2013 PLP (Trib (PTD)

MRS. ZAREEN SALEEM ANSARI, ACCOUNTANT MEMBER.

This appeal has been directed against the order under section 36(2) of Sales Tax Act, 1990 passed by the learned Collector on the alleged Sales Tax evasion on road construction contract executed by the appellant.

2. The facts of the case are that the appellant is private limited company and road building contractor, who executed a contract of National Highway Authority for construction of road in Balochistan.

3. Objections have been raised on the order of the learned Collector both on legal and factual plane.

4. Mr. Abid Shaban attended as learned AR of the appellant and Mr. Ayaz Mehmood attended as learned DR.

5. The learned AR argued that the date of show-cause notice under section 36 of Sales Tax Act, 1990 is 18-3-2004 and the date of Order-in-Original No. 2 of 2005 in appeal is 17-1-2005. Hence the order has been passed under section 36(2) of Sales Tax Act, 1990 after 213 days of issuance of show-cause notice and the same is clearly time barred in terms of mandatory provisions of section 36(3) of Sales Tax Act, 1990 which mandates that the order should be passed within 90 days of issuance of show-cause notice. The learned AR relied on a number of reported decisions, where the Hon. High Courts have held that provisions of section 36(3) of Sales Tax Act, 1990 are mandatory in nature and any order passed beyond the period mentioned in section 36(3) of Sales Tax Act, 1990 is time barred and not sustainable in law. Reliance was placed on: Tanveer Weaving Mills v. Dy Collector Sales Tax 2009 PTD 762, Hanif Straw Board v. Addl. Collector (Lahore High Court) 2008 PTD 578, Super Asia Muhammad Din and Sons v. Collector 2008 PTD 60, Abbasi Enterprises v. Collector Sales Tax 2008 PTD 2025 etc.

6. The learned AR also argued that the Collector has passed a non speaking order and his findings contained in para. 18 on page 4 are non speaking and non judicial and consist of only 4 lines which are not sustainable in law. Reliance was placed on case reported as 2005 PTCL 462 (sic) where it has been held that any non speaking order which is devoid of reasons is not sustainable in law. Reliance was also placed on case reported as 2012 PTD (Trib.) 1697.

7. The learned AR also argued that appellant had executed contract with NHA for constructing Ormara to Pasni, Balochistan section of Coastal Highway and their contract was not for supply of material but for construction of road which is an immoveable good/property and falls outside the ambit of moveable goods under section 2(12) of Sales Tax Act, 1990. The learned AR further argued that immoveable property/ goods is clearly outside the scope of Sales Tax as is clear from section 2(12) of Sales Tax Act, 1990 (STA, 1990). The contract with NHA is not a contract for supply of goods but a contract for construction of road which is non-taxable activity. Any work done in furtherance of non-taxable activity is not liable to Sales Tax as per section 3 of STA, 1990. The learned AR in support of his arguments also relied on Circulars of Central Board of Revenue(CBR) (at present Federal Board of Revenue) that immoveable property and road construction is not liable to Sales Tax, as under:-- In CBR Ruling 27/2002 dated 2nd April 2002 in para. 3 CBR had clarified:-- "there is no Sales Tax on immoveable property such as buildings, roads etc. since these are excluded from definition of `goods' under Sales Tax Act, 1990. Therefore no Sales Tax is payable when a contractor constructs a building or a road for a Government Organization" In Sales Tax Circular 2/2006 dated 20th March, 2006, CBR had once again clarified that:-- "it is stated that services of construction and civil works do not attract Sales Tax". "No Sales Tax is leviable on goods supplied in the course or furtherance of a non-taxable activity as per provision of section 3". "the activity of the contractor as such does not constitute supply of moveable goods and items consumed in painting repair of building etc. are becoming part of structure, according to section 3 of the Act read with section 2(12) Sales Tax chargeable only on supply of moveable goods".

8. The learned AR contended that CBR Circulars are binding on tax officials as per Section 72 of Sales Tax Act, 1990 and reliance was also placed on cases reported as 2002 PTD 720, 2002 PTD 63 where the Hon. High Courts have held that beneficial Circulars are binding on tax officials.

9. The learned AR also referred to letter dated 9-7-2008 of NHA in which NHA after seeking legal opinion had stated and confirmed that the appellant as per contract were not engaged in Manufacture or Supply of material used in the construction of road but were engaged in construction of highway for NHA and road building was not subject to charge of Sales Tax hence appellant cannot be burdened by levy of Sales Tax.

10. The learned AR also argued that the order of the Collector is discriminatory and the learned AR sought protection under Article 25 of Constitution of Pakistan. The learned AR argued that in 60 odd years history of the country when Sales Tax has been on books, road construction contractors on road construction have not been subjected to charge of Sales Tax and rightly so, as road is an immoveable property not subject to Sales Tax. The learned AR also argued that in previous hearings of the appeal, he had given names of other major NHA road contractors and the bench had asked the department to produce evidence if other NHA road contractors were subjected to Sales Tax on road construction and in spite of seeking time, the department could not produce evidence that other road contractors on road construction for NHA were subjected to Sales Tax. The learned AR relied on a number of case-laws in respect of equal protection Article 25 of Constitution viz 1997 SCMR 641, 2001 PTD 3919 etc. where courts have struck down discriminatory treatment of persons equally placed.

11. The learned DR defended the order of the Collector and argued that the order was not time barred and CBR Circulars were not applicable in this case.

12. We have heard the rival arguments, examined the facts of the case and case-law relied upon and our findings on various issues are as under:-- (i) The show-cause notice in this was issued on 18-3-2004 and Order-in-Original No. 2/2005 is dated 17-1-2005. Hence this order was passed 213 days after issuance of show-cause notice. As per mandatory provisions of section 36(3) of Sales Tax Act, 1990 the order was to be passed within 90 days of issuance of show-cause notice or within such extended period as extended by Collector which is not to exceed 90 days. Nothing was produced by DR to show that such extension was granted. Even assuming for sake of argument only, that extension was granted, then order should have been passed within 180 days of issuance of show-cause notice. Here the order was passed after 213 days, hence the order is clearly time barred and not sustainable in law and liable to be cancelled. Reliance is placed on cases reported as 2009 PTD 7862, 2008 PTD 578, 2008 PTD 2025, 2008 PTD 60 where the Hon. Courts have held that provisions of section 36(3) of Sales Tax Act, 1990 are of mandatory nature and any order passed beyond the time specified in section 36(3) of Sales Tax Act, 1990 is time barred and not sustainable in law. Respectfully following the ratio of decisions of Hon. High Courts, we hold that the Order-in-Original 2/2005 dated 17-1-2005 passed by the Collector which is in appeal is time barred and not sustainable in law and hence the same is cancelled. (ii) We also find merit in the arguments of the learned AR that in this case the appellant had entered into a contract with National Highway Authority which is a government entity to construct Ormara to Pasni Balochistan section of Coastal Highway. Their contract was not for supply of goods but for road/highway construction which is immoveable property/good and a non taxable action and clearly falls outside scope of "good" which are subjected to charge of Sales Tax. Further CBR through Circular 27 of 2002 and 02 of 2006 had clearly given ruling "there is no Sales Tax on immoveable property such as building, roads etc. since these are excluded from definition of "goods" under Sales Tax Act, 1990. Therefore no Sales Tax is payable when a contractor constructs a building or a road for a Government Organization" (italic provided for emphasis)

13. The Circulars/guidance/rulings of CBR are binding on tax officials as per Section 72 of Sales Tax Act, 1990 and beneficial circulars are binding as per large number of decisions of Hon. High Courts e.g. 2002 PTD 720, 2002 PTD 63.

14. The above cited Circulars of CBR relied upon by the learned AR are fully applicable to the appellant as NHA is a Government organization and the appellant constructed a road highway which is a non taxable activity and outside the definition of "goods". Hence even on this score, we hold that the order of Collector is not sustainable on facts and in law and is cancelled.

15. We also tend to agree with the arguments of the appellant that the order of Collector subjecting road construction to be liable to Sales Tax is discriminatory and violative of Article 25 of the Constitution of Pakistan. The DR was not able to cite any other case of any other road contractor who has been subjected to Sales Tax on account of road construction work of NHA. We respectfully agree with ratio of decisions of Hon. Courts cited by learned AR that discriminatory orders are violative of Article 25 of Constitution and not sustainable in law. Hence even on this score the order of the Collector is not sustainable in law and is cancelled.

16. The upshot of the above findings is that the order in appeal is time barred and not sustainable on facts and in law as discussed above and is hereby cancelled.

17. The appeal succeeds as indicated above. CMA/141/Tax(Trib.) Appeal accepted.