SYED ARSHAD ALI, J.- This is a Sales Tax Reference filed by the petitioner under Section 47 of the Sales Tax Act, 1990 ("Act") against the order of the learned Appellate Tribunal Inland Revenue, Special Division Bench, Peshawar ("Tribunal") dated 17.06.2022 wherein certain questions of law have been framed for adjudication of this Court as per memo of the instant reference.
2. Brief facts of the case are that the Officer of Inland Revenue while examining the income tax returns of the petitioner for the tax year 2018 had observed that there was visible difference between the turnover of the petitioner as reflected in his income tax returns and sales tax returns, therefore, it was a case of short payment and concealing of the entire record relating to the sales of the petitioner maintained under the sales tax regime. The details whereof are tabulated as following which were communicated to the petitioner vide Show Cause Notice dated 17.03.2020 seeking his explanation on the same.
PERIODTurnover as per income tax return (Rs.)Sales as per sales tax return (Rs.)Difference (Rs.)Short Paym ent of sales tax (Rs.)Further tax (Rs.)
2017-1846,875,000/- 30,588/- 46,844,412/-7,963,550/- 936,888/-
3. The petitioner contested the said Show Cause Notice on number of grounds which, inter alia, includes that the income tax returns were filed by availing Voluntary Tax Compliance Scheme ("VTCS") through the Income Tax Amendment Act, 2016 as per Circular No.03 of 2016 dated 10.02.2016 and thus the petitioner was bound to declare and pay 25% higher tax on the basis of taxable income of tax year 2015 or on turnover as per rule of the Ninth Schedule to the Income Tax Ordinance, 2001 ("Ordinance") whichever is higher. Similarly, for the tax year 2017, as per VTCS, the petitioner was bound to declare and pay 25% higher tax on the basis of taxable income of tax year 2016 and the same was position for the tax year 2018. The petitioner also claimed that under the VTCS the taxpayer registered with income tax authorities is not required to be registered for sales tax if he qualified the requirement under Rule 6 of Chapter II of the Sales Tax Special Procedure, 2007 whereby sales tax is collected on the basis of electricity consumption of an amount below of Rs.600,000/- annually which is sufficient to discharge his sales tax liability. The Assessing Officer not being satisfied with the aforesaid reply of the petitioner has passed an assessment order for recovery of sales tax and further tax of Rs.7,963,550/- and Rs.936,888/- under Section 11(2) of the Act alongwith default surcharge under Section 34(1) of the Act.
4. The further appeal filed by the petitioner before the Commissioner Inland Revenue (Appeals)
Peshawar was dismissed by the worthy Commissioner Inland Revenue vide order dated 23.11.2020.
Similarly, the second appeal of the petitioner before the Tribunal was also dismissed vide impugned order dated 17.06.2022.
5. The essential issue for adjudication before this Court in terms of Section 47 of the Act is whether the information received by the Revenue Department from his income tax returns can be used for the purpose of determining his liability under the Act, if so, then to what extent.
6. 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 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 of 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.[1]
7. The law is very clear on the subject that a tax can be levied only under the authority of law through an express charging provision. There is no concept of enlarging the scope of charging section on the basis of ambiguous and presumptive mechanism which the scheme of the law imposing the tax has not provided. The Revenue while determining the liability upon any person for levying or charging tax under the charging provision, it has to establish that any transaction falls within the scope and ambit of charging section and in the case of sales tax, the essential two attributes in any transaction i.e. taxable supply and taxable activity must exist so that the charging section can be triggered. Thus, in any audit or adjudicating proceedings, the ambiguous and presumptive approach by any auditing officer or assessing officer cannot be approved when the aforesaid essential attributes are not forthcoming from the said findings. Indeed, it is settled law that tax can't be charged and levied unless it falls squarely within the purview of charging provision. Taxing law can't be extended by implication beyond clear import of language.[2]
8. The perusal of the aforesaid provisions would clearly show that the sales tax is charged under Section 3 of the Act which is contingent upon the taxable supplies made in furtherance of taxable activity. Thus, a person can be charged to tax only when his activity confirms the following two expressions i.e. taxable supply and taxable activity.
9. At this juncture, we would not hesitate to borrow para No.20 from the judgment of the Hon'ble Lahore High Court passed in the case of "Haii Sultan Ahmed Vs. Chairman, Central Board of Revenue, Islamabad & 05 others (2008 PTD 103)" wherein; the expression taxable activities have been very elaborately and scholarly referred which reads as under: "20. The expression, "taxable activity" came up for consideration before Hon'ble Sindh High Court, in the cases of "Messrs Usmani Associates" (Supra) and "Novartis Pakistan Ltd" (supra) and their Lordship observed that "any activity carried on in the form of business, trade and manufacture" which is carried on by any person and involves in whole or in part, supply of goods to another person, whether or not for any pecuniary profit, or for any other consideration or otherwise. It was observed that taxable activity clearly envisages the supply of goods to any other person. To create the charge of sales tax both the factors i.e. transaction of sale must constitute a 'taxable activity' and it should be 'taxable supply, must co-exist independently. If one factor is missing, the tax cannot be levied. The learned Court, in the above referred cases found that the transaction must first qualify toto be 'supply' to constitute "taxable supply" and after going through subsection (33), it was held that to constitute 'supply' the transaction must be 'in furtherance of business' and the 'business' is to be construed as the activity recurring for' profit motive and must be in the nature of trade, commerce or manufacture."
10. The financial statements relating to the liability of an assessee under the Ordinance are submitted for the purposes mentioned under the Ordinance relating to the income tax liability of an assessee and his wealth statement, however, the same is neither specified as sales tax record under Section 22 of the Act nor the said document can be termed as a conclusive evidence in respect of the liability of a registered person as far as the sales tax is concerned. As stated above, the Act contains a comprehensive machinery for determination of the tax liability of a registered person which may include audit of its/his account/record in terms of Section 25 read with Section 22 of the Act. We have no cavil that the authorities under the Act may requisition the record of the income tax, however, if any discrepancy is found between the income tax record and the sales tax record maintained under the two different regimes, then it will be lawful for the officers of Inland Revenue established under the Act to conduct audit of the record maintained by the registered person under Section 22 of the Act or in certain cases may under the integrated system consult the record of the person with whom the registered person has business relations.
11. In this regard, we can refer to the judgment of this Court in the case of "Messrs Al-Hilal Motors Stores and others v. The Collector, Sales Tax and Central Excise (East) Karachi and others" reported as (PTCL 2004 CL.1) wherein it was laid down as under:- "Discovery certain cash credit entities in the books of the appellants without any nexus to taxable supplies cannot be treated as amount received from supplies and therefore is not liable to sales tax. It is apparent that except discovering certain cash credits entries in the books of the appellants, the Revenue Officers have not been able to produce any material to show that the said amounts are in any way linked with the taxable supplies or with any taxable activities or represent an amount on account of any business activity."
In the same vein, the Honourable Jammu and Kashmir High Court in case of "Muhammad Siddique and others v. Deputy Collector Excise and Taxation, Sales Tax Officer, Mirpur and others" reported as (PTCL 1991 CL. 108) has also upheld the similar proposition in the following manners:-- "Although, in the Writ Petitions, some assessment orders regarding the income tax and some vouchers have been filed by the petitioners to support their claim that their business was in the nature of a small cottage industry. These documents relating to the income tax, in our views, cannot be taken as a valid evidence for the purposes of sales tax. The reason is obvious. The income tax is always levied and collected on the basis of income but so far as the sales tax is concerned, it is always to be levied on the goods manufactured and sold by the manufacturers"
12. We have perused the Assessm ent Order by the Assessing Officer, the Assessing Officer while determining the tax liability of the petitioner has entirely based its findings on the information relating to the turnover of the petitioner in his income tax returns, therefore, it was not lawful for the Assessing Officer to have determined the liability of the petitioner under the Act on the basis of information received from the income tax department/income tax returns. Hence, the very foundation of the assessm ent is based on alien consideration, therefore, the edifice built upon has to crumble.
13. In view of the above, this tax reference is answered in Positive and as a corollary thereof, the impugned orders of the fora below are set aside. Copy of this judgment be sent to the worthy Tribunal in terms of Section 47(5) of the Act.
[1]The Commissioner, Inland Revenue, Karachi, Vs. Messrs Attock Cement Pakistan Limited, Karachi (2023 SCMR 279).
[2]Chairman, Federal Board of Revenue, Islamabad Vs Messrs Al-Technique Corporation of Pakistan Ltd, and others (PLD 2017 SC 99 rel) and Commissioner Inland Revenue, Gujranwala Vs S.K.Steel Casting, Gunjranwala (2019 PTD 1493).