MIAN TAUQEER ASLAM (JUDICIAL MEMBER).--(1). Sales Tax appeals have been filed at the instance of appellant/registered person on the grounds as set forth in the memo of appeal, against order- in-appeal No. 740/2014 dated 29-09-2014 & order-in-appeal No. 40/2016 dated 28-01-2016 passed by the learned CIR (Appeals), Faisalabad. Since, above titled appeals involve common questions of law and facts therefore, the same are being decided through this consolidated order.
2. Brief facts culled out from the case record are that the appellant was registered with the sales tax department since 1st January, 1998 however, upon exemption of agricultural machinery, equipments, instruments and parts vide S.R.O. 542(I)/2006 dated 30-06-2006, he was de- registered by the department. However, in Mrach-2014 and June-2015, the department has issued the impugned show cause notices for recovery of sales tax revealing that since exemption granted by the Government was withdrawn vide S.R.O. No. 480(I)/2011 dated 03-06-2011 therefore; all his supplies made during the financial years 2012, 2013 and 2014 become taxable supplies. It was further alleged that the appellant did not get registered under the Sales Tax Act, 1990 despite of the fact that he does not fall under the definition of cottage industry as defined under section 2(5AB) of the Act and exemption from payment of sales tax was withdrawn vide Notification No. S.R.O.
480(I)/2011 dated 03-06-2011 and this exemption was granted on import and local supply of all agricultural machinery/equipments, instruments and parts thereof vide S.R.O. 542(I)/2006 dated 30-06-2006. The appellant was thus liable to be registered as its annual turnover exceeded Rs. 5 million and utility bills also exceeded the maximum threshold of Rs. 6 Lac.
3. Consequently, show cause notices dated 17-03-2014 and 06-06-2015 were issued by the learned ACIR and DCIR asking the appellant as to why an amount of sales tax worth Rs. 3,101,738/- & Rs.
2,461,113/- may not be recovered under section 11(2) of the Sales Tax Act, 1990 alongwith default surcharge and penalty under sections 34 and 33 ibid. The contravention proceedings initiated in absentia against the appellant, culminated in passing an assessment orders dated 29-09-2014 & 28-01-2016 whereby the alleged demand was upheld against the appellant. Being discontented and aggrieved by the said orders, the appellant went in appeals before the learned CIR(A) and assailed the treatment meted out at assessment stage but the learned CIR(A) vide impugned orders dated 20-09-2014 & 28-01-2016 dismissed the appeals. The appellant, to show discontent, has thrown challenge on the orders of learned CIR(A) by availing the remedy of second appeals enshrined under section 46 of the Act, 1990; hence the instant appeal proceedings.
4. Learned counsel appearing on behalf of the registered person has termed the actions of both the authorities below to be illegal, void, arbitrary and contrary to the facts of the case. Learned counsel vehemently contended that the appellant was registered with the department since 1st January, 1998 as a manufacture engaged in making of taxable supplies of agricultural instruments, equipments & machinery however, upon exemption of agricultural machinery vide S.R.O.
542(I)/2006 dated 30-06-2006, he was automatically de-registered by the FBR through online system. According to the learned counsel, during the tax year from 2006 to 2014, the appellant remained de-registered and inactive person on FBR's website and his sales tax registration number was reinstated through online system by the FBR in January-2015 and he has started to file its monthly sales tax returns w.e.f. January-2015 when the FBR provided him pin code and password for online filing of sales tax returns. Learned counsel further stated that there is no provision available in the-Sales Tax Act, 1990 or the rules made thereunder which empowers the CIR to register any person from the past tax periods and to create sales tax liability for the tax periods prior to its sales tax registration. It was forcefully urged on behalf of appellant that as per Rule 6(4) of the Sales Tax Rules, 2006 notified vide S.R.O. 555(I)/2006, compliance to the provisions of the Sales Tax Act, 1990 and the rules made thereunder would commence from the date of compulsorily registration instead from the tax periods prior to its registration. To strengthen his contention, learned counsel placed reliance on the judgments reported as (PTCL 2018 CL 381), (2020 PTD (Trib.) 562) & (2020 PTD (Trib.) 2048). The learned AR further argued that the contravention case has purely been made out merely on the basis of information obtained from the income tax returns of the appellant. It was view point of the learned counsel that income tax record can be looked into for the purposes of conducting investigations and if any difference is detected by the detecting agency then it should be substantiated with solid and convincing material evidences as records relating to income tax cannot be made basis for creating sales tax liability against any registered person without any other corroborating material evidences. In support of his contention, he placed reliance on the judgments reported as (2013 PTD (Trib.) 2130) & (2022 PTD.(Trib.) 207). It was also submitted that the appellant has made payment of sales tax on Electricity, Gas, Telephone and other utilities, etc during the periods under reference prior to sales tax registration therefore is legally entitled to avail the benefits of refunds or as the case may be its adjustment on account of payment of input tax paid against utility bills. The learned AR ended with the prayer to accept the appeals.
5. On the other hand, learned DR while countermanding the arguments of the learned AR submitted that the CIR has the power to register a person from the date of the first taxable supply made by him and since exemption granted by the Federal Government was withdrawn on 03-06- 2011 therefore; all the supplies made by the appellant during the financial years 2012, 2013 & 2014 become taxable supplies and the appellant was thus liable to be registered. The appeals may be dismissed, the learned DR prayed.
6. We have heard arguments of both the rival parties and have carefully examined the relevant provisions of law as well as the case record and the case laws cited by the learned AR of the taxpayer have also been perused carefully.
7. The controversy between the parties revolves around the interpretation of the different provisions of the Act and the rules made thereunder and in order to assess and analyze those provisions, it would be advantageous to reproduce them which read as under:-- S.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) a manufacturer who is not running a cottage industry;
(b) a retailer who is liable to pay sales tax under the Act or rules made thereunder, excluding such retailer required to pay sales tax through his electricity bill under sub-section (9) of section 3,
(c) an importer;
(d) an exporter who intends to obtain sales tax refund against his zero-rated supplies;
(e) a wholesaler, dealer or distributor; 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). Persons not engaged in making of taxable supplies in Pakistan, if required to be registered for making imports or exports, or under any provisions of the Act, or any other Federal law, may apply for registration.
(3). The registration under this Act shall be regulated in such manner as the Board may, by notification in the official Gazette, prescribe.
Rule 6. Compulsory Registration. -- (1). if a person, who is required to be registered under the Act, does not apply for registration and the Commissioner Inland Revenue or any other officer, as may be authorized by the Board, after such inquiry as deemed appropriate, is satisfied that such person is required to be registered, he shall issue notice to such person in the Form set out in Form STR-6.
(2). In case the Commissioner receives a written reply from the said person within the time specified in notice under sub-rule (1), contesting his liability to be registered, the Commissioner shall grant such person opportunity of personal hearing, if so desired by the person, and shall thereafter pass an order whether or not such person is liable to be registered compulsorily. Copy of the said order shall invariably be provided to that person. Where the Commissioner passes the order for compulsory registration, he shall cause the said person to be registered through computerized system.
(3). Where the person to whom a notice is given under sub-rule (1), does not respond within the time specified in the notice, the Commissioner shall cause to compulsorily register the said person through computerized system under intimation to the said person through courier service.
(4). A person registered compulsorily under sub-rule (2) or (3) is required to comply with all the provisions of the Act and rules made thereunder from the date of compulsory registration, and in case of failure to do so, the Commissioner Inland Revenue having jurisdiction may issue notice under section 25 of the Act for production of records or documents and appearance in person to assess the amount of sales tax payable under section 11 of the Act, and take any other action as required under the law against such person: Provided that if it is subsequently established that a person was not liable to be registered but was wrongly registered under this rule due to inadvertence, error or misconstruction, the Commissioner shall cause to cancel his registration through the computerized system. In case of such cancellation of registration, such person shall not be liable to pay any tax, default surcharge or penalty under the Act or rules made thereunder, subject to the conditions, limitations and restrictions prescribed under section 3B of the Act.
(Underlying is ours)
From bare perusal of above quoted provisions of law, it becomes clear and obvious that 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, if already not registered, is required to be registered in any of specified categories as enumerated in section 14 of the Act. Sub-section
(3) of section 14 of the Act provides that sales tax registration shall be regulated through rules as notified by the Board (FBR). Accordingly, the Board in exercise of powers conferred inter alia by the sub-section (3) of section 14 of the Act prescribed the rules known as the Sales Tax Rules, 2006 and Chapter-1 of the said rules 'prescribed the procedure for registration, compulsory registration and de-registration. Rule 6 of the said rules specifically prescribed the procedure for compulsory registration of any person and according to sub-rule (1) and (3) of the Rule 6 that if the department is of the opinion that a certain person is liable to be registered but is not voluntarily obtaining sales tax registration, it has to resort to the above procedure in order to assign sales tax registration number to a person liable to be registered. It is also a fact that without pin code, passwo rd and sales tax registration number, a person liable to be registered cannot file sales tax return, pay sales tax or be subjected to audit under .section 25 of the Act hence, charging sales tax by the department without assigning compulsory sales tax registration number do not find any support from the Rule 6 which explained and laid down the procedure for carrying out the spirit of the Statute. If a person could not register himself voluntarily, thereafter, it was duty of sales tax department to register the defaulting person compulsorily as per the provisions of Rule 6 of the Sales Tax Rules, 2006 at the material time. If the provisions of section 2(25) of the Sales Tax Act, 1990 are dilated upon, it would indicate two conditions (i) a person who is registered (ii) or liable to be registered. The person liable to be registered falls within the scope of compulsory registration.
The sales tax registration rules indicate that this job is to be done by the sales tax department. The wordings of Rule 6 are also quite clear that if the department, "is satisfied that such person is required to be registered, it shall issue notice to such person". Thus, Rule 6 itself carries the interpretation of section 2(25) of the Act by stipulating that if department is of the opinion that a person is liable to be registered then a notice has to be issued. It has also been seen that sub-rule
(4) of Rule 6 of the Sales Tax Rules, 2006 highlighted above, clearly and expressly provides for its provisions to take effect from the date of compulsory registration. This being so, there can be no cavil to its applicability commencing from the date of compulsory registration and not for any tax period prior thereto. Be that as it may be, the effect of compulsory sales tax registration of a person cannot be made from the date he became liable for sales tax registration. Therefore, liability of sales tax created against the appellant for the tax periods prior to its sales tax registration is illegal and against the expressed provisions of law.
8. Furthermore, there is considerable merit in the contention raised by the learned AR that if the appellant was liable to be registered w.e.f. 3rd June, 2011 when the exemption was withdrawn by the Federal Government then why the sales tax department has not asked the appellant for non-filing of sales tax returns pertaining to the tax periods from June-2011 to December-2014 and even no proceedings for imposition of penalty for non-filing of sales tax returns has been initiated against the appellant till to date which shows that the department was also unaware from withdrawal of exemption by the Federal Government vide S.R.O. No. 480(I)/2011 dated 03-06-2011 on account of agricultural machinery, equipments, instruments and parts.
9. In view of what has been stated and particularly in the light of legal propositions discussed hereinabove, titled appeals are accepted and impugned show cause notices and consequent orders of both the authorities below being illegal, unlawful and ab initio void are set aside.
10. The instant appeals filed by the taxpayer are disposed of in the manners as indicated above.