2026 PLP (Trib (PTD)

DR. SHAH KHAN, ACCOUNTANT MEMBER.

The above titled appeal has been filed by the appellant registered person against the appellate Order, in-Appeal No.259/2018, dated 23.04.2018 passed by Learned Commissioner Inland Revenue (Appeals) Peshawar, whereby appeal was partially accepted.

2. Briefly stated facts of the case are that during the scrutiny of monthly withholding sales tax statement cum computerized payment receipts, it was revealed to the Assessing Officer, that the appellant registered person have made supplies of taxable goods to the-withholding agent i.e. Chairman Khyber Pakhtunkhwa Text Book Board and other Government departments, who deducted/charged an amount of Rs.1,095.329/- being 1/5th sales tax amount from the total amount of tax charged on the net value of supply at Rs.32,215,589/- as per rule 2(2) of Sales Tax Special Procedure (Withholding) Rules, 2007 notified vide SRO.660(I)/2007 dated 30.06.2007, but the appellant registered person failed to deposit the rest of 4/5th amount of sales tax at Rs.4,381,316/- as evident from the sales tax returns/profile during the tax periods from October-2014 to June-2015 in violation of section 3 of the Sales Tax Act, 1990 ("the Act"). The Assessing Officer confronted the appellant registered person on the above discrepancies through show cause notice issued on 13.09.2017. In response, the appellant registered person submitted its reply. The Assessing Officer being not satisfied with the reply/explanation and passed an Assessment Order No.52/2018, dated 15.12.2017, whereby sales tax demand was created at Rs.4,212,118/- along with imposition of default surcharge under section 34 and penalty at Rs.5000/- under section 33(1) of the Act. Feeling aggrieved, the appellant registered person went in appeal before L/CIR (A), who vide Order-in-Appeal, partially accepted the appeal of the appellant registered person. Not satisfied with the above treatment, the appellant registered person has filed the present appeal before this forum on the grounds mentioned in the memo of appeal.

3. This case was fixed for hearing today on 25.08.2023. On due date Mr. Danish Ali Qazi, Advocate/AR appeared on behalf of the appellant registered person and argued his case, while Mr. Ishfaq Ahmed, DR appeared on behalf of the respondent Tax Department and supported the order of L/CIR (A).

4. The learned AR, reiterating the grounds of appeal, contended that the L/CIR(Appeals) was not justified to confirm demand of sales tax as 4/5th at Rs. 2,280,274/- for the month of April, 2015 and Rs.43,492/- for the month of June, 2015. He further contended that since the supplies during April, 2015 were exempt from sales tax under section 13 of the Sales Tax Act, 1990 by virtue of serial No. 32 of the Table-I of the Sixth Schedule to the Sales Tax Act, hence the manufacturing services are/were not liable to payment of GST at the time of supplying the goods as the said exemption will take the said supply outside the regime of taxable supply. The L/AR further asserted that sales tax deducted by the withholding agent was refundable in the light of judgment of the Honorable Peshawar High Court. He further contended that the books supplied to the Text Book Board are generally not for sale and are distributed free of cost to the schools and colleges, hence the goods fall outside the scope of Sales Tax Act, 1990. It was also asserted that the appellant purchases the essential printing material (ink, paper, box board) itself instead of getting it from the KP Text Book Board, therefore, the supply of the books from the self-procured printing material is exempt under serial No.32 of the sixth schedule to the Act. He stated that printing/ manufacturing services are not taxable under section 3 of the Act, hence the sales tax demand is illegal. The L/AR also assailed the imposition of default surcharge and penalty under section 33 because the Assessing Officer has not established any mens rea on the part of the appellant registered person. Based on the above, the L/AR pleaded for vacation of the impugned order passed by the L/CIR(Appeals). The L/DR, on the other hand, defended the impugned order by contending that the same was in accordance with the relevant provisions of law. Arguments of the learned L/DR as well as learned L/AR have been heard. Relevant record has also been perused carefully besides consulting the relevant provisions of law.

5. Record transpires that during the assessment proceedings, the appellant registered person had conceded the allegation of non-payment of sales tax amount of Rs.2,208,020/- and based the reason of non-payment on the dispute between the KP Revenue Authority and FBR for non-payment of the sales tax. The L/DR relied on the judgment of the honorable Peshawar High Court in Writ Petition No. 2484-P/2013 dated 23.05.2017. The moot point here is whether the manufacturing of printing services used in the supplies of goods which are exempt in terms of sixth schedule to the Act are liable to sales tax and withholding sales tax. The matter can be understood in the light of paras 13 to 17 of the judgment of the honorable Peshawar High Court passed in Writ Petition No.4254-P/2015 in the case of M/s Spinzer Enterprises (Pvt.) Ltd. dated 05.08.2018 wherein the judgment in the GST Reference No.11-P/2013 dated 13.05.2013 passed by the honorable Peshawar High Court has also been discussed with reference to the full context of the said judgment. Paras 13 to 17 are reproduced as under: "

13. A bare reading of Rule 2 would show that withholding agent is responsible only to deduct GST from the invoices of payee when:‑ i) the withholding agent making the purchases of taxable goods; ii) at the time of inviting bids, it has disclosed in the bid/advertisement that the sale tax to the extent as provided in these rules shall be deducted. In the impugned transaction none of the requirement of Rule 2 ibid are attracted. It needs no reiteration that the taxable goods as defined in the Act of 1990 means "all goods other than those which have been exempted under section 13". Therefore, in view of the explicit provision of the Act of 1990 and the Rules, the provision of the Rule 2 ibid would be applicable only when the withholding agent is making payment against taxable goods. Since the supply of books were exempt from the levy of GST under Section 73 read with Entry No.21 in the Sixth Schedule, therefore the KPTBB has no responsibility to withhold GST from the payment to be made to the petitioner regarding he impugned supply as the books are not taxable goods.

14. The matter can be viewed from another angle. If we allow the KPTBB to withhold the GST from the invoices of the printing companies then obviously the printing companies would add the GST in their bills, therefore, despite the fact that the supply of books are exempted from payment of GST, the KPTBB would obviously add the amount of GST in the price/costs of books and end consumers (confessedly, all are the students for whose benefits the books have been exempted from levy of GST would pay the amount of GST on purchasing the text books, thus the very object of the exemption will be frustrated and nullified.

15. Now coming to the view which we had expressed while answering the GST Reference No. 11-P/2073 vide our judgment dated 13-05-2013. In the said judgment we had mainly focused on the meaning and concept of printing. We had rightly held in our judgment that in view of explicit definition of manufacturing as provided in section 2 (16) (b) the process of printing and publication falls within the definition of manufacturing and the process of a manufacturing is liable to the incident of GST. However in the said judgment we did not render findings on the exemption of GST on the transaction which does not constitute a taxabfe supply and the goods involved in the supply are not taxable goods. Indeed, our attention was not drawn to the basic ingredient of Rule 2 ibid i.e that the responsibility of withholding agent will trigger only when it is making payment against taxable goods.

16. Lastly adverting to the contentions of the learned counsel for the Petitioners that in all circumstances, the Petitioners have the right to adjust the input tax against the output tax. We are not in consonance with the argument of learned Counsel for petitioner that under Section 7 of the Act of 1990, the petitioner is entitled to claim input tax paid for the purpose of taxable supplies from the output tax. Section 7 of the GST Act provides that for the purposes of determining tax liability in respect of 'taxable supplies', a registered person shall be entitled to adjust input tax paid during the tax period. Such concession is clearly available only when a registered person makes 'taxable supplies' and is not available where the supplies are totally exempt from the GST liability. This mandate of the law is further affirmed in section 8(1)(a) of the Act, which provides that notwithstanding anything contained in any other provision of the Act, a registered person shall not be entitled to claim input tax paid on goods that are used in the making of supplies which have been exempted from the GST liability under the provisions of Section 13 of the Act of 1990. This clearly means that adjustment of input tax only can be claimed in a situation where the goods that have been manufactured or produced fall within the definition of 'taxable supplies'. The whole object behind the provision of Section 8(1)(2) of Act of 1990 seems to be that where at any stage, GST has been legitimately paid then adjustment of input tax cannot be claimed where such goods were used in the manufacture of 'exempt supplies'. Thus, where a registered person is exempted from the liability of GST on its supplies, it does not mean that the tax that was paid on the purchase of raw material used in the making of such supplies would be liable to be adjusted. In view of the legal position as emanating from the plain reading of the provisions of Sections 7 and 8 of the GST Act, 1990, it is evident that there is no promise by the Legislature that the GST paid on the goods used in the manufacturing of 'exempt supplies' would be liable to be refunded. Reliance placed on the cases of Messrs Mayfair Spinning Mills Ltd., Lahore v. Customs Excise and GST Appellate Tribunal, Lahore etc. (PTCL 2002 CL 115 and Coca Cola Beverages Pakistan Limited v. Customs Excise and Sales Tax Appellate Tribunal 2017 PTD 2380.

17. In view of what has been discussed hereinabove, we hold that:- I. KPTBB is not required to withhold GST against payment which it makes on receipt/supply of books in view of section 13 of the Act of 1990. II. KPTBB shall make payment to the Petitioner without withholding GST. III. Printing of books falls within the definition of manufacturing as provided in the Act of 1990, therefore, is not service rendered under the Act of 1990. IV. KPTBB may file an application to the FBR for refund of GST already collected/recovered from it."

6. From the above, it is dear that the supplies of books to the KPTBB are exempt from sales tax in terms of section 13 of the Act read with serial No.32 of the sixth schedule to the Act. From the above, it is also evident that KPTTB shall make payment to the appellant without withholding sales tax. It is also clear that printing of the books falls within manufacturing as provided in the Act therefore, the same does not fall within the scope of Sales Tax Act, 1990.

7. In view of above, since the supplies of books are exempt from sales tax and the printing of books falls within manufacturing and the same does not fall within the scope of the Act, hence the appellant registered person was not liable to pay sales tax on the same. The sales tax demand created at Rs.2,280,274/- for the month of April, 2015 and Rs.43,492/for the month of June, 2015 are hereby vacated resulting into vacation of the orders passed by the two forums below.

8. Appeal is disposed of as indicated above.

9. This order consists of (06) pages and each page bears my signature. MQ/26/Tax (Trib) Appeal allowed.