Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Messrs HONDA POINT (PVT.) LTD., LAHORE VS Respondent: C.I.R., AUDIT, R.T.O.-1, LAHORE and others
Court Name: Appellate Tribunal Inland Revenue Judge(s): Jawaid Masood Tahir Bhatti, Fiza Muzaffar Title:Messrs HONDA POINT (PVT.) LTD., LAHORE vs C.I.R., AUDIT, R.T.O.-1, LAHORE
and others Case No.: S.T.A. No.729/LB of 2014 Date of Judgment:2014-12-08 Reported As: 2016 P.C.T.L.R. 149, 2016 PTD (Trib.) 57 Result: Order accordingly Judgment ORDER The present appeal, filed by a private limited company, under section 46 of the Sales Tax Act, 1990 "Act" impugns the order dated 25.06.2014 issued by the learned Commissioner-IR (Appeals) "CIR(A)" in respect of an earlier appeal filed against assessment order dated 05.06.2014 passed by the ACIR, Audit, RTO-I, Lahore. 2. The brief facts of the case are that the appellant company operates under Chapter II of the Sales Tax Special Procedures Rules, 2007, engaged in the 3-S business of sales/service of Honda brand parts and commission income from 'Honda' brand cars in Pakistan. Present controversy is based on audit observations. Audit report dated 15.05.2014 followed by a show cause notice dated 16.05.2014 was issued by the ACIR requiring explanation on various charges levelled therein. In response thereto, replies were submitted and after conducting hearings, through the assessment dated 05.06.2014, sales tax liabilities at Rs.6,795,085/- on account of retail sales, Rs.770,285/- for short payment of tax and Rs.856,398/- on account of excessive input tax alongwith penalties and default surcharge were adjudged against the appellant, however, following categorical penalties were also imposed:- Sr. No.Particulars Rupees (i) Penalty for non filing of sales tax returns40,000 (ii) Penalty for wrong filing of sales tax returns20,000 (iii) Penalty for withholding tax 10,000
---
## Page 2
(iv) Penalty for sales tax registration 5,000 Feeling aggrieved an appeal Was filed before the learned CIR(A) who upheld all charges leveled against the appellant, except in respect of issue of withholding sales tax, rest of the order passed by ACIR was maintained by the learned CIR(A). This has compelled the appellant taxpayer to come up in further appeal before this court. 3. The AR vehemently argued that the department tad earlier issued income tax audit notice under section 214C of the Income Tax Ordinance, 2001 and later on withdrew the same that the case was never selected by the FBR. Later it was again intimated that the case was selected for sales tax under section 72B of the Act. The appellant joined the audit proceedings and presented the complete record. The ACIR deputed auditor to conduct the audit of the taxpayer who time and again visited the business premises of the appellant without any record. The taxpayer was not satisfied with this action of the auditor, hence he made a complaint to the Chief Commissioner. The AR further argued that proceedings initiated by the ACIR, on the basis of malicious audit report, solely based on presumption of law by misinterpreting/misreading the provisions of Act and Special Procedures Rules, 2007, is equivalent to severe maladministration of justice on the part of department and a nullity in the eyes of law, being based on overstepping the lawful jurisdiction available with the assessing authorities under the Sales Tax Act, 1990. 4. During the course of hearing, the learned AR prior to taking up the specific issues involved in the appeal, briefly dilated upon the overall scheme of the Act and read out the relevant provisions of law. The learned A.R. Highlighted another important aspect of this case i.e. a complaint against the respondent on the issue of unfair practice during audit, which is reportedly pending before the Chief Commissioner of Income Tax. The learned A.R. Of the appellant vehemently contended that the independent judicious view should have been adopted by the IRS authorities while passing the impugned findings to avoid the great inconvenience. It was argued that that the impugned order passed by the ACIR reflects her lack of understanding on the facts as well as legal position on the matter and her intervention in the case is a classic example of carelessness, highhandedness and arbitrariness. He further argued that huge arbitrary tax demand with penalties, which are purely on flimsy grounds bluntly speaks a lot about the mindset of the ACIR which is nothing but an act of maladministration of justice. It was argued that the findings should be recorded on the basis of material available and not on his own whims. He argued that all the necessary proof of sales tax and input tax properly certified by Honda Atlas were also duly placed before the lower officers who failed to considered the same. While summarizing the scheme of law, the learned AR firstly read out the provisions relating to charge of tax and thereafter, in this respect, explained the concepts of Input tax, output tax, supply, taxable supply, taxable goods, taxable activity, final consumers, retailer, retail tax, input/output adjustment and overriding effect of Special Procedures Rules for Sales Tax etc. The AR submitted that the issues involved in the present appeal require consideration of these principles, in support of his contentions various judgments of higher as well as superior fora were also referred through written arguments. Present appeal is taken up and decided in terms of following observations. 5. In the context of the matter in appeal and in the stated background the learned AR referred to the provisions of the Act, as were applicable during the period involved in the subject appeal. Referring to the specific provisions of the statute, the learned AR submitted a synopsis stating that charge of tax has been prescribed by the legislature or taxable supplies that are made by a registered person in the course or furtherance of taxable activity; taxable supply, as referred to in the charging section, means supply/sale of taxable goods. Reverting back to the facts, the learned AR argued that the foremost issue which requires consideration is whether or not the tax paid by the appellant under special procedure rules constitute fulfillment of statutory obligation under the Act against sale of taxable goods. It is not a disputed position that sales have been made to final
---
## Page 3
consumers in the present case. The expression "Final Consumers", the AR stated, has not 'been defined in the Act, therefore, its extent and scope would be determined by reference to the ordinary dictionary meanings and under the established principles of statute interpretation, commonly known as the principle of 'Ejusdem Generis'. This principle, AR submitted, provides that words and phrases occurring in a provision of law are not to be taken in an isolated or detached manner, dissociated from the context, but these are to be read together and construed in the light of overall context of the provision of the law. Taking this line of argument it was argued that the expression "final consumers" as used in the Sales Tax Special Procedures Rules, exclusion of motor cycle dealer and induction of words vehicle dealers by the authorities below is to be interpreted in the light of words associated to it and not in pure isolation as per whims and wishes of the IRS authorities. In this respect, the AR relied upon judgment of Hon'ble Lahore High Court reported as 1973 PLD 837 "In order to ascertain the meaning of any word or phrase that is ambiguous or susceptible to more than one meaning, the court may properly resort to the other words which the ambiguous word is associated in the statute.... It is a fundamental principle of interpretation of statutes and of the notification or orders issued thereunder that the Courts have to proceed on the assumption that each word therein was used with a purpose..." By placing reliance on the above judgment it was submitted that what needs to be ascertained is the scope and extent of expression "final consumers" and exclusion of word 'motor cycle dealer', a phraseology that is being regarded as ambiguous and/or susceptible to more than one meanings and under the principles laid down by the Hon'ble Lahore High Court the expression/words have to be construed to be a mode which has similar attributes to that of a 'sale' or 'taxable activity' under the special procedure rules and limitation provided under the law. 6. The learned DR while rebutting the submissions of the appellant reiterated the contents of the orders passed by authorities below and submitted that tax has been rightly levied by the ACIR in the assessm ent order. The author of the assessment order also tendered written submissions. While defending the orders of the authorities below, the learned DR read out the observations made by the authorities below in their respective orders but no new line of argument was presented. The learned DR concluded the arguments and submitted that tax was properly charged on the subject amounts and as such the orders of the authorities below do not suffer from any infirmity. 7. We have given due consideration to the submissions of both the sides, perused the record and have also considered the ratio of the decisions relied upon by the parties. In the present appeal it is not a dispute that the transaction constituted taxable activity. The main dispute is that whether or not the act of paying sales tax as retailer on sales made to final consumers by the appellant under the special procedure rules constituted supply chargeable to tax at normal / standard rates. If the answer to this proposition is in negative the charge would not mature and on the other hand if the answer is in affirmative the conclusion would be that the tax was legally charged by the ACIR. In determining the answer to the aforesaid proposition, the line of arguments and decisions relied upon by the AR are very relevant and forceful. We are in agreement with the learned AR that not all supplies/sales undergo the incidence of tax at standard rate and only such supplies/sales, which are in respect of a supply as defined/classified under rule 5(3) of the Special Procedures Rules, are required to be considered for the purposes of payment of sales tax at standard rate. In this case, the conclusion drawn by both authorities below is based on wrong application of law, therefore, erroneous, factually incorrect, patently illegal and perverse, which has resulted in great miscarriage of justice. After going through the record and the submissions by the parties, it does not take long for us to conclude that the orders of the authorities below are not sustainable being passed in violation of established, time tested and settled principles of justice. There is a plethora of case law that in taxing statutes, one can only look at the language used in the law, since there is
---
## Page 4
no room for intendment or presumption in the interpretation of law. The same rule of A taxation i.e. a person sought to be taxed can only be taxed when he comes within the letter of law is squarely applicable in this case. We have noted that none of the authorities below have given any specific lawful reasons on the basis of which it has been concluded that the appellant is liable to pay sales tax at the standard rate against sales made to final consumers as Retailer while the applicable law on the issue for the period under consideration i.e., Chapter II of Special Procedures Rules clearly negate the stance of the authorities below and fully supports the view point of the appellant. 8. The undisputed facts relevant to the issue in hand are that the appellant carries out the activity of sale of cars on behalf of Honda Atlas Cars. The procedure that is followed in this respect is that a customer visits the business premises of the appellant; deposits the cheque/PO etc. Drawn in the name of the Honda Atlas Cars or its agent (the appellant); the same is forwarded along with customer details by the appellant; the Honda Atlas company communicates the acknowledgement and tentative delivery date; the car, once it is ready, is dispatched to the agent (appellant); the appellant intimates the customer about the arrival of the car; customer collects the car from the appellant and the commission is remitted to the appellant after the customer collects the car from agent (appellant). In none of the case has there ever been any deviation from the process stipulated above, that is to say, in none of the case the car is sold to the appellant and/or the money is received from the customer for appellant own utilization. Without exception the money is received,. Through cheque/PO etc, in the name of the Honda Atlas or agent (appellant) and the invoice regarding sale of car is issued by the Honda Atlas directly in the name of the customer after receiving price of car through the appellant. It is rightly argued that the entire case made out by the IRS authorities below is based on improper and incorrect appreciation of the facts of the case and law on the issue. Contrary to the business model in place, the both authorities below assumed that the appellant is involved in business of selling cars directly to the buyers/consumer. It is under this assumption that the authorities below held "The analysis of the total sales of the respondent reflects that the sales as dealer (sales of motor vehicles) are 97.50%." On the basis of the aforesaid arguments and submissions, it could be safely concluded that authorities below clearly erred in imposing tax on 'Retail Sales" made by the appellant from its business premises to the final consumers. The issue can be seen from another angle. Sales tax in its present shape for all practical purposes is similar to the Value Added Tax. It is generally called as consumer's tax. It is ultimately charged from buyer and even if there is any transaction in between among the manufacturer, distributor, wholesaler and the consumer, the tax passes on to the ultimate consumer. Sales tax is an indirect tax with its ultimate impact on the consumers, therefore, liabilities under the Act cannot be worked out in a fanciful manner based on mere surmises, estimates and conjectures and by adopting self devised formats having no legal support. The appellant is not the buyers (without exception) of the cars and he is operating as an agent to whom commission is paid for rendering of intermediary services. The goods (cars) are sold directly to the consumers/buyers after receiving price of car through agent (appellant), therefore, sales tax liability on sale/purchase of cars shall be zero on the part of appellant. This fact has been duly admitted by the authorities below that appellant is not liable to pay sales tax on sale of cars. 9. A perusal of the impugned orders when cross-examined with the applicable law on the issue reveals that learned authorities below fell in grave error in misconceiving the unambiguous provisions of the Act, specially Special Procedure Rules and as such sales made to final consumers/general public was wrongly charged to tax at standard rate of sales tax. The impugned orders reflect lack of understanding on the facts as well as inability to grasp the legal position on the matter. It is inevitable to reproduce the flimsy and fanciful observations made by the authorities below "The analysis of the total sales of the respondent reflects that the sales as dealer
---
## Page 5
(sales of motor vehicles) are 97.50% whereas, the sale of spare parts is only 2.50%....A dealer cannot be treated as retailer by any stretch of imagination. Moreover, if the respondent is treated a retailer, there is no answer about the principal/ major activity of the respondent i.e. The sale of vehicles.. .The respondent is not exclusively a retailer of spare parts and thus cannot be treated a retailer for the purpose of payment of tax under Chapter-II of the Rules on certain/small portion of supplies i.e. Spare parts". This state of affairs reflects that the authorities below even do not know the basic facts of the case that sale of cars is not the taxable supplies/business activity of the appellant but he is just earning commission out of sale of cars by Honda Atlas Cars to the buyers all over Pakistan. How the department can treat the taxable activity of Honda Atlas Cars as sales of a 'commission agent' solely working on behalf of manufacturer on commission basis? The ratio of 97.50% by assuming the sales of cars as sales of appellant is nothing but shows the sketchy knowledge of officers below about fiscal laws as well as accounting principles. The findings that appellant is not exclusively a retailer of spare parts and thus cannot be treated a retailer for the purpose of payment of tax under Chapter-II of the Rules on certain small portion of supplies i.e. Spare parts, also depicts intentional misreading/non-reading of law. A Retailer operates under Chapter II not only pays tax under this chapter but also liable to pay tax at standard/normal rates when sales/supplies are made to a person who deducts income tax at source under the Income Tax Ordinance, 2001. Such supplies shall not be subjected to tax under this chapter but at a standard rate under section 3 of the Act and the supplier shall be entitled to deduction of input tax paid on purchase of the goods so supplied at standard rates. 10. Regarding application of Chapter II of the Sales Tax Special Procedures Rules, there is a principle of law which provides that words and phrases occurring in a provision of law are not to be taken in an isolated or detached manner, dissociated from the context, but these are to be read together and construed in the light of overall context of the provision. The expression "Retailer" and final consumer of goods (auto parts) is to be interpreted in the light of words associated to it and not in pure isolation to directly jumped to Chapter VIII. Reliance may be placed on the following judgment of Hon'ble Lahore High Court in 1973 PTD 453. The AR also referred latest judgment passed by Learned Chairperson in S.T.A. 387/LB/2014 wherein the scope of Chapter II of Special Procedures Rules has been elaborated and even in case of other Honda dealer the judgment of this court in S.T.A.No.1/IB/2009 dated 20.04.2011 sufficiently supports the view point of the appellant "Retailer--- Dealer---Admittedly, the registered person was not a dealer and had been registered as a retailer, thus R.123 of the Sales Tax Special Procedures Rules, 2006 was not applicable and the registered person had rightly been dealt with under the relevant rules". 11. The grave defects in the assessm ent order have made no impression on the learned appellate authority, rather, he has gone a step further and has mobilize evidence against the appellant by confirming the void and patently illegal order by mechanically stating that the same is lawful so much so charges of tax fraud have been confirmed in a fanciful manner. It may be noted that under the constitution all state functionaries are expected to work within the permissible norms of law and justice. Any undue and harsh action by the state functionaries against a taxpayer speaks volume of mala fide on their part as a flagrant violation of law and procedure. The action of the authorities below is patently illegal and reflects highhandedness because both authorities intentionally ignored/ misread/non-read the unambiguous wording of section 71 of the Act and wrongly apply the law at their own whims in the instant case:-- 71. Special procedure.---Notwithstanding anything contained in this Act, the Federal Government may, by notification in the official Gazette, prescribe special procedure for scope and payment of tax, registration, book keeping and invoicing requirements and returns, etc. In respect of such supplies as may be specified therein.
---
## Page 6
12. Perusal of above would reveal that the same is a non-obstante provision having overriding effect over any provisions of the Act in force for the time being. The connotation "anything" used in this section broadly expands the scope of the provisions of section 71 for the purposes of overriding effect on all the provisions contained in the Act. The connotation may have diversity of meanings and may be employed to indicate "all" or "every" as well as "some" or "one", therefore, it clearly follows that meaning of the said words used in the statute are dependent upon the context and subject matter of the statute. In the instance case there is no ambiguity that the provision of section 71 has an overriding effect over the all provisions of the Act. In order to appreciate the strong contention of the appellant it is important to cross examine the relevant provision of the Act with the Chapter II of Sales Tax Special Procedures Rules, 2007:-- Chapter II: Application.---The provisions of this Chapter shall apply to the registered persons, including jewellers, who make supplies from retail outlets to final consumers and such persons shall be deemed to be retailers in respect of such supplies for the purposes of this Chapter: Provided that the provisions of this Chapter shall not be applicable to dealers of motorcycles and specified electric goods who shall pay sales tax as prescribed in Chapter VIII and XIII, respectively, and shall also not be applicable to manufacturercum-retailers who sell their products through retail outlets. 13. Section 71, empowers Federal Government to prescribe Special Procedure for Scope and Payment of tax, registration, bookkeeping etc. By notifying the same in official Gazette. Perusal of chapter II transpires that legislature provides a procedure for collection of sales tax from the person registered and operated as Retailers. The said sales tax has to be paid on the rates specified in the Chapter II ibid. It is a matter of common knowledge that sales tax whether deducted or collected does not constitute part of cost or value. However, in case of end users/final consumers alone it constitutes part of the sale in the normal parlance and understanding of costing method. The legislature in its wisdom has categorized the mode and method of payment of sales tax even by a person registered as Retailer and wisely restrict the admissibility of input sales tax credit on certain categories of taxpayers, however, when sales are effected through final consumers no input sales tax was admissible for a person registered and operated as Retailer as in the case of present appellant. This court is also well aware of the crucial fact that earlier the word "dealer of motor cycle" was used in Rule 3 of Chapter II ibid, to exclude the said category of taxpayer from the domain of Sales Tax Special Procedures Rules for retailers which was later-on substituted with the word "Vehicle Dealer" through S.R.O. 608(1)/2014 dated 02.07.2014 after the passing of Finance Act, 2014, obviously applicable with effect from tax period July, 2014 (tax year 2015). The subsequent pivotal changes in the special procedure rules sufficiently proves that prior to amendment the word 'Vehicle Dealer' was alien to the Chapter II ibid but in the instance case the officers below miserably flout the law by inducting word of their own choice in the statute book, which renders the whole proceedings a nullity in the eyes of law. Consequentially, it is unequivocally held that issuance of show cause notice and thereafter passing of assessment order is unlawful, patently illegal, arbitrary, discriminatory, violative of the norms of justice and blind exercise of discretionary powers. The ACIR has no lawful authority to mold the provisions of the Act in the favor of revenue and against the appellant by inducting words of her own choices in the statute book i.e., Chapter II ibid. It is quite strange to note that commentary made by some aliens has been adopted to bypass the provisions of the law enacted by the legislature. The act of first appellate forum to ignore this crucial issue is equivalent to denial of justice by misreading the law to unduly favour the alleged false practices in department by applying the law wrongly. A statute is required to be read as a whole and not in a piecemeal manner while the interpretation of law is the sole prerogative of the courts with the Hon'ble Supreme Court having the final say in the matter. Further the tax can be levied under the authority of law and mere convenience of tax collector in
---
## Page 7
recovering tax liability, is no ground to deviate from substantive provision of law. The ACIR instead of observing the spirit of law i.e., special procedure rules, has adopted novel method for impugned levy, by changing the provisions of law by inducting word of her own choice. Such practice is not legally permissible. Where an order passed by any forum, authority or court is patently illegal or against express provisions of law, if allowed to stay intact tantamount to and causes prejudice and serious breach of legal rights of taxpayers / citizens. To enjoy the protection of law…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.