1. JUDGMENT: MR. JUSTICE QAZI MUHAMMAD FAROOQ.--(1). The question for determination in this writ petition is whether the petitioner is liable to pay sales tax on the advances received by him from the customers. In other words whether the definition of "time of supply" contained in Section 2(30) of the Sales Tax Act, 1990 concerning advances has a binding effect.
2. 2.The question has arisen in this backdrop that with the promulgation of Sales Tax (Amendment)
3. Act, 1990 a new system of deferred payment of sales tax was introduced. It was to the effect that the assessee was not required to pay tax as and when the taxable goods were removed from the factory premises. He was permitted to sell the goods during the course of a month and charge sales tax thereon from the customers and pay the same to the Government by the 20th of the following month. Guidelines in this respect were issued by the Central Board of Revenue, Islamabad through a booklet captioned "sales tax booklet for tax payers." However, on 22-9-1994 the Director General Intelligence and Investigation (Customs and Excise), Islamabad addressed the following memo, to the Member (Sales Tax), Central Board of Revenue, Islamabad:-- "Subject: Timely Payment of Sales Tax under the Sales Tax Act, 1990:-- 1.A question of interpretation of the subject provisions has arisen vis a vis the cement producers.
4. 2.In respect of the supplies made in Pakistan the date of deposit of payable sales tax is to be computed on the basis of the earlier one among the two crucial dates i,e, the date of delivery of goods and date of receipt of payment. The provisions of Section 2(30) of the Sales Tax Act refer in this behalf. In view of this provision, this Directorate General holds the view that in the cases where payments for certain supplies are received in advance, the sales tax for such supplies should. be paid to the government by the 20th of the following month. This would remain so notwithstanding the non-delivery of the goods till much later.
5. 3.It has, however, been observed that the manufacturers of cement usually receive payments for their supplies well in advance of actual delivery but make payment of the sales tax to the government by the 20th of the month following actual supplies. It seems that the actual supply is usually made 2-4 months after receipt of payment. This appears to be the practice in the entire cement manufacturing sector.
6. 4.Before proceeding further in this matter, it has been considered proper to approach the Board to inquire if this matter has been addressed by the Board in the past. Has any reference been made to the Board by any Collectorate? Should we proceed as proposed? If so, the exercise would involve raising of huge demands for payment of additional sales tax. There may be considerable hue and cry by the manufacturers. Therefore, would the Board rather regulate the matter prospectively and give amnesty for past default?
7. 5.The Board's guidance is solicited in view of the enormity of the issue and its implications."
8. 3.The Central Board of Revenue agreed and endorsed the viewpoint of the Director General and desired necessary action in the light of the law. In order to ensure implementation of the new policy the Director General Intelligence and Investigation (Customs and Excise), Islamabad issued the following circular on 9-3-1995:-- "Subject: Timely Payment of Sales Tax under the Sales Tax Act, 1990.
9. 1.Please refer to this office letter of even number dated 20-12-1994 on the above noted subject.
10. 2.It was evident from the enclosures of the aforesaid letter thatthe cement manufacturing all over the country were accepting payments from their dealears/buyers for supply of cement 3-4 months. in advance for despatches of cement at some future juncture. In terms of provisions of Section 2(30) of the Sales Tax Act, 1990, such manufacturers are under a legal obligation to deposit sales tax by the 20th of the month following the month in which they accepted payment for future despatches. The Central Board of Revenue had confirmed this view vide its letter dated 14th November, 1994 (copies of the correspondence are enclosed once again for case of reference).
11. 3.It was expected that the Collect orates will initiate necessary action and ensure the timely payment of due sales tax on sales of cement. It has transpired that necessary action has not been initiated by the Collect orates: reluctantly the payment of due sales tax is being delayed by 3-4 months.
12. 4.All the cement manufacturing units may now be directed to deposit the sales tax due on the balance of payments received as on 31-3-1995 by the forthcoming due date, i,e, 20th April, 1995. In future, it may be ensured that the sales tax is deposited by the cement manufacturing units on the total amount of advance payments received by them during a tax period by the next due date."
13. 4.In due course, the petitioner was asked to comply with the above directive or face imposition of additional tax under Section 34 of the Sales Tax Act, 1990. The petitioner did the needful under protest and challenged the validity of the directive through this writ petition on the grounds that the interpretation of Section 2(30) made by the respondents was irrational as the manufacturer is liable to pay sales tax only when taxable supply is made, the respondents were bound by the guidelines being followed since 1990, payment of sales tax on advances was not covered by Section 23 of the Sales Tax Act, 1990 as tax invoices can only be made on taxable supply of goods, the policy was in conflict with the provisions of Section 2(9)(15) as the person making the advance payment would not be able to claim ' input tax' and ' output tax' and the definition clause cannot over ride the main provisions of the Sales Tax Act, 1990.
14. 5.The respondents in their written statement submitted, inter alia, that the directive was in conformity with law and the scheme laid down in the Sales Tax Act, 1990, advance payment is received on the basis of an agreement and the manufacturer is liable to pay the sales tax on the date of execution of agreement whether the supply has been made or not and that the petitioner had not challenged the vires of Sections 2 and 6 of the Sales Tax Act, 1990.
15. 6.The learned Counsel for the petitioner contended at the outset that Section 2(30) is to be read alongwith other Sections and not in isolation. He further contended that payment of sales tax on advances was neither mentioned in the guidelines nor there was any column in respect thereof in the accompanying proforma. He also contended that the respondents had read the expression 'advances' into Section 2(30) which was not there and in any event Section 2(30), which had defined "time of supply", was inconsistent with the provisions of Section 2(9)(a), Section 2(22), Section 3(3)(a) and Section 6(2) under which chargeability starts when supply of goods is made and actual supply is a sine qua non for output tax. He further contended that the directive involved violation of Section 22 also because in case of tax on advances tax invoice cannot be issued. It was lastly contended that definition clause cannot override the main provisions of the Sales Tax Act, 1990. Reliance was placed on Syed Muhammad Haider Zaidi and others Vs. Abdul Hafeez and others (1991 SCM R 1699).
16. 7.The learned Counsel for respondents No, 1 and 2 and the learned Deputy Attorney General, on the other hand, contended that the guidelines had no value whatsoever having not been notified under Sections 3, 6 and 55 of the Sales Tax Act, 1990. It was further contended that agreements were executed in respect of the supplies to be made against the advances which included sales tax, therefore, under Section 2(30)(b) the time of supply shall be the time at which the agreement is entered into and as such the petitioner was obliged to pay sales tax on advances. It was next argued that the petitioner had not challenged the vires of Section 2(30) and Section 2(6) which had defined "due date" in relation to the furnishing of a return as the 20th day of the month following the end of the tax period. It was further contended that taking of advance was a ' taxable activity' within the contemplation of Section 2(24).
17. 8.Before adverting to the rival contentions it is necessary to reproduce some of the provisions of law referred to by the learned Counsel for the parties:-- Section 2(30) reads as under:-- "Time of supply"(1).--A supply made in Pakistan shall be deemed to take place at the earlier of the time of delivery of goods or the time when any payment is received by the supplier in respect of that supply; Provided that-- (a)where any goods are supplied by a registered person to an associated person and the goods are not to be removed, the time of supply shall be the time at which these goods are made available to the recipient; (b)where the goods are supplied under hire purchase agreement, the time of supply shall be the time at which the agreement is entered into; and (c)where the goods are removed from the.manufacturing premises to the sale point or place of storage owned or operated by the manufacturer or his agent, the time of supply shall be the time of removal of goods from the manufacturing premises."
18. Section 2(24) reads as under:-- "Taxable activity" means any activity which is carried on by any person whether or not for a pecuniary profit, and involves in whole or in part, the supply of goods to any other person for a consideration and includes any activity carried on in the form of a business, trade or manufacture.
19. "
20. Section 2(9)(a) is worded thus:-- "Input tax", in relation to a registered person, means:-- (a)the tax levied under this Act on the supply of goods received by that person."
21. Section 3(3)(a) reads as under:-- "The liability to pay the tax shall be;-- (a)in the case of supply of goods in Pakistan, of the person making the supply."
22. Section 6(2) reads as under:-- "The tax in respect of taxable supplies made in Pakistan during a tax period shall be paid by the registered person at any time before filing the return in respect of that period under Chapter-V."
9. The contentions raised by the learned Counsel for the petitioner have not impressed us. The respondent had admittedly received advances which included sales tax, therefore, there can be no cavil with the proposition that he was obliged to pay the sales tax collected during the course of a month to the Government by the "due 'date" namely the 20th day of the following month and was not entitled to retain the same beyond the prescribed period. The legislature was certainly alive to such an eventuality and for that very reason it was explicitly mentioned in the definition of 'time of supply' contained in Section 2(30) that a supply made in Pakistan shall be deemed to take place at the time when any payment is received by the supplier in respect of that supply. The intention of legislature is further slept out by the definition of "taxable activity" contained in Section 2(24) which goes a long way to augment Section 2(30). The "sales tax booklet for tax payers" only highlights and elucidates certainsalient features of the Sales Tax Amendment) Act, 1990, therefore, it can not be used as a touchstone for testing the legal validity of Section 2(30). The absence of the expression 'advances' from Section 2(30) is immaterial as the language employed therein clearly points to advances. The grievance of the petitioner is misconceived in as much as Section 2(30) only clarifies the time of supply and does not override the aforementioned provisions of law in which the expression supply of goods/taxable supplies stands out prominently. The authority cited by the learned Counsel for the petitioner thus does not apply to the present case. In any event the effect of Section 2(30) can not be offset by any principle of interpretation of statutes and it will hold the field unless it is declared to be ultra vires and is struck down. Such a relief cannot be granted in this petition as the petitioner has not challenged the vires of Section 2(30). The contentions with regard to invoices etc. are peripheral in view of various modes and methods of payment and adjustment of the sales tax envisaged by the Sales Tax Act, 1990. The very fact that the petitioner has been paying sales tax on advances is sufficient for the conclusion that the bottlenecks complained of are more imaginary than real. Consequently, the writ petition is dismissed with no order as to costs.