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Petitioner: The COMMISSIONER INLAND REVENUE, ZONE-III, R.T.O., KARACHI VS Respondent: Messrs MODERN HOUSE, KARACHI
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Syed Ayaz Mehmood Title:The COMMISSIONER INLAND REVENUE, ZONE-III, R.T.O., KARACHI vs Messrs
MODERN HOUSE, KARACHI Case No.: S.T.A. No. 190/KB of 2014 Date of Judgment:2018-06-12 Reported As: 2020 PCTLR 68, 2019 PTD (Trib.) 1836 Result: Appeal Dismissed Judgment ORDER MUHAMMAD JAWED ZAKARIA, (JUDICIAL MEMBER).--- By this order , we intend to dispose of above titled appeal filed by the Appellant/Inland Reve nue Department against the impugned Order No.115 dated 24-09-2014 passed by the learned CIR (Appeals-I), LTU, Karachi. The appellant has agitated the following grounds of appeal which are reproduced hereunder: "GROUNDS 1. That the order passed by the Learne d Commissioner Inland Revenue (Appeals) Karachi is bad in law and contrary to facts of the case. 2 That the learned Commissioner Inland Revenue (Appeals) Karachi was not justified to set aside the order passed by the Deputy Commissioner -IR (HQs) Zone-III, R TO, Karachi without considering the facts of the case. 3. That the order had been passed under section 11(2) of the Sales Tax Act, 1990 for charging sales tax in accordance with law . 4. That the learned Commissioner Inland Revenue (Appeals) has erred in accepting plea of the taxpayer that S.R.O. 1125(1)/201 1 was not applicable to the registered person and that the person fell within the precincts of Chapter II of the Sales T ax Special Procedures Rules, 2007 read with S.R.O. 480/2007 dated 09 .06.2007 . 5. That the Commissioner Inland Revenue (Appeals) has ignored the fact that the taxpayer was liable to pay sales tax under condition (viii) of S.R.O. 1125(1)/201 1 dated 31-12-2013 for the tax period January 2012 to March, 2013 on retail transactions. 6. That the Commissioner Inland Revenue (Appeals) has wrongly considered the scope of S.R.O. 1125(1)/201 1 to be restricted to wholesalers, retailers, importers and exporters only overlooking the fact that the S.R.O. was actually and specifically for the benefit of five zero rated sectors of sales tax irrespective of their registration status.
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7. That the learned Commissioner Inland Revenue (Appeals) has misinterpreted the intent of the legislature under condition (viii) of S.R.O. 1125(1)/201 1 which specifically rendered it obligatory upon registered person 'solely or otherwise' engaged in retail business to collect sales tax @ 5% on their sales. 8. That the learned Commissioner Inland Revenue (Appeals) has erred in assumin g that S.R.O. 1125(1)/2013 was not for the benefit of retailers as the S.R.O. allowed retailers to collect sales tax Q 5% from end consumers and duly adjust input tax unlike the Special Procedure Rules, 2007 which required retailers to pay sales tax on turnover from their own pockets. 9. That the Commissioner Inland Revenue (Appeals) has ignored the fact that S.R.O. 1125(1)/201 1 was for benefit of retailers allowing collection of sales tax on sales to end consumers in line with the very concept of indirect tax and value added tax in contrast to the turnover based sales tax payments enforceable in the Special Procedure Rules, 2007. 10. That the Commissioner Inland Revenue (Appeals) has erroneously assumed that the introduction of S.R.O. 608(1)/2014 gives retrospective relief to the registered person as it amends the Special Procedure Rules, 2007. S.R.O. 1125(1)/201 1 is explicitly embedded in S.R.O. 608(1)/201 1 and the introduction of S.R.O. 608(1)/2014 actually acknowledges the scope and legality of S.R.O. 1 125 (1) /201 1. 11. That the appellant/department craves permission to add, alter or amend any ground of appeal on or before hearing of appeal." 2. Brief facts of the case are that the Respondent Messrs Modern House is a sole proprietary concern duly registered under Sales Tax Act, 1990, with Registration Number 1712620003582 and has its business premises situated at 735, Zainbunnisa Street, Saddar, Karachi. The principal business activity of Modern House is retail sales of textile garments. The Responden t Messrs Modern House were filing sales tax returns in terms of Chapter II, of Sales Tax Special Procedures Rules, 2007 promulgated through S.R.O. 480(1)/2007 dated 09th June, 2007, and were paying sales tax at the rate of .75% of the Turnover . It appeared from the record, that the Director , Intelligence and Investigation-IR, Karachi received information that Respondent was paying retail turnover tax at the rate of 0.75% on supply of textile garments as specified under S.R.O. 1125(1)/201 1 dated 31-12-201 1 instead of paying sales tax @ 5% or 2%, as the case may be, in terms of S.R.O. 1125/201 1 dated 31-12-201 1. On receipt of above information the Director , Intellige nce and Investigation-IR, Karachi constituted a team of Inland Revenue Audit Officers headed by the Additional Director , Intelligence and Investigation, Karachi to investigate the issue and to ascertain the liability of sales tax in the case of retailers of goods specified in notification S.R.O. 1125(1)/201 1 dated 31.12.201 1. During the scrutiny of sales tax profile of Respondent for the tax period from January 2012 to June 2013 it was observed that they have made payments of sales tax 0.75% on their retail turnover instead of 5% or 2%, as the case may be. Thus, the team inferred that the Respondent short the sales tax amounting to Rs.605,737/- during the aforesaid period against the supplies of goods as specified in Notification S.R.O. 1125(1)/201 1 dated 31.12.201 1 and, therefore, the Respondent violated the provisions of Sections 3, 6, 7, 22, 23 and 26 of the Sales Tax Act, 1990 read with S.R.O. 1125(1)/201 1 dated 31.12.201 1. The aforesaid investigation team was of the view that the said short paid amount of sales tax was recoverable under Section 11(1) and (2) together with default surcharge under , Section 34 of the Sales Tax Act 1990 and penalty under Section 33 ibid for violation of above stated provisions of law . 3. In view of the foregoing, Show-Cause Notice was issued by the DCIR to the Respondent on 25-09-2013. In response thereto, the A.R. of the Respondent appeared before the DCIR, and submitted written reply which did not find favour with the DCIR and proceeding were initiated, which culminated into an Order-in-Original No.04 dated 25-11-2013 under section 11(2) of the Sales Tax Act, 1990. Being aggrieved and dissatisfied with the treatment meted out by the DCIR, the Respondent/registered person preferred an appeal before the learned CIR(A) who vide his impugned Order-in-Appeal No.1 15 dated 24.09.2014 set-aside the order passed by the DCIR. Feeling aggrieved and dissatisfied with the impugned order-in-appeal passed by the learned CIR(A) now the Inland Revenue Department has come up in appeal before this Tribunal. 4. This court issued notices to both the parties and in response thereto, Mr. Riaz Ali Shah appeared on behalf of the Appellant/ Department as D.R. while Mr. Saifuddin Adeeb (FCA) appeared on behalf of the
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Respondent/Registered Person. 5. Mr. Riaz Ali Shah, D.R. Additional Commissioner , Inland Revenue appeared as DR on behalf of the Inland Revenue and argued the case. The Learned DR reiterated the grounds of appeal and contended that the respondents were clearly liable to pay sales tax in terms of clause VIII of conditions contained in S.R.O. 1125 dated 31st December , 2011. He fully supported Order-in-Original No.04 dated 25-11-2013 under section 11(2) of the Sales Tax Act, 1990 of the learned DCIR and, fervently opposed the Order No.115 dated 24-09-2014 of the Learned CIR (A). 6. The main thrust of the argument of the Learned DR revolved around condition (VIII) of the aforesaid S.R.O. 1125 dated 31st December , 201.1 and according to the Learned DR the respondent squarely fell within the ambit of the aforesaid condition and was, therefore, liable to pay sales tax in terms of S.R.O. 1125 and in view of direct applicability of aforesaid condition (VIII), the application of Chapter II of Sales Tax Special Procedures Rules of 2007 was automatically extricated. He, in the circumstances has prayed that the impugned order-in-appeal passed by the learned CIR(A) be vacated. 7. On the other hand, Mr. Saifuddin Adeeb appearing as AR of the Respondent with utmost vehemence impugned the aforesaid order-in-original of the learned DCIR and defended the aforesaid Order of the Learned CIR(A). He also referred to written submissions filed on behalf respondent and submi tted that the Learned Deputy Commissioner , Inland Revenue, (HQ) Zone III, RTO, Karachi issued Show-Cause Notice bearing No. CIR/Zone- III/RTO/cont-modern/2013-14/644 dated 25th September , 2013 calling upon the respondent to show cause as to why tax in the sum of Rs. 605,737 may not be recovered from your respondent along with default surcharge and why penalty may not be imposed for violation of certain provisions of the law as specified in the aforesaid Show- Cause Notice. In the opinion [albeit erroneous and portentous] of the learned Deputy Commissioner , the Chapter II of the Special Procedures Rules was not applicable to the respondent and the respondent was required to file sales tax returns in line with S.R.O. 1125 dated 31st December , 2011 and accordingly , the respondent, in the view [although incorrect and conceited] of the Learned Deputy Commissioner , had underpaid sales tax in the aforesaid sum of Rs. 605,737 during the period from 01st January , 2012 to 30th June, 2013. The respondent submitted to the Learned Deputy Commissioner that aforesaid Chapter II of the aforesaid Special Procedures was head-on germane to the respondent and the S.R.O. 1125 dated 31st December , 2001 was lock, stock and barrel extraneous to its case. Without giving due weightage and valid, irrefutable and incontrovertible submissions of the respondent, the Learned Deputy Commissioner passed raising a mammoth demand of Rs. 605,737, and inter alia threatening the imposition of default surcharge under section 34(1) of the Sales Tax Act, 1990 and penalty under section 33[5] of the Sales Tax Act, 1990. The Respondent filed an appeal under section 45B (1) of the Sales Tax Act, 1990, before the Learned Commissioner (Appeals) Zone II, RTO, Karachi against the order of the Learned Deputy Commissioner . The Learned Commissioner Inland Revenue [Appeals-I], Karachi through his Order No. STA/115/ RTO/2014-15 dated 24th September , 2014, allowed the appeal and the Order-in-Original was set aside. 8. The assertions of the Department were rebutted by the respondent by contending that aforesaid S.R.O. 1125 dated 31st December , 2011 was wholly extraneous to the case of respondent and the respondent's case without any shadow of doubt and head-on fell within the most unequivocal vicinity and precise scope of aforesaid Chapter II of the aforesaid Special Procedures Rules, 2007. The learned A.R. focused his arguments in the .written submissions produced before us on the following crucial points: Applicability of Chapter II of the Sales T ax Special Procedures Rules, 2007, inter alia, to Garment Retailers 9. The Chapter II [contained in Sales Tax Special Procedures Rules, 2007 promulgated through S.R.O. 480(1)/2007 dated 09th June, 2007] is with regard to payment of sales tax by retailers. This Chapter II signifies an special regime for all the retailers with the exception of those that have been, in an explicit manner , excluded from the application of the aforesaid Chapter II. 10. That the retailers engaged in retail sales of garments have not been excluded from the aforesaid Chapter II is too conspicuous to be emphasized any further . It is unneeded to stress that once entities engaged in the retail sales of garments have not been excluded these retailers would, as the crow flies, be included in the aforesaid Chapter .
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'11. It is imperative to submit that S.R.O. 1125 dated 31st December , 2011 has not introduced any amendment in the aforesaid Chapter II, as to non-applicability of aforesaid Chapter II to the garm ent retailers. For further clarity the it is imperative to give emphasis to the fact that the S.R.O. 1125 dated 31st December , 2011 has not superseded, in the preamble thereof, any part of what has been contained in aforesaid Chapter II. 12. The learned counsel argued that in view of the foregoing submissions there are no split hairs that aforesaid Chapter II is in straight line applicable to the garment retailers. Non applicability of SRO 1 125 dated 31st December , 201 1, inter alia , to Garment Retailers 13. It was submitted that from the careful perusal of the aforesaid SRO 1125, it can be in most evident manner seen that conditions [i], which defines the scope of aforesaid SRO 1125, in most explicit and unambiguous manner , provides for the applicability of SRO to four categories of registered persons namely [a] manufacturer; [b] importer; [c] exporter; [d] wholesaler . The retailers are most conspicuous in their absence from the aforesaid [governing] condition [i], which leads to an inescapable conclusion that SRO 1125 is, by no extension of meaning, applicable to retailers. Applicability of SRO 1 125 dated 31st December , 201 1 to manufacturers cum retailers 14. It is important to submit that aforesaid SRO 1125 is continuation of a sequence of SROs issued prior to the said SRO 1 125 and all these SROs were in relation to five export oriented sectors of the economy , namely; [i] textiles [ii] carpets [iii] leather goods [iv] sports goods and [v] surgical instruments.
From a perusal of the legislative history [all the aforesaid SROs] it is evident that the businesses that are exclusively engaged in retail sales, were, by intent and design both, and most explicitly excluded from the application of the aforesaid SROs and the FBR had issued clarifications from time to time as to non-applicability of aforesaid SROs to retailers. 16. It is also evident from the inception of the aforesaid SRO regime, that only those retailers fell within the applicability scope of aforesaid SROs who were manufacturers-cum-retailers and there are clarifications to this effect also issued from time to time by the FBR. It is not understood by any length of interpretation or imagination, as to how from all the aforesaid SROs, only one SRO [namely aforesaid SRO 1125] can be picked out and applied to the business that are exclusively engaged in retail trade. The respondent invited the attention of the Tribunal, to eleven page letter bearing Ref: FBR/1/2013 dated 27th September , 2013 addressed to the Chairman FBR, Islamabad in which, inter alia, the entire history of the aforesaid SRO regime has been mapped with aforesaid FBR clarifications issued from time to time also referred to therein. 17. The learned counsel argued that it is also evident in most conspicuous manner, that condition [viii] of the aforesaid SRO 1125 is applicable to only manufacturers-cum retailers and not to those business that are exclusively engaged in retail trade. It is important to add here that the phrase "who are solely or otherwise " was deleted from the aforesaid SRO, as a remedial measure, through SRO 154 dated 28th February , 2013 and to reinforce the original intention, as to applicability of the SRO to manufactures-cum retailers only . 18. The learned counsel argued that without prejudice to the foregoing it also needs to be asserted that the imposition of tax, by no means, can be sourced from the aforesaid condition [viii]. Without prejudice to the aforesaid submissions the respondents also submits as follows: Imposition of tax through SRO Regime [unauthorized legislation] not permissible 19. The imposition of tax in terms of Article 77 of the Constitution of Islamic Republic of Pakistan is an unshared prerogative of the Parliament and tax cannot be imposed thorough SROs. Your respondents finds considerable credence and strength from a Decision of Honorable Supreme Court of Pakistan in case of Engineer Zafar Iqbal Jhagra v. Federation of Pakistan reported, inter alia, as 108 Tax 1 = 2013 PTD 1491 and your appellant in particular invites the attention to Para 29 of the aforesaid Decision, reading as follows:
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"........... In the light of the law laid down in the aforesaid judgments it is clear that the Majlis-e-Shoora [Parliament] legislature alone and not the government executive is empowered to levy tax. As far as delegation of such powers to the government/executive is concerned the same is for the purpose of implementation of such laws which is to be done by faming rules or issuing notifications or guidelines depending upon case to case as we have come across some of the cases noted herein above. But in no cases authority to levy tax for the federation is to be delegated to government/ executive. Therefore, arguments so raised by learned counsel have no force and the same are repelled hereby ." Without prejudice to the aforesaid submissions the respondents also submits as follows: Imposition of T ax through confused legislation not permissible
20. It is a trite rule of taxation that imposit ion of tax owes its origin and source to most explicit charging provision of the law and tax can be levied only when it falls within the four corners of precise and unambiguous letter of law. That there is plethora of case law on the subject, goes without saying. From the perusal of the aforesaid SRO regime [culminating in aforesaid SRO 1125 (currently in field)] it is palpable that the entire aforesaid regime represented a confused and most ambigu ous legislation and, therefore, the tax imposition cannot emanate there- from. SRO 608(1)/2014 dated 02nd July , 2014 21. The issuance of aforesaid SRO 608 lends added credence and support to the assertions of the respondent, as to applicability of aforesaid Chapter II. In this respect the respondent invites the kind attention of the Honorable Appellate Tribunal, Inland Revenue, to substitution of rule 5 of the aforesaid Chapter II, introduced by the aforesaid SRO 608. The proviso to substituted rule 5 further establishes that it is Chapter II and no other regime that is applicable, inter alias to Garment Retailers. The decision of the DB of the honorable Appellate T ribunal at Lahore 22. The Honorable DB of the Honorable Appellate Tribunal at Lahore, comprising of the then Honorable Chairman and Accountant Member in its most instructive and enlightening Order in S.T.A. No. 261/LB of 2014 passed on 11th December , 2014, which had been reporte d as 2015 PTD 2172 [Messrs Stylo Shoes, Lahore v. C.I.R. Zone-X, RTO II, Lahore ] has, in most unequivocal and in no uncertain terms, held that the aforesaid SRO 1125 dated 31st December , 2011 is not applicable to the retailers and the cases of retailers fell within the scope of aforesaid Chapter II, of the aforesaid Special Procedures Rules 2007. 23. In addition to the above arguments from written submissions, Mr. Saifuddin Adeeb FCA the AR of the respondent contended with utmost vehemence that from the onset of new regime to bring the five exported oriented sectors, [namely textile, carpets, sports goods, leather goods and surgical instruments] within taxability arena, which started with the issuance of S.R.O. 539(1)/2005 dated 06th June, 2005 and continues to deal with the issuance of aforesaid SRO 1125, the legislative intent has always been to bring within the purview of the aforesaid new regime only those retailers who were manufacturers cum retailers and not those who were retailers only. He has taken pains to take us through all the SROs and the relevant clarifications that were issued by the Federal Board of Revenue from time to time in this respect, from which according to the Learned AR, it was evident that the intention of lawmakers was to bring within the aforesaid regime only those retailers who were manufacturers cum retailers. He reiterated for added emphasis that the aforesaid intention of the lawmakers continued to remain floating on the surface from the onset of the aforesaid regime and at no stage any intention contrary to the original intention was ever expressed by lawmakers. In fact according to the Learned. AR the curative removal of phrase "whether solely or otherwise" from aforesaid condition (VIII) supports the contention, as the crow flies, and exhibits the continuation of legislative intent to bring only those retailers within the ambit of aforesaid SRO 1125, who are manufacturers cum retailers. The juxtaposed or conjunctive perusal of the conditions (I) and (VIII) would lead to a proper , inescapable and harmonious conclusion as to legislative intention to include only manufacturers cum retailers within the scope of SRO 1125 and no other retailers and this was the precise reason a curative amendment in condition (VIII) to omit the phrase "solely or otherwise" was introduced. There is always an intention
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behind an amendment and it cannot be said that the amendment was made sans any reason. It is obvious that the reason for the aforesaid amendment was to restrict the applicability of SRO 1 125 to manufactures cum retailers. 24. The learned A.R. further vociferously contended that SRO 1125 cannot be superimposed over Chapter II of the Sales Tax Special Procedures Rules, 2007, nor can two regimes namely Chapter II of Sales Tax Special Procedures Rules and aforesaid SRO 1125 coexist and function and apply in tandem, inter alia, to all garment retailers. If the intention of the law makers was to bring a new regime for, inter alia, for all garment retailers in place of the regime contained in aforesaid Chapter II, it was essential for the lawmakers to first vacate the application of aforesaid Chapter II and then bring in the application of aforesaid SRO 1125. According to the AR this has not been done. The AR goes on to contend that issuance of subsequent SRO 608(1)/2014 dated 02nd July, 2014 supports his contention and in which the application of aforesaid Chapter II has been later removed. According to the AR it is evident that SRO 1125 has not vacated the application of aforesaid Chapter II, inter alia, to garment retailers, in the manner the ' said application has been vacated by aforesaid subsequent SRO 608 and, therefore, in presence of aforesaid Chapter II, there is no way that S.R.O. 1125 can be superimposed and allowed to take place of aforesaid Chapter II. 25. The AR also argues that the exclusion s that had been specified in the aforesa id Chapter II, did not include the garment retailers and for this reason also the garment retailers could not be excluded from the application of aforesaid Chapter II. He has already contended that the application of aforesaid SRO 1125 had been extended to only those retailers who were manufacturers cum retailers and other retailers did not fall within the legislative scope of aforesaid SRO 1125. According to the Learned AR there were two mutually exclusive, stand alone and self- governing regimes contained in aforesaid Chapter II and in aforesaid SRO 1125 and one regime could not be allowed to intrude into the territory of the other . The Learned AR also contended that aforesaid Chapter II being the special regime for retailers would take precedence of SRO 1125 regime, which was not especially for retailers. According to the Learned AR, in view of the foregoing submissions, there does not remain any doubt, whatsoever , that it is Chapter II and not SRO 1125 which was applicable to the Respondents, during the period covered by the aforesaid Order-in-Original. 26. The AR also contended that a tax could be levied only when the imposition of tax fell within the four corners of explicit and precise provision of the Law. In this respect he cited references to numerous decisions of Appellate Authorities and Superior Judiciary . He argued that the aforesaid regime to bring in the export-oriented five sectors within the taxability scope, from the onset, represented a confused and ambivalent regime and the very fact that number of SROs were issued to supersede the earlier ones and also the fact that number of amendments were introduced in tall these SROs including SRO 1125, prove that the aforesaid regime has been, on a continuous basis, fraught and troubled with numerous confusions from day one onwards. The AR has asserted that numerous Appellate and Judicial Authorities have all the time exhibited zero tolerance to any ambiguity in the charging provisions of a taxing statute. He has contended that where the language of the charging provisions in a taxing statute fails, so must the tax. 27. Refuting the arguments of the learned D.R, the Learned AR vehemently argued that the respondents fell within the scope of aforesaid SRO 1125 in the light of condition VIII thereof. According to the Learned AR the scope of aforesaid SRO 1125 is governed by condition I of the SRO, in which the reference to retailers is most conspicuous in its absence on the one…
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