APPELLATE TRIBUNAL INLAND
REVENUE, DIVISION BENCH-I,
ISLAMABAD
STA No.653/IB/2024
(Tax
Periods July to June 2023)
******
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M/s H A Shah & Sons; Office No.3, 3rd Floor, Sardar Begum
Plaza, 109-W Jinnah Avenue, Islamabad. NTN: 2123450-7 |
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Appellant |
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Vs |
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Assistant Commissioner Inland Revenue, Unit-V, North
Zone, RTO, Islamabad. |
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Respondent |
Appellant By: Mirza
Saqib Siddique, ITP
Respondent BY: Mr.
M. Shehzad, DR
Date of Hearing: 17.03.2025
Date of Order: 17.03.2025
ORDER
M. M. AKRAM (Judicial Member): The
present appeal has been filed by the appellant challenging the impugned Order-in-Original
No.265/2024 dated November 19, 2024, issued by the Assistant Commissioner
Inland Revenue (ACIR), Zone-North, RTO, Islamabad, for the tax period
July-2022 to June-2023. The appeal is based on the grounds outlined in the
memos of appeal.
2. The case background involves the appellant
taxpayer, who was liable for taxation under the Sales Tax Act, 1990 (“The
Act”). The taxpayer was obligated to submit sales tax and Federal Excise
returns, as well as remit the due tax for the relevant period, in compliance
with sections 2(9), 3, 6, and 26(1) of the Act, by the prescribed due date.
However, the taxpayer failed to remit the tax due on taxable supplies during
the specified period, despite having collected the tax from the consumer, M/s
PCSIR Laboratories, Islamabad. This failure constituted a violation of sections
2, 3, 6, 7, 22, 23, 26, and 73 of the Act as well as section 4 of the Federal
Excise Act, 2005. Consequently, a show cause notice was issued on 24.07.2024,
with a hearing scheduled for 05.08.2024. A relevant excerpt of the show cause
notice is provided below:
“Whereas it has been reported
to the undersigned by the Directorate General of Revenue Receipt Audit (DGRRA),
vide Audit Observation No.74/ST, dated 20.05.2024 that you M/s H A Shah &
Sons, Office No.3, 3rd
Floor, Sardar Begum Plaza, 109-W Jinnah Avenue, Islamabad, NTN: 2123450-7,
failed to deposit sales tax amount to Rs.29,419,001/- in violation of
section 2, 3, 6, 7, 22, 23, 26 and 73 of the Sales Tax Act, 1990 as per detail
given below:-
|
Withholding
Agent |
NTN |
Tax
Period |
S.Tax
Charged |
Sales
Tax Deducted |
Sales
Tax short-paid |
|
PSCIR |
9013714 |
202306 |
7,855,190 |
1,571,038 |
6,284,152 |
|
PSCIR |
9013714 |
202306 |
7,256,310 |
1,451,262 |
5,805,048 |
|
PSCIR |
9013714 |
202305 |
7,169,491 |
1,433,898 |
5,735,593 |
|
PSCIR |
9013714 |
202306 |
3,400,000 |
680,000 |
2,720,000 |
|
PSCIR |
9013714 |
202305 |
3,179,005 |
635,801 |
2,543,204 |
|
PSCIR |
9013714 |
202211 |
3,042,820 |
608,564 |
2,434,256 |
|
PSCIR |
9013714 |
202306 |
2,473,500 |
494,700 |
1,978,800 |
|
PSCIR |
9013714 |
202302 |
2,397,435 |
479,487 |
1,917,948 |
The appellant failed to appear in response, leading the
assessing officer to issue the impugned order on 19.11.2024, resulting in a
sales tax demand of Rs.29,419,001/- along with default surcharge and
penalty under sections 33(1) and 33(5) of the Act. Dissatisfied with this
decision, the appellant has now filed an appeal before this Tribunal,
presenting several grounds of contest.
3. The case was heard multiple times and,
ultimately, on March 17, 2025, the Authorized Representative (AR) for the appellant
presented their arguments, primarily asserting that the proceedings were
initiated by the Assessing Officer based on the report of the Directorate
General of Revenue Receipt Audit (DGRRA). The AR argued that this action
is contrary to the legal principles established by the Hon’ble Supreme Court,
citing Civil Appeal No. 1032 of 2018 in support of this position.
In
response, the Departmental Representative (DR) for the respondent department
strongly contended that the appellant had not approached the court with clean
hands and, therefore, should not be entitled to any relief. The DR argued that
the appellant had supplied taxable goods to M/s PSCIR and collected sales tax
on behalf of the government. However, the collected sales tax was neither
deposited into the treasury nor declared in the appellant's sales tax returns,
thereby concealing the transactions. To support this claim, the DR presented
copies of challans showing amounts withheld and deposited by the recipient of
goods, M/s PSCIR. When these facts were put forth to the appellant’s AR, he
requested additional time to consult with the appellant and verify the matter.
The request was granted, and the case was adjourned to February 25, 2025.
On
February 25, 2025, the AR submitted a written request for further adjournment,
which was allowed, and the case was rescheduled for February 26, 2025. Once
again, a request for adjournment was made on behalf of the appellant, and the
case was further adjourned to March 11, 2025. A similar situation occurred on
March 11, 2025, when another adjournment was granted, and the case was finally
set for hearing on March 17, 2025.
On
March 17, 2025, the AR for the appellant submitted copies of the sales tax
return dated July 31, 2024, purchase agreements with PCSIR, and a cheque (No. B
421644) dated June 6, 2024, for an amount of Rs. 237,330,086. The AR contended
that the actual payment had been made by PCSIR on June 6, 2024, for the
transactions referenced earlier. The AR further argued that the due tax was
paid on July 31, 2024, and that the appellant is only liable for the default
surcharge.
In
contrast, the DR argued that the documents submitted by the appellant do not
adequately demonstrate that the payment was made for the subject supplies.
4. We have heard the arguments from both parties and
reviewed the records thoroughly. Despite being granted numerous opportunities,
the appellant has failed to substantiate its position with the necessary
material evidence. The core argument of the department is that the appellant
supplied taxable goods to M/s PCSIR Laboratories during the tax period
referenced in paragraph 2 above. During this period, the recipient, M/s PCSIR,
duly deducted the sales tax from the payment as required by law, and the
balance sales tax was provided to the appellant for onward deposit into the
government treasury. In the same manner, the withholding agent, M/s PCSIR, also
deducted the income tax in respect of the subject supplies and deposited the
amount into the national exchequer.
5. As per section 153 read with section 158 of the Income Tax
Ordinance, 2001, it is the obligation of the person making the payment to
withhold the tax. It is an undisputed fact that M/s PCSIR correctly deducted
both the sales tax and income tax as per the relevant laws and deposited them
into the government treasury while making payments to the appellant. Details of
the withholding payments of sales tax and income tax are attached to this order
as Marks-A and B which clearly show the date of payments, amount deducted,
and deposited. However, the appellant, after collecting the balance sales tax
from the recipient of the taxable goods, failed to deposit the amount and even
concealed the transaction when filing the sales tax returns for the relevant
tax periods. The purchase agreements and the payment made
via cheque on June 06, 2024, do not provide sufficient evidence of the
transactions for which the payment was received. In contrast, the details of
tax deductions under the Sales Tax and Income Tax Ordinance, 2001, as provided
by the Departmental Representative, present a different account. Therefore, the
appellant's argument on this matter is not substantiated and is not acceptable.
6. We have also considered the legal argument put forward by the appellant, asserting that the proceedings are unlawful because they were initiated based on the audit observations of the Directorate General of Revenue Receipt Audit (DGRRA), which allegedly contradict the law established by the Hon’ble Supreme Court. We have reviewed the judgment of the Hon’ble Supreme Court, which affirmed the decision of the Hon’ble Peshawar High Court in the case of Collector of Sales Tax & Central Excise, Peshawar Vs M/s Makk Beverages (Pvt.) Ltd (PTCL 2010 CL 393). The relevant portion of the High Court judgment is as follows:
“It becomes clear from the
perusal of above notification that the President of Pakistan has required the
Auditor General of Pakistan to audit the receipt of the Federal Government and
not the record of the private enterprise/industrial units licensed/registered
under the Sales Tax/Central Excise Laws. Thus, the whole exercise conducted by
the DRRA in this particular case is quorum-non-judice.”
The
revenue department filed an appeal before the Hon’ble Supreme Court of Pakistan
against the decision of the Hon’ble High Court, which was subsequently
dismissed through Civil Petition No. 1580 of 2008, dated April 13, 2010. With
due respect, the judgments cited do not apply to the facts and circumstances of
the present case. In this matter, it is undisputed that the appellant collected
the tax on the transactions but failed to deposit it. Notwithstanding this, the
time of supply, as defined under section 2(44)(a) of the Act is considered to
occur at the moment the goods are delivered or made available to the recipient
of the supply. The tax shall be charged immediately under section 3 of the Act
whether the supply is made on credit or otherwise. In this case, as previously
mentioned, the appellant collected the tax. Therefore, the appellant's case
also falls within the scope of section 3B of the Act where subsection (2)
specifically emphasizes that regardless of any court judgments—including those
from the Supreme Court or High Courts—if an amount is payable to the Federal
Government under subsection (1), it shall be treated as an arrear of tax.
7. Section 3B ibid is to be considered a
recovery provision in the context where a person has collected tax in excess or
under misapprehension, or otherwise charged tax and the tax burden has been
passed on to the consumer. The key point of this provision is that even in the
absence of a show-cause notice if the tax or charge has been collected and
passed on to the consumer, the amount becomes payable to the Federal Government
and is considered an arrear of tax. Subsection (2) of section 3B makes it clear
that any amount payable under subsection (1) is treated as an arrear of tax,
which can be recovered in accordance with the provisions of the Act. This
suggests that, even without a formal show-cause notice or court intervention,
the government has the authority to recover such amounts directly. Therefore,
in our opinion, this section does indeed serve as a mechanism for the recovery
of excess or incorrectly collected taxes, where the tax has been passed on to
the consumer. It essentially removes the need for a show-cause notice and
expedites the recovery process by deeming the tax arrear payable to the Federal
Government. Furthermore, the provision also denies the possibility of a refund
claim in such cases, reinforcing the obligation to remit the collected tax. For
clarity, the relevant provision of the Sales Tax Act, 1990, is reproduced
below:
“Section
3B. Collection of excess sales tax etc.– (1) Any
person who has collected or collects any tax or charge, whether
under misapprehension of any provision of this Act or otherwise,
which was not payable as tax or charge or which is in excess of the tax or
charge actually payable and the incidence of which has been passed on to
the consumer, shall pay the amount of tax or charge so collected to the
Federal Government.
(2) Notwithstanding
anything contained in any law or judgment of a court, including the Supreme Court
and a High Court, any amount payable to the Federal Government under
sub-section (1) shall be deemed to be an arrear of tax or charge payable under
this Act and shall be recoverable accordingly and any claim for refund in
respect of such amount shall neither be admissible to the registered person nor
payable to any court of law or any person under the direction of the court.
(3) The
burden of proof that the incidence of tax or charge referred to in sub-section
(1) has been or has not been passed to the consumer shall be on the person
collecting the tax or charge.” (Emphasis supplied)
INTERPRETATION
The provision of Section 3B of the Sales Tax Act, 1990 addresses
situations where a person collects excess sales tax or any amount that was
either not payable or in excess of the amount due or otherwise. Below is an
interpretation of the provision, particularly in the case of a person who
collects the due tax but fails to deposit it:
A. Sub-section (1): This subsection stipulates that if a person collects any tax or charge
(whether due to a misunderstanding of the law or otherwise),
which was not actually payable, or which exceeds the tax or charge that was
legally due, and if this amount was passed on to the consumer, the person who
collected the amount must pay it to the Federal Government.
i.
The use of the words "or
otherwise" expands the scope of this provision. It essentially means
that the collection could have been done for reasons other than misapprehension
— such as negligence, error, or even fraudulent activity.
ii.
"Otherwise" is a broad and inclusive term. It could cover a range of situations,
such as:
§ Intentional overcharging or excess collection by a person who knew it
wasn’t due.
§ A mistake or oversight by the person collecting the tax.
§ Any other scenario where excess tax is collected from the consumer, regardless
of whether it was a result of misunderstanding, error, or any other reason.
If the
Person Collected Tax but Did Not Deposit It.
In this case, undisputedly the appellant collected the tax from the
consumer but failed to deposit it into the government treasury, the provision
may still apply in certain contexts, particularly when:
- The tax was collected in the proper amount
(i.e., the correct rate of sales tax).
- However, if the collected tax was not
deposited in the government treasury, this would still be a violation,
and the person would be required to pay that amount to the Federal
Government.
Even though the tax was collected correctly from the recipient, failure
to deposit it properly constitutes a breach of the law. The key aspect here is
that the person who collected the tax (even if in the correct amount) is
obligated to ensure the proper remittance of that amount to the government. If
they fail to do so, they are still liable to pay the tax to the government, and
this provision allows for the enforcement of that obligation.
Conclusion
The phrase "or otherwise" serves to cover a broad range
of situations beyond just misunderstanding the law, including negligence or
intentional misconduct. In the scenario where the correct tax was collected but
not deposited into the government treasury, the person who collected the tax is
still obligated to pay it to the government under this provision, as they are
responsible for ensuring the tax is properly remitted.
B. Sub-section (2): This subsection emphasizes that despite any judgments from
courts—including the Supreme Court or High Courts—if there is an amount payable
to the Federal Government under sub-section (1), it shall be treated as an
arrear of tax. This means that the amount becomes a liability that is
recoverable by the government in the same manner as any other arrears of tax.
The provision further clarifies that no claim for a refund of this amount is
permissible to the registered person, nor can such a claim be entertained by a
court.
For the person who collected the tax but failed to deposit it, this
means that the unpaid amount will be treated as overdue tax, and the government
has the authority to recover it in the same way it would recover other tax
arrears. No refund claim can be made for the tax amount that was collected but
not deposited.
C. Sub-section (3): This subsection places the burden of proof on the person who collected
the tax or charge to demonstrate that the incidence of the tax (i.e., the tax
burden) was not passed on to the consumer.
In practical terms, if the
person who collected the tax fails to deposit it, they must prove that the tax
burden was not shifted to the consumer. If they cannot provide evidence that
the consumer did not bear the cost of the tax, the person who collected the tax
remains liable to deposit it with the Federal Government. In
the present case, the recipient of the goods stated that it adhered to the
provisions of the Act by withholding the applicable tax as required by law when
making payments to the appellant. The remaining balance of the sales tax was
paid to the appellant.
7. For what has been discussed
above, the appeal of the appellant is dismissed.
|
|
-SD- (M. M. AKRAM) JUDICIAL MEMBER |
|
-SD- (IMRAN
LATIF MINHAS) ACCOUNTANT
MEMBER |
|
MARK-A
PAYMENTS WITHHELD AND DEPOSITED BY THE RECIPENT OF GOODS M/S PCSIR LABORATARIES, ISLAMABAD
|
S.No. |
CPR No. |
Date |
Amount withheld/Paid (in Rs.) |
|
1. |
ST-20230621-0101-2189622 |
21-06-2023 |
1,571,038 |
|
2. |
ST-20230601-0101-1029757 |
01-06-2023 |
1,451,262 |
|
3. |
ST-20230511-0101-1510876 |
11-05-2023 |
1,433,898 |
|
4. |
ST-20230621-0101-2189621 |
21-06-2023 |
680,000 |
|
5. |
ST-20230508-0101-1322304 |
08-05-2023 |
635,801 |
|
6. |
ST-20221101-0479-1030102 |
14-10-2022 |
715,664 |
|
7. |
ST-20230621-0101-2189620 |
21-06-2023 |
494,700 |
|
8. |
ST-20230222-0101-2082661 |
22-02-2023 |
479,487 |
|
Total
|
7,461,850 |
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