2025 PLP (Trib (PTD)

TAUQEER ASLAM, CHAIRMAN.

The titled sales tax appeals have been preferred by the registered person calling in question the impugned Orders-in-Appeals Nos. 1660/2024 and 1663/2024 dated 29.03.2024 passed by the learned Commissioner Inland Revenue (Appeals), Sargodha pertaining to Tax Periods July, 2019 to June, 2021.

2. For the purpose of disposing of this titled sales tax appeal, the key facts of the case are that appellant, being a registered person is involved in supply of 'crushed stones' i.e., construction material to Gawadar Infrastructure and Tribal Areas. The adjudicating officer observed that the registered person has concealed/suppressed gross sales of its supplies to the tune of Rs.1,512,011,270/- and Rs.915,038,752/- in its income tax returns for the Tax Years 2020 and 2021 respectively, but the same has not been declared in his sales tax returns. The adjudicating officer without assumption of jurisdiction of the case issued notice under section 11(2) of the Sales Tax Act, 1990 (here-in-referred to as the "Act") for the Tax periods mentioned above. Consequently, it becomes a cognoscible case for the adjudicating authority that the Registered Person has committed concealment/suppression of gross sales of its supplies which resulted in short payment of sales tax @17% along with further tax under section 3(1A) of the Act amounting to Rs.302,402,254/- and Rs.183,007,750/- respectively. The adjudicating officer subsequently passed an adverse order-in-original under section 11(2) of the Act to the registered person, thereby creating a sales tax liability along with imposition of default surcharge and penalty accordingly.

3. Being aggrieved, the registered person preferred appeal before the learned CIR(A) who vide its impugned order dated 29.03.2024 modified the action of the adjudicating officer and dismissed the appeal of the registered person. Notwithstanding the foregoing, the Registered Person remained aggrieved with the impugned treatment meted out, filed instant second appeal before this Tribunal on the grounds as set forth in the memo of appeals.

4. The case was heard on 18.09.2024. Mr. Muhammad Imran Rashid, advocate appeared on behalf of the appellant registered person and reiterated the grounds as per memo. of appeals. The learned AR of the appellant contended that the audit of the tax affairs of the tax-payer is a recognized mechanism to check the veracity of the self-assessment made by the tax-payer, the provisions relating to audit, which are essentially machinery provisions, have to be interpreted liberally and in a manner that facilitate the audit. Subsections (1) and (2) of section 25 of the Act have to be to be construed ex visceribus actus, which means that every part of the statute should be construed with reference to the context and the other provisions of the statute. When so done, it becomes apparent that for the purposes of audit, subsections (1) and (2) of section 25 of the Act complement each other. In other words, "on the basis of the record, obtained under subsection (1)" appearing in section 25(2) of the Act are only stipulating that the officer of Inland Revenue authorized by the Commissioner will 'conduct' the audit on the basis of the record obtained under section 25(1), and not that the selection for audit in all cases can only be after obtaining such record. The audit will be "of the records and documents of any person registered under the Act", and not that selection for audit in all cases can only be after obtaining the record of the registered person. An interpretation to the contrary would mean that even if a scrutiny of the tax returns of the tax-payer, or some other document(s) available to the Commissioner give compelling ground for audit, a scenario not difficult to imagine, the Commissioner would still be required to first call for the tax-payer's record by one notice, obtain the same, and then after its scrutiny, issue another notice selecting him for audit. Such interpretation would hardly facilitate the audit. More eminently, the interpretation that reasons need not be assigned in the mere calling of the record, and that selection for audit can only be made after calling, obtaining and examining the record of the tax-payer, does not contemplate that such a scheme would amount to a fishing inquiry, where the Commissioner could call for all or any record maintained under the law with the hope of finding some material to charge the taxpayer with, an act held by the Supreme Court to be unlawful in Assistant Director, Intelligence and Investigation, Karachi v B. R. Herman (PLD 1992 SC 485). The above discussion is obviously not to say that a notice cannot issue only to call record under section 25(1) of the Act without audit selection. It may well be that the Commissioner requires the tax-payer to produce certain record or documents to explain or substantiate an entry in his tax return without selecting him for audit at that stage. The assessment of sales tax returns for the tax period 07/2019 to 06/2021 is being done on the basis income tax returns for the tax years 2020 and 2021 respectively. It is pertinent to mention here that GST is not applicable on transportation/carriage, services therefore, the same is reflected in the income tax returns of the taxpayer whereas GST on crushed stones is duly declared in the sales tax returns. Also, contended that per SRO No.1212(I)/2018 dated 05-10-2018, the Sales Tax Act, 1990 was not in force in the Tribal Area as defined in Article 246 of the Constitution of the Islamic Republic of Pakistan, and the levy of sales tax was not attracted to the supply transactions made in the said Tribal Area. Further, he submitted the complete and comprehensive computations of both the tax years 2020 and 2021 which is reproduced as verbatim below: Description Tax year 2020 Tax year 2021 Sales declared in Sales Tax return 33,042,559 21,224,167 Add: Other revenue in Income Tax return 83,060,500 83,008,929 Sub-total 116,103,059 104,233,096 Add: Exempt sales as per SRO No.1212 53,569,242 73,959,852 Total Turnover declared in Income Tax 169,672,301 1789,192,948

5. Further, the taxpayer declared payment for goods under section 153 of the Income Tax Ordinance, 2001 subject to Final Tax Regime at Rs.1,375,381,528/- and Rs.675,061,042/- in the return of total income for the Tax years 2020 and 2021 respectively. The receipts are subject to transportation/carriage, thus, the GST is not applicable in the instant circumstances and not declared in the monthly sales tax declaration. On quick glance it is observed the difference of supressed supplies is duly reconciled by the registered person. In view of his contention, he placed reliance on the following case laws reported as STR No.93-P/2022 dated 04-10-2023 and STA No. 06/LB/2024 dated 22-01-2024. On the other hand, learned DR vehemently supported the impugned orders of the authorities below.

6. We have heard the arguments of both the sides and have perused the available record. With regards to the assessment of sales tax returns on the basis of income tax returns, the learned counsel of appellant has rightly contended that this cannot be done. The contravention case has purely been made out merely on the basis of information obtained from the income tax returns of the appellant. This view is fortified in a plethora of judgments, as exemplified by The Hon'ble ATIR, Lahore in its case reported as M/s. Siddique Enterprises, Faisalabad v. The CIR(A), Faisalabad and others (2013 PTD 2130), wherein their lordship has held that: "Therefore, records relating to income tax cannot be made basis for creating sales tax liability against any registered person without any other corroborating material evidences for clandestine removal of goods or receipt of money consideration in the same vein because under the provisions of section 3 of the Act which is the charging section, the sales tax shall be charged, levied and paid on taxable supplies made in Pakistan by a registered person in the course or furtherance of any taxable activity carried on by him and on the goods imported into well Pakistan and in the present case, the learned DR has miserably been failed to bring forth any material evidence whatsoever to substantiate its allegation against the appellant. It is established principle of law that a party making an allegation must bring material evidences to prove the same and any action which is based upon no evidence is not permitted by any law of the land. The income tax record can be looked into for the purposes of conducting investigations and if any difference is detected by the detecting agency then it should be substantiated with solid and convincing material evidences by comparing that information with the records maintained under Sales Tax Act, 1990. The department has not been able to produce any material to show that the said amount reflected in the income tax return is in anyway linked with the taxable supplies or with any taxable activities or represent an amount on account of any business activity. Supply of goods is a condition precedent for creating sales tax liability against the taxpayer and without establishing the same and linking nexus of figures shown in financial statement of a taxpayer with that of physical delivery of goods; no fax authority can be allowed to create liability of sales tax in a castle build in the air." Further reliance is placed on a case titled as M/s. Red Co. Enterprises v. Deputy Commissioner IR and others (STR No. 93-P/2022) where the Hon'ble Peshawar High Court has held that: "

12. We have perused the Assessment Order by the Assessing Officer, the Assessing Officer while determining the tax liability of the petitioner has entirely based its finding on the information received from the income tax department/income tax returns. Hence, the very foundation of the assessment is based on alien consideration, therefore, the edifice built upon has to crumble."

7. The law is very clear on the subject that a tax can be levied only under the authority of law through an express charging provision. There is no concept of enlarging the scope of charging section on the basis of ambiguous and presumptive mechanism for which the scheme of the law Imposing the tax has not provided. The Revenue while determining the liability upon any person for levying or charging of sales tax under transaction falls within the scope and ambit of charging section and in the case of sales tax, the essential two attributes in any transaction i.e., taxable supply and taxable activity must exist so that the charging section can be triggered. This view is reinforced by the Hon'ble Peshawar High Court in its Sales Tax Reference cited supra, wherein their lordship has held that: "

8. The perusal of the aforesaid provisions would clearly that the sales tax is charged under Section 3 of the Act which is contingent upon the taxable supplies made in furtherance of taxable activity. Thus, a person can be charged to tax only when his activity confirms the following two expressions i.e. taxable supply and taxable activity.

9. At this juncture, we would not hesitate to borrow para No.20 from the judgment of the Hon'ble Lahore High Court passed in the case of "Haji Sultan Ahmed v. Chairman, Central Board of Revenue, Islamabad and 5 others (2008 PTD 103)" wherein; the expression taxable activities have been very elaborately and scholarly referred which reads as under:- "

20. The expression, "taxable activity" came up for consideration before Sindh High Court, in the cases of "Messrs Usmani Associates" (Supra) and "Novartis Pakistan Ltd." (Supra) and their Lordship observed that "any activity carried on in the form of business, trade and manufacture" which is carried on by any person and involves in whole or in part, supply of goods to another person, whether or not for any pecuniary profit, or for any other consideration or otherwise. It was observed that taxable activity clearly envisages the supply of goods to any other person. To create the charge of sales tax both the factors i.e. transaction of sale must constitute a 'taxable activity' and it should be 'taxable supply', must co-exist independently. If one factor is missing, the tax cannot be levied. The learned Court, in the above referred cases found that the transaction must first qualify to be 'supply to constitute "taxable supply" and after going through subsection (33), it was held that to constitute 'supply' the transaction must be 'in furtherance of business' and the 'business' is to be construed as the activity recurring for profit motive and must be in the nature of trade, commerce or manufacture."

8. Thus, in any audit or adjudicating proceedings, the ambiguous and presumptive approach by any auditing officer or assessing officer cannot be approved when the aforesaid essential attributes are not forthcoming from the said findings. Indeed, it is settled law that tax can't be charged and levied unless it falls squarely within the purview of charging provision. Taxing law can't be extended by implication beyond clear import of language.

9. Keeping in view of the preceding discussion and the relevant case laws cited supra, the impugned orders of the authorities below are without assumption of jurisdiction, deemed illegal and void ab initio, on both factual as well as on legal issues, therefore, quashed and set-aside.

10. The appeal filed by the registered person is decided in the manner and allowed to the extent as discussed above. MQ/4/TAX(TRIB) Appeal allowed.