2026 PLP 472 (PTD)

MUHAMMAD SHAFI SIDDIQUI, J.

The petitioner being a university is involved in distance learning education for which the university prints its educational material by itself, instead of getting it printed from printers/publishers outside. In consequence of such activity the department treating the petitioner as withholding agent issued a show cause notice dated 30.12.2014 and hence made it responsible to deduct and deposit sales tax on taxable goods and services as were supplied to it. It is claimed that in accordance with rules 2 and 3 of the Sales Tax Special Procedure (Withholding) Rules, 2007 promulgated vide SRO 660(I)/2007 dated 30.06.2007 the petitioner was liable to deduct 1/5th of applicable sales tax from its registered suppliers/services providers and to deduct whole of the sales tax at the applicable rate of the value of taxable supplies/services made to it from the payment due to its un-registered suppliers/service providers and consequently to file return. Since the petitioner failed to discharge such responsibility, the said notice was issued. In consequence to the said notice, order-in-original dated 24.04.2015 was passed by the Officer Inland Revenue, (Withholding Zone), Islamabad, wherein the petitioner was held responsible as being a withholding agent to file return on the prescribed format and to deposit the amount that was liable to be deducted.

2. Aggrieved of the said order-in-original, the petitioner preferred an appeal before the Commissioner Inland Revenue (Appeals-II), Islamabad (hereinafter referred to as the Commissioner ), whereby the appeal of the petitioner was dismissed vide order dated 05.11.2015 and order-in-original was maintained.

3. Being dissatisfied with the order of the Commissioner, the petitioner then approached to the Appellate Tribunal Inland Revenue, Islamabad (hereinafter referred to as the Tribunal ) by filing an appeal, which was allowed vide order dated 23.12.2015 and it was held that the provisions of section 11(4) of the Sales Tax Act, 1990 (in short referred to as the Act ) were not attracted to be applied to a situation as demonstrated in the impugned show cause notice.

4. Aggrieved of such findings of the Tribunal, the respondent-Commissioner Inland Revenue approached the High Court under reference jurisdiction, where the High Court, through the impugned order, set aside the order of the Tribunal, hence this petition for leave to appeal filed under Article 185(3) of the Constitution.

5. We have heard the learned counsel for the parties and perused the material available on record. The proceedings taken up at different forums in pursuance of the show cause notice are highlighted above. The dispute pertains to the periods from July 2012 to June, 2013, when it is claimed that the petitioner was acting as a withholding agent and saddled with the responsibility to deduct tax on the supplies made to it by registered/unregistered suppliers and service providers. Counsel for the petitioner has provided a copy of the show cause notice, which does not disclose under which provisions of the Sales Tax Act, the petitioner was supposed to act as withholding agent in respect of the supplies made to it and further to deduct tax and to file monthly return in this regard.

6. The order-in-original was passed and in terms of its penultimate para section 11(4) of the Act is stated to be applied, which was affirmed by the Commissioner Inland Revenue. The Tribunal, however, noticed that the events and situations discussed in the show cause notice are not at all covered by section 11(4) of the Act. The provisions of section 11(4) of the Act relate to short payment of tax or erroneous issuance of refund due to inadvertence, error or misconstruction. This particular provision i.e. section 11(4) of the Act thus envisages a situation requiring payment of amount by the person who is responsible for deficiency in payment of tax and in consequence whereof a show cause notice could have been issued. There is, however, nothing in section 11(4) which deals with the responsibility of withholding of taxes. The situations and events demonstrated in the show cause notice are, in fact, covered in terms of section 11(4A) which was introduced by the Finance Act, 2016, whereas, the tax periods disclosed in the show cause notice were from July, 2012 to June, 2013. The provisions of section 11(4A) which could have held the petitioner liable was not in existence at the relevant time when the show cause notice was issued and similarly the alleged default is not covered by section 11(4) on which the order-in-original and order of the Commissioner was based. Although it was noted in the impugned order that section 11(4A) was introduced through Finance Act, 2016 yet in the impugned order it was not demonstrated at all as to on what basis the petitioner could be saddled with the responsibility of being a withholding agent and the rules which were referred to, could not be said to have been framed with reference to or in pursuance of section 11(4A). We are, therefore, of the view that the provisions of section 11(4) of the Act were wrongly applied. The recovery provisions of section 11(4A), in consequence of not deducting and/or depositing the tax, came much after the issuance of the show cause notice via Finance Act, 2016 and could not at all have been pressed in service.

7. In view of the above, this petition is converted into an appeal and the impugned order of the High Court is set aside, and the appeal is allowed. MQ/A-52/SC Appeal allowed.