2022 PLP 1147 (PTD)

Laws Cited

Representation

• Dr. Farhat Zafar, Advocate Supreme Court and Bahadur Sher Afridi, Additional Commissioner, FBR, Peshawar for Appellant (in both cases).
• Farrukh Jawad Panni, Advocate Supreme Court and Ahmed Nawaz Ch., Advocate-on-Record for Respondent No. 1 (in C.A. No.243 of 2011).
• Masoor ur Rehman, Advocate Supreme Court and Sh. Mahmood Ahmed, Advocate-on-Record for Respondent No. 1 (in C.A. No. 1136 of 2018).
• 3. In C.A. 1136/2018 the facts are that the respondent was a dealer of a well-known brand of soft drink in the erstwhile Tribal Areas. On or about 18.02.2003 it was served with a show cause notice that, being unregistered, it was liable to pay additional sales tax under section 3(1A) for the tax periods March, 2000 to September, 2001 but had not done so. This demand was resisted, inter alia, on the same ground as noted above. An order-in-original was made against the respondent. Its appeal before the Collector (Appeals) succeeded. In this case it was therefore the department that took the matter before the Appellate Tribunal, which dismissed its appeal. The department took the matter further by way of tax reference before the learned High Court which dismissed the same by means of the impugned judgment dated 05.10.2017. The department brought the matter before this Court and at the leave stage reliance was placed on the leave granting order made in the other appeal. Leave was granted accordingly and, as noted above, the matters were clubbed for hearing and disposal. We have heard learned counsel for the department and also the Additional Commissioner, FBR and have had the advantage of their able submissions in their challenge to the impugned judgments. Learned counsel for the respondents have, on the other hand, supported the decisions. At the conclusion of the hearing we were of the view that the appeals ought to be dismissed for reasons to be recorded later, which are set out below.
• 4. Although the two appeals approach the question from opposite angles, the point in issue is the same, i.e., whether for the tax periods involved there was any liability for the payment of additional tax in terms of section 3(1A) in respect of a situation where the person making the taxable supplies was located in Pakistan whereas the recipient of those supplies was located in the erstwhile Tribal Areas. It is to be noted that we use the words "in Pakistan" in a special sense, which is how they were understood and applied before the 25th Amendment (2018), by which the erstwhile Tribal Areas ceased to exist and stood absorbed in the Provinces of Khyber Pakhtunkhwa (which is presently relevant) and Balochistan. That special sense was that, inter alia, federal laws which otherwise applied in the whole of Pakistan nonetheless did not so apply in relation to the Tribal Areas by reason of Article 247 of the Constitution (since omitted). For a law to apply in the Tribal Areas, there had to be a specific direction in that regard in terms of Article 247(3), and admittedly there was no such direction in relation to the Act at the relevant time. Learned counsel for the department and the Additional Commissioner placed strong reliance on the fact that in C.A. 243/2011, the supplier of the taxable goods was admittedly in Pakistan, and in C.A. 1136/2018 could safely be assumed to be so. Reliance was placed on section 3(3)(a) of the Act. On such basis it was contended that the fact that the recipients of the supplies were in the Tribal Areas was not relevant, and Article 247 had no application. The supplies were taxable supplies within the meaning of the Act and, inasmuch as the recipients were not registered thereunder, additional tax was attracted in terms of section 3(1A). With respect, we were unable to agree. We may note that the relevant provisions of the Act as considered below, including section 3(1A), have undergone several changes and amendments over time. We are of course concerned with the provisions as they stood during the tax periods involved. The statutory language set out below is as applicable at the relevant time.
• 5. Subsection (1A) of section 3 sought to impose a tax in addition to the one, inter alia, levied in terms of subsection (1) on "taxable supplies ... made in Pakistan to a person other than a registered person...". The language of the charge required consideration of the relevant definitions as given in section 2 of the Act. Clause (41) thereof defined "taxable supplies" as meaning "a supply of taxable goods made in Pakistan...". Clause (39) defined "taxable goods" in terms that included the goods involved in the present appeals. This left for consideration the definition of "supply" at the relevant time. Clause (33) defined "supplies" as including "sale, lease ... or other disposition of goods carried out for consideration...". For present purposes the effect of these definitions can be summed up as follows. For there to have been a valid levy and charge in terms of section 3(1A), there had to have been a sale of taxable goods in Pakistan. The sale of goods is of course a transaction well-known to the law and is, in general terms, governed by the Sale of Goods Act, 1930 ("1930 Act"). That Act provides (see section 4) that where property in the goods is transferred from the seller to the buyer the contract is called a "sale" but where a transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is to be called an "agreement to sell". Section 19 of the 1930 Act provides, inter alia, that unless a different intention is shown, sections 20 to 24 set out the rules that are to apply for ascertaining the intention of the parties as to the time when the property in the goods is to pass to the buyer. Now, there can be no doubt that in relation to any transaction of the sale of goods, in determining whether sales tax is to be levied, charged and recovered in terms of the Act, the provisions of the 1930 Act will apply subject to what is stated in the former statute, either expressly or by way of necessary implication. Thus, the term "sale" as used in the definition of "supply" in clause (33) of section 2 the Act can include both a 'sale' and an 'agreement to sell' in terms of the 1930 Act. One reason for this is that the Act, in clause (44) of section 2, also contains a definition of "time of supply". At the relevant time, this definition provided as follows: "a supply made in Pakistan shall be deemed to have taken 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...". Learned counsel for the department, as also the Additional Commissioner, placed reliance on this definition as well. It is to be noted that this definition also contained the words "in Pakistan". Thus, on any view of the matter the sale between the respondent and its dealers in C.A. 243/2011 and between the respondent and its principal in C.A. 1136/2018 had to take place "in Pakistan", in the special sense in which these words were used prior to the 25th Amendment. In our view, the question as to whether the supplies over the relevant tax periods were indeed made "in Pakistan" was essentially one of fact, or at least had significant factual elements. Quite obviously those factual aspects had to be properly alleged in any show notice issued by the department, and proved or otherwise established from the record. However, when the show cause notices in both the appeals are examined there is no such allegation, and when the record is examined there are no relevant factual findings as could result in a conclusion that the supplies over the relevant tax periods were indeed made "in Pakistan". Learned counsel for the appellant as also the Additional Commissioner sought to rely, insofar as the factual aspect of the cases were concerned, only on the fact (which was admitted in C.A. 243/2011 and was sought to be impliedly established in C.A. 1136/2018) that the supplier was "in Pakistan". However, in our view this was not enough. The reason is that the Act taxes supplies as defined. It is certainly true that in terms of section 3(3)(a) the legal liability to pay the tax falls on the person making the taxable supplies. However, the crucial question in the present cases was whether or not the supplies were made "in Pakistan". That question was not, as a matter of fact, established from the record and was not even alleged in the show cause notices. This defect was, in our view, fatal to the case sought to be made out by the department, and in the absence of any such findings the show cause notices simply could not succeed. We may note that the learned High Court in both the impugned judgments as well as the learned Appellate Tribunal proceeded to reach the conclusion that the department had no case on a line of reasoning which was rather different from the one that finds favour with us. We say nothing as to the correctness or otherwise of the views that were expressed by the forums below. However, we are satisfied that on a correct reading of the Act as it stood at the relevant time in relation to the tax periods involved, and in the facts and the circumstances of the two cases before us, the respondents were rightly entitled to the relief they were granted. That relief is affirmed by us.

Headnotes / Summary

Judgment & Decree