ZAHID SIKANDAR, JUDICIAL MEMBER. The appellant is aggrieved by the assessment order of the taxing authority and the appellate order thereto whereby the appellant was held liable to pay sales tax amounting to Rs.2,546,438/- along with default surcharge of Rs.305,572/- and penalty of Rs.127,321/-.
2. The appellant is engaged in the business of sugar and other karyana items at wholesale as well as at retail level. According to the learned counsel of appellant, the department compulsorily registered the appellant vide Notice dated 14.05.2022 and prior to that no notice requiring the appellant was issued and even no intimation was received by the appellant in this regard. The AR further submits that the appellant was an unregistered person during the confronted tax period i.e. 01.07.2020 to 30.06.2021 and was not liable to be treated in the manner as confronted in the show- cause notice. Further maintains as also set out in the grounds of appeal that after the compulsory registration despite done without giving any opportunity of hearing, the appellant is discharging his sales tax liability in accordance with law without fail.
3. Record reflects that the taxation officer upon having an information that the appellant made purchases of sugar valuing Rs.14,685,343/- during the tax period 01.07.2020 to 30.06.2021 from M/s Chanar Sugar Mills (Pvt.) Ltd. and various other sugar mills as un-registered buyer, compulsorily registered the appellant for sales tax w.e.f. 14.05.2022. Since the appellant failed to adhere to the provisions of law by registering under sales tax act and filing sales tax returns under section 26, therefore, the appellant was not allowed to claim/adjust input tax on purchase of sugar for tax period prior to date of registration or for the period of non-filing. The OIR issued notice dated 26.05.2022 for recovery of sales tax amounting to Rs.2,978,831/-. The appellant submitted his reply to the show-cause notice denying his liability of tax under the Act. Reply was examined and was not found tenable. The assessing office finalized assessment proceedings and ordered recovery of sales tax amount at Rs.2,546,438/- along with default surcharge of Rs. 305,572/- and Penalty at Rs.127,321.
4. Being aggrieved by the assessme nt order, the appellant preferred appeal before the CIR(A) which was rejected by order dated 30.11.2022 holding that the appellant was liable for registration and payment of tax. The appellant has come up in this second appeal before the ATIR against the aforesaid orders, inter alia, on the ground that the assessment order is not tenable being violative of the principles of natural justice inasmuch as the appellant was not given sufficient opportunity for compulsorily registration. According to the appellant there was no question of passing the assessm ent order invoking the power to assess the appellant prior to the compulsorily registration for period 01.07.2020 to 30.06.2021. On the other hand, the DR supported the impugned order for the reasons recorded therein.
5. Arguments were heard and impugned orders perused.
6. Much emphasis has been laid down by the learned counsel that the appellant was compulsorily registered and charged tax illegally for the tax periods prior to compulsory registration. Both the forums below after relying upon the decision of the Hon'ble Lahore High Court in case titled as S. K Steel Mills (2019 PTD 1493) rejected the contentions of the appellant. The Hon'ble Lahore High Court in the case supra, on the basis of the material on record and upon scrutiny and examination of the relevant provisions contained in Sales Tax Act, 1990 ("the Act, 1990") and rules framed thereunder, held that where a person is liable to pay any tax liability, the department is first required to register that person compulsorily or otherwise in accordance with law and then charge sales tax from it under section 3 of the Act 1990 and may proceed against that person in respect of tax periods prior to registration. It is not the case of the appellant that he was not liable to be registered or the case of the appellant does not come within the purview of registration rather the learned AR mainly emphasized on the fact that no adequate opportunity was provided by way of issuing any notice to the appellant in this regard.
7. The assessing officer invested with the power to make assessment of tax discharges quasi- judicial functions and he is bound to observe the principles of natural justice in reaching his conclusions. It is held that the assessing officer cannot rely on any evidence or any fact in arriving at his conclusion without first pointing out the same to the assesse and giving him a reasonable opportunity to meeting the case which is sought to be made out in the assessment order. However, in the context of the present case, since the appellant has not seriously agitated against the legality of compulsory registration rather contradicted the way and procedure adopted for such registration being against the principles of natural justice, therefore, now at this juncture we are not inclined to interfere on this issue especially when the appellant informed that he has been discharging sales tax liability in accordance with law since the time of registration,
8. As is dear from the discussion in preceding paragraphs, the core controversy involved in this appeal can be reduced into the following question of law: "Keeping in view the relevant provisions of the Act, 1990 and Rules made thereunder, whether or not the defaulted amount of sales tax pertaining to the tax periods prior to actual registration (compulsory or voluntary) can be recovered from a sales tax registered person?"
9. First and foremost, the answer to this legal proposition lies in a comprehensive, combined and detailed reading of the relevant provisions of the Act, 1990 and rules made thereunder namely, the Sales Tax Rules, 2006. Having given a close look to the Act, 1990 almost in entirety and the rules made thereunder, we find that the following provisions of law have direct and/or indirect bearings on the controversy under reference and provide help in ascertaining the true import of law and the intention of the legislature: Clause (25) of section 2 of the Act, 1990 defines the concept of registered person and clearly provides that for the purposes of the Act ibid both the persons (i) who is actually registered and (ii) who is liable to be registered but not actually registered have to be treated as "registered person" Section 2(25) is reproduced hereunder for convenience of reference: Section: 2(25)
Registered Person: "registered person" means a person who is registered or is liable to be registered under this Act: Provided that a person liable to be registered but not registered under this Act shall not be entitled to any benefit available to a registered person under any of the provisions of this Act or the rules made thereunder"
10. A plain reading of the above language of law shows that "a person liable to be registered but not registered" has been taken to be a registered person by the statute itself, however, any benefits available to such persons under the law or rules cannot be allowed. Conversely speaking all consequences of law that are not beneficial to such deemed registered person have to necessarily flow. The intention of the legislature is quite clear that a person who is liable to register but fails to register cannot avoid payment of sales tax on taxable supplies made by him prior to registration.
This reading of law is also in accordance with the ages-old adage of law, "ignorance of law is no excuse".
11. The statutory definition of registered person sets out an appropriate context to give a careful reading to the provisions of section 3 of the Act, 1990 that deals with the charge of tax. Subsection
(1) of section 3, that is most relevant for understanding the nature of charge reads as follows: "3. Scope of tax. (I) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of seventeen per cent of the value of-
(a) taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him; and
(b) goods imported into Pakistan irrespective of their final destination in territories of Pakistan."
It is evident from the above language of the law that the Act, 1990 primarily creates charge on the act of making taxable supplies rather than on mere registered person. In the context of subsection
(1) of section 3, the phrase "registered person" has to be given the meaning assigned by the law itself in section 2(25) of the Act, 1990 that includes a person actually registered as well as a person who is liable to register for being engaged in making taxable supplies which infact furnishes the primary reason for attracting the charge of sales tax in section 3 of the Act, 1990. A careful reading of clause (b) further shows that as far as the goods imported into Pakistan are concerned, the importer is not even required to be a registered person and sales tax can be charged and levied from an importer who may not be a commercial or industrial importer. The charge in this case has been created on the factum of "goods imported into Pakistan".
12. Section 14 of the Act, 1990 deals with the sales tax registration and requires that every person who is making taxable supplies in the furtherance of any taxable activity or falls in any of the categories given in that law, shall be required to register.
'Section 14- Registration (1). Every person engaged in making taxable supplies in Pakistan, including zero-rated supplies, in the course or furtherance of any taxable activity carried on by him, falling in any of the following categories, if not already registered. is required to be registered under this Act namely: -
(a) ..........................
(b) .......................... ; and
(f) a person who is required, under any other Federal law or Provincial Law, to be registered for the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected under the Act; (2)...
(3) The registration under this Act shall be regulated in such manner as the Board may, by notification in the Official Gazette. Prescribe.
13. The obligation to register for sales tax primarily falls on the person making taxable supplies or falling in any of the categories mentioned in section 14 of the Act, 1990 and no premium or benefit can be given to a person who fails to fulfill his primary obligation under the law. If for any reason or by any stretch of imagination, it is presumed that failure to register compulsorily shall not visit any negative consequences that will discourage the persons who voluntarily comply with the laws of the land and provide incentives to the ones who deliberately flout the laws. This outcome can never be the intention of the legislature.
14. Section 33 of the Act, 1990 enumerates various types of actions, omissions or offences under the Act and prescribes penalties for the same. A plain reading of item No.7 of the Table given in section 33 ibid does not leave any room for doubt that the legislature never ever intended to mean that a person shall not be liable to recovery of sales tax for the tax periods prior to registration. Relevant part of section 33 ibid is reproduced hereunder for convenience of reference: "Section 33 of the Act, 1990 Offences Penalties Section of the Act to which offence has reference
(1) (2) (3)
7. Any person who is required to apply for registration under this Act fails to make an application for registration before making taxable suppliesSuch person shall pay a penalty of ten thousand rupees or five percent of the amount of tax involved whichever is higher: Provided that such person who is required to get himself registered under this Act, fails to get registered within sixty days of the commencement of taxable activity, he shall, further be liable upon conviction by a Special Judge, to imprisonment for a term which may extend to three years, or with fine which may extend to an amount equal to the amount of14 tax involved, or with both.
A careful reading of the above penalty provisions shows that failure to register for sales tax is an offence that is subject to penalty and/or fine that has been pegged with the amount of tax payable/involved. If for arguments sake, we presume that no sales tax is payable/recoverable from a person prior to registration, the above quoted penalty provisions will become un-implementable or redundant. It is a cardinal principle of interpretation of statutes that an interpretation of one provision of law read in isolation that makes the other provisions of law redundant cannot be followed. The legislature has very clearly and expressly laid down that "there is amount of tax involved/payable" in respect of the tax periods prior to registration. Penalty/fine under item No.7 of the Table under section 33 ibid cannot be computed/levied unless and until the amount payable by the person prior to registration is first adjudged/determined under the procedure given in the Act, 1990.
15. Further, provisions of section 65 that primarily deal with the Federal Government's power to grant exemption in a case where a registered person fails to collect tax inadvertently or under a general practice, provide ample guidance on the subject of recovery prior to actual registration from a person who is liable to register. The said section 65 reads as under: "Section 65, Exemption of tax not levied or short levied as a result of general practice: Notwithstanding anything contained in this Act, if in respect of any supply the Federal Government is satisfied that inadvertently and as a general practice:
(a) tax has not been charged in any area on any supply which was otherwise taxable, or according to the said practice the amount charged was less than the amount that should have actually been charged;
(b) the registered person did not recover any tax prior to the date it was discovered that the supply was liable to tax; and
(c) the registered person started paying the tax from the date when it was found that the supply was chargeable to tax; It may, by a notification in the official Gazette, direct that the tax not levied or short levied as a result of that inadvertent practice, shall not be required to be paid for the period prior to the discovery of such inadvertent practice.
16. We have given a conscientious reading to the above quoted law and we very strongly feel that the expression "registered person" appearing in clause (b) of section 65, includes the person liable to register as provided in section 2(25) of the Act, 1990. Had there been no need of charging / paying / recovery of sales tax prior to registration, the legislature should not have prescribed a mechanism for granting exemption in case the person liable to register had failed to collect tax because of inadvertence or some general practice in the relevant sector of economy or a particular area. The gist of the above discussion is that in view of the combined and harmonious reading of various provisions of the Act, 1990 and Sales Tax Rules, 2006, it is overwhelmingly clear that the legislature never intended to enact that the legitimate amount of sales tax pertaining to the tax periods prior to actual registration is not recoverable from a person who is liable to register and has been treated by the law as a registered person by fiction of law.
17. The honorable Lahore High Court in a case of M/s SK Steel reported in 2019 PTD 1493 has already expressly resolved the controversy at hand by holding that the defaulted amount of sales tax prior to registration is recoverable under the law. In the said case, the Honorable High Court has decided reference on the following question of law: "(ii) Whether under the facts and circumstances of the case, the learned ATIR was justified to set aside the orders passed by both the authorities below holding that the Order-in-Original was finalized without registration or compulsory registration, ignoring that a person liable to be registered is also included in the definition of the registered person under section 2(25) of the Sales Tax Act, 1990?"
(Emphasis supplied)
The honorable High Court was pleased to answer the above question as follows: "17. In view of the above, our answer to the proposed questions is that the combined reading of the provisions of the Act of 1990 and the Rules framed thereunder manifestly disclose the intention of the law maker that, where a person is liable to be registered, the applicant- department is first required to register that person compulsorily or otherwise in accordance with law, and then charge sales tax from it under Section 3 of the Act of 1990, and may proceed against that person regarding prior to registration contravention of the provisions of the Act of 1990, if any. In that eventuality, taxpayer shall be entitled to raise all factual and legal objections against the proceedings so initiated or to be initiated by the applicant-department which are not dealt with in this judgment."
(Emphasis supplied)
18. It is evident from the above judgment that the Honorable High Court has very candidly and expressly answered the question and given a ruling that defaulted amount of sales tax pertaining to the tax periods prior to sales tax registration can be recovered. Needless to highlight, the judgment of the honorable High Court is binding on subordinate courts/tribunals or authorities in view of Article 201 of the Constitution of Islamic Republic of Pakistan, 1973.
19. On merits, suffice it to observe that the appellant taxpayer has not denied the factum of doing business as wholesaler/retailer of sugar and making taxable supplies. The taxpayer has also not denied purchases of sugar valuing 14,685,343/- during tax periods 01.07.2020 to 30.06.2021 from Messrs Chenar Sugar Mill as un-registered buyer as confronted in the show-cause notice rather only claimed to be un-registered person during the alleged period and pleaded the matter mainly on legal premise. We are not inclined to accept the contention of the learned AR that sales tax could not be charged for the period in which the appellant was not registered.
20. Having viewed the whole issue by analyzing the relevant provisions of Sales Tax Act, 1990 discussed supra and in the presence of decision of the Hon'ble Lahore High Court given in SK Steel Mill case ibid, we are of the firm opinion that sales tax can be charged for period prior to compulsory or voluntary registration subject to limitation. Both the officers below rightly charged and upheld sales tax demand. The impugned orders are accordingly upheld.
21. The titled taxpayer's appeal is dismissed.