JUDGMENT: MR. JUSTICE SYED ARSHAD ALI. (1). This consolidated judgment is aimed to dispose of the instant Sales Tax Reference as well as the connected Sales Tax References, the details whereof is provided in Annexure 'A' to this judgment, as adjudication of common questions of law and facts are involved therein.
2. Brief facts of the case are that the Respondent/Peshawar Electric Supply Company Ltd ("Company") is a registered Company under the Company's law of Pakistan and is owned by the Federal Government; deals in the distribution of electricity in the province of Khyber Pakhtunkhwa.
3. On 02.07.2019, a show cause notice was issued to the Company wherein it is alleged that the sales tax audit of the Respondent/Company was conducted by the Assistant Collector (Audit)
Sales Tax & F.E. RTO, Peshawar in pursuance of the order of Addl: Collector Sales Tax & Federal Excise, Peshawar. In the said audit proceeding serious discrepancies were noticed relating to inadmissible input adjustment by the Company. The show cause notice was contested by the Company by offering its explanation through a written reply and also produced record during the adjudication by the Assessing Officer i.e. Addl: Commissioner Inland Revenue (Audit Division-II). On conclusion of the proceeding the Assessing Officer has held that the input adjustment claimed by the Company to the extent of Rs. 2,462,631,249/- is inadmissible in terms of section 7(1) 8 (1) (a) and 59 of the Sales Tax Act, 1990 ("Act") read with Rule 13 (1)(2) (b) of Special Procedure for collection and payment of sales tax on electric power notified vide Chapter III of SRO. 480(I)/2007 dated 09.06.2007 and accordingly the order was passed. The Company challenged the Order-in- Original dated 29.06.2010 through Sales Tax Appeal No. 3 of 2010. The Commissioner Inland Appeal partially allowed the appeal to the extent of an amount of Rs: 2,432,489,866/- and ordered for modification of the impugned Order-in-original vide judgment dated 24.05.2011.
4. The said order had aggrieved both; the Company as well as the Revenue, therefore, two separate appeals were filed one by the Company bearing No. STA.96/PB 2013 and the other by the Revenue bearing 170/PB/2011. The Tribunal through impugned order has partially allowed the appeal of the Company vide order dated 02.06.2014 and has also disposed of the appeal filed by the Revenue in certain terms. Revenue being aggrieved of the judgment of the Tribunal has filed the instant references.
5. At the very outset the learned counsel representing the Company has raised an objection to the maintainability of these References being barred by time, which are reproduced as under:-- STR No. 03-P/2015 The impugned judgment was passed by the worthy Tribunal on 02.06.2014 which was communicated and received to the petitioner on 03.09.2014 whereas the petitioner-department has filed the instant reference on 29.11.2014, however, it was incomplete and returned with objections and re-submitted on 09.03.2015 after taking several opportunities.
STR No. 04-P/2015 The impugned judgment was passed by the worthy Tribunal on 02.06.2014, which was communicated and received to the petitioner on 03.09.2014 whereas the petitioner-department has filed the instant reference on 2.11.2014, however, the case was returned being incomplete and re-submitted on 09.03.2015 after availing several opportunities.
STR No. 05-P/2015 The impugned judgment was passed by the Worthy Tribunal on 02.06.2014, which was communicated and received to the Petitioner on 03.09.2014 whereas the Petitioner-department has filed the instant Reference on 29.11.2014, however, the was incomplete therefore, returned with the objections and resubmitted on 09th March 2015 after taking several opportunities.
STR NO. 06-P/2015 The impugned judgment was passed by the Worthy Tribunal on 02.06.2014 which was communicated and received to the Petitioner on 03.09.2014 whereas the Petitioner-department has filed the Reference on 29.11.2014, however, being incomplete it was returned with objections for removal and resubmitted on 09.03.2015 after taking several opportunities.
STR No. 07-P/2015 The impugned judgment was passed by the worthy Tribunal on 02.06.2014 which was communicated and received to the Petitioner on 03.09.2014 whereas the Petitioner-department has filed the instant Reference on 01.12.2014, however, reference. being incomplete returned with objections for removal and re-submitted on 09.03.2015 after taking several opportunities.
Writ Petition No. 2371-P/2016 The impugned judgment was passed by the worthy Tribunal on 02.06.2014 whereas the Petitioner- department has filed the instant writ petition on 17.06.2016, however, the same was returned and re-submitted on 18.06.2016 after taking several opportunities.
STR No. 09-P/2018 The impugned judgment was passed by the worthy Tribunal on 06.01.2018 whereas the Petitioner- department has filed the instant Reference on 27.02.2018, however, the same was returned with objection and resubmitted on 24.03.2018.
STR No. 10-P/2018 The impugned judgment was passed by the worthy Tribunal on 06.01.2018, which was communicated and received to the Petitioner on 30.01.2018 whereas the petitioner department has filed the instant Reference on 25.04.2018.
6. The learned counsel for the Company has argued that during filing of the Reference when it was returned by the Deputy Registrar of this Court, it was re-submitted beyond the period as extended by the Deputy Registrar of this Court, therefore, the Reference was filed beyond the period of limitation and while relying upon the case law "Asad Ali etc Vs The Bank of Punjab etc (PLD 2020 SC 736) and Province of Punjab Vs Muhammad Arif & Co (PLD 2022 Lahore 596). Learned counsel has maintained that references should be dismissed.
7. The said assertions of the learned counsel for the Respondent/Company has weighed, however, it is equally settled principle of law that when the Appellate Court is seized of different matters wherein a common question of law is involved and if any or some appeal is/are within time involving adjudication of common question of law then in such a circumstances it is not appropriate to dismiss the time barred appeals. "Subedar Sardar Khan through Legal heirs & others Vs Muhammad Idrees through General Attorney and another (PLD 2008 SC 591) and Sheikh Akhtar Aziz Vs Mst. 524)." The References were initially filed by the Petitioner within time provided by law, however, on certain occasions it was returned to the Petitioner to remove certain objection. During the said process the Petitioner did not take the time for submission of reference seriously and there is delay on part of the Petitioner while resubmitting the references. Hence, reference bearing No. 09/2018 involving adjudication of similar question of law is within time.
Therefore, we are not inclined to dismiss these References on limitation. Therefore, the objection of Respondent/Company in this regard is overruled.
8. Moving on to the merit of the case, both the parties have filed their respective written arguments and have proposed the following questions of law for determination of this Court:-- ##TS##(i). What is the effect of non-conclusion of adjudication within the period provided under Section 36 (Now section 11) of the Act, by the Assessing Officer?
(ii). Whether the Tribunal has not erred by ignoring section 30 of the Sales Tax Act, 1990 while holding that Additional Commissioner has illegally concluded the assessment proceedings and thus the order was corum non judice?
(iii). Whether input adjustment can be legally allowed to the Company against the pilferage and theft in the supply of electricity in terms of section 7 & 8 (1) (a) of the Sales Tax Act. 1990.
(iv). Whether the Respondent/Company could claim input adjustment against supplies of electricity in the tribal area which was at the relevant time not subject to the impost of sales tax in terms of the law laid down by the apex Court in the case of M/s Gul Cooking Oil's (PTCL 2008 CL. 221) and Pakistan through Chairman FBR and others Vs Hazrat Hussain (PTCL 2018 CL. 700)?
9. After hearing the parties and going through the record as well as the written submissions produced by the learned counsel representing the parties; our findings on the questions of law raised in the instant as well as in the connected references are as follows:-- Questions No. 1 & 2
10. In the present case show cause notice was issued to the Company on 02.07.2009 and the impugned order of assessm ent was passed on 29.06.2010 thus, it took the Assessing Officer, 11- months and 27-days to conclude the proceeding. The period provided under section 36 of the Act (Now omitted) for disposal of the matter at the relevant time was 120-days extendable up to further 60-days as per proviso to the said section. In order to appreciate the respective arguments, we would first refer to the relevant law upon which the parties are relying.
"36. Recovery tax levied or short levied or erroneously refunded.--
(1) .....
(2) .....
Provided that order under this section shall be made within one hundred and twenty days of issuance of show cause notice or within such extended period as the commissioner may for reasons to be recorded in writing, fix, provided that such extended period shall in no case exceed sixty days.
Provided further that any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding thirty days shall be excluded from the computation of the periods specified in the first proviso.
(4) For the purpose of this section, the expression "relevant date" means--
(a) the time of payment of tax or charge as provided under section 6; And
(b) in a case where tax or charge has been erroneously refunded, the date of its refund"
Sec:
74. Condonation of time-limit.--Where any time or period has been specified under any of the provisions of the Act or rules made thereunder within which any application is to be made or any act or thing is to be done, the Board may, at any time before or after the expiry of such time or period, in any case or class of cases, permit such application to be made or such act or thing to be done within such time or period as it may consider appropriate.
Provided that the Board may, by notification in the official Gazette, and subject to such limitations or conditions as may be specified therein, empower any Commissioner to exercise the powers under this section in any case or class of cases.
ARGUMENTS OF LEARNED COUNSEL FOR REVENUE
11. The learned counsel for revenue while arguing the matter and in the written arguments has provided the following details relating to proceedings by the Assessing Officer:-- 20.07.2009 Show cause notice. 22.07.2009 Adjourned at Respondent's request to 17.08.2009. 17.08.2009. Adjourned at Respondent's request to 08.09.2009. 08.09.2009 Adjourned at Respondent's request to 12.09.2009. 12.09.2009 Request on behalf of Respondent to form reconciliation committee--Request accepted.
60-days' time extension under section 36 (3) sought...Time extended. 15.10.2009 Reconciliation committee report forwarded to adjudicating authority. 17.10.2009 Respondent appeared before adjudicating authority and sought time for written comments. 28.10.2009 Adjudicating authority become dysfunctional due to amendment in law. 25.11.2009 FBR issued jurisdiction order of CCIR and CIR. 10.02.2010 Law settled IRO Jurisdiction on promulgation of Finance Act, 2010. 29.04.2010 FBR extended time till 30.06.2010. 29.06.2010 Dt of Order. 15.07.2010 Order received by Respondent.
The learned counsel for Revenue has relied upon the law laid down by the apex Court in the case of "WAK Ltd Multan Road, Lahore Vs Collector Central Excise & Sales Tax Lahore (Now Commissioner Inland Revenue (2018 SCMR 1474), M/S Abbasi Enterprises through Proprietor & another Vs Collector of Sales Tax Peshawar (PTCL 2009 CL. 35), Assistant Collector of Customs AFU Airport Lahore Vs M/S Triple-M Pvt Ltd through Managing Director & others (PTCL 2006 CL. 152), M/S Amin & Son Tailor Mianwali Vs Secretary Revenue Division Islamabad (2010 PTD 21), (2009 PLC 258), (PLD 2008 Lahore 200), Dilbadshah Vs S. Rehmat Shah etc (PLD 2007 Peshawar 103), (2007 CLC 315), (2007 PTD 127), M/S Zamindara Paper & Board Mills Vs Collector Central Excise & Sales Tax (2007 PTD 840) and Investment Corporation of Pakistan & others Vs Sun Shine Jute Mills Ltd (2005 CLD 713), by arguing that failure of the Assessing Officer to conclude the assessm ent proceeding within the statutory period would not render the same illegal. The learned counsel has further maintained that it was a unique case of its nature because at the relevant time the jurisdiction at one point of time was vested with the hierarchy established under the Customs Act to decide the matter, however, later to decide/adjudicate upon all the disputes arising out of Sales Tax as well as the Customs Act which was later bifurcated and then the officers of the Sales Tax as explained under section 30 of the Act were given jurisdiction to decide the same, therefore, the delay which occurred in the proceedings when through a speaking order was extended by the Federal Board of Revenue then the objection is thus not maintainable because the proceedings were initiated in the present case by Addl: Collector (Adjudication) whereas the order was passed by Addl: Commissioner Inland Revenue, as the proceedings were then transferred in terms of the amendment made in the Sales Tax Act, 1990.
ARGUMENS OF LEANRED COUNSEL REPRESENTING PESCO (COMPANY).
12. The learned counsel representing the Company has refuted these arguments by arguing that the limitation once started could not stop and the adjudicating officer was required to have passed the order within the statutory period as provided under section 36 of the Act and further the Federal Board of Revenue had no authority to have extended the period of adjudication beyond six months as a whole in view of the law laid down by the apex Court in the case of "Collector of Sales Tax Gujranwala Vs M/S Super Asia Muhammad Din (PTCL 2017 CL 736)". The learned counsel has further maintained that even otherwise when the period was extended up to 30.06.2010, the order was passed on 29.06.2010 and was communicated to the Company on 15.07.2010 which is thus against the law and beyond the period of limitation as held by the apex Court in the case of Mujahid Soap (PTCL 2019 CL 555). The learned counsel has also placed reliance on the law laid down by the superior Court in the cases of "Messrs Sabir Daud Exports, Faisalabad Vs Secretary, Revenue Division, Islamabad (2007 PTD 430) and Commissioner Inland Revenue Vs M/s Golden Pearl Cosmetics (PTCL 2018 CL 72)."
OPINION OF THE COURT
13. The instant case is unique in its nature because at the relevant time as the law was that there was integrated system of adjudication involving the State revenue (Custom Duty and Sale Tax) under any of the taxing statute. Prior to the substitution of the Finance Act, 2010, section 30 of the Act of 1990 had described the officers of revenue in the following manners:-- (i). Collector of Sales Tax (ii). Collector Sales Tax (Appeal)
(iii). Addl: Collector of Sales Tax (iv). Deputy Collector of Sales Tax (v). Assistant Collector of Sales Tax etc.
14. The Finance Act of 2010 had substituted the same by the nomenclature as, (i) Chief Commissioner Inland Revenue
(ii) Commissioner Inland Revenue
(iii) Addl: Commissioner Inland Revenue
(iv) Deputy Commissioner Inland Revenue etc
15. However, when the Finance Ordinance, 2010 was presented in the parliament its lapsed on 05th June, 2010 as parliament did not approve it which was later promulgated as Act of the Parliament w.e.f. 05.10.2010, therefore, there was an obvious confusion during the period of adjudication regarding the authority of the Collector viz-e-viz the Assistant Commissioner/Deputy Commissioner Inland Revenue to decide the issue at hand.
16. It is the contention of the Revenue that in the present proceedings adjournment was sought by the Company on 22.07.2009, 17.08.2009, 18.09.2009 and even a request was made by the Company to form a reconciliation committee on 12.09.2009, therefore, sixty (60)-days' time was extended by the competent authority in terms of proviso to erstwhile section 36 (3) of the Act (Now omitted and re-enacted as section 11). It was during the said period i.e. 28.10.2009 that the adjudicating authority under the integrated regime became dysfunctional and through another notification dated 11.11.2009, the matter was assigned to the adjudicating officer under the Act of 1990. However, the jurisdiction to adjudicate matter relating to the adjudication of the dispute relating to Sales Tax was settled on 10.02.2010. In this view of the matter through an order dated 29.04.2010, the Federal Board of Revenue had generally extended the time of adjudication by the new incumbents till 30.06.2010 and the order of adjudication in this case was passed on 29.06.2010 which was communicated to the Respondent/Company on 15.07.2010.
17. The language of proviso to sub-section 3 of section 36 of the Act is very clear that adjudication should be completed in 120-days of issuance of show cause notice or with such extended period as the Commissioner may, for reasons to be recorded in writing fix which shall not in any case exceed ninety (60) days. Thus, a total period in which the adjudication was to be completed at the relevant time was 180-days. Similarly, section 74 of the Act deal with condonation of time limit which section is general in nature according to which, where any time or period has been specified under any of the provisions of Act or rules made thereunder within which any application is to be made or any act or thing is to be done, the Board may, at any time before or after the expiry of such time or period, permit such an act or thing to be done within such a time or period as it may consider appropriate. Admittedly, the Adjudicating Officer took 11-months and 27 days' time in conclusion of the proceeding. In this regard the main reliance of the learned counsel for the Revenue is upon the judgment of Mis. WAK Ltd Multan Road, Lahore Vs Collector Central Excise & Sales Tax Lahore (Now Commissioner Inland Revenue (2018 SCMR 1474), whereas the reliance of the Company was mainly on the judgment passed in the case of Collector of Sales Tax Gujranwala Vs MIS Super Asia Muhammad Din (PTCL 2017 CL 736). We would like to refer the said judgments for our guidance.
18. The legal question whether the time period provided under section 36 (which was omitted through Finance Act, 2012) and was re-enacted in form of Section 11 in the Act was mandatory or directory. In this regard we would like to refer pars 6, 7 & 11 of the judgment of the Apex Court in Super Asia case.
"6. The ultimate test to determine whether a provision is mandatory or directory is that of ascertaining the legislative intent. While the use of the word 'shall' is not the sole factor which determines the mandatory or directory nature of a provision, it is certainly one of the indicators of legislative intent. Other factors include the presence of penal consequences in case of non- compliance, but perhaps the clearest indicator is the object and purpose of the statue and the provision in question. It is the duty of the Court to garner the real intent of the legislature as expressed in the law itself. Reference may be made to the cases of Syed Zia Haider Rizvi and others. V. Deputy Commissioner of Wealth Tax, Lahore and others (2011 SCMR 420), in Re.
Presidential Election, 1974 (AIR 1974 SC 1682), Lachmi Narain V. Union of India (AIR 1976 SC 714) and Dinesh Chandra Pandev v. High Court of Madhya Pradesh and another [(2010) 11 SCC 500]
7. From the plain language of the first proviso, it is clear that the officer was bound to pass an order within the stipulated time period of forty-five days, and any extension of time by the Collector could not in any case exceed ninety day's. The Collector could not extend the rime according to his own choice and whim, as a matter of course, routine or right, without any limit or constraint: he could only do so by applying his mind and after recording reasons for such extension in writing. Thus, the language of the first proviso was meant to restrict the officer from passing an order under section 36(3) supra whenever he wanted. It also restricted the Collector from granting unlimited extension. The curtailing of the powers of the officer and the Collector and the negative character of the language employed in the first proviso point towards its mandatory nature. This is further supported by the fact that the first proviso was inserted into section 36(3) supra through an amendment (note:- the current section 11 of the Act, on the other hand, was enacted with the proviso from its very inception in 2012). Prior to such insertion, undoubtedly there was no time limit within which the officer was required to pass orders under the said section. The insertion of the first proviso reflects the clear intention of the legislature to curb this earlier latitude conferred on the officer for passing an order under the section supra. When the legislature makes an amendment in an existing law by providing a specific procedure or time frame for performing a certain act, such provision cannot be interpreted in a way which would render it redundant or nugatory. Thus, we hold that the first proviso to section 36(3) of the Act land the first proviso to the erstwhile section 11(4) and the current section 11(5) of the Act] is/was mandatory in nature.
11. Learned counsel for the appellants also slated that the Collector under the first proviso to section 36(3) of the Act was empowered to grant extensions. Learned counsel for the respondent argued that the Collector could only extend time during the subsistence of the time limit provided in the former part thereof accordingly, as per section 36(3) of the Act, once the time period of forty-five days for passing the order under the section ibid had passed, no extension could be granted. We do not find any force in this argument. Undoubtedly the Collector has the power to grant extensions which cannot exceed ninety days. as is manifest from the wording of the latter part of the first proviso. however it is not incumbent upon the Collector to extend the time within the currency of the initial time period of forty-five days: it is entirely possible to extend the time even after the expiry of the initial time period but the critical period in this regard is ninety days because at the expiry of this maximum period time cannot be further extended By way of illustration, as per the first proviso to section 360) of the Act, flan officer fails to pass an order within forty-five days (the initial time period), the Collector need not grant an extension within such forty-five days, instead he can do so after the said number of days. However, since the latter part of the first proviso only allows him to grant an extension of ninety days, thus any extension granted must not exceed the maximum limit of one hundred and thirty-five days (forty-five plus ninety) from the date of the show cause notice.
19. Similarly, the extension of time under section 74 by the FBR also came under consideration before the apex Court in Super Asia case ibid which was dilated upon in para 12 of the judgment which reads as under:--
12. As regards the reliance placed on section 74 of the Act, it provides that where a time frame has been stipulated in the Act within which an act or thing is to be done, the Board, or the Commissioner notified by the Board, are empowered to permit such act or thing to be done within such time period as they may consider appropriate. Passing an order under section 36(3) of the Act is certainly an act or thing to be done under the Act. Therefore, the Board (which expression shall hereinafter include Commissioner notified by the Board) has the power under section 74 of the Act to permit the passing of an order under the aforesaid section within such time period as it may consider appropriate. While applying the principles of harmonious construction, we find that the proviso is restricted in its application to the section it is attached to, whereas section 74 of the Act is of general applicability and shall apply to all the provisions of the Act and the rules framed thereunder. This provision will undoubtedly have an overriding effect over the first proviso to section 36(3) supra and can be held to be an exception thereto. The purpose of section 74 supra is to give a separate overriding power to the Board to permit any act or thing to be done under the statute within such time period as it may deem appropriate, which undoubtedly is independent of any other provision of the Act which provides a time frame. To restrict the time period that can he granted under section 74 supra to the maximum period available under the first proviso to section 36(3) of the Act would render the former absolutely redundant and superfluous, which cannot be countenanced under the settled rules of interpretation which do not allow such redundancy to be attributed to the legislative intent. Therefore, where the Board has permitted the passing of an order under the proviso within a time frame different from that contained therein, this new time frame shall be deemed to be the relevant one. However, this does not mean that in exercise of its power under section 74 of the Act, the Board will have unfettered and unbridled authority to extend time when, and for however long, it feels it expedient to do so.
Rather time would only be extended in certain cases, after application of mind and that too for a reasonable amount of time. For the purposes of settling the reasonable time, we hold that after the expiry of the two time periods envisaged by the first proviso to section 36(3) of the Act, i.e. forty-five days [within which the order under section 36 of the Act is to be passed] and a further ninety days [extended period under the first proviso to section 36(3) ibid], the Board should have six months within which it may grant extension of time under section 74 supra which (extension) can also not exceed six months If the reasonable time mentioned above also lapses, then the rule of past and closed transaction shall apply because it is inconceivable in law that:- (a) the Board would have infinite and unlimited time within which it can grant extensions under section 74 supra; and (b) the Board can grant infinite and unlimited extension under section 74 ibid; to obliterate the vested rights that stand created in favour of the taxpayer on account of such lapse of time. In this respect, the judgment reported as Federal Land Commission through Chairman v.
Rais Habib Ahmed and others (PLD 2011 SC 842) is relevant in which this Court, while relying upon the settled principles of past and closed transaction and reasonable time, stipulated that a period of six months was the reasonable time for the purposes of exercise of power by the Federal Government under section 25 of the Land Reforms Act, 1977. Thus we are of the opinion that while undoubtedly the Board has the power under section 74 supra to extend the time limit and permit an order under section 36 supra to be passed within such time or period as it may consider appropriate, such power must be exercised within a reasonable time period of six months from the date when the time period provided in the first proviso to section 36(3) supra and the extension granted thereunder have lapsed, and such power can only be exercised (by the Board under section 74 supra) to grant an extension of not more than a reasonable time period of six months.
20. It is clear from the judgment of the apex Court in Super Asia' case that the time period provided under section 36 (Now section 11) for conclusion of adjudication was mandatory and if the same could not be concluded within the period, the adjudication of tax would be illegal. Though, no time limit has been provided under section 74 of the Act for FBR to extend the period of adjudication, however, keeping in view the mandate & law to conclude the proceeding within a particular period of time and in order to uphold the confidence of the taxpayer in system, it was held that the said extension should not be for more than six (06) months.
21. Later, the same issue came up before the two members Bench of the apex Court in the case of M/s WAK Ltd Multan Road, Lahore Vs Collector Central Excise & Sales Tax Lahore (Now Commissioner Inland Revenue (2018 SCMR 1474), the apex Court in the said judgment has also considered the law laid down in Super Asia's case, however, has held a contrary view in the following manner:-- "Another question which has raised by the learned ASC for the petitioner is that if an order is not passed within 45-days and then within 90-days despite extension in terms of the proviso to section 36 (3) of the Sales Tax Act, it could not be passed subsequently. Learned ASC for the petitioner in support of his contention placed reliance on the case of The Collector of Sales Tax Gujranwala and other Vs. Messres Super Asia Mohammad Din and sons and others (PTCL 2017 CL. 736). We with due deference do not find ourselves in agreement with the interpretation placed on the said provision because the intent behind the said provision of the Act, as far as we are capable to understand it, is to ensure expeditious disposal of the case and not an outright extinguishment of the tax liability. Such interpretation cannot be accepted when it also tends to liability. Such interpretation cannot be accepted when it also tends to open room for escape of tax liability through official and Institutional manipulations. Even otherwise when no consequence for neglect to comply with the said provision has been given in the statute, it cannot be construed as mandatory on any account and by any attribute."
22. In the case of Mujahid Soap Vs CAT, Islamabad (PTCL 2019 CL 555) once again caught the consideration of the apex Court, wherein not only the law laid down in Super Asia case was followed but it was further held that in the said time period not only the decision should be made but it should be communicated to the tax payer.
23. In the case of M/S Abbasi Enterprises Uniliver Vs Collector of Sale Tax & Federal Excise Peshawar (PTCL 2020 CL. 159), the law laid down by the apex Court in the case of Super Asia was re-affirmed by five members Bench in the following manner:-- "After having heard learned counsel as above, and considered the record, we were of the view that the appeal ought to be allowed, and did so by means of a short order announced in Court. As noted above, the matter relating to the giving of reasons by the Collector had been considered by the learned High Court in the impugned judgment, in the context of the question of law proposed by the appellant as arising from the order of the learned appellate Tribunal. Therefore, with respect, it cannot be said that the issue was raised here for the first time. As regards the merit of the point, it is clear that the order of extension made by the Collector was contrarily to law, as explicated by this Court in para 7 of the judgment in Super Asia. Indeed, in cautioning his officers to make out a proper case for extension in the future by "giving solid reasons for delay" the Collector had very obviously taken the view that no such reasons in the actual case before him. In other words, in the appellant's case, the extension was granted as a matter of course, routine or right" in direct contradiction of the law laid down by this Court. We may note that learned counsel Jar the department had also sought to argue that the order of extension was made on 24.09.2010 whereas the judgment in Super Asia was given on 31.03.2017 and therefore, anything said therein ought not to apply to the former. With respect, we are quite unable to agree. The law declared by this Court as to the proper interpretation and application of the first proviso to sub-section 3 applied fully to the order of extension under consideration."
24. The aforesaid legal discourse would clearly show that except in the case of M/s WAK Ltd Multan Road, Lahore Vs Collector Central Excise & Sales Tax Lahore (Now Commissioner Inland Revenue (2018 SCMR 1474) it has been the consistent opinion/binding dicta of the apex Court that the period of adjudication in any way should be completed within the timeline L provided under proviso to section 36 sub-section 3 of the Act and under section 74 the FBR has the jurisdiction only to extend the said period as a whole for six (06) months and not beyond that. The said provision is mandatory in nature and violation thereof is obviously annulment of the assessment proceedings.
25. However, whether the aforesaid law would be also applicable to the present case is the issue of interpretation before this Court. The proceeding before the Assessing Officer were unique in its nature and has never been addressed by the apex Court in any matter probably for obvious reason that no such issue was ever raised before the apex Court. Admittedly, in the present case the show cause notice was issued on 20.07.2009 and there has been a request for adjournment by the Respondent which was granted and a request was made before the Assessing Officer on 12.09.2009 by the Respondent assessee for the constitution of reconciliation committee. It was on 15.10.2009 that reconciliation committee filed its report before the Assessing Officer. On 17.10.2009 the assessee had filed written reply upon the report of the reconciliation committee. It was through Finance Amendment Ordinance, 2009 promulgated as Ordinance No. XXII of 2009 on 28th October 2009 wherein the jurisdiction to adjudicate the sales tax matters were conferred upon the newly created hierarchy under section 30 of the Act. Later, the said Finance Amendment Ordinance had lapsed and was re-enacted through Finance Amendment Ordinance, 2010 on 6th February 2010 which was presented before the parliament, however, it lapsed on 5th June 2010 as the parliament did not approve it. However, the amendments were formally approved by the parliament in section 30 of the Act through Finance Act, 2010 w.e.f. June 5th 2010. In this regard the formal notification was earlier issued by the FBR conferring jurisdiction upon the newly established hierarchy under section 30 of the Act on 11th November 2009 when the amendments were made through Ordinance. However, it appears when the matter was finally settled by promulgation of Finance Act, 2010, the Federal Board of Revenue had issued general notification dated 29.04.2010 extending time till 30.06.2010 for adjudication of sales tax disputes by the Assessing Officer.
26. In our humble, view the said notification was issued under section 74 of the Act and thus cannot be said that the same was either without jurisdiction. It does not appear from the verbiage of section 74 of the Act that the said extension would be time bound and the legislature itself has not restricted the jurisdiction of FBR relating to extension of time even after the period which has lapsed as provided under section 36 of the erstwhile of the Sales Tax Act. The period of limitation that the proceeding should be concluded within six months as a whole have genesis from the judgment of the apex Court in Super Asia' case and the said judgment gives no impression that it has any retrospective application. Therefore, in our humble view, the period consumed during adjudication which is obviously beyond the mandate as provided erstwhile section 36 of the Act would not annul/affect the proceeding of the Assessing Officer. Similarly, the order in original was passed by the Additional Commissioner Inland Revenue (Audit) on 29.06.2010 and at the relevant time the Finance Act of 2010 was in field, therefore, the questions are answered accordingly.
Question No. 3
27. The learned counsel representing the revenue while referring to section 7 & 8 of the Act has argued that the losses incurred by the Respondent-Company despite the fact being approved by the NEPRA cannot be claimed as input adjustment because relating to the said losses of electricity, the Company is not involved in any taxable activities. The learned counsel has further substantiated his arguments and raised the following objections on the adjustment of input tax relating to the losses incurred by the Company.
Firstly, because section 8(1)(a) of the Sales Tax Act which provides that a registered person shall not be entitled to claim or deduct input tax paid on the goods used or to be used for any purpose other than for taxable supplies made or to be made by him.
Secondly, no provision exists in Sales Tax Act, 1990 which allows Transmission and Distribution losses (T&D losses) to the electric distribution companies.
Thirdly, the Respondent relied upon FBR's letter dated 07.12.2004 whereby KESC was allowed input tax adjustment relating to unbilled units, allowing transmission and distribution losses. However, Respondent cannot rely upon the said letter, for the reason that firstly it was issued in favour of KESC, whereby relief was allowed to KESC exclusively, whereas no such letter was ever issued in favour of Company.
Fourthly, it is also not tenable because above said letter dated 07.12.2004 was overruled by Rule 37
(A) of the SR0.1236(1)/2005 which withdrawn the relaxation even from KESC.
Fifthly, SRO 1236 read with SRO. 480(I)/2007 dated 09.06.2007 clearly leads to the inference that T&D losses in violation of section 8 of the Sales Tax Act, 1990 are not admissible.
Sixthly, Tribunals are permitted to work in their phase only, to the extent of interpreting the laws, however, in the instant case the Honorable Tribunal and CIR (A) bypassed their limits by overruling the provisions of Sales Tax Act, and helping out/rescuing Company by holding that: -- "Theft transmission loses have to be accounted for and cannot be washed away or pushed aside on the ground that no provision in the sales tax law exists.
28. The learned counsel representing the Respondent in his oral submissions as well as in written arguments has argued that the losses incurred during transmission is an admitted phenomena and in this regard the Federal Tax Ombudsman has also held the Respondent-Company entitled to the adjustment of input tax against the said losses. He next contended that an input adjustment against transmission and distribution losses including theft are being allowed to MSC which is evident from the letter issued by the FBR dated 07.12.2004, therefore, the Company being a distribution Company in public sector is equally entitled to the said adjustment. Learned counsel has also referred to the notification issued by the Federal Board of Revenue dated 16.01.2003, whereby 13% wastage has been allowed to the CNG sector and its input claim is also acceptable.
While relying upon the case of M/S Mayfair Spinning Mills Ltd (PTCL 2002 CL 115), the learned counsel has maintained that even if the goods or lost during the taxable activities, the input adjustment cannot be denied.
29. In order to appreciate this legal issue, we would like to refer to the relevant provision of law and the notification issued by the Federal Board of Revenue in this regard:-- "Section 2. Definitions.--In this Act, unless there is anything repugnant in the subject or context,--
(1) .........
14. "input tax", in relation to registered person, means--
(a) tax levied under this Act on supply of goods to the person;
(b) tax levied under this Act on import of goods by the person;
(c) in relation to goods or services acquired by the person, tax levied under the Federal Excise Act, 2005 in sales tax mode as a duty of excise on the manufacture or production of the goods, or the rendering or providing of the services;
(d) provincial sales tax levied on services rendered or provided to the person; and
(e) levied under the Sales Tax Act, 1990 as adapted in the State of Azad Jammu and Kashmir, on the supply of goods received by the person;
(20) "output tax", in relation to any registered person, means--
(a) tax levied under this Act on a supply of goods, made by the person;
(b) tax levied under the Federal Excise Act, 2005, in sales tax mode as a duty of excise on the manufacture or production of the goods, or the rendering or providing of the services, by the person,
(c) sales tax levied on the services rendered or provided by the person under Islamabad Capital Territory (Tax on Services) Ordinance, 2001 (XLII of 2001).
(33) "Supply" means a sale or other transfer of the right to dispose of goods as owner, including such sale or transfer under a hire purchase agreement, and also includes--
(a) putting to private, business or non-business use of goods produced or manufactured in the course of taxable activity for purposes other than those of making a taxable supply;
(b) auction or disposal of goods to satisfy a debt owed by a person;
(c) possession of taxable goods held immediately before a person ceases to be a registered person;
(d) in case of manufacture of goods belonging to another person, the transfer or delivery of such goods to the owner or to a person nominated by him;
(e) production, transmission and distribution of electricity.
Provided that the Board with the approval of the Federal Minister-in-charge, may by notification in the official Gazette, specify such other transactions which shall or shall not constitute supply; (35)"taxable activity", means any economic activity carried on by a person whether or not for profit, and includes--
(a) an activity carried on in the form of a business, trade or manufacture;
(b) an activity that involves the supply of goods, the rendering or providing of services, or both to another person;
(c) a one-off adventure or concern in the nature of a trade, and
(d) anything done or undertaken during the commencement or termination of the economic activity, But does not include--
(a) The activities of an employee providing services in that capacity to an employer;
(b) An activity carried on by an individual as a private recreational pursuit or hobby; and
(c) An activity carried on by a person other than an individual which, if carried on by an individual, would fall within sub-clause (b). (39) "taxable goods" means all goods other than those which have been exempted under section 13;
(41) "taxable supply" means a supply of taxable goods made by an importer, manufacturer, wholesaler (including dealer), distributor or retailer other than a supply of goods which is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent under section 4; Section 7 Determination of tax liability.-- (1) Subject to the provisions of section 8 and 8B, for the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall, subject to the provisions of section 73, be entitled to deduct input tax paid or payable during the tar period for the purpose of taxable supplies made, or to be made, by him] from the output tax 235[excluding the amount of further tax under sub-section (1A) of section 3, that is due from him in respect of that tar period and to make such other adjustments as are specified in Section 9 Provided that where a registered person did not deduct input tax within the relevant period, he may claim such tax in the return for any of the six succeeding tax periods.
Section 8 Tax credit not allowed.--(1) Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on--
(a) the goods or services used or to be used for any purpose other for taxable supplies made or to be made by him;
30. Notification of FBR relating to input adjustment on losses to KESC as well as WAPDA.
Government of Pakistan Revenue Division Central Board of Revenue (Sales Tax Audit Wing)
C. No. 1 (22)STAS/2004. Islamabad the 7th December, 2004.
The Collector, Sales Tax & Central Excise, Large Taxpayers Unit (LTU), Karachi.
Sub: REFUND/ADJUSTMENT OF SALES TAX BY M/S KE.S.0 AGAINST ELECTRICITY NOT BILLED BECAUSE OF THEFT.
I am directed to refer to your letter bearing C.No.2 (32) ST&CE. Audit/KESC/04/166628 dated 16.09.2004 on the above subject.
2. The issue has been examined thoroughly in consultation with Sales Tax Wing. It is observed that the case against KESC is not based on sustainable grounds for the reason that the department has been allowing input tax adjustment against transmission and distribution losses (T&D) TO KESC as well as WAPDA. The question remains as to whether the electricity losses due to theft/pilferage be treated as T&D losses or otherwise. Had KESC not declared losses on account of theft/pilferage, the same would have been treated as I&D losses and input tax adjustment against the same would have been allowed as done in case of WAPDA. Thus, denying input tax adjustment to KESC on account of theft/pilferage of electricity would be discriminatory.
3. Secondly, the cost of electricity billed by KESC against which output tax is being paid also includes the line losses. Hence, if there were no line losses, the cost of electricity chargeable to output sales tax would have been lower than the one against which tax is collected. Therefore, practically no loss to government exchequer would incur in case the propose input tax adjustment is allowed against the electricity loss due to theft/pilferage.
4. It is, therefore, advised that the case of M/S Karachi Electric Supply Corporation (KESC) may be decided accordingly under intimation to the Board.
(Aftab Ahmad Razzaqi)
Secretary (STAS)
Phone # 051-9222604
31. Rules 37 of the Sales Tax Special Procedure Rules 2005 notified through SRO.522 (I) of 2005 on 6th June 2005.
37. Determination of sales tax liability in respect of WAPDA and KESC.--(I) Any person, except WAPDA and KESC, who supplies electric power shall be entitled to claim admissible input tax adjustment in the manner specified in section 7 of the Act, read with section 8 thereof
(2) WAPDA and KESC shall be entitled to claim admissible input tax adjustment against sales tax paid on their taxable purchases made in the month immediately preceding the tax period.
Provided that no input tax adjustment shall be admissible to WAPDA and KESC on account of the sales tax paid on the taxable purchases made before the 1st January, 2000
38. Input tax adjustment--(1) In case of registered consumers the electric power bill issued by distribution company shall be treated as a tax invoice as defined in clause (40) of section 2 of the Act.
(2) Subject to sub-rule (3), registered consumers shall be entitled to claim input tax adjustment against such invoice in the tax period in which the bill is paid as per the provisions of section 7 and 8 of the Act provided the bill contains registration number and address of the business premises declared to the Collector of the such consumer.
32. These rules were amended through SRO 1236(I)/2005 dated 14.12.2005 whereby Rule 37A was introduced as following:-- "37-A Discharge of tax liability by KESC.--(1) In case of the KESC, sales tax shall be paid on the basis of supply of electric power billed to the consumers after adjustment of input tax in terms of sections 7 and 8 of the Act and as provided under sub-rule (3).
(2) The KESC shall file a monthly return under section 26 of the Act and Chapter II of the Sales Tax Rules, 2005, and deposit the amount of sales tax payable for the tax period by the due date.
(3) Input tax adjustment shall be admissible to the KESC in proportion to the quantum of electric power billed during the tax period."
33. Sales Tax Special Rules, 2006 were notified through SRO No. 560(I)/2006 dated 5th June 2006 whereby the Sales Tax Special Procedure Rules, 2005 were repealed and the procedure for determination of Sales Tax liability in respect of WAPDA and KESC were provided under Rule 40 as under:--
40. Determination of sales tax liability in respect of WAPDA and KESC.--(1) Any person, except WAPDA and KESC, who supplies electric power shall be entitled to claim admissible input tax adjustment in the manner specified in section 7 of the Act, read with section 8 thereof.
(2) WAPDA and KESC shall be entitled to claim admissible input tax adjustment against sales tax paid on their taxable purchases made in the month immediately preceding the tax period.
34. Sales Tax Special Procedure Rules, 2007 was introduced as following:-- "15. Determination of tax liability in respect of WAPDA and KESC.--
(1) ..................
(2) WAPDA and KESC shall be entitled to claim admissible input tax adjustment against sales tax paid on their taxable purchases made in the month immediately preceding the tax period"
35. The Company has claimed input adjustment against its losses mainly two grounds. Firstly, a similarly arrangement has been allowed to KESC and secondly, the losses incurred by the Company falls within the mischief of taxable activities, therefore, the input tax cannot be denied to it as the Respondent cannot retain amount which the Company had paid at the time of receiving taxable supplies.
36. Let us first appreciate the assertion of the Company relating to the discrimination as the distribution losses has been allowed to similar placed distributing Company i.e. KESC. In this regard the reliance of the Company is upon the letter dated 16.09.2004 issued by the then Central Board of Revenue Sales Tax Audit Wing whereby input adjustment was allowed to KESC on two grounds as evident from the said letter, firstly, that WAPDA has been allowed the said adjustment and secondly that the cost of electricity bill by KESC against which output tax being paid also includes the line losses. Hence, there will be no loss to the revenue if the said input adjustment is allowed. The record further reveal that subsequent to the said letter through SRO No. 1236 dated 14.12.2005 Rule 37-A was introduced inserted to Sales Tax Special Procedure Rules 2005 whereby the KESC was denied the said input adjustment through Rule 37-A ibid, however, the Sales Tax Special Rules 2005 was then repealed through Sales Tax Special Procedure Rules of 2006 notified through SRO No. 560 dated 5th June 2006 whereby through Rule 40 the earlier dispensation was restored relating to input adjustment by WAPDA as well KESC. The revenue does not contest that KESC is not enjoying the said concession as provided through letter dated 16.09.2004 ibid. The close perusal of Sales Tax Special Rules, 2006 which was even subsequently substituted through Sales Tax Special Rules 2007 in respect of distribution of electricity supply reference was only made to WAPDA and KESC and it is for the obvious reason that before the formation of distribution companies it was the WAPDA which was involved in the business of distributing electricity and as informed by the learned counsel for the Company that till 2008 the WAPDA would file returns on behalf of DESCOs. Therefore, from the perusal of the aforesaid rules more particularly letter of the then Central Board of Revenue dated 16.09.2004, it can be inferred with certainty that KESC is allowed to adjust input adjustment even against the losses incurred by KESC either the same is pilferage or T&D losses as approved by the NEPRA. Similarly, the Respondent-Company has also placed on file another notification issued by the Federal Board of Revenue dated 16.01.2003 whereby 13% wastage has been allowed to the CNG sector and its input claim is also acceptable against the said wastage.
37. Moving on to the second limb of submission by the learned counsel representing the Company, the overview of the entire sales tax regime has been very well explained by the Supreme Court in the case of "The Commissioner Inland Revenue, Karachi Vs Messers Attock Cement Pakistan Limited, Karachi (PTCL 2023 CL. 305). For ease of reference para 9 of said judgment is reproduced as under:-- "The Sales Tax Act introduces an indirect tax to be levied, charged and collected on imported goods or on taxable supplies of goods, and the same is collected by the supplier on behalf of the Government, while the incidence of the lax is finally borne by the consumer of the imported goods or of the taxable supplies of the goods. The charging section 3 of the Sales Tax Act lays down the foundational parameters of the sales tax, which are: firstly the quantum of the tax is based on the value of goods imported into Pakistan or the taxable supplies made in Pakistan by a registered person; secondly the incidence of the tax is triggered or made chargeable when the goods are imported into Pakistan or when the registered person makes taxable supplies in the course or furtherance of any taxable activity carried out by him; and finally, the liability to pay the tax is one the person importing the goods in respect of the imported goods or on the person making the supplies in respect of the imported goods or on the person making the supplies in respect of taxable supplies made in Pakistan."
Similarly, in the said judgment the scope of section 7 has also elaborately explained in the following manner:-- In order to cater for and facilitate the value addition of goods made during the supply chain of production, and to ease the burden of tax on the supplier, the legislature has introduced in the Sales Tax Act, the concept of 'input tax' and 'output tax, and then provided for the adjustment of the former at the time of paying the latter. 'Input tax' being the tax paid by the person receiving the supply of goods. while 'output tax' being the tax payable at the time of making the supply of the value added goods. To facilitate the supplier, the legislature has provided a facility for the adjustment of the 'input tar' from the 'output tax' payable at the time of making the supply of the value-added goods. Thus, the 'input tar' paid by one supplier on receiving the goods would be the 'output tax' of the other, who is supplying the said goods. and the supplier on receiving the price of the goods supplied would after deducting the already paid 'input tax' from the 'output tax'. deposit the balance in the treasury. This process would continue at each successive stage of the supply chain, until the final goods is purchased by the final consumer, who would be finally burdened with the entire incidence of sales tax."
38. The close perusal of section 7 of the Act would show that the input adjustment is linked with the taxable supply which means an economic/taxable activities carried out by any person whether or not for profit and includes an activity carried on it that involves the supply of goods and anything done or undertaken during the commencement or termination of economic activity.
39. The Company has paid the sales tax at the time of R purchasing taxable goods; therefore, this tax remains with the revenue as a trust which is adjustable by the Company at the time of its output tax payable by the Company in course of taxable activities. We with certainty can say that even if the electricity is lost either on account of pilferage or at the time of distribution which is a natural process as the electricity passing through the wires are certainly lost due to technical issues, however, the said activity of the Company does fall within the mischief of taxable activities.
40. We have also perused the judgment of the Honorable Lahore High Court in the case of "Mayfair's Spinning" ibid where there was a division in the opinion between the two members bench regarding the input adjustment against the losses of goods ginned, cotton during the process of manufacturing. The Honorable Judge Justice Mansoor Ahmad as then he was of the opinion that the said activity does not fall within the mischief of taxable activities as against the said losses the tax payer cannot claim output tax, however, the Honorable Justice Nasim Sikandar had held a contrary view which is produced as following:-- "According to section 7 a registered person is entitled to deduct input tax paid during the tax period for the purpose of taxable supply made or to be made by him from the output tax. The learned counsel for the appellant is correct in pointing out that the use of word purpose " and "supplies made or to be made" are indicative of the fact that the payment of input tax is available for adjustment us well as refund not with regard to any specific goods but with regard to the input to paid during a particular tax period. The negatives contained in section 8 were also improperly interpreted by the Departmental authorities. According to sub-section (l of section 8, a registered person is not entitled to reclaim or deduct input tax paid inter alia on the grounds used or to be used for any purpose other than for taxable supplies made or to be made by him. The goods on which input tax was paid by the appellant and were subsequently destroyed were not meant for use nor were intended to be used for any purpose other than taxable supplies. The intention of the appellant at the time of receiving the supplies and making and paving (input tax) was apparently to make' taxable supply of them. It has never been the case of the department that either the supplies were not received or that these supplies were covered by the negative list as given in section 8 of the Act. The only objection of the department being that the goods for which input tax was paid were no more available for taxable supplies. While holding that opinion, as noted earlier, the departmental authorities over looked the use of word "purpose" and "supplies made or to be made" as used in section 7.
41. When the matter was referred to the Referee Judge, Justice Jawad S. Khwaja as then he was, he had concurred with the findings of Justice Nasim Sikandar J. The view held by Justice Nasim Sikandar J, in our humble view well explains the concept of input adjustment as embedded in section 7 of the Act. Therefore, in view of what has been stated above, we have formed an opinion that for the aforesaid two reasons the Company is entitled to input adjustment of the sales tax paid at the time of purchasing taxable goods against the electricity produced by it, however, the same was lost either on account of pilferage, distribution losses or technical reasons. As such, we uphold the judgment of the Tribunal for the aforesaid reasons.
Question No. 4
42. During the relevant period, the then Provincial Administered Tribal Area was described and explained through un-amended Article 246 of the Constitution. Whereas Article 247 Sub-Clause 3 (Un-amended) clearly envisages that the Act of Parliament would be extended to the Provincially or Federally Administered Tribal Area when the President or, as the case may be, the Governor, direct that the said law shall, be applicable to a Tribal Area. Admittedly, at the relevant time, the Act was not applicable to the Tribal Area. The proposition whether a person carrying on business in the erstwhile Provincial Administered Tribal Area or is residing in the erstwhile Provincial Administered Tribal Area, is liable to pay the Sales Tax and Income Tax has been elaborately dealt with by this Court in the case of "M/s Taj Packages Vs Government of Pakistan Company Pvt Limited (PTCL 2016 CL. 402)". His lordship Mr. Justice Yahya Afridi while thoroughly examining the earlier pronouncement on the subject has concluded in the said judgment as following:---
(i) Declare that advance tax charged on the import under section 148 of the Income Tax Ordinance, 2001, is not payable by petitioners importing goods for its utilization or consumption in Federally Administered Tribal Area or Provincially Administered Tribal Area;
(ii) Declare that Sales Tax charged under section 3 (1)(b) of the Sales Tax Act, 1990, is not payable by the petitioners importing goods for its utilization or consumption in Federally Administered Tribal Area or Provincially Administered Tribal Areas,
(iii) Direct the Federal Government to take appropriate steps to ensure that persons carrying on business in FATA or PA TA are rendered immunity from the payment of taxes under Income Tax Ordinance, 2001, and the Sales Tax Act, 1990, as the said statutes have not been extended to the said areas within the contemplation of Article 247 (3) of the Constitution;
(iv) Direct Federal Government to take necessary steps to formulate a uniform policy for seeking securities from the persons importing goods for its consumption and utilization in FATA or PA TA, so that the immunity provided under the Constitution is not abused and in case the imported goods are utilized or sold outside the said area, then the revenue of the State is recoverable from the securities, so provided.
(v) Direct that till the decision is taken by the Federal Government regarding the security mechanism stated hereinabove, the Board shall obtain from the petitioners postdated cheques for the payment of taxes at import stage under the Act and the Ordinance, as security, for goods destined for utilization and consumption in FATA or PATA. The postdated cheques shall be returned to the petitioners upon production of consumption certificates duly issued by the concerned commissioners, as specified in Notification dated 28.02.2011. It will be the liability of the petitioners to approach the respondents for the issuance of consumption certificates.
43. The law laid down by this Court in the case of M/s Taj Packages, was approved by the apex Court appreciation the efforts of the author in the case of "Pakistan through Chairman FBR and others Vs Hazrat Hussain and others (PTCL 2018 CL 700)" Thus, in view of the above, the legal proposition is clear that none of the provision of the Act at the relevant time was applicable to the persons or their economic activities and therefore, they and their economic activities were immune from the impost of Sales Tax, however, the revenue was given the authority to investigate if the economic activities of any business concerns in the erstwhile Provincial Administered Tribal Area have any effect beyond the said territorial limit (settled area), to the said extent it was subject to the impost of Sales Tax/Income Tax.
44. The scope of tax regime under the Act and adjustment of input tax has been elucidated by the apex Court in the case of "Commissioner Inland Revenue Karachi Vs Messrs Attack Cement Pakistan Ltd Karachi (PTCL 2023 CL. 305)." The relevant paras are reproduced hereunder:-- "9. The Sales Tax Act introduces an indirect tax to be levied, charged and collected on imported goods or on taxable supplies of goods, and the same is collected by the supplier on behalf of the Government, while the incidence of the tax is finally borne by the consumer of the imported goods or of the taxable supplies of the goods. The charging section 3 of the Sales Tax Act lays down the foundational parameters of the Sales Tax, which are firstly, the quantum of the tax is based on the value of the goods imported into Pakistan or the taxable supplies made in Pakistan by a registered person,- secondly, the incidence of the tax is triggered or made chargeable when the goods are imported into Pakistan or when the registered person makes taxable supplies in the course or furtherance of any taxable activity carried out by him; and finally, the liability to pay the tax is on the person importing the goods in respect of the imported goods, or on the person making the supplies in respect of taxable supplies made in Pakistan.
10. In order to cater for and facilitate the value addition of goods made during the supply chain of production, and to ease the burden of tax on the supplier, the legislature has introduced in the Sales Tax Act, the concept of 'input tar' and 'output tax' and then provided for the adjustment of the former at the time of paying the latter, 'input tax' being the tax paid by the person receiving the supply of goods, while 'output tax' being the tar payable at the time of making the supply of the value added goods. To facilitate the supplier, the legislature has provided a facility for the adjustment of the 'input tax' from the 'output tax' payable at the time of making the supply of the value-added goods. Thus, the 'input tax' paid by one supplier on receiving the goods would be the 'output tax' of the other, who is supplying the said goods, and the supplier on receiving the price of the goods supplied would after deducting the already paid 'input tax' from the 'output tax', deposit the balance in the treasury. This process would continue at each successive stage of the supply chain, until the final goods is purchased by the final consumer, who would be finally burdened with the entire incidence of Sales Tax.
45. Section 3 of the Act is the charging section whereas section 7, is indeed a beneficial provision of law in nature providing a facility to a registered person to adjust input tax at the time of making payment of output sales tax. "Sheikhoo Sugar Mills Vs Government of Pakistan (2001 SCMR 1376)" and "Collector of Customs, Sales Tax and Central Excise Vs Messrs Sanghar Sugar Mills Ltd (PLD 2007 SC 517)." The law laid in the aforesaid two judgments was reaffirmed by the apex Court in the case of M/s Attock Cement Pakistan Ltd ibid. Under section 3 sub-section (3) the liability to pay the tax shall be in the case of supply of goods of the persons making the supply.
46. Section 7 of the Sales Tax Act provides that for the purposes of determining tax liability in respect of 'taxable supplies', a registered person shall be entitled to deduct input tax paid during the tax period. Such concession is clearly available only when a registered person makes 'taxable supplies' and is not available where the supplies are totally exempt from the sales tax liability. This mandate of the law is further affirmed in section 8 (1) (a) of the Act, which provides that notwithstanding anything contained in any other provision of the Act, a registered person shall not be entitled to claim input tax paid on goods that are used in the making of supplies which have been exempted from the sales tax liability under the provisions of section 13 of the Act. This clearly means that adjustment of input tax only can be claimed in a situation where the goods that have been manufactured or produced fall within the definition of 'taxable supplies'. Where the goods that are to be supplied are exempt from sales tax then the question of seeking refund of the sales tax paid on the purchase of raw material used in the production of exempt supplies does not arise at all. The whole object behind the provision of section 8(1)(a) of Sales Tax Act, 1990 seems to be that where at any stage, sales tax has been legitimately paid then refund of input tax cannot be claimed where such goods were used in the manufacture of 'exempt supplies'. Thus, where a registered person is exempt from the liability of sales tax on its supplies, it does not mean that the tax that was paid on the purchase of raw material used in the making of such supplies would be liable to be refunded. In view of the legal position as emanating from the plain reading of the provisions of section 7 and 8 of the Sales Tax Act, 1990, it is evident that there is no promise of the Legislature that the sales tax paid on the goods used in the manufacture of 'exempt supplies' would be liable to be refunded.[1] Thus, it is clear that section 7 being only a beneficial and machinery provision a registered person can claim input adjustment against the output when the said output (including value added) also falls within the mischief of taxable supplies and as per the mandate of section 2(35) of the Act the exempt supply do not constitute a taxable supply. The learned counsel for the Applicant has laid much deal of emphasis on the notification issued by FBR dated 22nd October 2002, wherein it is clarified that the provision of section 3 of the Act is applicable to the supplies made to the erstwhile PATA and FATA. However, the said notification is in direct conflict with the law laid down by the apex Court in the cases of M/s Gul Cooking Oil's (PTCL 2008 CL.221); M/s Taj Packages Company's (PTCL 2016 CL.402) and Hazrat Hussain and others (PTCL 2018 CL. 700).
47. Next it was advocated by the learned counsel for the Respondent that input adjustment can only be denied when the supplies are exempted whereas in the present case as evident from the letter dated 22.10.2002, the supply of the Respondent in the erstwhile PATA has not been exempted under section 13 of the Act, therefore, in such circumstances the, Respondent cannot be denied input adjustment in terms of section 7 of the Act. At the cost of repetition, we reiterate that section 7 is only a beneficial provision allowing a registered person input adjustment of the tax paid at the time of purchases of the goods against his output tax, however, the scheme of the law is that the said adjustment is available to the taxpayer only when he is liable to pay the Sales Tax on his supply.
48. Admittedly, as laid down by the apex Court in the case of M/s. Gul Cooking Oil and Hazrat Hussain (Supra) Sales Tax Act is not applicable, therefore, it can well be said that neither the charging section nor the machinery section of the Act were at the relevant time extended to the tribal area and for that reason the Respondent-Company did not charge sales tax on supply of electricity to the consumer. Thus, when the provision of Act at the relevant time were not applicable to the erstwhile FATA/PATA, then it can be safely said that neither the charging section (Section 3) nor the machinery section (Section 7) of the Act were applicable to any supply to the erstwhile FATA/PATA, therefore, the question of input adjustment does not arise. The question how the Company can claim the said input adjustment is not an issue before us in these proceedings for which the Company would be at liberty to approach the appropriate forum.
49. In view of what has been stated above, this sales tax reference and connected references are answered accordingly. Similarly, the connected WP No. 2371-P/2016 is disposed of in the above terms. Copy of this judgment be sent to worthy Tribunal in terms of Section 47(5) of the Act.
ANNEXURE "A"
S. No. Case title 1.STR No. 04-P/2015 "Commissioner Inland Revenue Vs. M/S Peshawar Electric Supply Company"
2. STR No. 05-P/2015 "Commissioner Inland Revenue Vs. M/S Peshawar Electric Supply Company"
3. STR No. 06-P/2015 "Commissioner Inland Revenue Vs. M/S Peshawar Electric Supply Company"
4. STR No. 06-P/2015 "Commissioner Inland Revenue Vs. M/S Peshawar Electric Supply Company"
5. W.P No. 2371-P/2016 "Peshawar Electric Supply Company Limited vs. The Chief Commissioner Inland Revenue and others"
6. STR No. 09-P/2018 "M/S Tribal Areas Electric Supply Company Ltd vs. Commissioner Inland Revenue and another"
7. STR No. 10-P/2018 "Commissioner of Inland Revenue vs. M/S Peshawar Electric Supply Company", [1]Messrs Chiltan Ghee Mills, Quetta and others Vs Deputy Collector of Sales Tax (Refund), Customs House Quetta and others Messrs Mayfair Spinning Mills Ltd Lahore Vs Customs, Excise and Sales Tax Appellate Tribunal, Lahore etc (PTCL 2002 CL. 115).
Azad Jammu and Kashmir Government vs Spinitex Ltd (1998 PTD 3200).