2025 PLP (Trib (PTD)

TAUQEER ASLAM, CHAIRMAN.

The above titled sales tax appeal has been preferred by the registered person calling in question the Impugned Sales Tax Order-in-Appeal No.66RB/2023 dated 21.03.2023 passed by the learned Commissioner Inland Revenue (Appeals), Sargodha pertaining to Tax Periods 2014 to 2017.

2. For the purpose of disposing of this titled sales tax appeal, the key facts of the ca case are that appellant, being a registered person, is a contractor of crushed stones'. The adjudicating officer observed that the registered person has concealed/suppressed gross sales of its supplies to the tune of Rs.32,200,000/-in its income tax returns for the Tax Years 2014 to 2017 but the same has not been declared in his sales tax returns. Consequently, it becomes a cognoscible case for the adjudicating authority that the Registered Person has committed concealment / suppression of gross sales of its supplies to the tune of Rs.32,200,000/- which resulted in short payment of sales tax @17% amounting to Rs.5,474,000/- and further tax under section 3(1A) of the Sales Tax Act, 1990 (here-in-referred to as the "Act") amounting to Rs.513,000/-, 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 aggregating at Rs.12,269,000/- 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 21.03.2023 upheld 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 Hon'ble Tribunal on the grounds as set forth in the memo. of appeal.

4. The case was heard on 28.10.2024. Mr. Muhammad Imran Rashid, advocate appeared on behalf of the appellant registered person and reiterated the grounds as per memo. of appeal. The AR of the appellant contended that the assessment of sales tax returns for the tax period 07/2013 to 06/2017 is being done on the basis income tax returns for the tax years 2014 to 2017 respectively. It is pertinent to mention here that the Order-in-Original No.02/2018 was issued on 10-07-2018 for the Tax Period 07/2013 to 06/2014 which indicates that Tax Year 2014 has hit by time limitation as no order under section 11(2) of the Act shall be made by the Officer of Inland Revenue after the expiry of five years. He further submitted that the registration of the registered person was suspended vide Order No.172 dated-01-09-2015 and the status was still suspended. In view of his contention, the placed reliance on the following case laws reported as STR No 93-P/2022 dated 04-10-2023, STA No. 1622/LB/2024 dated 20-08-2024 and STA No.1086/LB/2023 dated 18-05-2023. On the other hand, learned DR vehemently supported the impugned orders of the authorities below.

5. We have heard the arguments of both the sides and have perused the available record. Upon due consideration, we find that the contention for the Tax Year 2014 is statutorily barred by time limitation as prescribed under section 11(2) of the Act. Thus, the liability for the said period under consideration is deleted. 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 tax 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 Inland Revenue 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."

6. 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 at "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."

7. 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.

8. Keeping view of the preceding discussion and the relevant case laws cited supra the impugned orders of the authorities below are deemed illegal, null and void ab initio, on both factual as well as on legal issues, therefore, quashed and set-aside.

9. The appeal filed by the registered person is decided in the manner and allowed to the extent as discussed above. MQ/3/TAX(TRIB) Appeal allowed.