M/s Muntah-e-Noor Sachal TV (Pvt) Ltd. Vs Commissioner Inland Revenue, Zone-III, CTO, Islamabad.

 

APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH_I, ISLAMABAD

 

STA No.225/IB/2025

(Tax period July 2019 to June 2021)

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M/s Muntah-e-Noor Sachal TV (Pvt) Ltd. Danyal Plaza, Chatta Bakhtawar, Park Road, Islamabad. (STRN.3556623-0)		Appellant
	Vs
Commissioner Inland Revenue, Zone-III, CTO, Islamabad.		Respondent
Appellant By:		Mr. Zulqarnain Awan, Advocate
Respondent By:		Ms. Asma Siddique, DR
Date of Hearing:		04.12.2025
Date of Order:		04.12.2025

O R D E R

M. M. AKRAM (Judicial Member): The present appeal has been instituted by the appellant, a registered person, assailing Order No.161 dated June 14, 2024, issued by the learned Commissioner Inland Revenue (Appeals-IV) [“CIR(A)”], Islamabad, for the tax periods spanning July 2019 to June 2021. The appeal has been preferred on the grounds articulated in the memorandum of appeal.

2.      The brief facts of the case are that the appellant is engaged in operating a television channel under the name “Such TV,” deriving income from advertisement services. During scrutiny of the record for the relevant tax periods, the assessing officer noted that the appellant had declared gross receipts amounting to Rs. 116,405,811/- (54,410,353 + 61,995,458) in the Income Tax returns, whereas “NIL” receipts were shown in the corresponding Sales Tax returns. Consequently, the appellant was confronted through a show cause notice, followed by several reminders dated 05.01.2023, 31.01.2023, 21.02.2023, 24.03.2023, 08.05.2023 and 18.05.2023. After seeking an adjournment, the appellant furnished only a written reply, devoid of supporting documentation, on 01.02.2023. Thereafter, an order was passed holding the appellant liable to pay Rs. 18,642,929/-, along with a default surcharge under section 34(1)(a) (to be calculated at the time of payment) and a penalty of Rs. 932,146 under Sr. No. 5 of the Table to section 33 of the Act, read with section 3 of the Islamabad Capital Territory (Tax on Services) Ordinance, 2001.

3.      Aggrieved by the said order, the appellant preferred an appeal before the learned CIR(A), Islamabad. Vide Order No.161 dated June 14, 2024, the learned CIR(A) upheld the order of the assessing officer and confirmed the tax demand. Dissatisfied with the appellate findings, the appellant has now approached this Tribunal, reiterating the grounds raised earlier.

4.      The matter was fixed for hearing on December 04, 2025. Learned Authorised Representative (“AR”) reiterated the submissions already advanced in the memorandum of appeal. Conversely, the learned Departmental Representative (“DR”) opposed the appeal, contending that the learned CIR(A) had passed a reasoned and speaking order, free from any legal infirmity, and accordingly urged for dismissal of the appeal.

5.      We have considered the arguments advanced by both parties and have thoroughly examined the record available on file. The record reflects that the appellant, being a registered person, is engaged in rendering or providing advertisement services, inter alia, within the Islamabad Capital Territory to various clients. Such services fall within the ambit of taxable services under the Islamabad Capital Territory (Tax on Services) Ordinance, 2001. In terms of section 3 of the said Ordinance, the provisions of the Sales Tax Act, 1990, along with the rules framed thereunder, apply mutatis mutandis to the services rendered or provided under the Ordinance. Further, sub-rule (3A) of Rule 3 of the Sales Tax Special Procedure (Withholding) Rules, 2007 stipulates that any person receiving advertisement services, whether provided by a domestic or foreign service provider, is required to withhold the amount of sales tax indicated on the invoice issued by the service provider. Where the invoice does not specify the sales tax amount, the recipient is obligated to deduct sales tax at the applicable rate on the value of taxable services from the payment due to the service provider. During the course of proceedings, the learned AR for the appellant furnished details of services rendered in different provinces as well as within the Islamabad Territory, accompanied by sample invoices issued to the service recipients. These invoices demonstrate that the recipients had withheld the applicable sales tax. The learned AR, therefore, argued that any default, if committed by the recipients in depositing the withheld amount, should not render the appellant liable for penal consequences. He further submitted that in such circumstances, the provisions of section 11(4A) of the Sales Tax Act, 1990 would be attracted at the relevant time. In light of the foregoing, the following question emerges for determination:

Whether, in a situation where the appellant issued proper sales tax invoices showing the applicable tax on advertisement services rendered within the Islamabad Capital Territory, and the service recipients, being withholding agents under Rule 3(3A) of the Sales Tax Special Procedure (Withholding) Rules, 2007, deducted the sales tax from payments but failed to deposit the same into the government treasury, the appellant can still be held liable for non-payment of sales tax under section 11(2) of the Sales Tax Act, 1990; or whether, in such circumstances, the exclusive statutory liability shifts to the withholding agents, making section 11(4A) the only proper legal recourse against them?

6.      Before addressing the question at hand, it is a well-established principle of law that, for a correct and comprehensive conclusion, the entire statutory scheme must be examined as a whole. No provision should be interpreted in isolation unless it constitutes a complete code on its own. Every section or rule within a statute or subordinate legislation must therefore be understood in the context of the overall framework. This approach is supported by the judgments in A. Rehman alias Abdullah and others v. Federation of Pakistan and others (2002 PTD 804, HC Karachi) and M/s Allied Motors Ltd. v. Commissioner of Income Tax and another (2004 PTD 1173, HC Karachi). Upon a comprehensive examination of the statutory framework governing the taxation of services in the Islamabad Capital Territory, it is evident that advertisement services rendered by the appellant fall squarely within the definition of taxable services under section 3 of the ICT Ordinance, 2001, which expressly subjects such services to sales tax in accordance with the Sales Tax Act, 1990. The provisions of the Sales Tax Act apply mutatis mutandis by virtue of section 3(3) of the Ordinance, thereby establishing the service provider’s primary obligation to charge, collect and pay sales tax on taxable services rendered. From the scheme of the Sales Tax Act, 1990, and the special procedures framed thereunder, it is evident that where a specific withholding mechanism is prescribed, the primary obligation to withhold and deposit sales tax stands transferred to the recipient of the service. Sub-rule (3A) of the relevant Special Procedure Rules explicitly mandates that the recipient shall retain the tax amount from the payment due to the service provider and deposit the same independently. Once the law has shifted this obligation and the service recipient, acting under statutory mandate, has withheld the tax at source, the amount in question ceases to remain with the appellant, who no longer has custody or control over the withheld tax. In such circumstances, fastening liability upon the appellant for an amount which it neither collected nor retained would contradict the legal structure governing indirect taxation, wherein the incidence is passed onward, and the person responsible for withholding is directly answerable to the exchequer.

7.      Moreover, in situations where tax has been withheld but not deposited by the withholding agent, the law provides a specific and exclusive remedy under section 11(4A) of the Sales Tax Act, 1990 (now renumbered as section 11F). This special provision empowers the department to proceed directly against the withholding agent who failed to deposit the amount deducted at source. The legislative intent underlying section 11(4A)/11F is unequivocal: where tax has been deducted but not remitted, the liability rests entirely upon the withholding agent, not the service provider who has already suffered deduction of tax from its receivable. Accordingly, before drawing any adverse inference or creating any liability against the appellant, the department was legally bound to invoke and exhaust the remedy provided under section 11(4A)/11F against the actual defaulter, namely the withholding service recipient who deducted but failed to deposit the tax.

8.      Similarly, when considered in the context of section 162 of the Income Tax Ordinance, 2001, which expressly authorizes the Commissioner to recover tax not collected or deducted from the person from whom such tax should have been collected, it is important to note that no pari material/equivalent provision exists within the Sales Tax Act, 1990. Sub-rule (3A) of Rule 3 of the Sales Tax Special Procedure (Withholding) Rules, 2007 unequivocally places the obligation to withhold sales tax on the recipient of advertisement services, whether the services are rendered by a local or foreign provider. The rule mandates the deduction of the tax indicated on the invoice, and where the invoice does not specify tax, to withhold sales tax at the applicable rate from the gross payment. This legal framework clearly places the responsibility to deduct and deposit sales tax exclusively upon the service recipient. Unlike income tax law, where section 162 enables recovery from the payee when the withholding agent defaults, the Sales Tax Act, 1990 grants no authority to recover un-withheld sales tax from a service provider when the statutory obligation rests solely on the recipient. As the Sales Tax Act, 1990 does not create joint or secondary liability in such cases, and that tax obligations must be grounded firmly in explicit statutory provisions, the department cannot lawfully recover the amount from the service provider when the default lies with the withholding agent. Consequently, any attempt to impose liability upon the service provider for the failure of the recipient to withhold is without legal foundation under the Sales Tax Act, 1990 and the Withholding Rules.

9.      In view of the foregoing statutory dynamics, the liability for the unpaid sales tax lies squarely with the withholding service recipient, and the appellant cannot be saddled with a tax amount that was neither retained nor required to be deposited by it. Imposing such liability would not only undermine the legislative intent but would also expose the appellant to double taxation, compelling it to discharge an obligation that the law specifically assigned to another party. Therefore, the department’s approach is legally unsustainable, and any recovery must be pursued strictly in accordance with section 11(4A)/11F of the Sales Tax Act, 1990, against the withholding recipient who failed to fulfil their statutory obligation.

10.    For the foregoing reasons, both the orders passed by the lower authorities are annulled, being void ab initio and without jurisdiction. It is an immutable principle of law that defective assumption/exercise of jurisdiction by the authorities is incurable. Reliance may be placed on Director General Intelligence and Investigation FBR Vs Sher Andaz and 20 Others (2010 SCMR 1746), Director General Intelligence and Investigation and others Vs M/s AL-Faiz Industries (Pvt.) Limited and others PTCL 2008 CL 337(S.C) and Collector, Sahiwal and 2 others Vs Muhammad Akhtar (1971 SCMR 681). In all these judgments, it was held by the Hon’ble Supreme Court of Pakistan that:-

i)       Where an essential feature of the assumption of jurisdiction is contravened, or the forum exercises power not vested in it or exceeds authority beyond the limit prescribed by law, the judgment is rendered coram non-judice and inoperative (2002 SCMR 122).

ii)      If a mandatory condition for the exercise of jurisdiction before the Court, Tribunal, or Authority is not fulfilled, then the entire proceedings which follow become illegal and suffer from want of jurisdiction. Any order passed in continuation of these proceedings in appeal or revisions equally suffer from illegality and are without jurisdiction (2008 SCMR 240).” 

Since we have decided the appeal on a legal issue, therefore, there is no need to dilate upon the other grounds of appeal which relate to the merits of the case.

11.    As a result, the appeal of the appellant is accepted.

 

 

	-SD- (M. M. AKRAM) JUDICIAL MEMBER
-SD- (SHARIF UD DIN KHILJI) MEMBER