IN THE HIGH COURT OF SINDH, KARACHI

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