2018 PLP (Trib (PTD)

QAMAR-UL-HAQ BHATTI (JUDICIAL MEMBER).

The instant appeal has been filed against Order-in-Appeal No. 611/2016 dated 17-10-2016 passed by the learned CIR(A), Faisalabad whereby, he while maintaining the Order-in-Original No. 4/2016 dated 09-08-2016, dismissed the appeal.

2. Succinctly stated, essential facts of the case are that during scrutiny of sales tax returns filed by the appellant for the tax periods from January-2015 to February-2016, it was observed that appellant did not withheld sales tax 1/5th of his total input tax but as per provisions of Notification No. S.R.O. 98(I)/2013 dated 14-02-2013, appellant was legally required to withheld 1/5th of his total input tax with regard to local purchases but did not withheld amount of withholding sales tax hence, he was called upon to show-cause as to why withholding sales tax of Rs. 1,334,256/- may not be recovered under section under section 11(2) of the Act the Act along with default surcharge and penalty under sections 33(9) and 34 ibid. The appellant was also charged with the violation of sections 3(7), 6, 7(4), 22, 23 and 26(I) read with Sales Tax Special Procedure (Withholding) Rules, 2007 notified vide S.R.O. 660(I)/2007 dated 30-06-2007 as amended vide S.R.O. 77(I)/2008 dated 23-01-2008, subsequently amended vide S.R.O. 897(I)/2013 dated 04-10-2013 and further amended vide S.R.O. 485(I)/2015 dated 30-06-2015. Resultantly, adjudication proceedings were culminated in passing of an order dated 09-08-2016 which was challenged before the learned CIR(A) who also rejected the appeal hence, this second appeal. Learned counsel for the appellant at the very outset argued that the Inland Revenue Audit Officer has wrongly assumed jurisdiction under section 11(2) of the Act upon a case failure to withhold sales tax as neither provisions of section 11(2) of the Act covers the situation of failure to withhold sales tax nor any other provision for recovery of withholding sales tax was existed during the periods in question however, section 11(4A) of the Act was inserted in the Sales Tax Act, 1990 vide Finance Act, 2016. It was forcefully urged on behalf of the appellant that in case of non-withholding tax, no revenue loss is involved particularly when the suppliers have already discharged their tax liabilities by depositing it into the national exchequer. On the other hand, when the learned DR confronted with the situation cited supra, in counter arguments, he has assailed the case on similar grounds and charges as leveled earlier in impugned show-cause notice as well as adjudged in consequent orders and has failed to put-forth any explanation to justify any deviation from the arguments advanced by the learned AR and has fully supported the orders passed by both the authorities below simply re-endorsing the basis evolved therein.

3. After having heard the arguments of both the rival parties and carefully examining the relevant orders, it is worthwhile to reproduce the provisions of section 11(2) of the Act having immense importance to resolve the controversy, which read as under:- Section 11(2): "Where a person has not paid the tax due on supplies made by him or has made short payment or has claimed input tax credit or refund which is not admissible under this Act for reasons other than those specified in subsection (1), an officer of Inland Revenue shall after a notice to show cause to such person, make an order for assessment of tax actually payable by that person or determine the amount of tax credit or tax refund which he has unlawfully claimed and shall impose a penalty and charge default surcharge in accordance with sections 33 and 34."

4. From perusal of above quoted provision of law, there is no doubt in our mind that the learned Inland Revenue Audit Officer has wrongly assumed jurisdiction under section 11(2) of the Act upon a case of failure to withhold sales tax as its provisions only cater 'non-payment' and 'short-payment' of the tax due on supplies made by a person and not cover, whether impliedly or expressedly, failure to withhold sales tax as is evident from the wording used in this section that non-payment or short-payment is with reference to non-payment or short-payment on supplies made by a registered person hence, assumption of jurisdiction by the learned Inland Revenue Audit Officer was an act contrary to law, as such, all the subsequent proceedings of the authorities below based thereupon are also illegal and without jurisdiction.

5. Learned counsel for the appellant has invited our attention towards section 11(4A) of the Act which by virtue of Finance Act, 2016, applicable w.e.f. 1st July, 2016, was inserted to the Sales Tax Act, 1990 empowering the revenue authorities to issue show-cause notice for recovery of withholding sales tax from a registered person who failed to withhold the tax or withholds the same but failed to deposit the same meaning thereby no provision for recovery of withholding sales tax prior to insertion of section 11(4A) of the Act was existed in the Sales Tax Act, 1990 and instant case pertains to the tax periods from January 2015 to February-2016 when no provisions in respect of recovery for an amount which is not deducted or is short deducted by a withholding agent, were existed in the Sales Tax Act, 1990 therefore, whole exercise carried out by the department for recovery of withholding sales tax is illegal, unlawful and without jurisdiction. It is well settled principle of law that retrospectivity even in a procedural law is to be avoided if it effects an existing right or otherwise causes inconvenience or injustice to anyone. It is also a trite law that in absence of clear intention of the legislature to apply a provision of Statute with retrospective effect, it would always be deemed that it would be applicable prospectively. For reference, provisions of newly inserted section 11(4A) of the Act is reproduced hereunder:-- Section 11(4A): "Where any person, required to withhold sales tax under the provisions of this Act or the rules made thereunder, fails to withhold the tax or withholds the same but fails to deposit the same in the prescribed manner, an officer of Inland Revenue shall after a notice to such person to show cause, determine the amount in default."

6. We have observed with grave concern that instant issue is basically misinterpreted and misconstructed by revenue department because deposit of sales tax is independent to that payment of withholding tax hence, in case of non-withholding tax, no revenue loss is involved particularly when the suppliers of the appellant have already discharged sales tax liabilities in their sales tax returns by depositing it into the national exchequer therefore, demanding amount of sales tax from the buyer despite having it deposited by the suppliers in the national exchequer would definitely tantamount to double taxation not permissible under law. The contents of impugned show-cause notice also do not find it to exhibit a premeditated or a preplanned design to defraud the government. In fact, the appellant misunderstood the provisions of law and has made full payment of sales tax to his suppliers without deducting/withholding sales tax 1/5th of total input tax and was under the impression that payment of sales tax to his suppliers through banking channel as requisitioned under section 73 of the Act lead to sufficient compliance of the provisions of the Sales Tax Act, 1990 thus, there has been no evasion of tax at all, leaving nothing more than a procedural lapse entailing no revenue loss nor it carries any adverse revenue implications. It is well-settled law that acts of inadvertence on the part of an assessee due to any procedural mistake would not create demand of sales tax.

7. To what has been discussed hereinabove, particularly in the light of law, impugned show-cause notice and consequent orders passed during hierarchy of Inland Revenue, being suffering from grave legal infirmities and substantive illegalities are declared to be illegal, without jurisdiction and thus, hereby set aside. Resultantly, appeal filed by the registered person is accepted. HBT/106/Tax(Trib.) Appeal accepted.