 affirmed the order-in-original when the matter was brought before the Appellate Tribunal, Inland Revenue, Peshawar Bench Peshawar through STA No.82-PB of 2015; it is the majority opinion of the Worthy Tribunal that Section 11(2) of the Act is not applicable to the respondent and only applies to the person making taxable supplies.
5. The Revenue Department has filed the instant reference as well as connected references wherein the questions of law have been framed for adjudication of this Court as referred in the memo of this petition.
6. The Worthy Tribunal has laid much emphasis on the interpretation of Section 11 (2) holding therein that the short levy as contemplated in Section 11 (2) of the Act is equally applicable to a withholding agent, therefore, an assessment order can be passed in terms of Section 11 not only against a taxpayer in default but a withholding agent who makes default under the withholding regime provided by the Sales Tax Special Procedure (Withholding) Rules, 2007 ("the Rules").
7. In the present case the period of alleged default is from February 2013 till March 2014 whereas the personal liability of the withholding agent for his failure to withhold the sales tax was introduced and inserted in the Act through Finance Act of 2016,[3] therefore, the essential issue for determination before this Court is;
(i) Whether the respondent as a withholding agent in terms of section 3 (7) of the Act read with rule 3 of the Rule was a person liable to pay tax in terms of section 11 (4A) of the Act introduced through Finance Act, 2016 for the tax period prior to the year 2016.
(ii) Whether the imposition of the default surcharge against the respondent was in accordance with law & facts of the case.
OPINION OF THE COURT ON QUESTION NO.1
7. Section 3 of the Act is indeed the pivotal and the charging provision explaining the scope and levy of the sales tax. It envisages that there shall be charged, levied and paid tax known as sales tax at the rate of 17% of the value of taxable supplies by a registered person in the course or furtherance of any taxable activity carried out by him, goods imported into Pakistan etc. Sub- Section 3 of Section 3 of the Act envisages that the person supplying goods or importing the same is liable to pay the sales tax.
9. Through Finance Act, 2007[4] later substituted through Finance Act, 2019[5] the concept of withholding agent was introduced wherein; it was stated that the Federal Government may by notification in official gazette specify any person or class of person as withholding agent for the purpose of deduction and deposit of tax at specified rate and in such a manner and subject to certain conditions or restrictions as may be prescribed. Subsequent to the said amendment through Finance Act, 2007 the Federal Government issued notification No.SR0660(I)/2007 dated 30.06.2007 whereby; Sales Tax Special Procedure (Withholding) Rules, 2007 ("the Rules") were notified. According to Sub-Section 7 of Section 3 of the Act (introduce through Finance Act, 2007) and the Rules made it obligatory upon the withholding agent to withhold sales tax at such rates specified under the Rules, however, neither the Act nor the Rules had imposed any personal liability of the withholding agent that in case the said withholding agent fails to deduct the sales tax, he or it would be personally liable to pay the said tax. Section 6 of the Act deals with time and manner of payment of the tax, Section 7 deals with the determination of the liability and input adjustment whereas; Section 8 restricts certain adjustment/credit of input tax. Section 11 of the Act deals with assessm ent of tax and recovery of tax not levied, short levied or erroneous levied refunded.
10. Through Finance Act, 2016 an amendment was introduced by inserting Sub-Section 4(A)[6] to Section 11 of the Act wherein it is envisaged that any person required to withhold sales tax under the provisions of this Act or the Rules made thereunder, if failed to withhold the tax or fails to deposit the withheld amount of tax in the prescribed manner, an officer of the Inland Revenue shall after a notice to such a person to show cause, may determine the amount in default. It was the Finance Act of 2016 that the withholding agent has been made personally responsible if he has failed to withhold the sales tax on purchases of goods and in furtherance of taxable activities; under the provision stated above and the officer of the Inland Revenue has been authorized to adjudicate the amount of default. However, the period of default attributed to the respondent relates to the year 2013/2014.
11. A fiscal statute normally contains two provisions; charging provisions which imposes the charge to tax and machinery provisions which provide the machinery for quantification of tax and the levy and collection of tax so imposed. Charging provisions are construed strictly while machinery provisions of the Statute are not generally subject to a rigorous construction.[7] Distinction between chargeability and recovery provision in a taxing statute was very well explained by Lord Dunedin in the following manner: "My Lords, I shall now permit myself a general observation. Once that it is fixed that there is liability, it is antecedently highly improbable that the statute should not go on to make that liability effective. A statute is designed to be workable, and the interpretation thereof by a Court should be to secure that object, unless crucial omission or clear direction makes that end unattainable. Now, there are three stages in the imposition of a tax: there is the declaration of liability that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesis, has already been fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay." (CIVIL APPEALS NO.1521 TO 1526 OF 2018, The Commissioner Inland Revenue, Legal Division, Regional Tax Office, Multan vs The Commissioner Inland)."
12. Similarly, it is well settled that as in a taxing statute, as in other statutes, there should be no departure from the general rule that words used in a statute must first be given their ordinary and natural meaning. It is only when such an ordinary meaning does not make sense that resort can be made to discovering other appropriate meanings. The principle upon which this view rests is that a tax cannot be imposed without the use of clear and express language. To hold otherwise would allow the courts to impose taxation, and that would clearly constitute an encroachment upon the power of the legislature. More than that taxation is a process which interferes with the personal and property rights of the people, although it is a necessary interference but because it does take from the people a portion of their property, seems to be a valid reason for construing tax laws in favour of the tax payer.[8]
13. Indeed, it is settled law that the intention to impose a tax on the subject must be shown by clear and unambiguous language. The principle that a tax cannot be levied or collected except by authority of law, does not, however, involve the further proposition that under the Constitution taxes cannot be levied retrospectively. Once a competent Legislature has passed a fiscal law with retrospective effect, the tax levied thereby must be held to be by authority of law and it would be perfectly constitutional and not invalid because of its being retrospective. There is nothing inherently unreasonable in giving retrospective effect to an enactment the object of which is to prevent a loss of revenue to the state which would otherwise occur.[9] However, no retrospective effect should be given to a fiscal statute unless there is a clear provision or unless the effect is a necessary implication of the provision.[10]
14. The Court must lean against giving a statute retrospective operation on the presumption that the legislature does not intend what is unjust. It is chiefly where the enactment would prejudicially affect vested rights, or the legality of past transaction, or impair existing contacts, that the rule in question prevails, even if through interpretation are equally possible, the one that saves vested rights would be adopted in the interest of justice, specially where we are dealing with taxes statute.'[11] It is equally settled law that the interpretation of fiscal statute has to be made strictly and any doubts arising from the interpretation of a fiscal provision must be resolved in favour of the tax payer.[12]
16. In the present case, subject matter of the dispute is the liability of the withholding agent in respect of his failure to deduct and deposit the sales tax on purchases made by it for a period prior to 2016 being a withholding agent. We have perused the text of Finance Act, 2016 which does not give any impression of its retrospective application and it is for obvious reason that the liability to pay sale tax is on the person making taxable supplies and the withholding agent was only responsible to withhold certain amount of tax at specified rate to deposit the same with the revenue. Since, the liability as stated above was created through Finance Act, 2016 which has no retrospective application, therefore, the demand of the revenue for the period prior to the Finance Act, 2016 in our humble view is without lawful authority.
OPINION OF THE COURT ON OUESTION NO.2 17 Since, in the present case no tax was due against the respondent, therefore, the penalty and default surcharge could not be imposed upon it for the relevant tax period prior to the Finance Act, 2016[13].
18. In view of what has been stated above, this tax reference as well as connected references are answered in negative. Copy of this judgment be sent to Worthy Tribunal in terms of Section 47 (5) of the Act.
1. Section 2 (5AA). "company means
(a) a company as define din the Companies Ordinance, 1984 (XLVII of 1984);
(b) a body corporate formed by or under any law in force in Pakistan;
(c) a modraba;
(d) a body incorporated by or under the law of a country outside Pakistan relating to incorporation of companies;
(e) a trust, a co-operative society or a finance society or any other society established or constituted by or under any law for the time being in force; or
(f) a foreign association, whether incorporated or not, which the Board has, by general or special order, declared to be a company for the purpose of the Income Tax Ordinance, 2001 (XLIX of 2001);]
2. [11. Assessment of Tax and recovery of tax not levied or short-levied or erroneously refunded.,-(1)
(2) Where a person has not paid the tax due on the supplies made by him or has made short payment or has claimed input tax credit or refund which is not admissible under this Act for reasons other than those specified in sub-section (1), an officer of Inland Revenue shall, after a notice to show cause to such person, make an order for assessment of tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with section 33 and 34
3. Section 11, [(4A) Where any person, required to withhold sales tax under the provisions of this Act or the rules made thereunder, fails to withhold the tax or withholds the same but fails to deposit the same in the prescribed manner, an officer of Inland Revenue shall after a notice to such person to show cause, determine the amount in default.]
4. Section 3 "(7) The Federal Government may, by notification in the official Gazette, specify any person or class of persons as withholding agent for the purpose of deduction and deposit of tax at the specified rate in such manner and subject to such conditions or restrictions as the Federal Government may prescribed in this behalf."
5. Section 3 [(7) The tax shall be withheld at the rate as specified in the Eleventh schedule, by any person or class of persons being purchaser of goods or services, other than the services liable to pay sales tax under a Provincial enactment, as withholding agent for the purpose of depositing the same, in such manner and subject to such conditions or restrictions as the Board may prescribed in this behalf through a notification in the official Gazette]
6. Section 11 (4A) Where any person, required to withhold sales tax under the provisions of this Act or the rules made thereunder, fails to withhold the tax or withholds the same but fails to deposit the same in the prescribed manner, an officer of Inland Revenue shall after a notice to such person to show cause, determine the amount in default]
7. Commissioner of Wealth Tax v. Sharvan Kumar Swarup & Sons (1995 ECR 425 SC)
8. S.M. Zafar in first edition of Understanding Statutes, Canons of Construction
9. Bindra's interpretation of Statutes" 7th Edn. Page-771 Mewar Textile mills Ltd Vs Union of India, AIR 1955 Raj 114 (Dhoties (Additional Excise duty) Act, 1953 held to be retrospective.
Motibhai Lalobhai & Co.Vs.Union of India AIR 1957 All 84, 86.
10. Tkamdas Nathiaraal v. State of Madhya Pradesh AIR 1966 Madh Pra 271.
11. Messrs Super Engineering and another vs. Commissioner Inland Revenue, Karachi (2019 SCMR 1111).
Muhammad Ishaq v. State (PLD 1956 SC 256)
Nagina Silk Mill Lyallpur v. Income Tax Officer, A-Ward, Lyallpur (PLD 1963 SC 322).
The State v. Muhammad Jamel (PLD 1965 SC 681)
Abdul Rehman v. Settlement Commissioner (PLD 1966 SC 362)
Adnan Afzal v. Capt. Sher Afzal (PLD 1969 SC 187)
12. Pakistan Television Corporation Ltd Vs Commissioner Inland Revenue (2019 SCMR 282), Pakistan Television Corporation Ltd Vs Commissioner Inland Revenue (2017 SCMR 1136).
13. Fatima Fertilizer Company Ltd through duly authoritzed Officer Vs Commissioner-IL Sindh Revenue Board (2021 PTD484)