APPELLATE TRIBUNAL INLAND REVENUE, SPECIAL DIVISION BENCH
PESHAWAR
STA No.16/PB/2015
(Tax Periods July 2010 to June 2013)
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M/s
Al-Jamrud Filling Station,
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Appellant |
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Vs |
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Commissioner
Inland Revenue, RTO, Peshawar. |
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Respondent |
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Appellant
By: |
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Mr.
Ishtiaq Ahmad, Advocate |
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Respondent
By: |
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Mr.
Ashfaq Ahmad, DR |
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Date
of Hearing: |
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21.10.2021 |
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Date
of Order: |
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21.10.2021 |
ORDER
M. M. AKRAM (Judicial Member): The titled appeal has been filed by the Appellant
against an Order-in-Appeal No.292 of 2014 dated 11.11.2014 passed by the
Learned Commissioner Inland Revenue (Appeals), Peshawar for the tax periods
from July 2010 to June 2013 on the grounds as set forth in the memo of appeal.
2. Brief facts giving rise to the appeal are
that the appellant is admittedly an unregistered person who applied for a sales
tax refund of Rs.195,268,479/- against POL products purchased from M/s Attock
Petroleum Ltd in the tax period July, 2010 to June, 2013 on the ground that they
are exempted from levy of sales tax under Article 247(3) of the Constitution of
the Islamic Republic of Pakistan being a bonafide resident of the non-taxable
area, where the Sales Tax Act, 1990 is not extended. The assessing officer
examined the appellant’s case and observed certain discrepancies duly
incorporated in the impugned order. Based on the discrepancies, the assessing
officer issued the show-cause notice to the appellant for rejecting the refund
under section 11(2) of the Sales Tax Act, 1990 (“the Act”) read with
Rule 37 of the Sales Tax Refund Rules, 2006. The appellant was stated neither
appeared nor submitted a written reply, therefore, the assessing officer
rejected the sales tax refund claim of Rs.195,268,479/- along with a penalty
equal to the amount claimed and default surcharge vide order dated 22.08.2014. 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 11.11.2014
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. The case came up for hearing on 21.10.2021.
the learned AR for the appellant vehemently contended that both the authorities
below have not properly appreciated the submissions made by the appellant and have wrongly rejected the refund of
the appellant. He argues that the supplies made within the territory of FATA or
PATA do 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, 1973. It has been contended that the supplier M/s Attock Petroleum
Ltd was liable to charge sales tax as their supplies were in the tariff area
and the appellant was obliged to pay sales tax on delivery. However, the said
taxable goods supplied to the resident of FATA, the appellant could not charge
sales tax as per article 247(3) of the Constitution. Further contended that the
provision of section 8(3) of the Act is not applicable in the instant case. He,
therefore, pleaded that the appeal be accepted.
4. In rebuttal, the learned DR supported the
orders of both the authorities below and contended that without making taxable
supply, neither any input tax could be adjusted nor refunded. Further submits
that the appellant itself admitted that the Act has not been extended to FATA
or PATA and none of the provision of the Act is applicable in such area that is
why it could not be charged the sale tax from the recipients on the supplies
made in FATA or PATA then how the appellant can be allowed to claim input tax/refund
against such supplies where there is no output tax. He explains that it is
trite law that input tax/refund can only be adjusted against output tax. He,
therefore, argued that if the supplies were non-taxable then the appellant was
not entitled to claim/adjust input tax/refund. Notwithstanding the foregoing,
the learned DR contended that sales tax is an indirect tax that is ultimately
passed on to the end consumer, the appellant has not provided any proof neither
before the lower authorities nor before this tribunal to establish that the sales
tax charged by M/s Attock Petroleum Ltd was not passed on to the end consumer.
The burden is on the appellant who claimed a refund. He, therefore, pleaded
that on this score alone, the appeal of the appellant is liable to be
dismissed.
5. We have heard both the parties, perused the record, and
examined the relevant legal provisions. In
the light of the factual position narrated above, the controversial question
arose between the appellant and the Sales Tax Authorities as to whether the
appellant was entitled to claim the refund of input tax under section 10 of the
Act without making any taxable supplies by it? The said controversy between the
parties revolves around the interpretation of the different provisions of the
Act and to assess and analyze those provisions, it would be advantageous to
reproduce them which are applicable: -
"3.
Scope of tax: - (1) Subject
to the provisions of this Act, there shall be charged, levied and paid a tax
known as sales tax at the rate of (seventeen) percent of the value of-
(a) taxable
supplies made in Pakistan by a registered person in the course or furtherance
of any (taxable activity) carried on by him; and
(b) goods
imported into Pakistan irrespective of their final destination in territories
of Pakistan."
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S.2(35)
"taxable activity"
means any economic activity carried on by a person whether or not for profit,
and includes-
(a) an activity
carried on in the form of business, trade, or manufacture;
(b) an
activity that involves the supply of goods, the rendering or providing of
services, or both to another person;
(c) a one-off adventure or concern in the nature
of trade; and
(d) anything
done or undertaken during the commencement or termination of the economic
activity,
But does not
include-
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S.2(39)
"taxable goods"
means all goods other than those which have been exempted under section 13;
S.2(41)
"taxable supply"
means a supply of taxable goods made by an importer, manufacturer, wholesaler
(including the dealer), distributor, or retailer other than a supply of goods
which is exempt under section 13 and includes a supply of goods chargeable to
tax at the rate of zero percent under section 4;
7. Determination of tax liability: - (1)
Subject to the provisions of section 8 and 8B, for the purpose of determining
his tax liability in respect of taxable supplies made during a tax period, a
registered person shall, subject to the provisions of section 73, be entitled
to deduct input tax paid or payable during the tax period for the purpose of
taxable supplies made, or to be made, by him from the output tax excluding the
amount of further tax under sub-section (1A) of section 3 that is due from him
in respect of that tax period and to make such other adjustments as are
specified in Section 9;
Provided
that where a registered person did not deduct input tax within the relevant
period, he may claim such tax in the return for any of the six succeeding tax
periods.
………………….
……………….…
8. Tax credit not allowed: - (1)
Notwithstanding anything contained in this Act, a registered person shall not
be entitled to reclaim or deduct input tax paid on--
(a) the goods or services used or to be used
for any purpose other than for taxable supplies made or to be made by him;
……………………….
……………………….”
Section
3(1)(a), which is a charging provision, consists of the following
components/constituents, the sales tax to be levied and charged at the rate of
(17%) of the value of: -
(i)
taxable
supply made in Pakistan
(ii)
by
a registered person
(iii)
in
the course of furtherance of
(iv) any taxable activity
(v) carried on by him.
The
expressions used in section 3(1)(a) and which are relevant are (i) taxable
supply (ii) taxable activity, and (iii) in the course or furtherance of. Though
the first two, but not the latter one has been defined directly under section
2(41) and section 2(35) yet for proper appreciation of their meaning, one has
to revert to the definitions of goods, taxable goods, and supply. Goods mean
and include movable property other than money and securities etc. and taxable
goods means and includes the movable property other than those which have been
exempted from sales tax under section 13 of the Act, supply means a sale,
transfer and other disposition of goods in furtherance of business carried out
for consideration and also includes putting to private, business, or
non-business use of goods acquired, produced or manufactured in the course of
business and "taxable supply" means a supply of taxable goods other
than supply of goods which are exempted under section 13 of the Act. The
legislature has cognitively used the word “means” while defining "taxable activity" in
section 2(35) which is the exclusive and exhaustive definition and does not
provide room for any intendment. Similarly, the expression "taxable supply" has also been defined using the word “means” and the words used therein
need to be understood in the sense these have been used. Under the doctrine of ejusdem genris, words and phrases
occurring in a provision of law are not to be taken in an isolated or detached
manner, dissociated from the context, but these are to be read together and
construed in the light of the overall context of the provision of the law. Reliance
may be placed on the judgments titled as Kashmir
Pottery Works, Sialkot Vs Commissioner of Sales Tax, North Zone (Pakistan),
Lahore, (PLD 1973 Lah 837).
6. It can be seen from the above legal
framework that sales tax on
goods under the Sales Tax Act, 1990 is paid under a value-added tax (VAT) mode.
The purpose of imposing a tax under VAT mode is to ensure that each taxpayer
only pays sales tax on the value it adds to a product or material. This is only
possible if each taxpayer can deduct the input tax it has paid on any goods
consumed, or services received, by it for the purposes of manufacturing,
producing, or marketing the goods it sells, from the output tax payable on
those goods. One of the essential features of VAT mode taxation is the passing
on the input tax, to be credited against output tax, till the final output tax
is borne by the ultimate consumer under section 7(1) of the Act, 1990. Under
this provision to calculate its final tax liability, a registered person is
entitled to deduct input tax paid or payable during a tax period to make taxable supplies against the output tax
paid or payable by it for that tax period on those taxable supplies. The tax which is paid or payable by
the appellant at the time of purchases is called "Input Tax" as per
section 2(14) of the Act and is adjustable against output tax as per section
2(20) chargeable on the supplies of finished products. Thus, under the scheme of the Act, inter alia
a manufacturer is entitled to claim an input tax credit for sales tax on
purchases paid or payable by it against the output tax on the sales of its
products, which is payable to the Federal Government, to calculate its final
tax liability under Section 7 of the Act.
7. Before coming to the controversy, it is
also 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 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 reveals
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 the 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 the 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.”
It
is evident that the Act has not been extended to FATA or PATA therefore, none
of the provisions of the Act is applicable. Thus, the question of claim of
input tax or refund against the supplies made in FATA or PATA does not arise.
8. Now we come to the main controversy as to
whether the appellant was entitled to claim input tax/refund under section 7
read with section 10 of the Act against the supplies made in FATA? The admitted
position in the case 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 a 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 supplies made by the appellant in FATA are not
liable to pay sales tax because of the non-extension of the Act in the said areas.
9. Under section 3 of the Act, sales tax is
liable to be charged, levied, and paid at the rate of 17% of the value of
taxable supplies made in Pakistan (excluding FATA or PATA the Act is not
extended to such areas) by a registered person in the course or furtherance of
any taxable activity carried on by him and goods imported into Pakistan. The
charge is restricted only against taxable supplies made in the area where the
Act is applicable/ extended. Admittedly the supplies have been made in FATA, to
which none of the provisions of the Act can be attracted as the Act has not
been extended to such territory. If
the provisions of section 3 of the Act regarding the charge of tax do not apply
to supplies made in FATA or PATA, then the provisions of sections 7, 8, and 10
of the Act regarding claiming credit of the input tax/refund incidental to such
supplies will equally not apply. Therefore, the appellant cannot claim the
credit of input tax against the supplies made in FATA or PATA. Since the
Act has not been extended to the tribal area, the appellant is not chargeable
to sales tax in respect of supplies made in FATA/PATA. "Taxable goods" are those goods that are supplied in
areas to which the provisions of the Act are applicable/extended and which are
not expressly exempt under section 13 of the Act. Sales Tax is leviable in
relation to taxable supplies made in Pakistan or goods imported into Pakistan.
Goods being supplied in the tribal areas cannot be classified as taxable goods.
10. Section 7 of the Act entitles any registered
person to adjust any sales tax paid at the import stage or at the time of local
purchase against his liability at the time of supply i.e. "output
tax" and pay the difference if any. The difference paid as such is
recoverable from the recipient of such supplies and the ultimate burden of
sales tax is borne by the consumer being an "indirect tax" and so
also term as "pass-through item". In the instant case admittedly no
output tax is leviable at the time of supplies made in tribal areas therefore,
the appellant is neither entitled to adjust input tax against "output
tax" nor entitled to claim a refund. Entitlement of input tax adjustment
or refund to the registered person is restricted to the registered person
making taxable supplies. Under section 3, the charge is also restricted on
those persons who are engaged in making taxable supplies, i.e. engaged in
"taxable activity" in areas where provisions of the Act are
extended/applicable. We have also considered the judgments relied upon by the
learned AR, the submissions of the learned DR have a substance that this issue
has not been decided earlier in any of the judgments relied upon by the
appellant. The first proviso to subsection (1) of section 10 of the Act clearly
provides that in case of excess input tax against supplies other than
zero-rated or exports, such excess input tax may be carried forward to the next
tax period, along with the input tax as is not adjustable in terms of
sub-section (1) of 8B, and shall be treated as input tax for that period and
the Board may, subject to such conditions and restrictions as it may impose, by
notification in the Official Gazette, prescribe the procedure for refund of
such excess input tax.
11. The contention of the learned DR that sales tax is an
indirect tax that is ultimately passed on to the end consumer is also well-founded.
The appellant has not provided any proof neither before the lower authorities
nor before this tribunal to establish that the sales tax charged by M/s Attock
Petroleum Ltd was not passed on to the end consumer. The
refund of an amount paid in excess of the tax legally due can only be claimed
by the person who has eventually borne the burden of tax and not by one who has
collected such tax on behalf of the Government. In the instant case, the
appellant has miserably failed to establish that the burden of the tax was
borne by the appellant. Thus, the appellant had no locus standi to seek a refund.
12. For what has
been discussed above, the action of the department by rejecting the refund is
quite justified and in accordance with law. Therefore, the orders of the lower
authorities are maintained to such an extent. However, the penalty imposed by
the department under section 33(11) is unwarranted and uncalled for under the
law particularly as stated above, the Act is not extended to FATA or PATA.
13. The appeal of
the appellant is disposed of in the manner as stated above.
14. This order consists of (10) pages and each
page bears my signature.
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CERTIFICATE
U/S 5 OF THE LAW REPORT ACT
This case is fit for reporting
as it settles the principles highlighted above.
(M. M. AKRAM)
JUDICIAL
MEMBER
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