Sales Tax

Petitioner / withholding company was aggrieved of imposition of recovery of Rs.12,098,984/- as principal amount of sales tax, along with penalty and default surcharge

Validity

Allegation of not withholding amount of sales tax on receiving services against petitioner / withholding company related to the period prior to promulgation of Finance Act, 2021

Text of amendment Act (Finance Act, 2021) did not give any impression of its retrospective application and that the liability to pay sales tax on services was on the service provider

Recipient was only responsible to withhold the amount of sales tax at the rate specified in the Khyber Pakhtunkhwa Sales Tax on Services Special Procedure (Withholding) Regulations, 2015

Demand raised by authorities in terms of S. 30(3) of Finance Act, 2013 was illegal and without lawful authority

Before amendment of Finance Act, 2013 (through Finance Act, 2021) the authority was competent to issue a notification in official gazette to prescribe a special procedure for payment of taxes and further required any person or class of persons, whether registered or not for the purpose of Finance Act, 2013 to withhold full or part of tax charged for such a person or class of persons on the provision of any taxable services or class of taxable service and to deposit tax so withheld with government

Regulations were framed which envisaged that recipient of services should withhold sales tax on services and deposit the same in government head of account

During the period under consideration, liability upon withholding agent did not exist

Non-compliance of such Regulations was not visited with any penalty, albeit personal liability of withholding agent

Reference was disposed of accordingly.

Amnesty notification being beneficial subordinate legislation must be viewed liberally in favour of the taxpayer in order to achieve the solitary fiscal objective of quick recovery of stuck up tax revenue.

Amnesty notification being beneficial subordinate legislation must be viewed liberally in favour of the taxpayer in order to achieve the solitary fiscal objective of quick recovery of stuck up tax revenue.

Building material consumed in the construction of immovable property is neither taxable supply nor in furtherance of taxable activity, hence, beyond the scope of sales tax under the Sales Tax Act, 1990

Construction of immovable property is not taxable activity, which is essential ingredient to charge tax

Consumption of material in an activity, which is not taxable under the Sales Tax Act, 1990, therefore, is not chargeable to sales tax

No construction of immovable property is possible without building material

Consumption of building material by a person, being non-taxable activity, falls out of the supply chain under S. 3.

Appellant declared supplies made to unregistered person on which sales tax at the rate of 17% was correctly paid but further tax leviable under S.3(1A) of Sales Tax Act, 1990, was neither charged nor paid thereon

Commissioner Inland Revenue adversely adjudged the liability as to further tax

Validity

Appellant had supplied "Zinc Ingots" to the Master of Mint, Finance Division, Government of Pakistan

Master of Mint was engaged in manufacturing of coins which was "money"

"Money" was excluded from the very purview of "Goods" as defined in S.2(12) of Sales Tax Act, 1990

Master of Mint was not required to be registered in the sales tax, hence, did not fall under the scope of S.3(1A) of Sales Tax Act, 1990

Impugned order, being not maintainable, was annulled.

During scrutiny of electricity bills and income tax returns, it was observed that the appellant was not only liable to be registered but was also liable to pay sales tax on the basis of sales declared in the income tax returns for the financial years 2014, 2015, 2016 and 2017

Resultantly, a show cause notice was issued and the impugned orders were passed against the appellant

Validity

Income tax record could be looked into for the purposes of conducting investigations and if any difference was detected by the detecting agency then it should be substantiated with solid and convincing material evidences as records relating to income tax could not be made basis for creating sales tax liability against any registered person without any other corroborating material evidence

Documents relating to the income tax could not be taken as a valid evidence for the purposes of sales tax and the reason for this was obvious as the income tax was always levied and collected on the basis of income but the sales tax is levied on the goods manufactured and sold by the manufacturer

Department had not produced any material to show that the amount reflected in the income tax returns was in anyway linked with the taxable supplies or with any taxable activities or represented an amount on account of any business activity

Impugned show-cause notice and consequent orders passed by the authorities below were set aside

Appeal was accepted.

Two conditions of making taxable supplies and taxable activity must exist simultaneously to charge sales tax on supplies

Section 3 of Sales Tax Act, 1990 levies sales tax on the taxable supplies made by a registered person in the course of furtherance of any taxable activity carried on by him and upon goods imported into Pakistan.

Only such taxable activity is liable to sales tax which is undertaken during the course of taxable supply.

Collection, payment and enforcement of sales tax on imported goods is governed under Customs Act, 1969, as envisaged in S.6 of Sales Tax Act, 1990

Cases of recovery of sales tax non-levied or short-levied at import stage should all the more be adjudicated in terms of S.32 of Customs Act, 1969, by an appropriate Officer of Customs and instead of an Officer of Inland Revenue having no powers to enforce its recovery under Sales Tax Act, 1990.

Petitioner seeking direction for restraining authorities from recovery of sales tax till functioning of Appellate Tribunal

Validity

Proper remedy was available to the petitioner to challenge impugned notice by filing an appeal before Appellate Tribunal

Said Tribunal was not available and due to default of government petitioner could not be left remediless

Authorities were restrained from proceedings with any recovery from the petitioner in the case till the functioning of Appellate Tribunal and taking up the subject matter

High Court directed the Government for completion of constitution of Appellate Tribunal within one month and if same was not completed within that period than Registrar of High Court was directed to file contempt petition against concerned official for initiation of contempt proceedings

Constitutional petition was disposed of accordingly.

Petitioners impugned vires of S. 8(1)(h) & S.8(1)(i) of the Sales Tax Act, 1990 on ground that the same denied adjustment of input tax on goods which had a direct nexus with their taxable supply

Contention of petitioners, inter alia, was that input tax adjustment was a substantive right which could not be deviated upon

Validity

Goods utilized by petitioners in the present case fell under Ss.8(1)(h) & 8(1)(i) of Sales Tax Act, 1990 and were not part of their supply chain and in most of the cases, were not directly related to taxable supplies

Such goods, although were bought for improvement of buildings or businesses of the petitioners, but same were not directly related to their taxable supply nor they were part of the supply chain

Registered person had to establish a direct nexus between goods adjustment which was claimed on to the taxable supply and taxable activity

Right to input tax adjustment in S.7 of the Sales Tax Act, 1990 was subject to the restrictions given in S.8 of the same and as such Ss.8(1)(h) & S.8(1)(i) of the Sales Tax Act, 1990 in no manner infringed upon the rights of the petitioners to claim input tax adjustment which was directly related to the supply chain

High Court observed that the underlining feature of S.8 of the Sales Tax Act, 1990 was that the goods remain part of the supply chain for claiming of input tax adjustment, which was a reasonable restriction and it did not deprive the registered person of any amount due to it

No merit therefore existed in the petitioners' arguments

Constitutional petitions were dismissed, in circumstances.

Taxing instruments and exemptions issued thereunder must contain clarity and certainty.

Amnesty scheme issued by Provincial Government [Notification No. SRB-3-416/2014 dated 17-04-2014 ('the Amnesty notification')] with respect to payment of accrued penalties and default surcharge

Vires of

Whether Sindh Revenue Board could grant an amnesty for penalties and default surcharge accumulated under the repealed Sindh Sales Tax Ordinance, 2000

Held, that the Amnesty notification provided that the Sindh Revenue Board would exempt the whole of the amount of penalty and 95 per cent of the amount of default surcharge, payable on the principal amount of arrears of the [sales] tax as were outstanding on the date of present notification, if the said principal amount of tax and the 5 per cent of the amount of default surcharge were paid in the prescribed manner

With the promulgation of the Sindh Sales Tax on Services Act, 2011, the Sindh Revenue Board Act, 2010 and the establishment of the Sindh Revenue Board the province's dependency on the Federation and on the Federal Board of Revenue (FBR) to administer and collect on its behalf sales tax on services, including penalty and default surcharge thereon, came to an end

Sindh Sales Tax on Services Act, 2011, had repealed the Sindh Sales Tax Ordinance, 2000 but S. 83 of the Act of 2011 had saved certain matters accrued thereunder which henceforth had to be administered by the Sindh Revenue Board, including the power to issue notifications exempting the collection of sales tax on service, accrued penalties and default charges

Provincial Government had not withdrawn, supplanted or varied the Amnesty notification

Nor was the said notification assailed before a competent court of law

Amnesty notification encouraged those who had not paid the penalty and default surcharge to get exemption from payment, provided they came forward and paid five per cent of the default surcharge amount

Once the requisite amount was paid pursuant to the said notification, the Provincial Government, which had itself approved the issuance of the said notification, could not seek to restrict the scope of the said notification and contend that under the Sindh Sales Tax on Services Act, 2011 the said exemptions could not be given

Joint reading of Ss. 2(92), 45, 66 & 83 of the Sindh Sales Tax on Services Act, 2011 left no doubt that the Sindh Revenue Board, with the prior approval of the Provincial Government, could issue the Amnesty notification

Petitions for leave to appeal were converted into appeals and allowed accordingly.

Taxing instruments and exemptions issued thereunder must contain clarity and certainty.

Question before the High Court was whether intra-court appeal against an order passed under S.74 of the Sales Tax Act, 1990 was maintainable

Held, in order to determine maintainability of intra-court appeal, it had to be examined whether any appeal, revision or review was available under the applicable law which was the Sales Tax Act, 1990

Perusal of the Sales Tax Act, 1990 revealed that no such right of appeal, revision or review was provided for in either S. 45-B or 46 of the Sales Tax Act ,1990 against order passed in exercise of powers under S. 74 of the Sales Tax Act, 1990

Intra-court appeal was therefore, in circumstances, maintainable.

Mere filing of a review petition before the Supreme Court did not create any right in favour of department/party filing the same and could restrain the High Court from following its own earlier orders.

Sales tax imposed on the basis of assumption or presumption is not warranted in law.

Affected party needs to be confronted with specific provisions of law under which it is intended to be penalized.

Sales tax is levied on sale and supply of goods which necessarily entails delivery of goods or receipt of money consideration

Yardstick to charge and levy sales tax is the sale constituting a taxable activity for a taxable supply.

Appellate authority decided matter in favour of taxpayer on ground that reduction in rate of sales tax was beneficial which was retrospective in nature

Validity

Enactment reducing rate of sales tax from 17% to 16% did not, in any manner, come within ambit of curing a mistake, error or ambiguity and same could be termed as concessional to encourage taxpayers

Appellate authority ignored that sales tax was an indirect tax and any reduction in rate was in no way beneficial to a person or business registered for sales tax purposes

Any such benefit, in any case, was for the general public

Claim of taxpayer that reduction in rate of sales tax was available with retrospective effect as beneficial to them, was wrong and baseless

Indirect tax like sales tax was applicable on each and every transaction separately and once a transaction was completed and its effect transferred to final consumer/ general public, it became past and closed transaction, which could not be amended or corrected by assuming retrospective effect of a beneficial notification or executive order

Rate of sales tax could not be reduced through an executive order/notification

Appellate Tribunal Inland Revenue vacated the order passed by appellate authority

Appeal was allowed accordingly.

After such burden had been passed on to the end user and the amount was so collected, it became duty of the vendor to pass on the same to the government accordingly

Vendor had no legal authority to hold on to the amount of sales tax which he recovered from the purchaser as an agent of the government.

If service of notice was not in accordance with law, all subsequent proceedings and assessment made on basis of such notice were also not sustainable under law.

Right of being personally heard was an inseparable right of a tax payer and could not be denied to him under any circumstances and violation of principles of natural justice could be equated with violation of provisions of statutory provisions.

Person must be taxed only if he fell within letter of law otherwise he was free even though his case fell within spirit of law

Fiscal statutes should be strictly construed as for as liability to tax was concerned

In fiscal statutes, only letter of law was to be looked into and there was no room for any intendment, equity and presumption.

Sales Tax was on sale and supply of goods which necessarily entailed delivery of goods or receipt of money consideration and where no corroborating evidence for any clandestine removal of goods or for receipts of money consideration had been provided without which whole exercise for creating huge liability of sales tax remained in thin air and thus of no legal effect.

Words and phrases occurring in a provision of law were not to be taken in an isolated or detached manner, disassociated from the context

Such words and phrases were to be read together and construed in light of overall context of provision

Expression 'retailer' and "final consumer of goods" was to be interpreted in light of words associated to it and not in pure isolation.

If department was permitted to conduct void proceedings without adhering to any lawful jurisdiction, it would compromise neutrality of taxation system

Such action would also create a statutory anamoly whereby department had to exercise jurisdiction within four corners of law

When an illegal action would flow from a public functionary, it would certainly be tainted with mala fide

Authorities could not be allowed to exercise discretion at their whims, sweet will or in an arbitrary manner but rather were bound to act fairly, evenly and justly.

In order to attract provisions relating to tax fraud, initial burden lay on the department to show that taxpayer knowingly, dishonestly, or fraudulently and without any lawful excuse had done any act or caused any act to be done or had omitted to take any action or had caused omission to take any action in contravention of duties or obligations imposed under the law or rules or instructions issued there-under with intention of understating tax liability or underpaying tax.

Services provided by taxpayer were actually mandatory component of goods supplied by taxpayer and services were part and parcel of supply

Supply of goods was incomplete without service component

Services provided were not independent services

Warranty was given in case of sale of goods and not of services

Taxpayer, in the present case, was making taxable activity by charging a composite price for its final product/supplies

Services, therefore, were integral part of taxable supplies because without such services, supply of material was useless for customers.

Machinery, including a generator, which is imported, installed and made to use in manufacturing proceedings by importer, is considered to be as 'plant and machinery' and thereby comes within the definition of term 'stock-in-trade'.

Where inaction on the part of a public functionary within the prescribed time is likely to affect the rights of a citizen the prescription of time is deemed directory

Where, however, a public functionary is empowered to create liability against a citizen only within the prescribed time, it is mandatory.

When the prescribed limit is beneficial for the citizen and restricts the executive power to touch the pocket of a tax payer thereby creating certainty that after its expiry even if there was a good case for creation of liability he will not be dragged in.

Fault in approaching wrong forum for redressal of grievance would not at all be a reasonable cause to condone the delay.

Pre-fabricated buildings and sheds were integral part of "plant and machinery".

Onus of establishing that the conditions of taxability are fulfilled is always on the revenue and the second condition being as much as condition of taxability as the first, the burden lies on the revenue to show that there is an understatement of the consideration and second condition is fulfilled.

If the case is not covered within the four corners of the provisions of the taxing statute, no tax can be imposed by inference or by analogy or by trying to probe into the intentions of the legislature and by considering what was the substance of the matter.

Assessment of tax on the basis of consumption of electricity is hardly a safe rule and yardstick to assess the production.

Such adjustment could not be disallowed because genuineness of the purchase invoices had not been challenged.

Order-in-original had been passed contrary to the past practice of many years which had been bypassed without obtaining permission of Federal Board of Revenue.

Case was remanded back by the First Appellate Authority for allowing adjustment of payment made by the taxpayer in accordance with Sales tax law

Taxpayer contended that by doing so First Appellate Authority had given discretion to Taxation Officer to allow adjustment or not

Revenue authorities contended that payment of tax needed to be verified before credit might be allowed or not and the office of Deputy Commissioner of Inland Revenue was in the best position to perform such function

Validity

Grounds taken in appeal before Commissioner Inland Revenue were silent on the issue of giving tax credit

Contention that First Appellate Authority remanded the case beck to Taxation Officer for allowing adjustment of payment was mis-founded.

Taxpayer contended that he was mere investor who had installed the machinery under an agreement with the Port authority and ships got connected to the pipe lines themselves and downpoured the oil into the pipes without involving any stevedoring

Validity

Argument of the taxpayer beged the question as to who owned the machinery and pipelines involved in the entire system whereby the bulk cargo was unloaded from the ships

Entire structure including machinery and pipelines was erected and owned by the taxpayer with the purpose of unloading bulk oil from ships

Nature of services performed through machines and pipelines was stevedoring services, which squarely fell within the ambit of stevedoring services chargeable to sales tax.

Revenue authorities contended that amount received by the taxpayer whether on the basis of services rendered or on the basis of fixed amount represented the value of supply; and that chargeability of sales tax was fully lawful

Validity

For chargeability of sales tax what needed to be determined was "Nature of Services" and not "Mode of payment"

Services being rendered by the taxpayer were stevedoring in nature and same chargeable to sales tax

Entire amount, whether on the basis of activity or on the basis of fixed throughput charges, was chargeable to Federal Excise Duty for the reason that charging section of the Sales Tax Ordinance, 2000, read with Sales Tax Act, 1990, did not make basis of payment as a precondition for chargeability of the tax

Order of First Appellate Authority was upheld by the Appellate Tribunal on the issue.

Services of unloading bulk cargo oil from ships fell within the ambit of stevedore services making the taxpayer liable to charge of sales tax

Since taxpayer was handling stevedore services, their argument that they were terminal operator and not stevedore did not carry any weight for the reason that terminal operators can and do render services of stevedore.

Amount received as defaulted tax on threat of prosecution could not be termed an admission by the taxpayer.

Admission by the gang of fraudsters before the Director General of investigation and Intelligent would attain finality only after their conviction as a consequence of criminal trial.

Depositing a portion of evaded tax by the taxpayer could not be construed as admission of the taxpayer because the same was ostensibly under threat of criminal prosecution and arrest

Such mode of recovery by the department, without recourse to relevant provisions of Sales Tax Act, 1990, could only be termed as extortion.

Precondition of any adjudicating proceedings was to confront the taxpayer with specific allegations on the basis of available material

Mere mentioning of section of law in show cause notice was not sufficient.

Taxpayer should be obliged to prove their innocence through evidence and in discharging the burden, the taxpayer might produce the evidence about transportation of supplies but if, the taxpayers pleaded to have used flying invoices, they will face the legal consequences as per applicable law.

Additional grounds filed by the registered person being legal could be taken and raised even if the same were not agitated before the authorities below and even not raised in the grounds of appeal filed before the First Appellate Authority

Under the principles of natural justice and fair-play, the legal grounds could not be denied and avoided by the Appellate Tribunal

Additional grounds which went to the route of the case could be raised at any stage of the proceedings

Grounds being purely legal in nature could be raised at any stage and in order to dispense with justice, courts had to allow the same to decide the controversy once for all touching the merits of the case from its all angels

Permission was granted to argue and elaborate additional grounds.

Objection/charge-sheet which was not made a part of allegations contained in the show-cause notice and never adjudged in adjudication order and even in the appellate order could not be raised for the first time in grounds of appeal taken for the Appellate Tribunal.