MUHAMMAD HASHIM KHAN KAKAR, J. The instant constitutional petition filed under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 ("the Constitution"), carries the following prayer clauses: "The petition in hand be admitted and the notification issued by respondent and No. 3 dated 26- 09-2019 and other notification (if any) overtly or covertly in this regard to be declared void and ultra vires to the law and constitution, therefore, be ordered to be cancelled, withdrawn as having no any legal effect in any manner whatsoever in the interest of justice, fair play and equity.
Any other relief deemed fit and proper by this Hon'ble Court may also be awarded, in the interest of equity, fair play and justice."
2. Brief facts forming the background of the instant petition are that the petitioner is associated with construction work and is registered with the Pakistan Engineering Counsel (PEC) under the PEC Act, 1976. The petitioner was declared as lowest successful bidder on 12.09.2009 for the Construction of water conveyance system with allied structures of Shadi Kaur Dam Project at Pasni of District Gawadar and the awarded work was subsequently completed and ready to be handed over to the respondent No.2. However, part of payment was made in 2016-17 and on the directions of the Director General Audit and the Departmental Accounts Committee, the respondent No.3 issued notice dated 26.09.2019 for recovery of Rs.33,869,943/- which was deductible on account of said part payment under the Balochistan Sales Tax on Services Act, 2015 ("the Act"). Through said recovery notice the petitioner was asked to deposit the said amount under the head of account B- 02387 with the National Bank of Pakistan City Branch within a period of one week. Being aggrieved with said recovery notice, the petitioner has filed the instant petition.
3. Muhammad Ishaq Nasar, learned counsel for the petitioner stated that the impugned notice being illegal, irregular, capricious, arbitrary, vexatious, whimsical and ultra vires to the Constitution is of no legal effect. The learned counsel stated that the respondent No.3 has no authority to enforce recovery of sales tax on services under the Act, which is exclusive domain of the Balochistan Revenue Authority ("the Authority"). The learned counsel further stated that the petitioner has completed the said project and it is ready to be handed over to the respondent No.2.
Furthermore, the petitioner, at the time of submitting of financial proposals for the project had calculated the applicable taxes and the market value of the items concerned in calendar year 2009 when the Act was not promulgated and the Authority was not created. The Act was promulgated in 2015 and the Authority too, was created in 2015, which became operative with effect from 01.07.2015. Therefore, recovery of any amount of tax deduction under the Act is not lawful as both the Act and the Authority have no retrospective operation on a project which has already been completed and ready to be handed over to the respondent No.2.
4. Mr. Jam Saka Dashti, learned counsel for the Respondent No.4 argued that under the provisions of the Act the petitioner was bound to pay the withholding sales tax on services on payments made in the year 2016-17 on account of said project, which the petitioner failed to pay, hence valid recovery notice as based by the respondent No.3 in terms of provisions of the Act and the instant petition is liable to be dismissed. The learned counsel further stated that the Departmental Accounts Committee meeting, on audit paras for the year 2016-2017, was held with regard to Shadi Kaur Dam Project, Pasni District Gawadar, wherein issue of non-deduction of Balochistan Sales Tax on Services (BSTS) was discussed with regard to the fact that the said payment was made in the year 2016-17, therefore deduction of BSTS was due. He further stated that the office of respondent No.3 requested the Director General Audit for correction of audit para No.8, which was accordingly securitized and the Director General Audit upheld the minutes of meeting of the Departmental Accounts Committee (DAC) held on 19-20, December 2018 and directed for further necessary action which was accordingly complied by the respondent No.3 by issuing lawful impugned recovery notice dated 26.09.2019.
5. Heard the arguments advanced by both the learned counsel, perused the record and also examined the relevant provisions of the Act, the Balochistan Revenue Act, 2015 ("the BRA Act") and the Balochistan Sales Tax Special Procedure (Withholding) Rules, 2018 ("the Rules"). Before proceeding ahead, we deem it appropriate to reproduce relevant provisions of said Acts and the Rules. Section 14 of the Act is as under:
14. Special Procedure and Tax Withholding Provisions.---Notwithstanding anything contained in this Act, the Authority may, by notification in the official Gazette, prescribe a special procedure for the payment of tax, registration, book keeping, invoicing or billing requirements, returns and other related matters in respect of any service or class of services, as may be specified.
(2) Notwithstanding other provisions of this Act, the Authority may require any person or class of persons whether registered or not for the purpose of this Act to withhold full or part of the tax charged from such person or class of persons on the provision of any taxable service or class of taxable services and to deposit the tax so withheld, with the Government within such time and in such manner as it may, by notification in the official Gazette, specify.
(3) Where a person or class of persons is required to withhold full or part of the tax on the provision of any taxable service or class of taxable services and either fails to deduct or withhold the tax or having deducted or withheld the tax, fails to deposit the tax in the Government treasury, such person or class of persons shall be personally liable to pay the amount of tax to the Government in the prescribed manner.
6. It is important to note that subsection (3) of section 14 of the Act has been inserted through Finance Act, 2019.
7. In pursuance to subsection (1) of section 14 of the Act, the Rules were notified on 27.06.2018, which came into operation w.e.f. 01.07.2018 as per Rule 1 Sub-Rule (4) of the said Rules. Rule 3 of the Rules specifies responsibility of a withholding agent including the time and manlier of withholding.
8. Section 52 subsection (6) of the Act provides the Authority with powers to recover withholding BSTS as under: "(6) Where any person, required to withhold tax under provision of this Act or the rules made there under, fails to withhold the tax or fails to deposit the deducted or withheld amount of the tax in the prescribed manner, an officer of the Authority shall determine the amount in default and order its recovery in the prescribed manner."
9. It is again important to note that subsection (6) of section 52 of the Act has been inserted through Finance Act, 2019.
10. Section 1 subsections (3) of the Act and section 1 subsections (3) of the BRA Act specifically provide that said Acts will come into force on and from 01.07.2015. Therefore at the time of payment in 2016-17 the said Acts were in operation.
11. Now coming to the scheme of withholding of BSTS under the Act and the Rules we find that Subsection (1) of Section 14 of the Act gives birth to the Rules, which specifies responsibility of a withholding agent and the time and manner of such withholding. Subsection (2) of Section 14 of the Act authorizes the Authority to require any person to deduct withholding BSTS. Subsection (3) of Section 14 of the Act places personal liability on a person, who was required to withhold BSTS but fails to withhold such tax. It is however important to note that said subsection (3) was inserted into the Act through Finance Act, 2019.
12. In case of failure of a withholding agent to deduct BSTS section 52 subsection (6) of the Act provides the Authority with powers to determine the amount of default and to recover such withholding BSTS. It is however again important to note that said subsection (6) was inserted into the Act through Finance Act, 2019.
13. Now coming back to the facts of the instant petition, admittedly the Project was completed and completion certificate issued on 01.04.2015, however, part payment remained un-paid and was subsequently paid in 2016-17. Later on the Director General Audit has observed that since part payment has been made in 2016-17, therefore impugned amount of BSTS was to be recovered.
Since the Act and the BRA Act came into force on 01.07.2015, therefore the withholding agent i.e. the respondent No.3 was required to deduct withholding BSTS in terms of subsection (2) of section 14 of the Act while making payments in 2016-17 but it failed to do so and after audit observations issued impugned recovery notice. However, action on the part of respondent No.3 is not supported by the provisions of the Act available on statute in the year 2016-17. The Rules in pursuance of subsection
(1) of Section 14 of the Act came into force w.e.f. 01.07.2018, which prescribes mode and manner of withholding BSTS. Again subsection (3) of section 14 and subsection (6) of section 52 which empowers the Authority to determine amount of default and recover the same came on the statute through Finance Act, 2019.
14. It is settled law that a taxing statute can operate prospectively. Since in pursuance of subsection
(1) of Section 14 of the Act, the Rules came into force w.e.f. 01.07.2018 and subsection (3) of section 14 and subsection (6) of section 52 came on the statute through Finance Act, 2019, therefore said Rules and provisions of the Act may not be enforced retrospectively. Further enforcement of provisions of the Act is the exclusive jurisdiction of the Authority and the respondent No.3 has no power whatsoever under the Act to initiate recovery proceedings for tax not withheld. Even if the withholding agent had failed to deduct a deductible amount under the Act then an officer of the Authority only was authorized to initiate and enforce recovery of such withholding tax.
15. It is a settled principle of law that although the power of the Legislature to enact retrospective law is well-recognized, but it is equally well-settled that in the absence of any express provision or necessary implication even the laws, which have been made retrospectively applicable can neither be applied to the transactions, which are past and closed nor can vested rights be taken away or destroyed. This principle is supported by the following observations of the Hon'ble Supreme Court of Pakistan in the case of Molasses Trading and Export (Pvt.) Limited v. Federation of Pakistan and others (1992 SCMR 1905), which are instructive: "There seems to be a great deal of force in this submission. Before the insertion of section 31-A the position was that upon the presentation of a bill of entry, by virtue of section 30 of the Act the levy of duty was crystallized. As explained in the case of Al-Samrez Enterprise, the liability to tax was created under section 18 with reference to this date, because it is the rate of duty by application of which the tax liability can be quantified or assessed. Simultaneously, any benefit of exemption also takes effect on the same date because in the very nature of things, the liability is wiped off by virtue of the exemption at the same time. Therefore, this is the crucial point of time at which by operation of law the liability is discharged. In other words, the rights and liabilities of the importer attained fixity on the said crucial date. Inevitably, therefore, a vested right has been created and the transaction is closed by the quantification of the tax, if any, or by the discharge of liability on that date."
16. It is also pertinent to mention here that a statute, which is procedural in nature, can operate retrospectively unless it affects an existing right on the date of promulgation or causes injustice or prejudice to a substantive right. Similarly, if it is of such a character that will tend to promote justice without any consequential embarrassment or detriment to any of the parties concerned, the Courts would favorably incline towards giving effect to such procedural statutes retrospectively.
However, if existing rights are affected or the giving of retrospective operation causes inconvenience or injustice, then the Courts will not even in the case of a procedural statute, favour an interpretation giving retrospective effect to the statute.
17. Before parting we deem it to point out that the Respondent No.3 has demanded impugned amount of BSTS from the petitioner through a notice dated 26.09.2019 which is silent on the provisions of law or rules under which such notice has been issued. The Respondent No.3 has relied solely on the Audit Observations and failed to invoke any provision of the Act or the Rules for initiating impugned recovery proceedings for withholding tax.
In the light of above legal and factual aspects of the petition it is evident that the recovery notice has been issued without legal authority and the respondent No.3 has misread the relevant provisions of the Act, 2015 and the Rules. We have therefore no hesitation to hold the impugned recovery notice as unlawful and void ab initio, as such, the instant petition is allowed.