Determination of sales tax liability

Section 3 of Sales Tax Act, 1990 is a charging section but under the said section the appropriate authority is officer of Inland Revenue, whereas S.6 defines the mode and manner of collection of sales tax at import stage by the Customs Authority, resultantly, it is not a charging section instead a machinery section

Section 7 of the Sales Tax Act, 1990, speaks about determination of tax liability at the time of filing of sales tax return under S. 26 of the Sales Tax Act, 1990, this is a machinery section as well and S.33 contains penal clauses synonymous to S. 156(1) of the Customs Act, 1969

Section 34, Sales Tax Act, 1990, speaks about default surcharge to be paid upon contravention and establishing of the charge under charging section

Section 148 of Income Tax Ordinance, 2001, prescribes the procedure for collection of income tax at import stage by the authorities referred therein, meaning thereby that the said sections are independent under which no charge can be invoked.

Tax claimed to have been paid or overpaid through inadvertence, error or misconstruction or refund of tax on account of input adjustment

Scope

Petitioner/taxpayer impugned order of Department whereby its claim for refund of excess amount of tax deposited inadvertently, which was undisputed by Department, was declined on ground that such request was not within time stipulated under S.66 of Sales Tax Act, 1990

Contention of petitioner, inter alia, was that such delay occurred as petitioner had first filed an application with another wing of the Department, which application was within time, however, when petitioner made request to transfer the matter to relevant wing which was the correct forum, then the said application was declined on ground of being filed late

Validity

Application of petitioner / taxpayer remained pending with another wing of the Department, therefore it could neither be said to be time-barred nor required obtaining of condonation of delay, especially in view of the fact that when tax was not payable under the law, it could only be termed as an erroneous payment due to inadvertence and therefore, declining petitioner's claim for such refund was unwarranted

Impugned order was set aside, and Department was directed to return the excess and undisputed amount to petitioner within a period of fifteen days

Constitutional petition was allowed, accordingly.

Petitioners/taxpayers impugned show-cause notice issued by Department whereby certain input tax adjustments claimed by petitioners were deemed impermissible under SRO No.450(I)/2013 dated 27.05.2013 read with S.8(1) of Sales Tax Act, 1990

Contention of petitioners, inter alia, was that items in question were directly used in facilitating and improving manufacturing of their product and were direct constituents of taxable supply, covered under Ss.7 & 8 of Sales Tax Act, 1990 and thus denial of input tax adjustment was illegal

Validity

Prerogative of the Legislature to allow or deny input tax adjustment and in the present case, it was yet to be determined whether all goods / materials mentioned in impugned show-cause notice were used in manufacture of taxable supply and such determination being a factual one, could not be made in Constitutional jurisdiction of High Court

Intent and purpose of S.8 of Sales Tax Act, 1990 and the impugned SRO, reflected that Legislature had decided that such materials notified, were not a direct constituent of taxable supply and even otherwise input tax adjustment could denied on materials which were a direct constituent of taxable supply

In view on non-obstante clause contained in S. 8 of Sales Tax Act, 1990 and in absence of any bar on Legislature to enact S.8(h) of the Sales Tax Act, 1990, input tax adjustment could be validly denied to taxpayers/petitioners even in respect of direct constituents of taxable supply

Constitutional petitions were dismissed, in circumstances.

Petitioner taxpayers impugned insertion of proviso in SRO No.1125(I)2011 dated 21.12.2011 via SRO No.491(I)/2016 dated 30.06.2016; whereby claim of input tax and / or refund on all sorts of packing materials had been disallowed on supply and export of zero-rated goods

Contention of petitioners, inter alia, was that such insertion of such proviso was ultra vires the Sales Tax Act, 1990

Validity

By virtue of non-obstante clause in S.8 of Sales Tax Act, 1990; same shall override and prevail over provisions of S.7 of said Act, and disentitlement to seek input tax adjustment was based upon S.8(1)(b) of Sales Tax Act, 1990 itself

Very purpose of said S.8(1)(b) was to deny adjustment of input tax on such items, which though were used in manufacture and production of taxable goods, but Federal Government in its direction denied to extend such benefit to taxpayer

High Court observed that in terms of S.8(1)(b) of Sales Tax Act, 1990, input tax adjustment on packaging material could be denied, and such tax adjustment or refund would be governed by and in terms of S.8(1)(b) of Sales Tax Act, 1990

Constitutional petitions were dismissed, in circumstances.

Section 3 of Sales Tax Act, 1990, is indeed a charging section but under the said section if the appointing authority is officer of Inland Revenue

Section 6 of Sales Tax Act, 1990, defines mode and manners of collection of sales tax at import stage by the Customs Authorities and on supply by the manufacturer/seller, resultant it is not charging section instead a machinery section

Section 7 of Sales Tax Act, 1990, speaks about determination of tax liability at the time of filing of sales tax return under S.26 of Sales Tax Act, 1990, this is a machinery section as well

Section 33 of Sales Tax Act, 1990, contains penal clauses synonymous to S.156(1) of the Customs Act, 1969

Section 34 of Sales Tax Act, 1990, speaks about default surcharge to be paid upon establishing the charges under the charging sections

Likewise, S.148 of Income Tax Ordinance, 2001, prescribes the procedure for collection of Income Tax at import stage by the authorities referred therein

Meaning thereby that the said sections are independent under which no charge can be invoked.

Officer of Inland Revenue, during audit, came to know that appellant had claimed inadmissible input tax on account of fake/flying invoices issued by fraudsters (blacklisted persons)

Deputy Commissioner Inland Revenue, after issuance of show-cause notice, directed appellant to pay the input tax, it had claimed along with default surcharge and a penalty equal to 100 percent of the amount involved

Appeal filed by appellant before Commissioner Inland Revenue (Appeals) was dismissed

Validity

Appellant had duly complied with S. 73 of Sales Tax Act, 1990 for it had made payments through Bank

Input tax credit claimed against invoices issued by blacklisted persons could not be denied

Input tax was to be allowed if payments were made through Banking channel irrespective of the fact that the supplier's units were subsequently blacklisted or their registration was suspended

Second supplier of appellant was blacklisted on 3-7-2013 while the purchases were made in December 2010 and January 2011

Said business unit was active and operative at the time of purchases and registration was not suspended

Appellant could not be penalized if the supplier unit had committed tax fraud

Imposition of 100 percent penalty and default surcharge without first establishing that the appellant committed anything wrong or contravened any provision of law, knowingly and dishonestly, was declared to be patently illegal, harsh, unjustified and without any logic

Orders passed by the authorities below were annulled.

Question before High Court was whether petitioner was entitled to benefit of, and amnesty provided by, SRO No.494(I)/2013 10.06.2013 which allowed exemption from payment of default surcharge and penalty under Sales Tax Act, 1990; when admittedly petitioner had already paid principal amount of sales tax before issuance of said SRO

Held, that said SRO did not provide any condition of limiting dates for payment of principal amount of tax between date of issuance of SRO and end of financial year on 30.06.2013

Due amount of principal of sales tax determined had been paid by petitioner before cut-off date stated in said SRO and petitioner therefore could not be deprived from availing its benefit on ground that such payment was made by petitioner before issuance of said SRO

Beneficial SRO / notification had retrospective effect

High Court held that petitioner was entitled to benefit of SRO No.494(I)/2013 dated 10.06.2013

Constitutional petition was allowed, in circumstances.

Terms "adjudication" and "prosecution" were two separate, distinct and independent proceedings and term "prosecution" could not be equated with adjudication / determination of shortfall of sales tax recoverable.

Question before High Court was whether taxpayer which was a manufacturing unit, could claim input tax adjustment on payment of utility (Gas and Electricity) bills consumed in its labour residential colony

Contention of Department, inter alia, was that electricity and gas used by labour residential colony could not be termed as "taxable supplies", and would not attract lawful adjustment on input tax against sales tax paid on such utility bills

Validity

Residential accommodation to labour was located within premises of factory of taxpayer which had been provided to workers engaged in process of manufacturing of taxable goods, thus cost of consumption of utilities by such workers were directly connected with taxable activity and were considered to be direct manufacturing expenditure in relation to cost of goods

Meters of electricity and gas were in taxpayer's name and were paid on basis of commercial rates

High Court observed that S.7 of Sales Tax Act, 1990, being a beneficial provision, was to be interpreted liberally in favour taxpayer and held that all such utility bills were legally entitled to be adjusted as input tax for determination of tax liability under S. 7 of Sales Tax Act, 1990

Reference was answered, accordingly.

Section 3, Sales Tax Act, 1990, being a charging section cannot be invoked by anyone other than an officer of Inland Revenue

Section 6 of the said Act contains machinery provision that lays down the procedure relating to collection of sales tax at import stage like customs duty, thus, cannot be used to charge anyone for an offence

Section 148, Income Tax Ordinance, 2001 is a machinery provision akin to section 6 of Sales Tax Act, 1990, which empowers Customs authorities to collected income tax like customs duty on imported goods

Provisions which provide a mechanism/mode of collection are not to be construed as charging provisions even through inapt interpretation as they could neither abridge nor expand the scope of a charging section in an Act/Ordinance

Such provisions are independent ones under which no charge can be invoked

No show-cause notice can be issued under said provisions

Issuance of show-cause notice while invoking irrelevant/erroneous provisions of law renders the same illegal and as such void ab initio.

Section 3 of Sales Tax Act, 1990 is a charging section and under the said section appropriate authority is an officer of Inland Revenue

Section 6 of the Sales Tax Act, 1990 defines the mode and manners of collection of sales tax at import stage by Customs Authorities, while S. 7 of the said Act states about determination of tax liability at the time of filing of sales tax return, thus both the provisions are machinery provisions

Section 33 of the Sales Tax Act, 1990 contains penal clauses synonymous to S. 156(1) of Customs Act, 1969 and S. 34 of the Sales Tax Act, 1990 deals with default surcharge to be paid upon contravention and establishment of charge

Section 148, Income Tax Ordinance, 2000 describes the procedure for collection of income tax at import stage by the authorities referred therein

Said provisions are independent under which no charge can be invoked

No show-cause notice can be issued under aforesaid provisions which are independent and have no nexus with each other

Issuance of show-cause notice while invoking irrelevant/erroneous provisions of law renders the same void ab initio and of no legal effect.

Taxpayer had made payment of input tax to his supplier and had no way to confirm that the alleged supplier had made the payment in government treasury or not

Taxpayer receiving taxable supplies was legally obliged to check 'validity and veracity' of the supplying person through electronic verification/E-portal verification which was done at the time of transactions

Tax functionaries were duty bound to check as to whether the supplier had made payment of tax due to them especially when he was filing his monthly sales tax returns and summaries of sales and purchases with the department

No concrete evidence was produced to prove that taxpayer was in the knowledge or had reasonable grounds to suspect that some or all of the tax payable in respect of supplies would go unpaid

Liability to pay tax jointly and severally under S. 8A, Sales Tax Act, 1990 came into play only when it was established with corroborating material evidence that registered person receiving taxable supplies from another registered person was in the knowledge or had reasonable grounds to suspect that some or all of the tax payable in respect of the supplies would go unpaid

Supplier of appellant was active when the transaction took place and it was subsequently blacklisted

Payments were made by appellant after adhering to the provisions of S. 73, Sales Tax Act, 1990

Requisite conditions under Ss. 7 & 73, Sales Tax Act, 1990, for claiming input tax were fulfilled by appellant

Department failed to produce any order regarding the blacklisting of supplier

Non-production of such order led to the presumption that supplier was not blacklisted at the time of issuance of invoices

Order of blacklisting passed by Commissioner Inland Revenue was vacated and active status of taxpayer as sales tax registered company was restored ante-dated

Appeal filed by taxpayer was allowed, accordingly.

Section 3, Sales Tax Act, 1990, being a charging section cannot be invoked by anyone other than an officer of Inland Revenue

Section 6 contains machinery provision that lays down the procedure relating to collection of sales tax at import stage like customs duty, hence, cannot be used to charge anyone for an offence

Section 7 of the Sales Tax Act, 1990 speaks about determination of sales tax liability at the time of filing sales tax return under S. 26 of the said Act which is also a machinery section

Section 33 of the said Act contains penal clauses synonymous to S. 156(1) of Customs Act, 1969

Section 34 of Sales Tax Act, 1990 speaks about default surcharge to be paid by the taxpayer upon confirmation of charges

Section 148, Income Tax Ordinance, 2001 is a section containing machinery provision akin to S. 6 of Sales Tax Act, 1990, which empowers Customs authorities to collect income tax like customs duty on imported goods

Provisions which provide a mechanism/mode of collection are not to be construed as charging provisions even through inapt interpretation as it could neither abridge nor expand the scope of a charging section in an Act/Ordinance

Said provisions are independent under which no charge can be invoked

No show-cause notice can be issued under said sections

Issuance of show-cause notice while invoking irrelevant/erroneous provisions renders same illegal and as such void ab initio.

Section 3, Sales Tax Act, 1990, being a charging section cannot be invoked by anyone other than an officer of Inland Revenue

Section 6 is a machinery section that lays down the procedure relating to collection of sales tax at import stage

Customs authorities, with the exception of Clearance Collectorate, cannot charge anyone under the said section

Section 7 provides determination of sales tax liability at the time of filing sales tax return, and thus a machinery section

Section 33 contains penal clauses synonymous to S. 156(1) of Customs Act, 1969 and S.34 provides about default surcharge to be paid upon contravention and establishment of charge

Both the sections are independent under which no charge can be invoked

No show-cause notice can be issued under said sections

Issuance of show-cause notice while invoking irrelevant/erroneous provisions renders the same void ab initio and of no legal effect.

Section 3, Sales Tax Act, 1990, being a charging section cannot be invoked by any Authority other than an officer of Inland Revenue

Section 6 of the said Act is a machinery section that lays down the procedure relating to collection of sales tax at import stage while S.7 lays down about determination of sales tax liability at the time of filing sales tax return, thus a machinery section

Section 33 of Sales Tax Act, 1990 contains penal clauses synonymous to S.156(1) of Customs Act, 1969

Section 34 of Sales Tax Act, 1990 deals with default surcharge to be paid upon contravention and establishment of charge

Section 148, Income Tax Ordinance, 2001 prescribes the procedure for collection of income tax at import stage by the authorities referred therein

Said sections are independent under which no charge can be invoked

No show-cause notice can be issued under aforesaid sections which are independent and have no nexus with each other

Issuance of show-cause notice while invoking irrelevant/erroneous provisions renders the same void ab initio and of no legal effect.

Question before the High Court was whether the Appellate Tribunal and forums below were justified in holding that the taxpayer, an Electricity Supply Company, was liable to pay full amount of sales tax collected, which was charged through consumer bills, and not just the tax according to the amount of units declared in its return, which was substantially less

Held, no substance existed in the Reference and High Court declined to exercise its jurisdiction under S.47 of the Sales Tax Act, 1990.

Questions before the High Court related input tax adjustment claimed under S. 66 of the Sales Tax Act, 1990 and whether when there existed no willful default on part of taxpayer, additional tax and penalty could be imposed on taxpayer

Held, input tax adjustment was required to be availed under S. 7 of the Sales Tax Act, 1990 during the relevant tax year and in case the taxpayer failed to avail the same, it was required to apply to the Department under S. 66 of the Sales Tax Act, 1990 for refund/adjustment of amount demanded by Department, and in the present case, the Department was ordered to adjust the said amount

Appellate Tribunal, in the present case, was also justified in remitting penalty and additional tax back to the taxpayer

Where a registered person/taxpayer did not deduct input tax within the relevant period, such person may claim adjustment of such tax under S. 66 of the Sales Tax Act, 1990 and no exception could be taken to the same

Reference was answered, accordingly.

Question before the High Court was whether input tax in relation to appliances of taxpayer placed with retailers in their showrooms, could be adjusted

Held, Ss. 7 & 8 of the Sales Tax Act, 1990 were not the charging sections and pertained payability of tax and were machinery provisions and helped in determining the liability to pay the tax as contemplated in S.3 of the Sales Tax Act, 1990

Keyword used in Ss. 7 & 8(1)(a) of the Sales Tax Act, 1990 was purpose which meant that input tax could be deducted only on goods used for purpose of taxable supplies

In order to determine whether input tax was admissible in a particular case, it had to be seen whether goods were used in relation to taxable supplies and it was not necessary that such goods should be an integral part thereof

Once a registered person established that goods in respect of which such person claimed input tax adjustment were used for the purpose of taxable supplies, such taxpayer would be entitled to the adjustment unless the Federal Government had issued a notification under S. 8(1)(b) of the Sales Tax Act, 1990 to disallow the same

In the present case, there was no denying the fact that taxpayer placed the appliances with retailers to facilitate the sale of its products, being its taxable supplies and therefore such appliances were used for the purpose of taxable supplies and taxpayer could claim adjustment of input tax in respect of the same

Reference was answered, accordingly.