PRESENT:
Mr. Justice Aqeel Ahmed Abbasi
Mr. Justice Arshad Hussain Khan
1. Const.
Petition No.D-940/2016
along with C.P.Nos.D- D-941 to 945, 1712 to
1715,
2892 to 2894, 2897,
2899 to 2903, 5550, 6833 and 6834 of 2016,
Messrs
Alzarina Glass Industries .……......………...…………….Petitioner
Versus
Federation
of Pakistan through Secretary,
Revenue
Division and Ex-Officio Chairman,
Federal
Board of Revenue, Islamabad and 3 others. …………………….….Respondents
Date of hearing: 14th
July, 2017.
Date of order: 14th
July, 2017.
Mr. Muhammad Faheem Bhayo, advocate for
Petitioners.
Mr. Meer Hussain, Asstt. Attorney General for
Respondent No.1.
Mr. Haider Naqi, advocate for Respondent No.2.
Mr. Usman Tufail Shaikh for Respondent No.3.
Mr. Muhammad Aqeel Qureshi for Respondent 4.
JUDGMENT
AQEEL
AHMED ABBASI, J.---Since a common
controversy has been agitated through instant petitions, therefore, by consent
of the learned counsel for the parties, all these petitions are disposed of
through this common judgment.
2. The brief facts, relevant for the
disposal of instant petitions, are that the petitioners are manufacturers of
glass bangles whereas, through Finance Act, 2007, the product of glass bangles
was exempted from payment of sales tax under section 13 read with Item No. 29C
of Sixth Schedule of Sales Tax Act, 1990. The petitioners, being suppliers of exempted
product, according to the petitioners, were not under obligation to be
registered under the Sales Tax Act, 1990. However, a dispute has arisen in
respect of 1% further tax and 5% extra tax being charged in the sui gas and
electricity bills from the petitioners for the reason that such glass bangles
have not been listed in S.R.O. 648(I)/2013 dated 09.07.2013, whereby further
tax at the rate of 1% is not chargeable. The Federal Government, through S.R.O.
509(I)/2013 dated 12.6.2013, levied extra tax at the rate of 5% of the total
billed amount to persons having industrial or commercial connections, whose
bill in any month exceed Rs.15,000/-. However, the consumers who have either
not obtained sales tax registration number or are not on the active taxpayers
list maintained by the Federal Board of Revenue were made liable to pay such
extra tax. The claim of the petitioner is that since the manufacture of glass
bangles and its supply is exempt from levy of sales tax under section 13 read
with Item 29C of the Sixth Schedule to the Sales Tax Act, 1990, therefore, the
petitioners are not under obligation to get themselves registered with the FBR.
It has been averred in the memo of petition by the petitioners that the Federal
Government inserted sub-section (1A) in section 3 of the Sales Tax Act, 1990 by
the Finance Act, 2013 with effect from 13.2.2013 through which a tax, namely,
further tax at the rate of 1% initially and with effect from 1.7.2015 at the
rate of 2% of the value in addition to the rate specified in subsections (1),
(1B), (2), (5) and (6) of section 3 of the Sales Tax Act, 1990 has been
imposed. The FBR issued S.R.O. 509(I)/2013 dated 12.6.2013 requiring the
petitioners to pay extra tax at the rate of 5% of the total billed amount of
the sui gas and electricity bills, in addition to the tax payable under
subsection (1) of section 3 of the Sales Tax Act, 1990 on the pretext that
since the petitioners are not registered under the Sales Tax Act, 1990 and are
not on active taxpayers list maintained by the FBR, therefore, the petitioners
are required to pay such tax. The FBR also issued SRO 510(I)/2013 dated
12.6.2013 and inserted a new chapter i.e. Chapter IV-A with the title
"Special Procedure for collection and payment of extra tax on supplies of
electric power and natural gas consumed by unregistered and inactive
persons." Through above new chapter, the rules for payment of extra tax
have been prescribed.
3. It has been argued by learned counsel
for the petitioners that since the petitioners do not make any taxable
supplies, as defined under section 2(41) of the Sales Tax Act, 1990, therefore,
they are not bound to obtain sales tax registration and, as a consequence, they
are not under obligation to pay further tax and extra tax under section 3(1A) read
with S.R.O. 509(I)/2013 dated 12.6.2013. Learned counsel for the petitioner
submits that in terms of section 14 of the Sales Tax Act, 1990 read with rule 4
of Chapter 1 of the Sales Tax Rules, 2006, only a person engaged in making
taxable supplies is required to be registered under Sales Tax Act, 1990. Per
learned counsel, the petitioners are making payment of sales tax on the taxable
supplies purchased by the petitioners from SSGC and HESCO but the petitioners
are not liable to pay additional amount of further tax and extra tax on account
of their non-registration as, according to the learned counsel, the petitioners
are making supplies of a product i.e. glass bangles, which is exempt from
payment of sales tax, therefore, the petitioners are not under legal obligation
to be registered under the Sales Tax Act, 1990. Learned counsel for the
petitioners has referred to subsection (1A) of section 3 of the Sales Tax Act,
1990, which, according to the learned counsel, provides that the Federal
Government is empowered to exclude certain taxable supplies from scope of
section 3(1A) of the Sales Tax Act, 1990 whereas, S.R.O. 648(I)/2013 dated
09.07.2013 has also been issued in this regard which has exempted charge of
further tax and extra tax from certain taxable supplies. According to the
learned counsel, the question which is required to be determined by this Court
is whether a person who is not under legal obligation to obtain sales tax
registration number can be burdened with further tax and extra tax for not obtaining
sales tax registration number, particularly, when the manufacture and supply of
such product is exempt from levy of sales tax under section 13 read with Item
29C of the Sixth Schedule of the Sales Tax Act, 1990. According to the learned
counsel for the petitioner, in view of the exemption granted to the
petitioners, the supplies made by the petitioners do not fall within the ambit
of taxable supplies in terms of section 2(41) of the Sales Tax Act, 1990 and,
therefore, the petitioners are not under legal obligation to be registered
under Sales Tax Act, 1990 as they do not make any taxable supplies. Per learned
counsel, under the Sales Tax Act, 1990 and the Sales Tax Rules, 2006, with
particular reference to Rules 3 and 4 of said Rules, only such persons are
liable to be registered who are making taxable supplies.
4. In support of his contention learned
counsel for the petitioner has referred to an un-reported decision of the
Lahore High Court in Writ Petition No. W.P. 27097/2013 (Messrs Zia Brothers v.
Federation of Pakistan, etc.) wherein, according to the learned counsel, it has
been held that section 3(1A) of the Sales Tax Act, 1990 has no applicability to
the case of the petitioner who enjoy exemption under the Act and are not making
any taxable supplies in terms of section 2(41) of the Sales Tax Act, 1990.
Further reliance has been placed on a recent reported judgment of a Division
Bench of this Court in the case of Digicom Trading (Pvt.) Limited v. Federation
of Pakistan and others (2016 PTD 648), whereby, according to the learned
counsel, while interpreting the provisions of sections 3(1) and 3(1A) of the
Sales Tax Act, 1990 read with provisions of S.R.O. 460(I)/2013 dated 03.5.203,
it has been held that provisions of section 3(1A) of the Sales Tax Act, 1990
could only be invoked in respect of goods which are being charged to sale tax
under section 3(1) of the Sales Tax Act, 1990 at the rate specified therein
whereas, once mode and manner of the rate of sales tax has been altered,
modified or fixed by the Federal Government either through sub-sections (2)(b)
and (6) of section 3, read with section 8(1)(b) of the Sales Tax Act, 1990, as
well as under section 13, no further tax can be demanded once the liability of
sales tax is discharged on the basis of a special procedure as contemplated
under S.R.O. 460(I)/2013 dated 03.5.2013. According to the learned counsel, it
has been further held in the aforesaid judgment that once sales tax has been
paid while complying with the provisions of S.R.O. 460(I)/2013 dated 03.5.2013,
the petitioners are not required to pay any additional tax in terms of section
3(1A) of the Sales Tax Act, 1990 as it has overriding effect. While concluding
his arguments, learned counsel for the petitioners submits that the impugned levy
and charge of further tax and extra tax on the electricity and sui gas bills of
the petitioners may be declared to be illegal and without lawful authority. It
has been further prayed that S.R.O. 509(I)/2013 dated 12.6.2013 may also be
declared to have been issued in violation of provisions of section 13 read with
Item No. 29C of the Sixth Schedule to the Sales Tax Act, 1990, hence void ab
initio and of no legal effect.
5. Conversely, learned counsel for
respondents have opposed the contentions of the learned counsel for the
petitioners and submits that further tax and extra tax is being correctly
charged from the petitioners who are not registered under Sales Tax Act, 1990.
It has been further contended by the learned counsel for the respondents that provisions
of S.R.O. 509(I)/2013 dated 12.6.2013 are applicable to the facts of the
petitioners' case who are under legal obligation to pay further tax and extra
tax as such taxes are required to be charged even from persons who are
de-registered from sales tax. Per learned counsel, the Federal Government is
authorized under law to issue such notification whereby such additional amount
of further tax and extra tax can be levied and charged from persons stipulated
in the aforesaid SRO. It has been prayed by learned counsel for respondents
these petitions are misconceived and may be dismissed and the petitioners may
be directed to make payment of extra tax and further tax in respect of
electricity and sui gas bills in accordance with law.
6. The learned Standing Counsel also
supported the contentions of the learned counsel for the respondents by
adopting the arguments advanced in this regard.
7. We have heard learned counsel for the
petitioners and respondents as well as learned Standing Counsel, perused the
record and also examined the case law relied upon by learned counsel for the
petitioners in this regard.
8. Admittedly, the supplies being made by
the petitioners i.e. glass bangles, are exempt from payment of sales tax in
terms of section 13 read with Item No. 29C of the Sixth Schedule to the Sales
Tax Act, 1990 whereas, the petitioners are not required to be registered under
Sales Tax Act, 1990 as they do not make any taxable supplies in terms of
section 2(41) of the Sales Tax Act, 1990. In terms of section 14 of the Sales
Tax Act, 1990, read with rule 4 of Chapter 1 of Sales Tax Rules, 2006, only
such persons who are engaged in making taxable supplies are required to be
registered under Sales Tax Act, 1990 whereas, since the petitioners' supplies
are exempt from payment of sales tax, therefore, the petitioners are not under
any legal obligation to be registered under the Sales Tax Act, 1990. The
petitioners are, admittedly, making payment of sales tax on taxable supplies
purchased by them from SSGC and HESCO, however, in view of the fact that the
supplies of manufactured glass bangles are exempt from levy of sales tax under
section 13 read with Item No. 29C of the Sixth Schedule to the Sales Tax Act,
1990, therefore, the petitioners are not under any legal obligation to get
sales tax registration number and since they are not liable to be registered
under the Sales Tax Act, 1990, therefore, they are not under any legal
obligation to pay further tax and extra tax under section 3(1)(a) of the Sales
Tax Act, 1990 in terms of S.R.O. 509(I)/2013 dated 12.6.2013 which can be made
applicable in respect of such persons who were required to be registered under
Sales Tax Act, 1990, however, have chosen not to be registered in accordance
with law.
9. From perusal of S.R.O. 509(I)/2013
dated 12.6.2013, issued by the Ministry of Finance, Economic Affairs,
Statistics and Revenue, Government of Pakistan, under subsection (5) of section
3 of the Sales Tax Act, 1990, it appears that levy of extra tax at the rate of
5% of total billed amount excluding the amount of federal taxes in addition to
the tax payable under subsection (1) of section 3 of the Act, has been imposed
on supplies of electric power and natural gas to persons having industrial or
commercial connections, and whose bill for any month exceeds Rs.15,000/- but
who have either not obtained sales tax registration number or are not on the
active taxpayers list maintained by the FBR. The purpose of levying extra tax,
in addition to the tax under sub-section (1) of section 3 of the Act, is to
charge the said tax from those persons who are liable to be registered under
the Sales Tax Act, 1990 but have chosen not to get themselves registered to
avoid payment of sales tax in accordance with law, whereas, in the case of the
petitioners, since the supplies manufactured by them i.e. glass bangles, have
been exempted from payment of sales tax in terms of section 13 read with Item
29C of the Sixth Schedule to the Sales Tax Act, 1990, therefore, the
petitioners are not under any legal obligation to obtain sales tax registration
or to appear on the active taxpayers list maintained by the FBR. Once the
Legislature, in its own wisdom, has chosen to exempt the supplies manufactured
by the petitioners, i.e. glass bangles, exempt from payment of sales tax, they
cannot be made liable to make payment of any further tax or extra tax only on
account of their non-registration under the Sales Tax Act, 1990.
10. A Division Bench of this Court in the
case of Digicom (Pvt.) Ltd. (supra), while examining the provisions of section
13(1) of the Sales Tax Act, 1990 and S.R.O. 460(I)/2013 dated 03.5.203, has
been pleased to hold as under:--
7. On a minute
examination of the provisions of Section 13(1) of the Act, it appears that it
provides, notwithstanding the provisions of section 3, for exemption from the
levy of sales tax on the supply or import of goods specified in the Sixth
Schedule, subject to such conditions as the case may be, whereas, sub-section
(2)(a) provides, that notwithstanding the provisions of subsection (1), the
Federal Government may by Notification in the official gazette exempt any taxable
supplies made or import or supply of any goods or class of goods, from the
whole or any part of the tax chargeable under this Act, subject to conditions
and limitations specified therein. On perusal of S.R.O. 460(I)/ 2013 it
reflects that it has been specifically issued in terms of subsection (2)(a) of
section 13 in addition to other relevant provisions of the Act, and, therefore,
we are of the view that through S.R.O. 460(I)/2013 the Federal Government has
fixed the rate of Sales Tax as mentioned in Column 2 of the Table of the SRO at
different rates and such fixation of Sales Tax appears to be the final
liability of Sales Tax at import and supply stage. The words used in section
13(2)(a) of the Act are very specific and provides for exemption any taxable
import or supply of any goods from the whole or any part of the Sales Tax
chargeable under the Act and not merely under Section 3(1) of the Act as
contended by the learned Counsel for respondent No.2. This would mean that the
provision of section 13 of the Act has an overriding effect on the
chargeability of Sales Tax in terms of section 3(1) as well as 3(1)(a) of the
Act. Once the mechanism has been prescribed by the Federal Government by
issuance of a Notification in terms of various provisions of the Act, including
section 13(2)(a) of the ibid, the question of payment of any additional tax in
terms of section 3(1)(a) of the Act, for supply of goods to unregistered
person(s) does not arise. The provision of section 3(1)(a) could only be
invoked in respect of goods which are being charged Sales Tax under section
3(1) of the Sales Tax Act, 1990 at the rate specified therein at ad-valorem
basis which is presently @ 17%. Once the mode and manner and the rate of Sales
Tax has been altered, modified or fixed by the Federal Government either
through subsection (2)(b) and (6) of Section 3, read with section 13, no
further tax can be demanded once the liability of Sales Tax is discharged on
the basis of a special procedure as contemplated under S.R.O. 460(I)/2013."
11. Similarly, a learned Single Jude of
the Lahore High Court, in Writ Petition No. W.P. 27097/2013 (Zia Brothers v.
Federation of Pakistan etc.) while examining the provisions of sections 3(1)
and 3(1)(a) read with section 13 of the Sales Tax Act, 1990 as well as the
provisions of S.R.O. 648(I)/2013 dated 09.07.2013, has been pleased to hold
that section 3(1A) of the Sales Tax Act, 1990 has no applicability to the case
of petitioners who enjoy exemption under the Act and are not making any taxable
supplies in terms of section 2(41) of the Sales Tax Act, 1990.
12. In view of hereinabove facts and
circumstances of the case, and by respectfully following the ratio of the
aforesaid decisions, we are of the opinion that the provisions of S.R.O.
509(I)/2013 dated 12.6.2013 are not applicable to the petitioners who enjoy
exemption in terms of section 13 read with item 29C of the Sixth Schedule to
the Sales Tax Act, 1990 from payment of sales tax as the petitioners are not
making any taxable supplies in terms of section 2(41) of the Sales Tax Act,
1990.
13. By our short order dated 15th March,
2017, the aforesaid petitions were allowed and above are the reasons for such
short order.
J U D G E
J U D G E