Allowing void proceedings against taxpayers: neutrality of tax system to be compromised, rules ATIR

Appellate Tribunal Inland Revenue (ATIR) Lahore while explaining the Sales Special Procedure Rules, 2007 has ruled that if the tax department is permitted to conduct the void proceedings against taxpayers without adhering to law, it will compromise the neutrality of the taxation system in Pakistan.
Experts told Business Recorder that in a landmark judgement recently passed by ATIR applicability of provisions of Chapter II of Sales Special Procedure Rules, 2007 have been elaborated by the ATIR with the observation if the department is permitted to conduct the void proceedings, it will create a statutory anomaly whereby the department has to exercise jurisdiction within four corners of law. When contacted, tax lawyer Waheed Shahzad Butt who represented the case before the ATIR told this correspondent about the brief facts of appeal.
The lawyer added that the present case is a classic example of carelessness and highhandedness, wherein law has been flouted by the field formation, however, lawful intervention by the ATIR negates the void action of department. The ATIR order states "Appellant company operates under Chapter II of the Sales Tax Special Procedure Rules, engaged in the 3-S business of cars. The department had earlier issued income tax audit notice u/s 214C of the Income Tax Ordinance, 2001 and later on withdrew the same that the case was never selected by the FBR. 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. 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.
The undisputed facts relevant to the issue in hand are that the appellant carries out the activity of sale of cars on behalf of a company. It is rightly argued that the entire case made out by the IRS authorities is based on improper and incorrect appreciation of the facts and law. 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. 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. A perusal of the impugned orders when cross examined with the applicable law reveals that learned authorities 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 ATIR further observed that 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 the said 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. 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.
The 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, to exclude the said category of taxpayer from the domain of Sales Tax Special Procedure Rules for retailers which was later-on substituted with the word "Vehicle Dealer" through SRO 608(I)/2014. The officers 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.
The ACIR has no lawful authority to mould the provisions of the Act in the favour of revenue and against the appellant by inducting words of her own choices in the stature book ie, Chapter II. 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.
Interpretation of law is the sole prerogative of the courts with the 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 recovering tax liability, is no ground to deviate from substantive provision of law. 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.
If a power whether judicial, quasi judicial or administrative is exercised on the basis of facts which do not exist and which are patently erroneous, such exercise of power will stand vitiated. It is quite strange to note how and under which provision of the Act, one business activity of a taxpayer can be charged and treated with three different amounts under the garb of taxes using umbrella of audit. In the instance case three different alien amounts have been referred by the assessing officer like Rs 6,795,085/-, Rs 150,739,540/- and Rs 16,150,665/-.
Both officers never compared the four quarterly sales tax returns submitted by the appellant with the twelve monthly sales tax returns submitted by the suppliers and buyers of the goods insurance companies who are liable to pay sales tax at standard rates. It is a well settled principle of law that where the foundation is defective, the entire edifice built thereon would fall to the ground. It is a settled law that when basic order is without lawful authority then the superstructure built on it would have to fall on the ground automatically, the ATIR order added.