APPELLATE TRIBUNAL INLAND REVENUE (HQs), DIVISION
BENCH-1
ISLAMABAD
STA No.24/PB/2020
(Tax Periods 2014 to 16 & 2018)
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M/s Terbella Steel Re-Rolling Mills (Pvt) Ltd,
Plot No.77-116-1, Road No.L-4, I.E. Gadoon Amazai, Swabi |
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Appellant |
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Vs |
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Commissioner
Inland Revenue, Corporate Zone, RTO, Peshawar. |
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Respondent |
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Appellant
By |
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Mr. Yawar Muhammad,
ACA |
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Respondent
By |
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None |
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Date
of Hearing |
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27.01.2021 |
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Date
of Order |
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27.01.2021 |
O R D E R
M. M. AKRAM (Judicial Member): The titled appeal has been filed by
the Appellant/Registered Person against an Order-in-Appeal No.160 of 2020 dated
13.01.2020 passed by the learned Commissioner Inland Revenue (Appeals), Peshawar
for the tax periods 2014 to 2016 & 2018 on the grounds as set forth in the
memo of appeal.
2. Brief facts giving rise to the appeal are
that during the course of audit of the appellant M/s Terbella Steel Re-Rolling
Mills (Pvt) Ltd. for the tax periods from 2014 to 2016 & 2018, it has been observed
that the appellant has made domestic purchases of taxable goods from
un-registered persons. Being a company (withholding agent) as per clause (d) of
rule I & sub-rule 6 of Rule 2 to the Sales Tax Special Procedure
(withholding) Rules, 2007 notified vide SRO 666(I)/2007 dated 30.06.2007, the
appellant was required to withheld/deduct and deposit 1% withholding sales tax
on the value of taxable purchases made under clause (ii) of sub-rule-3 of the
Rule 2 to the Sales Tax Special Procedure (Withholding) Rules, 2007 notified
vide SRO.666(I)/2007 dated 30.06.2007 as amended vide SRO.77(I)/2008 dated
23.01.2008, 603(I)/2009 dated 25.06.2009 and SRO.98(I)/2013 dated 14.02.2013
and SRO,505(I)/2013 dated 12.06.2013 amended vide SRO.897(I)/2013 dated
04.10.2013. The detail given below: -
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Description |
T.Y. 2014 |
T.Y. 2015 |
T.Y. 2016 |
T.Y. 2018 |
Total Purchases |
Withholding Sales Tax @ 1% |
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Net Domestic
purchases (Raw Material) |
111,155,061 |
623,854,232 |
879,000 |
111,531,600 |
1,447,419,896 |
14,474,200 |
The
above mentioned discrepancies were communicated to the appellant by the
respondent department vide show cause notice C.NO.ST/Desk Audit/Range-I/Audit-1
&E&C-X/1398 dated 10.04.2019. The appellant submitted its reply stating
therein that the tax for the tax periods 2014 to 2016 have already been paid
and the issue is pending before the Hon’ble Peshawar High Court in W.P
No.479-p/2017 whereby the assessing officer was directed not to pass the final
order. As far as the tax period 2018 is concerned it was submitted that the
purchases were made from FATA tribal areas where the Sales Tax Act, 1990 (“the Act”) has not been extended. The Assessing
Officer being not satisfied with the explanations tendered by the appellant,
passed the Assessment Order No.62/2019 dated 30.09.2019, whereby sales tax
demand at Rs.1,115,316/- was created along with imposition of default surcharge
(to be calculated at the time of payment) under section 34 and penalty @ 5% of
the amount of the tax involved under section 33(5) of the Act, ibid. Aggrieved by
the treatment accorded by the Assessing Officer, the appellant preferred the appeal
before the learned Commissioner Inland Revenue (CIR), (Appeals), Peshawar who vide order dated 13.01.2020 confirmed
the order of the Assessing Officer. Now the appellant has assailed the impugned
appellate order before this Tribunal on a number of grounds.
3. This appeal finally came up for hearing
before us on 27.01.2021, on the said date, the learned AR of the appellant
vehemently contended that both the authorities below have not properly appreciated
the submissions made by the appellant.
He argued that the purchases were made from FATA and such area does not come
within the ambit of the Act for the reason that the Sales Tax Act, 1990 has not
been extended to FATA or PATA within the contemplation envisaged under Article
247(3) of the Constitution of Islamic Republic of Pakistan. Therefore, none of
the provision of the Act and the rules made thereunder would apply in such areas.
That’s why the appellant did not withhold the tax while making payments to the
recipients. He further asserted that during the proceedings by the department
under section 161 of the Income Tax Ordinance, 2001 for the same tax period i.e
Tax Year 2018, the department has accepted that the purchases are made from
FATA/PATA and only to the extent of taxable transaction of Rs.1,775,500/- were
found unverifiable. In support, the appellant placed on record the copy of
order passed under section 161 ibid.
4. On the other hand, no one appeared on
behalf of the department.
5. We
have heard the learned AR, perused the record and examined the relevant legal
provisions. It is now well settled legal position that the
Sales Tax Act, 1990 (“the Act”) and
the Income Tax Ordinance, 2001 (“the
Ordinance”) have not been extended to FATA or to PATA, within the
contemplation of Article 247(3) of the Constitution of Islamic Republic of
Pakistan. It is a matter of record that, the Hon’ble High Courts, and the
august Supreme Court have in the past rendered their valuable findings on the
extent of applicability of the provisions of Act and the Ordinance, to persons
carrying on business in FATA and PATA. The review of the said decisions, reveal
that the views of the superior Courts have evolved with time. The Hon’ble
Peshawar High Court in the case titled as M/s Taj Packages Company (Pvt) Ltd Vs
Government of Pakistan and 6 others, (PTCL 2016 CL 402) has almost
considered all the judgments and traced the stages of evolution in the judicial
views, so rendered by the High Courts, and that of the august Supreme Court and
the summary of the judicial pronouncements on core issues rendered, are as
follows: -
“Supreme Court.
I.
That
the Ordinance and the Act have not been extended to FATA or PATA within the
contemplation envisaged under Article 247 (3) of the Constitution.
II.
Persons carrying on business and deriving
income within FATA or PATA would not be liable to payment of Sales Tax and
Income Tax under the Act and the Ordinance, respectively.
III.
The
principle laid down in Master Foam’s case (supra) cannot be borrowed and
extended to a person carrying on business in FATA or PATA, as the Ordinance has
not been extended to FATA or PATA.
IV.
The
only exception to the general rule of exemption from payment of Income Tax
under the Ordinance to a person carrying on business in FATA or PATA is when
the said person extends its business beyond the territorial limits of FATA or PATA
into the settled areas.
V.
The
Revenue has the authority under the Ordinance to carry out an inquiry to
ascertain whether the person is carrying on business in FATA or PATA or has
extended the scope of its business or commercial activities beyond the territorial
limits of the said area into the settled area.
VI.
The
final judgment in the field, which is to determine the applicability of the
Ordinance, would be adjudged on the principles laid down in the judgment of the
Apex Court in review of its decision in Gul Cooking Oil’s case, which was also
confirmed in the decision of the Apex Court in Review of its decision in
Mahsood Ghee Industries case.
High Court.
I.
Sales
Tax and Advance Income Tax is leviable at import stage from persons carrying on
business in FATA or PATA.
II.
Sales
Tax paid at import stage is non-refundable to a person carrying on business in
FATA or PATA.”
Recently
the Hon’ble Supreme Court in the case titled as Pakistan through Chairman FBR and
others Vs Hazrat Hussain and others, (2018 PTD 1204) it has been
observed that the Constitution itself grants a complete immunity for, and in
relation to, Sales Tax and Income Tax in FATA/PATA. Therefore, it is evident
that the Act has not been extended to FATA or PATA therefore, none of the
provision of the Act is applicable. Thus, the question of withholding of tax
does not arise against a person who is located in FATA or PATA and carrying on
his business only in such areas.
6. Now we come to the main controversy, it
has been alleged by the respondent department that the appellant did not
withhold the sales tax on local raw material i.e purchases while making payment
to the recipient. The settled law is that the Act has not yet been extended
either to FATA or PATA within the meanings of Article 247(3) of the
Constitution of Islamic Republic of Pakistan, 1973. There are number of
authorities of the superior Courts on the point that when a law is not extended
to a tribal area through notification by the President or the Governor, as the
case may be, in the manner required by Article 247(3) of the Constitution, then
no law or Act of the National Assembly or Provincial Assembly could legally be
stated to have been extended to such areas. The purchases made from the persons
located in FATA/PATA and carrying their business in such areas not liable to
pay sales tax because of non-extension
of the Act in the said areas. Therefore, the findings of the lower authorities
that the appellant had allegedly committed a default in
non-deduction/withholding of tax on the purchases made from the person located
in FATA/PATA are in direct conflict with the provisions of Article 247(3) of
the Constitution of Islamic Republic of Pakistan, 1973. Since the Act
has not been extended to tribal area, the appellant is not obliged to deduct
tax from the purchases made from the person located in FATA/PATA. Reliance may
be placed on the latest judgment of the Hon’ble Supreme Court cited supra wherein it was observed that the
Constitution itself grants a complete immunity for, and in relation to, Sales
Tax and Income Tax in FATA/PATA.
7. Notwithstanding the foregoing, it is an
admitted fact that the revenue department while making assessment under section
161 of the Ordinance for the tax periods under consideration vide order dated
18.02.2020 on the same and an identical issue observed as follows:-
“Total
local raw materials purchases have been shown at Rs.111,531,600/- and claimed
exempt from levy of withholding tax being purchases made from FATA/PATA. In
support of this, the AR furnished party wise break up along with supporting
invoices in separate file folder which were examined with reference to the
record but only an aggregate taxable transaction of Rs.1,775,500/- were found
unverifiable on which the withholding agent was under legal obligation to
deduct withholding tax u/s 153 but failed to do so and default tax u/s 161 is
charged at Rs.71,020/-“
By giving self-contradictory findings by
the same Assessing Officer on the same and an identical issue under both the
statute i.e the Ordinance and the Act, is not appreciated and not acceptable by
any starch of imagination. The learned CIR(A) also without considering this
fact has rejected the appeal of the appellant and confirmed the treatment
accorded by the Assessing Officer. The conduct of both the Learned Authorities amounts to clear
judicial indiscipline and irresponsible exercise of adjudication function. Such
exercise of adjudication powers if allowed to go unchecked, would lead to
collapse of entire dispute resolution mechanism. Such adjudication orders
burden not only the taxpayer who has to incur avoidable expenses on challenging
such order before the Courts/Tribunal, but also impose clearly avoidable costs
for the Government, as the Tribunals/Courts valuable time is also consumed in
hearing appeals against such clearly erroneous and in disciplined orders, which
should never have been passed. The Hon’ble Supreme Court of Pakistan in the
case reported as Dr. Ahtar Hassan Khan and others Vs Federation of Pakistan, (2012 CLD 520) observed
as follows:-
"Mala fides" literally means "in bad faith".
Action taken in bad faith is usually action taken maliciously in fact, that is
to say, in which the person taking the action does so out of personal motives
either to hurt the person against whom the action is taken or to benefit
oneself."
In case the public functionaries like Assessing
Officer are allowed to bye-pass the process of law and directions of higher Authorities/Courts
then it will create chaos, which brings a situation to minimize the concept of
rule of law, fair play and principle of natural justice.
8. In view of the
above discussion, we modify the impugned order to the extent of the findings
given by the Assessing Officer in the proceedings conducted under section 161
of the Ordinance wherein he admitted that only taxable transactions
of Rs.1,775,500/- were found unverifiable on which the withholding agent was under
legal obligation to deduct withholding tax under the Sales Tax Special
Procedure (Withholding) Rules, 2007 but failed to do so and direct the Assessing
Officer to recalculate the liability of sales tax according to the forgoing
observations. Accordingly, the appeal of the appellant is allowed. The Assistant
Registrar (Admin) is also directed to enclose a copy of this order to the
Chairman, Federal Board of Revenue, Member Inland Revenue (Operation) and Chief
Commissioner Inland Revenue, RTO, Peshawar, for information and consideration.
9. This order consists of (06) pages and
each page bears my signature.
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(M. M. AKRAM) JUDICIAL MEMBER |
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(IMTIAZ AHMED) ACCOUNTANT
MEMBER |
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