ZAHID SIKANDAR, JUDICIAL MEMBER. The appellant, SNGPL, inter alia has thrown challenge against orders of the taxing as well as appellate authority whereby sales tax was held chargeable on supplies made by the appellant to SWAT area during period July 2019 to December 2022 and accordingly sales tax amount of Rs.2,944,976,216/-, Further Tax at Rs.519,701,685/- and Extra Tax at Rs.1,895,953,036/- was ordered to be recovered from the appellant along with default surcharge and penalty of Rs.268,031,547/-.
FACTS/BACKGROUND OF THE CASE:
2. Messrs Sui Northern Gas Pipe Lines Ltd. (herein after referred as 'the registered person' is engaged in transmission and distribution of Natural Gas to domestic, commercial and industrial consumers.
Upon scrutiny of sales tax returns of the registered person for period involving July 2019 to December 2022 it revealed that the appellant is availing exemption under Sim: Schedule Table I, Sr.No. 151(a) of Sales Tax Act, 1990 contrary to the law as exemption is available from sales tax on goods produced and supplied by industrial units located in certain erstwhile FATA/PATA.
Accordingly, Show-Cause Notice vide C.No.6632 dated 12.04.2023 was issued to the registered person by the OIR confronting the observed discrepancy with the intention to recover Sales Tax, Further Tax and Extra Tax amounting to Rs.2,944.976,216/-, Rs.519,701,685/- and Rs.1,895,953,036/- under section 11(2) along with default surcharge and penalty for the stated default. Matter was duly contested by the registered person by filing reply and raising various objections. It was mainly asserted that supplies of Natural Gas made by the company in the erstwhile FATA/PATA area are duly covered by Sr.No.151 of Table-I of Sixth Schedule of STA, 1990. Further, non-application of sales tax on supply of gas in Swat has also been confirmed by superior courts. The said reply was rejected and the OIR vide order dated 25.08.2023 ordered recovery of the confronted amount of Sales Tax, Further Tax and Extra Tax along with default surcharge and penalty.
3. The aforesaid order-in-original was assailed in appeal before the CIR (A) but that did not bring any fruitful result for the registered person. The CIR(A) confirmed the charge of tax by endorsing the observations given by the assessing officer that exemption of sales tax in such territories is only available to the supplies made within the Tribal areas as per section Sr.No.151 of Table-I of Sixth Schedule of STA, 1990 and the appellant is not entitled to avail exemption. This has brought the registered person before the tribunal through this appeal.
APPELLANT'S SUBMISSIONS:
4. Mr. Hassan Akhtar, Adv, the learned representative of the appellant initially briefed the history of insertion of Sr.No.151 and insertion/rescindment of various SROs 888,889 and 890(I)/2018 after the commencement of the Constitution (Twenty-Fifth Amendment) Act whereby the Federal Government granted exemption from sales tax on certain supplies. It is contended that supplies made by SNGPL in the erstwhile tribal areas during tax periods July 2019 to December 2022 were exempt from sales tax by virtue of Sr.No.151 of Table-I of the Sixth Schedule to the Sales Tax Act, 1990. It is argued that Sr.No.151 covers supplies made till 30.06.2024, to which the provisions of the Act or the notifications issued thereunder, and would have not applied had Article 247 of the Constitution not been omitted under the Constitution (Twenty Fifth Amendment). According to the learned counsel, Sr.No.151 restored the legal position existing prior to the commencement of the Constitutional amendment ibid and granted exemption to all such supplies (till 30.06.2024) which were exempt prior to the changes made to the constitution through the aforesaid 25th amendment. The learned AR for the registered person also placed before us copies of judgments reported in 2022 SCM R 1251 and an unreported judgment of Peshawar High Court given in Cr.A No. 74-M of 2016 titled as Chairman CBR v. GM SNGPL in support of his assertions whereby the Hon'ble Court held that SNGPL's supplies in the erstwhile tribal areas are not chargeable to sales tax on account of Pre 25th amendment position and sales tax law did not apply to Tribal Areas under Article 247 of the Constitution. The .learned AR concluded that Since Sr.No.151 restored the legal position existing prior to the 25th Constitutional amendment therefore the very issuance of show- cause notice and subsequent charge of Sales Tax, Further Tax and Extra Tax along with default surcharge and penalty by the learned officers below on supplies made by SNGPL in FATA/PATA area is illegal and unlawful.
RESPONDENT'S ARGUMENTS:
5. Conversely, Mr. Shah Jahan Khan, LA for the department assisted by Mr. Talib Hussain, DR responded to the appellant's contentions. The learned LA has not disputed to the legal position prior to the 25th Constitutional amendment rather he mainly emphasized on the interpretation of Sr.No.151 of Table-I of Sixth Schedule inserted through Finance Act, 2019. It is submitted that S.No.151 sub-serial (a) entails 'supplies' followed by 'and' which is then followed by sub-serial (b) incorporating the words imports of plant, machinery, equipment for installation in Tribal Areas and industrial inputs by the industries located in the tribal areas. The learned LA vehemently emphasized that Sr.No.151 sub-serials (a) and (b) are to be read conjunctively as single preposition and contains a very narrow exemption which only covers supplies and imports of plant, machinery, equipment for installation in tribal areas and of industrial inputs by the industries located in the tribal areas. The learned maintained that if sub-serial (a) and (b) read disjunctively and read in isolation then words 'supplies' envisaged in sub-serial (a) would mean all kind of supplies exempted from payment of sales tax which certainly cannot be the intent of the legislature as it would destroy the entire purpose of Sales Tax Act, 1990. Further contends that since it is an exemption clause therefore it has to be construed strictly and if two interpretations are possible then being an exemption clause the one going in favour of the department is to be adopted. The learned LA also made reference. to next Sr.No.152 of Table-I of Sixth Schedule of STA which has envisaged exemption specifically to supplies of electricity in tribal areas and argued that both Serial numbers 151 and 152 were inserted through Finance Act, 2019 whereby S.No.152 specifically granted exemption to supplies of electricity and had there been an intention of the legislature to grant exemption on supplies of gas in the erstwhile tribal areas it would never specifically done so.
In the absence of any specific exemption the intention of legislature is to make supplies of gas in tribal areas taxable. The learned LA also attempted to distinguish the referred case laws ibid as not applicable in the present case and to draw strength from case laws reported in 2018 SCMR 939 and 2022 SCMR 1251. The learned counsel finally prayed for the dismissal of the instant appeal.
DETERMINATION BY THE TRIBUNAL Background of insertion of Sr.No.151 of Table-I of Sixth Schedule STA:
6. At the very outset, it is important to highlight the background of insertion of Sr.No.151 in Sales Tax Act, 1990 which would make the interpretation much clearer. Before the 25th Constitutional Amendment, Income Tax and Sales Tax laws were not applicable to the erstwhile FATA. However, on omission of Article 247 of the Constitution through the aforesaid amendment, all the laws including tax laws enforced in the country particularly in the provinces of Khyber Pakhtunkhwa and Balochistan, ipso facto, became applicable to the defunct FATA. Soon after, the Federal Government realized that inhabitants of the defunct FATA needed breathing space for entering into the tax regime and accordingly three SROs 888, 889 and 890(I)/2018 all dated 23.07.2018 were issued granting sales tax exemption on certain supplies. Still, concerns were raised by the local trading community that the said notifications were narrow in scope and those did not restore the position as existed prior to the 25th constitutional amendment. In order to address the concerns and while realizing the restiveness amongst the residents of defunct FATA in relation to levy of sales tax to the said erstwhile Tribal areas, the Federal Government ab-initio rescinded the said notifications and issued SRO 1212(I)/2018 dated 05.10.2018. For the sake of convenience and ready reference SRO 1212(I)/2018 is reproduced below: S.R.O 212(I)/2018. WHEREAS prior to commencement of the Constitution (Twenty-Act, 2018 (XXXVII of 2018), the Sales Tax Act, 1990, was not in force in the Tribal Areas as defined in Article 246 of the Constitution of the Islamic Republic of Pakistan, hereinafter called as the Constitution, and the levy of sales tax was not attracted to the supply transactions made in the said Tribal Areas; AND WHEREAS Article 247 of the Constitution stood omitted on commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018) with effect from the 31st day of May, 2018 and the Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA) stood merged in the Provinces of Khyber Pakhtunkhwa and Balochistan under paragraph (d) of Article 246 of the Constitution; AND WHEREAS on commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018), the Sales Tax Act, 1990 is in force in the said Provinces including the erstwhile Tribal Areas forming part thereof; AND WHEREAS a phased approached was needed for the full application of fiscal laws to the said erstwhile Tribal Area, a decision was made to exempt all those supplies and transitions from levy of federal tax which were not applicable to the said areas by virtue of said Article 247 and accordingly three sales tax Notifications No. S.R.O. 888(I)/2018, No. SRO. 889(I)/2018 and No S.R.O.
890(I)/2018, all dated the 23rd July, 2018, were issued by the Federal Government granting exemption from sales tax to the supplies specified therein: AND WHEREAS concerns were raised by the trading community of the said erstwhile Tribal Areas to the effect that the three aforesaid Notifications did not restore the position as existed prior to the commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018); NOW, THEREFORE, in order to address the concerns so raised and to restore the position in relation to levy of sales tax to the said erstwhile Tribal Areas, the Federal Movement, in exercise of the powers conferred by clause (a) of subsection (2) of section 13 of the Sales Tax Act, 1990, is pleased to--
(a) ab-initio rescind its Notification No. S.R.O 888(I)/2018, No. S.R.O 889(I)/2018 and No. S.R.O 890(I)/2018 all dated 23rd July, 2018 and; "(b) exempt from whole of sales tax, by whatever name called, as levied under the Sales Tax Act, 1990, or notifications issued thereunder, on supplies made till the 30th June 2023, to which the provisions of the said Act of 1990 or the notifications issued thereunder, would have not been applied had Article 247 of the Constitution not been omitted under the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018)."
7. There is no cavil to the preposition that before 25th Amendment Act, 2018 and merger of FATA into settled area, the residents and inhabitants of Tribal Areas were enjoying immunity from every kind of tax. However, this immunity was done away with by the Constitutional 25th Amendment Act, 2018 whereby Tribal Areas were merged into settled areas and all the Federal Laws including tax laws automatically got extended to the Tribal Areas. It is also manifest from record and the above quoted SRO 1212(I)/2018 that the Federal Government decided to continue concession to the residents of FATA/PATA by providing breathing space to them to enter into the tax regime gradually and so they were granted all benefits, in the shape of exemption from all taxes, which were available to them prior to 25th amendment. Such intent of legislature can be safely inferred from the following phrase of the given SRO which stipulates that exemption is granted from whole of sales tax by whatever name it is called: "NOW, THEREFORE, in order to address the concerns so raised and to restore the position in relation to levy of sales tax to the said erstwhile Tribal Areas, the Federal Movement, in exercise of the powers conferred by clause (a) of subsection (2) of section 13 of the Sales Tax Act, 1990, is pleased to--
(a) ............
"(b) exempt from whole of sales tax, by whatever name called, as levied under the Sales Tax Act, 1990, or notifications issued thereunder, on supplies made till the 30th June 2023, to which the provisions of the said Act of 1990 or the notifications issued thereunder, would have not been applied had Article 247 of the Constitution not been omitted under the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018)."
8. Later on, the exemption granted through SRO 1212(I)/2018 was given statutory footing by way of insertion of S.No.151 through Finance Act, 2019. The FBR vide dated 26.07.2019 issued Circular No.01 of 2019 giving following explanation for the amendment/insertion of S.No.151 in Sales Tax Act, 1990.
"(vii) New serial number 151 has been added. This is a transposition of exemption under SRO 1212(I)/2018 which now has been rescinded and which provided exemption on supplies made within the tribal areas. In the transposed from, it allows further exemption imports of industrial input including plant and machinery imported by industrial units located within tribal areas. These exemptions on imported imports/plant and machinery shall be availed subject to security mechanism specified under this serial."
9. From the above series of events, it is crystal clear that post 25th constitutional amendment the Federal Government intended to bring inhabitants of FATA/PATA area in tax regime phase wise from old tribal conditions to constitutional state and for that purpose kept the situation intact as it was existing prior to 25th amendment regarding non-applicability of taxes on supplies (as made till 30th June 2024).
Interpretation of Sr.No.151 of Table-I of Sixth Schedule STA:
10. The arguments of respondent's counsel mainly revolved around the interpretation of Sr.No.151 and according to him provisions given in sub-serials (a) and (b) of S.No.151 are to be read conjunctively as a single preposition. He further submitted that if sub-serials (a) and (b) read disjunctively it would lead to very absurd result. The learned counsel added that the word 'supplies' given in sub-serial (a) if read in isolation it would mean all the supplies are exempted from the charge/levy of sales tax under the Sales Tax Act, 1990 which cannot be the intent of legislature. It is only when 'supplies' is read conjunctively with sub-serial (b) it comes out that the 'supplies' and 'imports' by the industries located in the tribal areas are exempted from levy of sales tax. The learned counsel for the appellant rebutted such interpretation being erroneous. He submitted that both the sub-serials operate independently and are separately connected to the phrase 'as made till 30th June 2024'.
11. The word "or" is normally disjunctive and "and" is normally conjunctive, but at times, they are read vice versa to give effect to the manifest intentions of the legislature. Legislative history and the intention of the framers as elucidated above clearly point out that concession to the residents of FATA/PATA in respect of immunity from sales tax on supplies was continued by providing breathing space to them to enter into the tax regime gradually and so they were granted all benefits, in the shape of exemption from all taxes, which were available to them prior to 25th amendment. Plain reading of S.No.151 does not support the interpretation made by the learned LA for the department.
S.No.151 is divided into two separate and distinct prepositions enumerated separately as (a) and
(b) and are divided by use of semi colon. Semi colons are used to join two related but independent clauses. We are not inclined to hold that the expression "and" used in between the two clauses, should be read conjunctively as contended by the learned counsel for the department. That construction of ours is in keeping with the legislative intent manifested above behind the insertion of Sr.No.151. To support our view, we draw strength from Circular No.1 issued by FBR giving explanation for the reasons of insertion of S.No.151 It v. as clarified that S.No.151 was added and it is a transposition of exemption under SRO 1212(I)/2018. It is explained that in transposed farm, it allows further exemption on imports of industrial input including plant and machinery imported by industrial units located within tribal areas. The underlined word 'further' is of much relevance. It means exemption on imports is also granted in addition to exemptions already available under SRO 1212(I)/2018 with respect to supplies within tribal areas. At the cost of repetition, we reiterate that under the said SRO the Federal Government provided exemption from whole of sales tax by whatever name called as levied under Sales Tax Act, 1990. Hence, we decline the argument of learned LA that if both sub-serials read disjunctively would mean that all kind of supplies as exempt from tax is against the intent of legislature. The intent of the legislature is manifestly clear that it decided to continue the concession of exemption on sales tax as on supplies till 30th June 2024 in order to ,provide some breathing space to the inhabitants of FATA/PATA to merge them into the constitutional state.
12. Reference was also made to S.No.152 of Table-I of Sixth Schedule by the learned LA which deals with exemption on supplies of electricity till 30th June 2024 to all residential and commercial consumers in the tribal areas. He argued that supplies of electricity have been specifically exempted vide this serial No.152 and had the legislature intended to exempt supplies of gas it would have also done so specifically. We are not fortified with the contentions of the learned LA in this respect as provision envisaged in Serial No.151 is to be seen and interpreted according to its language keeping in view the background and history of the legislation. It is already stated in the preceding paras dial the Federal Government has issued different SROs to facilitate the inhabitants of FATA/PATA to bring them within the constitutional sphere phase wise and by providing exemption on supplies as it existed prior to the 25th constitutional amendment and is a transposition of SRO 1212(I)12018 (Now rescinded) which clearly provided exemption from whole of sales tax by whatever, name it is called Further, if the legislature in its wisdom has specifically mentioned in Serial No.152 of Table-1 Sixth Schedule exemption on supplies of electricity to all consumers that does not mean that all rest of supplies are excluded from exemption specially in the presence of S.No.151 which deals with 'supplies' also. We can state it with un-ambiguity that word 'Supplies' given in sub-serial (a) is an independent provision and has to operate separately by connecting with phrase 'as made till 30th June 2024'.
Supplies made from outside the territory of FATA/PATA.
13. The learned LA for the department relied upon case laws reported in 2018 SCMR 939 and 2022 SCMR 1251 while arguing that even prior to 25th Amendment Act, 2018 the Hon'ble Supreme Court of Pakistan in the referred judgments ibid observed that activities taking place exclusively within the territory of the erstwhile FATA/PATA were exempted. The bottom line of his arguments is that since SNGPL/appellant had supplied gas from outside the territory of FATA/PATA from Pakistan therefore the taxpayer being based in Pakistan had no exemption on its supplies made to erstwhile FATA. The learned counsel for the appellant has rebutted the argument by submitting, firstly, that it is incorrect to state that the supplies made by SNGPL are from outside territory of FATA/PATA as according to him the SNGPL has a wide network having offices, infrastructure, pipelines and supplies of gas was made within the territorial bounds of erstwhile FATA/PATA, and secondly the judgment cited are distinguishable.
14. After carefully examining the judgments cited, we are of the considered opinion that the same are not applicable in the present case being distinguishable. Both the judgments pertained to a situation where the person making taxable supplies was located in Pakistan whereas the recipient of those supplies was located in erstwhile Tribal Areas. In 2018 SCMR 939, the respondent taxpayers claimed territorial/constitutional exemption of advance income tax and sales tax on imports of raw materials/machinery on the ground that its plant is located in Dargai, Malakand Agency which is part of PATA on the anvil of Article 247(3) of the Constitution. The matter pertained to import of goods at Karachi airport and then its subsequent transfer to the PATA. Issue, mainly, was whether imports made by people of Tribal Areas are subject to levy of sales tax. It was pleaded by the department that imports are a separate and distinct taxable event under the STA, 1990 and if imports are made in taxable areas, sales tax shall be applicable regardless of the destination of the imported consignment. The Hon'ble apex court dismissed the department's appeal by clearly holding that Constitution itself granted complete immunity for, and in relation to sales tax in PATA therefore provisions of Sales Tax Act, 1990 did not justify the, levy and collection of sales tax on goods meant and intended for PATA. While dismissing the said appeal the Hon'ble court made observations that the department is entitled to conduct an investigation on the factual plane to determine whether the goods are indeed intended for PATA and whether these are processed and sold in PATA. On the factual plane, it seems illogical that the gas supplied in FATA/PATA is not meant for the said territories. There is also no denying the fact that SNGPL has infrastructure in FATA/PATA to ensure the consistent supply of gas. So, it cannot be understood that gas supplied by SNGPL to FATA/PATA was made from outside the territory. Even otherwise the question as to whether supplies made from outside erstwhile FATA/PATA is not established from record.
15. In case law 2022 SCM R 1251 the matter before the court was whether Further Tax under section 3(1A) applied to supplies made to distributors located in Tribal Areas. The Hon'ble Supreme Court held that 'for there to have been a valid levy and charge in terms of section 3(1A), had to have been a sale of taxable goods in Pakistan'. The apex court used the phrase 'in Pakistan' in the special sense as it applied prior to 25th amendment. The court stated that when it used the phrase 'in Pakistan' it meant Pakistan excluding the tribal areas which were not subject to sales tax law on account of Article 247 of the Constitution. The Court held that it was not enough that the suppliers were located outside the Tribal Areas; for sales tax to apply both the suppliers and buyers must have been outside the Tribal Areas. The fact that the department had not established that the buyers were outside the Tribal Areas was fatal to the case of the department and accordingly show-cause notices could not succeed. It is pertinent to mention here that the subsequent omission of the phrase 'in Pakistan' had no substantive impact on the law as section 1(2) of Sales Tax Act provides that the Act extends to the whole of Pakistan. Therefore, it is axiomatic that, in so far as local supplies are concerned, the Act covers supplies in Pakistan (excluding the Tribal Areas on account of Article 247 of the Constitution). The Constitution, through Article 247), mandated that sales tax shall not apply to the people of Tribal Areas.
16. Contrarily, besides placing various citations, the learned counsel mainly relied upon two judgments of Hon'ble Peshawar High Court given in Cr.A. No.74M of 2016 and Cr.A. No.165 of 2012.
Incidentally, both SNGPL and FBR were parties in those cases. It was held in unequivocal terms that SNGPL's supplies in the erstwhile Tribal Areas are not chargeable to sales tax on account of Pre- 25th amendment position whereby sales tax law did not apply in the tribal areas under Article 247 of the Constitution. The learned counsel apprised that in both the cases FBR did not file appeal and the same have attained finality and are binding on SNGPL as well as FBR.
17. Following a thorough analysis of ground of appeal presented by the taxpayer, considering arguments of the learned representative of both the rival parties, a careful review of the impugned orders and in the light of citations referred above, we hold that S.No.151, Table-I of Sixth Schedule of STA, 1990 restored the legal position prior to enactment of the Constitution (Twenty-fifth amendment) Act, 2018 and the appellant is fully entitled to exemption available to supplies to SWAT/FATA/PATA under S.No.151. Consequently, Sales Tax including Further tax and Extra Tax along with default surcharge and penalty charged on supplies made by the appellant to SWAT area (FATA/PATA) is hereby declared as illegal, void ab-initio and without lawful authority. Impugned orders are accordingly set aside.
18. The titled tax payer's appeal is allowed.