M/s S.G. Trading Company, Peshawar Cantt Vs Commissioner Inland Revenue (Peshawar Zone), RTO, Peshawar.

 APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,
ISLAMABAD

STA No.165/PB/2018

(Tax Period Aug.2013 to Nov.2017)

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M/s S.G. Trading Company, Railway Road No.02, Shoba Bazar, Peshawar Cantt.		Appellant
	Vs
Commissioner Inland Revenue (Peshawar Zone), RTO, Peshawar.		Respondent
Appellant By:		Mr. Rahim Khan, Advocate
Respondent By:		Mr. Dost Muhammad, DR
Date of Hearing:		06.12.2021
Date of Order:		06.12.2021

 

ORDER 

M M Akram, Judicial Member:-    The titled appeal has been filed by the appellant against the Order in Appeal No.101 of 2019 dated 11.10.2018 passed by the learned Commissioner Inland Revenue (Appeals), Peshawar for the tax period August 2013 to November 2017 on the grounds as set forth in the memos of appeal.

2.      The brief facts of the case are that during desk audit of sales tax returns and import data of the appellant revealed that the appellant has imported items like tyres etc and has declared sales of the same specified goods to various unregistered persons for the tax periods from August, 2013 to November, 2017 under sections 25 of the Sales Tax Act, 1990 (“the Act”) the audit team observed the following discrepancies: -

             i.        Non-payment of further tax on supplies of imported goods at Rs.4,286,570/-.

           ii.        Non-payment of extra tax on taxable supplies of tyres at Rs.710,924/-.

         The aforementioned discrepancies were communicated to the appellant confronted by the respondent department vide show cause notice dated 23.01.2018. The appellant neither appeared nor submit his written reply. Resultantly, the Inland Revenue Officer passed the impugned Assessment Order NO.101/2018 dated 18.05.2018, whereby demand on account of further tax at Rs.4,286,570/- under section 3(1A) of the Act read with SRO.648(I)/2013 dated 09.07.2013 and extra tax at Rs.710,924/- on supplies of specified goods as mentioned in Chapter-III of the Sales Tax Special Procedure Rules, 2007 as notified vide SRO.480(I)/2007 dated 09.06.2007 read with SRO.896(I)/2013 dated 04.10.2013 was created along with the imposition of default surcharge (to be calculated at the time of payment) under section 34 of the Act. Being aggrieved the appellant preferred the appeal before learned CIR(A), Islamabad, who vide order dated 11.10.2018 confirmed the treatment accorded by the Assessing Officer. Still feeling aggrieved, the appellant filed the appeal before this Tribunal on a number of grounds.

3.      The case came up for hearing on 06.12.2021. At the very outset, the learned AR placed on record the copies of the challans amounting to Rs.1,153,500/- and contended that the liability to the extent of extra tax @ 2% had already been cleared by the appellant and noting is outstanding against them on the said account. As far as the levy of further tax under section 3(1A) is concerned, he contended that the appellant goods were subject to sales tax and extra tax under Rule 58T of Chapter XIII of Sales Tax Special Rules, 2007 and according to the sub-rule (5) of the said rule, the subsequent supplies of their products were exempt from payment of sales tax and exclusion was also available regarding chargeability of further tax as provided in serial No.4 of SRO.648(I)/2013 dated 09.07.2013, therefore, their buyers were not liable for sales tax registration under section 14 read with Sales Tax Rules, 2006. Further argued that a similar issue regarding chargeability of further tax under section 3(1A) of the Act has already been decided by the department itself, Tribunal, and High Court as well. Reliance was placed on Assessment Order No.02/2018 dated 06.02.2018 passed by DCIR, Unit-28, Mardan Zone, Mardan, STA No.20(PB) of 2017 dated 26.09.2017 and 2017 PTD 648. On the other hand, learned DR opposed the appeal on the ground that learned Commissioner (Appeals) has passed a speaking order and there is no illegality or lacuna in his order. He, therefore, pleaded that the appeal be dismissed.

4.      We have heard the learned representatives from both sides and have perused the orders of the authorities below. Undisputedly, the appellant goods were subject to sales tax and extra tax under Rule 58T of Chapter XIII of Sales Tax Special Rules, 2007 and according to the sub-rule (5) of the said rule, the subsequent supplies of their products were exempt from payment of sales tax, therefore, their buyers were not liable for sales tax registration under section 14 read with Sales Tax Rules, 2006. Thus, the charge of further tax under section 3(1A) of the Act is unsustainable in law. The issue regarding levy of further tax under section 3(1A) on those goods which were subject to extra tax under the aforesaid Special Procedure Rules, 2007 has already been decided by the department itself, this Tribunal, and High Court in the cases i.e Assessment Order No.02/2018 dated 06.02.2018 passed by DCIR, Unit-28, Mardan Zone, Mardan, STA No.20(PB) of 2017 dated 26.09.2017 and 2017 PTD 648 respectively. Thus, the appellant has been treated discriminately which is not permissible under Article 25 of the Constitution of the Islamic Republic of Pakistan, 1973. Notwithstanding the aforesaid, the reason for subjecting the appellant to extra tax in terms of Section 3(5) of the Act, by the legislature is that it makes supplies which include persons who have not obtained registration under Section 14 of the Act, 1990. To address the issue of such supplies and in order to exempt all further supplies of good falling within the ambit of Chapter XIII of the Rules, 2007, an extra tax at the rate not exceeding 17% (presently it is recovered @ 2%) may be charged, levied and recovered from the manufacturers of such goods. The effect of charge, levy, and collection of extra tax in terms of Section 3(5) of the Act 1990, read with Chapter XIII of the Rules, 2007, is that such goods may be supplied to any person irrespective of his registration status and go out of the tax net under the Act. This exclusion from the tax net also extends to further tax as leviable under Section 3 (1A) of the Act. Indeed, it is precise, for this reason, that reference to Section 3(1A) was specifically omitted from Section 3(5) of the Act by the legislature vide the Finance Act, 2004, and was not revived when Section 3(1A) was added in its present form vide the Finance Act, 2013.

5.      It is to be noted that the further tax paid in terms of Section 3(1A) of the Act, is in addition to the tax payable at the rate of 17% under Section 3(1) of the Act. Section 3(5) of the Act being specific to the appellant, consciously excludes application omitted to Section 3(1A) of the Act 1990 concerning the supplies made by the appellant. Thus, the appellant has been subjected to charge, levy, and recovery of extra tax in terms of Section 3(5) cannot be charged or levied further tax under a provision specifically excluded from Section 3(5) of the Act by the legislature. It may be also be added that no adjustment of input tax paid under Section 3(5) is permissible under Section 8(1)(c) of the Act, 1990. Further, if those registered persons including the appellant who is subject to payment of extra tax in terms of Section 3(5) of the Act are subjected to payment of further tax under Section 3(1A) of the Act, it would amount to double taxation as the objective underlying both the provisions is same i.e to cater for the sector making supplies to persons including unregistered persons. Both the provisions are mutually exclusive and persons paying tax in one category i.e extra tax cannot be subjected to tax i.e further tax under the other provision.

6.      It is yet another anomaly evident from the plain reading of Section 3(1A) of the Act, in its present form is that it subjects all supplies to persons who have not obtained registration to further tax. This includes persons who though liable to register have not obtained registration as well as those persons who have neither obtained registration nor are required under the law to obtain registration. Thus, rather than a taxing provision Section 3(1A) of the Act, its present form is essentially a penal provision. Such provision is being extended to cases where persons may not even be required to obtain registration and yet further tax is being charged. It is pointed out that penal provision could only result in penal consequences against persons responsible for violation of law not in respect of third parties such as the appellant who have committed no violation of the law. Even those where persons are liable to obtain registration under the Act but have not done so the responsibility rests squarely with the department and their officers who are unwilling or unable to ensure compliance of law. In no eventuality could the appellant be subjected to penal consequences in such eventuality.

7.      According to 3(5) of the Act read with Rule 58T (1) of the Rules, 2007, extra tax is levied and collected on all the specified goods which include tyres and tubes listed in Chapter XIII of the Rules, 2007 when supplied by manufacturers and importers in addition to the tax payable under sub-section (1) and (2) of section 3 of the Act, 1990. It does not refer to section 3(1A) of the Act meaning thereby further tax may not be charged on goods liable to extra tax even if sold to an unregistered person. Further, in terms of sub-rule (5) of the Rules, 2007 the further supplies of such goods are exempt from the levy of sales tax; therefore, the buyers of the appellant are not required to be registered under the Sales Tax Act. Therefore, no tax directly or indirectly could be charged from the persons who are exempt or not liable to the levy. Reliance may be placed on the case law titled M/s Zia Brothers Vs Federation of Pakistan and others, (2015 PTD 175) wherein it observed that: -

“9. The purpose of section 3(1A) imposing a further tax on a person who fails to obtain a registration number is to incentivize such a person to register and implies that the person is under a lawful obligation to obtain a registration number and has for some reason failed to do so. This carrot and stick policy is to induce a person to register and also to enforce the legislative intent of registering persons making taxable supplies. On a policy level, the wisdom behind this is to move towards a more documented economy and help expand the tax base. Petitioners, who do not make taxable supplies under the law are under no legal obligation to register and, therefore, section 3(1A) does not relate to them. The petitioners cannot be burdened with the charge of further tax for not doing an act they are, under the law, not supposed to do. Unless, of course, the law undergoes an amendment to this effect. The case law relied upon by the learned counsel for the respondent department is not relevant to the present controversy.

10. For the above reasons, it is declared that section 3(1A) of the Act has no applicability to the case of the petitioners who enjoy exemption under the Act and are not making any "taxable supplies" in terms of section 2(41) of the Act.” 

 8.     For what has been discussed above, the appeal of the appellant is accepted in the manner stated above.

9.      This order consists of (06) pages and each page bears my signature.

 

-SD-	-SD- (M. M. AKRAM) JUDICIAL MEMBER
(MUHAMMAD IMTIAZ)    ACCOUNTANT MEMBER