MALIK HAMID SAEED, J.---Messrs Gul Cooking Oil (petitioners in W.P. No. 988/2001) and Messrs Bara Ghee Mills (Pvt.) Limited (petitioners in W.P. No. 1007 of 2001) are having offices and manufacturing Units in the Provincially Administered Tribal Area at Dargai, Malakand Agency and Federally Administered Tribal Area at Bara, Khyber Agency respectively. Messrs Gul Cooking Oil as well as Messrs Bara Ghee Mills are involved in the manufacture and process of vegetable ghee and cooking oil in their factories located in the tribal territories. The former sells/distributes their finished products in the tribal area of Malakand Agency only whereas the latter exports their finished goods outside the country. Both the concerns are having their notified wherehouses at Dargai (Malakand Agency) and Bara (Khyber Agency), respectively.
2. It seems that a dispute arose between the writ petitioners and the Sales Tax Authorities about the chargeability of sales tax at the time of arrival of their consignments at Kemari (Karachi), Muhammad Bin Qasim Ports, and Customs Dry Port, Peshawar etc., mostly consisted of RBD Palm Oil etc. Imported from abroad and the demand of sales tax at the time of export of the finished goods. Sufficient correspondence took place between the writ petitioners and the concerned Sales Tax Authorities in this regard, the perusal of which reveals that the customs authorities were/are in confusion/doubt about it because of the non-extension of the sales tax at to FATA and PATA,
3. Annexure A/1 with the writ petition is a letter, dated 29-7-1997 addressed to the Additional Collector, Sales Tax, Peshawar from the Home Department, Government of N.-W.F.P. Wherein it has been conveyed that the matter of extension of Sales Tax Act, 1990 to FATAs and PATAs remained under consideration of the Government about two years back, and it was decided that the Act may not be extended to FATAs and PATAs due to the peculiar conditions prevailing there. Annexure A/2 is a letter, dated 16-5-1998 by the Collector, Sales Tax to Member (Sales Tax), Central Board of Revenue, Islamabad, the last three lines of which are to the effect that, "this Collectorate feels that the importers of PATA should not be required to submit Sales Tax Registration Certificate since Sales Tax Act has not been extended to PATA". On 3-6-1998, the Collector Sales Tax, Peshawar through letter, Annexure A/3, addressed to Member, Sales Tax, C.B.R. Showed inability of the Collectorate to register those importers whose offices are located in FATA and PATA, as the Sales Tax Act, 1990 was not extended to those areas.
Annexure A/6 with the writ petition is a letter, dated 16-4-1999 of the Central Board of Revenue, the contents whereof are hereby reproduced as under:--- "Subject: Levy of Sales Tax on supplies to FATA/PATA or supplies from FATA/PATA.
I am directed to refer to your Letter C.No. MACL/99/126, dated 8-2-1999 (received on 12-1-1999) on the above subject and to say that while it is a fact that the Sales Tax Act, 1990, has not yet been extended to the Tribunal Areas, the benefits of non-application are restricted and confined only to the production in FATA/PATA and its subsequent sale/consumption also in the FATA/PATA.
2. The registered person in Pakistan, making taxable supplies (other than the zero-rated exports), has to charge sales tax even on its supplies to FATA/PATA and issue tax invoices accordingly.
3 The persons located in FATA/PATA if making supplies of taxable goods to Pakistan (outside tribal areas) is also required to get registered. If he wants to get into business of taxable supplies in Pakistan, he has the option of voluntary registration under the Sales Tax Act, 1990, and then he should issue prescribed tax invoices and charge sales tax.
4. Government/semi-Government/Defence Departments, autonomous Corporations, even when purchasing sales taxable goods from suppliers located in Tribal Areas should ensure that they purchase such goods only from such suppliers as are registered (whether voluntarily or compulsorily) under the Sales Tax Act, 1990, and that too against the prescribed tax invoices to be issued by them.
(Sd.)
Secretary (STP)."
Para. 3 of a letter, dated 7-6-2001 addressed to the Assistant Collector (Hqrs.) Customs House, Peshawar from the Assistant Collector, Customs Dry Port, Peshawar is also to the following effect:-- - "As such the condition of being a registered person or firm under the Sales Tax Act, 1990 for qualifying as 'Licensee' in terms of sub-rule (c) of rule 2 of the Manufacturing in Bond Rules, 1997 is not mandatory in respect of the above units." (Petitioners units).
3. Anyhow, the writ petitioners were informed through impugned letter, dated. 16-7-2001 by the Assistant Collector of Customs Dry Port, Peshawar, with reference to a letter, dated 3-7-2001 of the Central Board of Revenue, to get themselves registered under the Sales Tax Act, 1990, in failure whereof the Manufacturing Bond Licenses issued in their favour will be recommended for revocation. The letter dated 3-7-2001 of the Central Board of Revenue, on the basis of which the Collector Customs required the petitioners to get registration was to the effect that a person located in FATA/PATA if making supplies of taxable goods in Pakistan (outside tribal areas) is required to be registered, pay sales tax and observe all the procedures and obligations laid down in the Sales Tax Act, 1990 and the Rules made thereunder. Similarly, a person located in such areas making imports of taxable goods through any Customs Port/Station in Pakistan is also required to be registered and to comply with relevant provisions of Sales Tax Act, 1990 and the Rules made thereunder.
4. It is in this background of the matter, when the petitioners Units were not allowed the imported oil to be ex-bonded at the Factory Premises without payment of 15% sales tax and getting themselves registered under the Sales Tax Act, otherwise making them liable to revocation of the Manufacturing Bond Licence. In the case of Messrs Gul Cooking Oil, 20% of the cargo/oil imported was detained until production of Sales Tax Registration Certificate, which oil was, however, ordered by this Court to be released to the petitioners on furnishing of an indemnity bond equivalent to the price of the oil, through C.M. No. 1126 of 2001, order sheet dated 8-8-2001. Similarly, the imported oil/cargo of Messrs Bara Ghee Mills was also detained and an application for interim relief to this effect was moved, but final orders could not be passed on the C.M. Due to the non-availability of the comments of the respondents and in the meanwhile hearing of the connected writ petition.
5. As in both the writ petitions, one and the same question has been raised for determination, therefore, through this judgment/order in Writ Petition No. 988 of 2001, the connected Writ Petition No. 1007 of 2001 shall also stand disposed of.
6. The admitted position in the case is that the Sales Tax Act, 1990 has not yet been extended either to FATA or PATA within the meanings of Article 247(3) of the Constitution of Islamic Republic of Pakistan. There are number of authorities of the superior Courts on the point that when a law is not extended to a tribal area through notification by the President or the Governor, as the case may be, in the manner required by Article 247(3) of the Constitution, then no law or Act of the National Assembly or Provincial Assembly could legally be stated to have been extended to such areas. The Head Offices of the petitioners' establishments as well as their factories are located in the tribal areas and, therefore, they are not liable to pay sales tax because of non-extension of the Sales Tax Act to those areas.
7. Under section 3 of the Sales Tax Act, sales tax is liable to be charged, levied and paid at the rate of 15% of the value of taxable supplies made in Pakistan by a registered person in the course or furtherance of any taxable activity carried on by him and goods imported into Pakistan. Under section 14 of the Sales Tax Act, "every person who makes a taxable supply in Pakistan (including a zero-rated supply) in the course or furtherance of any taxable activity carried on by him and whose total turnover from taxable supplies made in any period during the last twelve months ending any tax period exceeds rupees one million, if not already registered, is required to be registered under this Act: "Provided that buyers or importers of taxable plant and machinery who intend to make taxable supplies in due course and wish to claim any credit or refund of tax paid on the said plant and machinery shall also be required to be registered under this Act: Provided further that the exporters who are not engaged in the manufacture of goods shall be exempt from the requirement of registration till such time this exemption is withdrawn by the Board, by notification in the official Gazette." Section 18 of the Act provides voluntary registration that 'if any person not otherwise liable for registration opts for registration he may make an application for registration in the prescribed manner to the Collector and on receipt of his application that person may be registered for the purpose of this Act'."
It is pertinent to mention here that previously Messrs Bara Ghee (Pvt.) Ltd. Had approached the respondents for registration under the Sales Tax Act, but the same was refused on the ground that the Sales Tax Act is not extended to tribal territory (FATA).
8. From the above provisions of law, registration for a person residing in the tribal territory would become necessary if he makes a taxable supply in Pakistan (including a zero-rated supply) in the course or furtherance of any taxable activity carried on by him. The case of the petitioners is, however, that, that they are not making any taxable supply nor their finished goods are supplied to any tariff area in Pakistan, hence they are not liable to get themselves registered under the Sales Tax Act, as required by the respondents. According to Messrs Gul Cooking Oil, they exclusively sell their finished goods in the tribal territory, which is a non-tariff area for the purpose of sales tax and, therefore, their registration under the Sales Tax Act is not required for the purpose of levying or charging sales tax on their finished goods. The respondents have brought on file no proper proof to show that the finished goods of Messrs Gul Cooking Oil are sold or distributed in the settled area also. Similarly, according to Messrs Bara Ghee (Pvt.) Ltd., they export their finished goods outside the country and are not sold or distributed in any part within the country, and here too, the respondents have no cogent proof with them to show that Messrs Bara Ghee are selling the finished goods in any tariff area of the country, The sales tax is an indirect tax, which is payable by the consumer and the role of a registered person is only confined to collection of said tax on behalf of the Government, In such circumstances, when the nature of the supply of the goods of the petitioners Is that a consumer cannot be burdened for its collection, then it would obviously amount to payment of such tax from their own without any chance of its recovery from the consumer, which is against the very object of the law. Hence a person not engaged in taxable supply/activity is not liable to be registered under section 14 of the Sales Tax Act, if such person manufactures or produces goods in the tribal area where the Sales Tax Act is not extended. Similar would be the position of a person not engaged in the supply of taxable goods within the meanings of section 18 of the Act, which deals with voluntary registration.
9. The stance taken by the respondents that a person located in FATA/PATA making imports through a Customs Port/Station in Pakistan is also required to get registration and comply with the relevant provisions of Sales Tax Act and the Rules made thereunder is misconceived , when such a person is not making any taxable supply/activity or taxable goods within the relevant provisions, as he cannot be held liable to the provisions of the Act only for the reason that his consignment comes from abroad at a Customs Port/Station in the settled area, because the broad fact remains that the raw material imported or the goods made therefrom are not used in any tariff area. The imported raw material is transmitted to the warehouses of the petitioners which are located in the tribal territory, to which no provisions of the Sales Tax Act can be attracted, for, admittedly the Sales Tax Act is not extended to such territory. Therefore, the petitioners cannot be forced/compelled to produce the Sales Tax Registration for the purpose of import and export of their consignments as the very Sales Tax Act under which registration is required and payment of sales tax made is not applicable to the areas where the petitioners are producing/ manufacturing/supplying their goods. It would be clearly a contradiction in terms to say that whereas the Sales Tax Act is not applicable to Malakand Agency/Khyber Agency, yet one or another sections thereof are applicable thereto. This Court not only in the judgment, dated 9-12-1999 in the case of Messrs Gul Cooking Oil Company v. Pakistan through Secretary, Ministry of Finance (against which leave has been granted by the august Supreme Court of Pakistan) has expressed similar view that the Income-tax Authorities at Peshawar could not demand income-tax from a person who earns income in an area which is beyond the scope of Income Tax Ordinance, but in an earlier judgment, dated 8-7- 1996 in the case of Bara Ghee Mills v. C.B.R. Etc. (which has already attained finality), the writ petition was disposed of in the light of the statement of the learned counsel for the respondents that anything in the shape of tax/duty/octroi paid by the owners of will Factory from the Sea Port Karachi up to boundary at Bara will be refunded to the owners of the Factory provided some proof of such payment is furnished. The learned counsel for the respondents had also conceded that the Bank guarantee which was furnished by the petitioner-Company against the import of raw material at Karachi could also be encashed/released in -favour of the owners of the Company provided some proof is furnished to the respondents that the raw material had crossed the boundary of the settled area and has been taken to the factory situated at Bara.
10. Charging of the sales tax at import stage in relation to goods imported for use in tribal areas is violative of the provisions of Articles 246 and 247 of the Constitution, as Sales Tax Act, 1990 in whole or in part has not been extended to tribal areas. Since Sales Tax Act, 1990 has not been extended to tribal area, the petitioners are not chargeable to sales tax in respect of supplies made to wholesalers, retailers, consumers in the tribal areas, thus subjecting in any material/goods, belonging to the petitioners, to sales tax at import stage is wholly illegal. "Taxable goods" are those goods which are supplied in areas to which the provisions of the Sales Tax Act, 1990 are applicable/extended and which are not expressly exempt under section 13 of the Act. Sales Tax is leviable in relation to taxable supplies F made in Pakistan or goods imported into Pakistan. Goods being manufactured/supplied in the tribal areas cannot be classified as taxable goods.
11. Section 7 of the Act entitles any registered person to adjust any sales tax paid at import stage against his liability at the time of supply i.e. "output tax" and pay the difference, if any. The difference paid as such is recoverable from the recipient of such supplies and the ultimate burden of sales tax is borne by the consumer being an "indirect tax" and G so also term as "pass through item". In case sales tax is charged from the petitioners at import stage, the petitioners being non- registered persons are neither entitled to adjust such amount against "output tax" nor entitled to claim refund of the same (as no output tax leviable at time of supplies made in tribal areas and entitlement to refund restricted to registered person making taxable supplies and filing monthly Sales Tax Return as provided by section 10 of the Act. Under section 14, only those persons are liable to be registered who are engaged in making taxable supplies, i.e. Engaged in "taxable activity" in areas where provisions of the Act are extended/applicable. A person who is resident of the tribal area and is not engaged in taxable activity could not be held liable for registration. Such a. Person, even if desirous of seeking sales tax registration is not allowed to do so, Section 18 dealing with "Voluntary registration" applies to a person, if engaged in supply of "taxable goods".
12. The actions of the respondents for registration of the petitioners coupled with their demand of 15% sales tax on imports and the impugned letters in this regard are, therefore, without jurisdiction and lawful authority, hence of no legal effect. The petitioners in the circumstances are also entitled to the refund of the amount already paid by them to the Sales Tax Authorities for clearance of their material/goods for the purpose of sales tax.
13. For the aforesaid reasons, the directions contained in Central Board of Revenue's letter, dated 3- 7-2001 and letters, dated 16-7-2001 issued by respondent 3, qua the petitioners, are declared as illegal, without lawful authority, as the petitioners are not liable to pay any sales tax or to be registered under the Sales Tax Act. The petitioners are also entitled for the release of their detained goods without any chargeability of sales tax. In the circumstances, the parties are left to bear their own costs. .