Levy of Sales Tax

2021 PTD 318 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss.3, 13 & Sixth Sched.Sales Tax (Special Procedures) Rules, 2007, Chap. XVSRO No.253(I)/2019 dated 26.02.2019ViresLevy of sales taxCotton SeedExemption from sales taxStatutory exemption from sales tax could not be overridden by notification / SRO issued under Sales Tax Act, 1990Scope

Petitioners impugned SRO No.253(I)/2019 dated 26.02.2019 which sought to recover sales tax on supply of cotton seed, inter alia, on ground that such supply enjoyed statutory exemption under S.13 read with Sixth Sched. to Sales Tax Act, 1990

Validity

Statutory exemption could not be overridden by a notification, and Sixth Sched. to Sales Tax Act, 1990 clearly placed supply of cotton seed within statutory exemption from sales tax and nothing existed which could suggest that such exemption could be taken away by resort to an insertion carried out vide impugned notification

High Court held that Chap. XV of Sales Tax (Special Procedures) Rules, 2007 as inserted by impugned SRO No.253(I)/2019 dated 26.02.2019 was illegal and ultra vires the Sales Tax Act, 1990 and any sales tax collected or paid on supply of cotton seed had been unlawfully demanded / collected, and the petitioners / taxpayers would be entitled to refund of same

Constitutional petition was allowed, accordingly.

2019 PTD 2209 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss. 3, 13 & Sixth Sched.Levy of sales taxImport of goodsRaw materials for basic manufacture of pharmaceutical materialsExemption from levy of sales taxPackaging materialScope

Question before the High Court was whether pharmaceutical companies were entitled for exemption of sales tax on imports of packing materials in terms of Entry No. 105 of the Sixth Schedule to Sales Tax Act, 1990

Exemption under Entry No. 105 of the Sixth, Schedule to the Sales Tax Act, 1990 was available to "pharmaceutical active ingredient and "pharmaceutical product" as these two categories were to be read disjunctively as "or"

Entry No. 105 of the Sixth Schedule to the Sales Tax Act, 1990 was silent on whether exemption was available in respect of "packing material" as well as "raw materials for packaging" of pharmaceutical products, therefore Court was not permitted to add anything to the provision under the principle of "casus omissus" which provides that a matter which should have been, but had not been provided for in a statute, could not be supplied by the courts as to do so, would be Legislation and not construction

Taxpayer pharmaceutical companies were therefore not entitled to claim exemption in respect of import of packaging / packing material

Suit was dismissed, accordingly.

2019 PTD 776 ISLAMABAD Judicial Precedent

S.3 & PreambleLevy of sales taxAdjudication by Sales Tax AuthoritiesStatutory obligation on adjudicating forums established under the Sales Tax Act, 1990Onus of proof as to the liability of taxScopeLegislature, while enacting the Sales Tax Act, 1990 did not intend to reverse the onus of proof

When the Department asserted a fact, alleged that a person was liable to make payment of tax and the same had not been charged or levied, the former was burdened with a statutory duty to persuade the adjudicating forum by persuasion through preponderance of evidence that the facts asserted by it were highly probable to be true rather than being unreliable, false or doubtful

Degree and quality of evidence required for such persuasion rendered presumption or conjectures as alien

Preponderance of evidence inevitably had to be based on clear and convincing evidence and the standard can be described as "more probable than not"

Heavy duty existed on Department to persuade the adjudicating forums that the facts asserted against a taxpayer were highly probably to be true and the benefit of a doubt would lean in favour of taxpayer.

2017 PTD 2377 ISLAMABAD Judicial Precedent

S. 34Levy of Sales TaxDefault surchargeWillful defaultInterpretation of S.34 of the Sales Tax Act, 1990

Bare perusal of S.34 of the Sales Tax Act, 1990 revealed that payment of default surcharge was not confined only to cases of willful default but same could be demanded in cases where there was default "otherwise"; and the word "otherwise" is defined as "in a different way"; "in other respects"; "as an alternative".

2013 PTD 379 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN Judicial Precedent

S.4Sales Tax Act (VII of 1990), Sixth Sched., Item No.8 & S.3S.R.O. 922(I) of 1999 dated 16-8-1999Petroleum productsLevy of sales taxTaxpayer not allowed to pass on such levy to end consumersValidity

Ministry of Petroleum on 23-9-1999 prescribed a price structure notification authorizing the taxpayer to charge sales tax on furnace oil, while permitting it to pass on the burden to the end consumers

Taxpayers made a number of representations and it took the Ministry of Petroleum more than a month to issue a notification in harmony with S.R.O. 922(I)/99 dated 16-8-1999 which showed negligence and lack of harmony between the two government departments i.e. Ministry of Petroleum and Revenue authorities

Taxpayer could hardly be blamed for it or saddled with the responsibility to pay sales tax for the intervening period

On one hand the taxpayer was obligated to pay sales tax, while on the other hand it was not allowed to pass on the burden of tax to the end consumers, due to the failure of the Ministry of Petroleum to prescribe a corresponding price notification

Such position would be against the spirit of sales tax, which was an indirect tax and the taxpayer was denied the status of collecting agent of indirect tax

Appeals were allowed, show cause notices, orders-in-original and orders of First Appellate Authority were annulled and bank guarantees, if any given by the taxpayer were revoked and withdrawn.

2010 PTD 1269 PESHAWAR-HIGH-COURT Judicial Precedent

Ss.2(16), 2(33)(a) & Sixth ScheduleLevy of sales tax"Supply"Assessee was an industrial unit engaged in processing and packing of oil on behalf of another company

Grievance of authorities was when on receipt of oil and packing material from another company, assessee processed and packed the same then it was liable to be taxed on account of conversion charges

Validity

Not only that the assessee also received consideration for value addition but such activity was supply par excellence

As such the same was covered by expression `supply' as defined in S.2 (33) of Sales Tax Act, 1990

End product in question was exempted from Sales Tax under Sixth Schedule to Sales Tax Act, 1990, what was supplied by assessee was not an end product but value added to the raw material through exercise of processing and packing

Assessee thus could not claim exemption under any canons of interpretation

If exemption could be extended on such assumptions, then even import of raw material could not be taxed, as it also constituted an activity preceding manufacture and supply of an end product

High Court declined to accept such interpretation of assessee which prima facie led to absurdity and tend to defeat purpose of charging provision

Legislature had not exempted such an activity from tax, when it constituted manufacture as well as supply carried for pecuniary consideration

Activity of assessee processing and packing of oil on behalf of another company was liable to be taxed

Reference was answered accordingly.

2009 PTD 1802 Customs, Federal Excise and Sales Tax Appellate Tribunal Judicial Precedent

Ss. 3 & 23Scope of taxSupply of LocomotivesLevy of sales tax

Appellants contended that manufacturing/assembling Locomotives was for their own usage and not for supplying the same to any other person

Locomotives (Railways Engines) were not independent marketable products, which could be sold in the market and were not liable to sales tax

Validity

Pakistan Railways and Pakistan Locomotive ' Factory were both distinct registered persons

Both the registered persons were now under obligation to issue ,sales tax invoices in respect of supplies made to each other under S. 23 of the Sales Tax Act, 1990

Pakistan Locomotive Factory/Appellant had supplied Locomotives to Pakistan Railways without payment of sales tax and had violated S.3 of the Sales Tax Act, 1990

Stance taken by the appellants was not sustainable in the eyes of law and appellants were liable to pay sales tax on the taxable supplies of Diesel Engine Locomotives which were rolled out during the relevant period

Order in original was not suffering from any patent illegality, impropriety or material irregularity warranting any interference

Appeal was dismissed by the Appellate Tribunal.

2008 PTD 1267 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 3(1)(1-A), 3-B, 47 & 66Levy of Sales TaxRefund claimReference to High CourtRemand of case

Supreme Court vide its judgment, remitted the matter to concerned Collectors pending between the parties in identical situation

No serious apposition to the idea that a similar direction could be made in the present appeal existed

Two impugned orders recorded by the Tribunal in the cross appeals, were accordingly set aside and cases were remitted to the concerned Collectors of Sales Tax for disposal after providing appellants/registered persons with an opportunity of hearing in terms of judgment of Supreme Court.

2002 PTD 7 LAHORE-HIGH-COURT-LAHORE Judicial Precedent

Ss. 45A & 47Constitution of Pakistan (1973), Art. 199Constitutional petitionLevy of sales taxExercise of revisional jurisdiction instead of appeal under S.47 of the Sales Tax Act, 1990Show-cause notice, issuance ofDispute was with regard to the adjustments of various sums paid as sales tax

Appeal against the original order was allowed by the Collector in favour of the petitioner whereas the Appellate Tribunal dismissed the appeal filed by the Authorities on the technical ground that the appeal was not filed by a person competent to do so

Central Board of Revenue, after the rejection of appeal by the Appellate Tribunal, took the matter in exercise of powers under S. 45A of the Sales Tax Act, 1990, and issued the show-cause notice in revisional jurisdiction

Validity

Where appeal lay to High Court against order of Appellate Tribunal, the same did not permit directly or indirectly any executive Authority in Department to interfere with a matter .which should properly have been brought to High Court

Order passed by Central Board of Revenue under S. 45A of the Sales Tax Act, 1990, was without lawful authority and the same was set aside

Constitutional petition was allowed in circumstances.

2002 PTD 976 KARACHI-HIGH-COURT-SINDH Judicial Precedent

Ss.2(12)(35)(41), 3, 7 & 47Constitution of Pakistan (1973), Art.25S.R.O. No.578(I)/98, dated 12-6-1998Sale of fixed assetsChargeability to tax

Tribunal had found that no sales tax was leviable on disposal of fixed assets owned by assessees, since they were not trading in the items they had sold

Contention of the Authority was that such disposal constituted a "taxable activity" and it was irrelevant as-to whether assessees undertook the activity for profit motive or not, thus, such sale was chargeable to tax under S.3 of the Sales Tax Act, 1990

Validity

Under S.3 of the Sales Tax Act, two conditions must be fulfilled independently for creating the charge of sales tax i.e. transaction of sale must constitute a "taxable activity" and the same should also be a "taxable supply"

Where one of such conditions was missing, the charge of sales .tax would not be leviable

Expression "any, activity carried on in the form of a business, trade or manufacture" as used in S.2(35) of the Sales Tax Act, was an independent ingredient of the term "taxable activity "

Since assessees were not engaged in the business, trading or manufacturing of commodities, which they had sold i.e. fixed assets would not constitute "taxable activity"; second ingredient of S.3 of the Act i.e. "taxable supply" was also absent in the present case

To constitute a "taxable supply", the transaction must first qualify to be a "supply" and to constitute "supply" the transaction must be in'the "furtherance of business"

Term "business" had not been defined in the Act, and in order to be construed as "business", the activity must be recurring for profit- motive and in the nature, of trade, commerce or manufacture

Disposal of fixed assets in the present case could not be construed as an activity for profit motive or in the nature of .trade, commerce or manufacture, thus, the same was not an `activity in furtherance of "business"

Assessee did not trade in or manufacture the fixed assets, thus, the same did not constitute "supply" under S.2(33) of the Act and could not be construed as "taxable supply" under S.2(41) of the Act

Fixed assets, if assumed to fall within definition of "goods" as given in S.2(12) of the Act, even then two essential conditions of charging S.3 i.e. "taxable activity" and "taxable supply" would not be satisfied

Assessees had not be able to claim any input tax under S.R.O. No.578(I)/98, thus, there could be no determination -of liability under S.7 of the Act

Authority in another case similar to that of assessees had vacated show-cause notice, thus, there would be no justification to accord a discriminatory treatment to other assesses in violation o1 Art.25 of the Constitution

High Court accepted the appeals holding that there could be no sales tax on the disposal of fixed assets.

2002 MLD 99 KARACHI-HIGH-COURT-SINDH Judicial Precedent

S.60 & Sched. VLevy of taxJurisdiction of Local AuthorityScope

Authorities may levy in the prescribed manner all or any of the taxes, rates, tolls and fees mentioned in Sched. V of the Sindh Local Government Ordinance, 1979 under the provisions of S.60 of the Ordinance

Authorities are empowered to levy fee for issuance of licence/permits granted and to levy fee for market and any other tax which Government is empowered to levy by law.

1998 SCMR 2202 SUPREME-COURT Judicial Precedent

Levy of Sales TaxSs. 3 & 4Seniority

Period of service which the ex-employee of former Government of East Pakistan performed as gazetted Officer in the former East Pakistan was counted towards his seniority but not the period during which he rendered his duty on non-gazetted post

Such being in line with the provisions of Ss.3 & 4 of the Ex-Employees of the Former Government of East Pakistan (Appointment to Federal Posts) Ordinance, 1983, 'said employee could not agitate the matter further.