Appellate Tribunal Inland Revenue (ATIR) has ruled that persons, who are not legally required to obtain sales tax registration, cannot be burdened with Further Tax under Section 3(1A) of the Sales Tax Act, 1990 and they are under no obligation to pay "Further Tax" as section 3(1A) has no application to their case.
When contacted tax lawyer Waheed Shahzad Butt who represented the case before the ATIR told Business Recorder that it is ordered by the ATIR Lahore under the judgement that if the goods are supplied to other than registered person ie, to end consumers, it would in no case injure the government treasury because the tax is charged on the market price, ie, price to be paid by ultimate consumer meaning thereby that the government collects the ultimate tax (which it would have collected when supplied goods were actually sold in the market) well in advance at the time of sale of goods from the sale outlet or factory manufacturing premises of the appellant without any fear of returning it to any person in case of refunds because End Consumer cannot claim it as input sales tax under the law, therefore, charging of "Further Tax" is unlawful in the given circumstances.
The ATIR order states "Appellant is a manufacturer by status and duly registered with the sales tax department. On the basis of the discrepancies detected through CREST, the appellant was found to have failed to charge further tax on supplies made to unregistered persons in terms of Section 3(1A) of the Act. Appellant had supplied the products to persons who were admittedly not registered under the Act, however, undoubtedly all of them were 'End Consumers'. In response to IRO's letter a detailed write up by filing requisite information, supporting details/documents and submitting the corresponding evidence for the purposes of reconciliation was submitted, but unfortunately relevant law on the issue and factual position has not been considered judicially by the IRO as well as by the Commissioner Inland Revenue (Appeals). The sales under consideration were retail sales made to the 'End consumers'. The sales made to End consumers were not subject to Further Tax u/s 3(1A) of the Act in the light of cumulative reading of Section 3(1A) read with SRO 648(I)/2013 wherein supply of goods directly to the End Consumers have been excluded from the provisions of Section 3(1A). Learned AR further vehemently argued and stressed upon the status of the buyer/purchaser of the appellant that it is not a disputed position that sales under question have been made to End Consumers. In support of his contention he has produced copies of sales tax returns with complete annexure/invoices, tax profile of buyers/purchasers with the FBR. Further he argued that the expression `End Consumer" 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 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. The expression "End Consumers" as used in the cited SRO is to be interpreted in the light of words associated to it and not in pure isolation as per whims and wishes of the IRO. Supporting his argument, learned AR referred to Section 14 of the Act read with Rule 4 of Chapter 1 of the Sales Tax Rules, 2006. The DR for the revenue on the other hand firstly supported the orders of the authorities, however, later he has requested that the matter may be remanded back to the IRO.
The ATIR is in agreement with the authorised representative (AR) that a person, who is not under a legal obligation under the Act to obtain Sales Tax Registration number cannot be burdened with further tax u/s 3(1A) of the Act for not obtaining the registration number. In this case, the conclusion drawn by both authorities below is based on wrong application of law, therefore, erroneous and factually incorrect.
It is clear without any shadow of doubt that the purchasers of the appellant do not make any taxable supplies under section 2(41) of the Act, they are not bound to obtain sales tax registration under the Act, as a consequence, they are under no obligation to pay "Further Tax" and Section 3(1A) has no application to their case.
The ATIR has no ambiguity in its mind to declare that the orders passed by the authorities below are against the doctrine of natural justice and are not sustainable in the eyes of law.
"We feel no hesitation to vacate the orders of the authorities below which have illegally been passed and obviously have no sanctity in the eyes of law. This would result into acceptance of the appellant-registered person's appeal," the ATIR ruled.