2018 PLP (Trib (PTD)

QAMAR-UL-HAQ BHATTI, (JUDICIAL MEMBER).

Through these departmental appeals, filed under section 46 of the Sales Tax Act, 1990, the CIR(Legal) has assailed the Order-in-Appeals Nos. 902/2015 and 903/2015 both dated 15-12-2015 passed by the learned CIR(A), Faisalabad whereby he accepted the appeals filed by the respondent-taxpayer. Since, above titled appeals involve common questions of law and facts therefore, the same are being decided through this consolidated order.

2. Succinctly stated, relevant facts for disposal of the instant cases are that as per Entry No. 3 of Table "2" of the Sixth Schedule to the Sales Tax Act, 1990 supplies made by Cottage Industry and Retailers whose annual turnover from supplies, whether taxable or otherwise, made in any tax period, does not exceed rupees five million are exempt from Sales Tax Registration. Cottage Industry has also been defined in section 2(5AB) as "a manufacturer whose annual turnover from taxable supplies made in any tax period during the last twelve months ending any tax period does not exceed five million rupees or whose annual utility (electricity, gas and telephone) bills during the last twelve months ending any tax period do not exceed seven hundred thousand rupees". Further the 'registered person' has also been defined in section 2(25) of the Act that a person who is registered or is liable to be registered under this Act provided that a person liable to be registered but not registered under this Act shall not be entitled to any benefit available to a registered person under any of the provisions of this Act or the rules made thereunder. Scrutiny of income tax returns for the years 2013 and 2014 revealed that the respondent-taxpayer did not get registered with the sales tax department in violation of provisions of section (5AB) of the Act read with section 14 and the Sales Tax Registration Rules, 2006 whereas. respondent was liable to be registered on the basis of turnover as declared in the income tax returns. Therefore; the respondent was called upon to show-cause notices C. Nos. 2590 and 2591 both dated 09-06-2015 as to why sales tax worth Rs.1,870,000/- and Rs.2,016,000/- may not be recovered under section 11(3) of the Act against which explanation tendered by registered person was treated unsatisfactory. Resultantly, adjudication proceedings were culminated in passing of orders both dated 29-06-2015 which were challenged before the learned CIR(A) who accepted the appeals filed by the respondent. Now, the revenue-department being discontented with treatment met out by the learned CIR(A), has filed the second appeals before this Tribunal assailing the treatment accorded by the first appellate authority.

3. The learned DR while arguing on behalf of the department reiterated the contentions already made in the grounds of appeals and assailed the cases on similar charges as leveled earlier in impugned show-cause notices as well as adjudged in adjudication orders by simply stating that the respondent has failed to pay sales tax whereas, he was liable to be registered since 2013 and nothing newel has been put forth by him. On the other hand, learned AR opposed the departmental appeals mainly on the ground that a person who is liable to be registered but not actually registered can neither issue sales tax invoice under section 23 of the Act nor can he charge and collect sales tax under section 3 of the Act hence, no tax was payable for the tax periods prior to sales tax registration. In this regard, learned AR relied upon the provisions of sections 2(25), 23 and Rule 6 of the Sales Tax Rules, 2006.

4. After having heard the arguments of the rival parties and from bare perusal of relevant orders as well as relevant provisions of law and material made available before us, it is important to reproduce the relevant provisions of law which read as under.-- Section: 2(25). Registered Person.

"registered person" means a person who is registered or is liable to be registered under this Act: Provided that a person liable to be registered but not registered under this Act shall not be entitled to any benefit available to a registered person under any of the provisions of this Act or the rules made thereunder. Section:

23. Tax Invoice-(1). A registered person making a taxable supply shall issue a serially numbered tax invoice at the time of supply of goods containing the following particulars, namely:-- (a) name, address and registration number of the supplier. (b) name, address and registration number of the recipient: (c) date of issue of invoice; (d) description and quantity of goods; (e) value exclusive of tax; (f) amount of sales tax; and (g) value inclusive of tax: Provided that the Board may, by notification in the official Gazette, specify such modified invoices for different persons or classes of persons: Provided further that not more than one tax invoice shall be issued for a taxable supply. (2) No person other than a registered person or a person paying retail tax shall issue on invoice under this section. (3) A registered person making a taxable supply may subject to such conditions, restrictions and limitations as the Board may, by notification in the official Gazette, specify, issue invoices to another registered person electronically and to the Board as well as to the Commissioner, as may be specified. (4) The Board may, by notification in the Official Gazette prescribe the manner and procedure for regulating the issuance of authentication of tax invoices. Rule 6 of the Sales Tax Rules, 2006. Compulsory Registration.

(1). If a person, who is required to be registered under the Act, does not apply for registration and the Commissioner Inland Revenue or any other officer, as may be authorized by the Board, after such inquiry as deemed appropriate, is satisfied that such person is required to be registered, he shall issue notice to such person in the Form set out in Form STR-6. (3). Where the person to whom a notice is given under sub-rule (1), does not respond within the time specified in the notice, the Commissioner shall cause to compulsorily register the said person through computerized system under intimation to the said person through courier service.

5. On plain reading of above quoted provisions of law, it becomes clear that a sales tax invoice can be issued under section 23 of the Act by the specified persons only and its subsection (2) in unequivocal terms forbids that no person other than a registered person or a person paying retail tax shall issue an invoice, under the section hence, a person not registered under the Sales Tax Act, 1990 cannot issue a sales tax invoice under section 23 of the Act. If a person is not registered but is required or liable to be registered, Rule 6(3) of the Sales Tax Rules, 2006 comes into operation and the concerned authority can compulsorily register such person under the Sales Tax Act, 1990 after following the procedure prescribed thereunder.

6. Needless to observe that sales tax invoice to be issued under section 23 of the Act is envisaged to be issued only by a registered person having Sales Tax Registration Number which is evident from the fact that section 23 of the Act requires registration numbers of the suppliers as well as recipients on the sales tax invoice to be issued by him, otherwise, it would not be an invoice in accordance with the provisions of section 23 of the Act. Therefore, we are of the firm opinion that a person who is liable to be registered but not actually registered, can neither issue sales tax invoice under section 23 of the Act nor can he charge and collect sales tax under section 3 of the Act.

7. The law further depicts that if the department is of the opinion that a certain person is liable to be registered but is not voluntarily obtaining sales tax registration, it has to resort to the above procedure in order to assign sales tax registration number to a person liable to be registered. It is also a fact that without sales tax registration number, a person liable to be registered cannot file sales tax return, pay sales tax or be subjected to audit under section 25 of the Act hence, imposing sales tax by the department without assigning compulsory sales tax registration number do not find any support from the Rule 6 which explain and law down the procedure for carrying out the spirit of the Statute. If a person could not register himself voluntarily, thereafter, it was duty of the sales tax department to register the defaulting person compulsorily as per the provisions of Rule 6 of the Sales Tax Rules, 2006 at the material time. If the provisions of section 2(25) of the Sales Tax Act, 1990 are dilated upon, it would indicate two conditions (i) a person who is registered (ii) or liable to be registered. The person liable to be registered falls within the scope of compulsory registration. The sales tax registration rules indicate that this job is to be done by the sales tax department. The wordings of Rule 6 are also quite clear that if the department, "is satisfied that such person is required to be registered, it shah issue notice to such person". Thus, Rule 6 itself carries the interpretation of section 2(25) of the Act by stipulating that if department is of the opinion that a person is liable to be registered then a notice has to be issued.

8. A combined study of sections 2(25) and 23 of the Sales Tax Act, 1990 and Rule 6 of the Sales Tax Rules, 2006 makes more clear that where a person is required to be registered under the Sales Tax Act, 1990 as envisaged under section 14 of the Act is under obligation to apply for registration and in case of failure, departmental authorities shall issue a notice to such person and after allowing him an opportunity of being heard, shall pass an order whether or not such person is liable to be registered compulsorily or not. Therefore, where a person is liable to be registered, departmental authorities are required to register him compulsorily and then charge sales tax from him under section 3(1)(a) of the Sales Tax Act, 1990 which stipulates that there shall be charged, levied and paid a tax known as sales tax at the rate of seventeen percent of the value of taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him. The outcome of the discussion is that liability of sales tax created against the respondent/taxpayer for the tax periods prior to sales tax registration is illegal and unlawful.

9. In view of above, we reached at the irresistible conclusion that judicious appellate orders of the learned CIR(A), Faisalabad, impugned before us, do not suffer from any gross irregularity, illegality and infirmity which do not warrant any interference by this Tribunal, are hereby confirmed and upheld.

10. Resultantly, the departmental appeals having no merits are dismissed. HBT/55/Tax(Trib.) Appeal dismissed.