EAC ENGINEERING (PVT.) LTD. VS The FEDERATION OF PAKISTAN through Secretary Ministry of Law, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 1761 (2016)

Sales Tax Special Procedure (Withholding) Rules, 2007---

----Rr.1 & 2(2)(A)---Disputed question of fact---Collection of sales tax---Show cause notice was issued to petitioner for short withholding of sales tax as it was withholding agent---Validity---High Court in its Constitutional jurisdiction could not go into question involving minute details nor could it decide facts of which either no foundation was laid or otherwise involved disputed question of fact which necessitated taking of evidence---Questions raised by petitioner could not be resolved without entering into process of inquiry which rendered constitutional petition incompetent---Petitioner failed to point out that notice in question was illegal, without lawful authority and coram non judice---High Court directed Deputy Commissioner Inland Revenue to decide notice in question strictly in accordance with law after granting opportunity of hearing to petitioner and other concerned---Petition was dismissed accordingly.

Yousaf Ali v. Muhammad Aslam Zia and 2 others PLD 1958 SC 104; Mian Muhammad Nawaz Sharif v. President of Pakistan and others PLD 1993 SC 473; Federation of Pakistan and others v. Shaukat Ali Mian and others PLD 1999 SC 1026; National Bank of Pakistan and 117 others v. SAF Textile Mills Ltd. and another PLD 2014 SC 283; Province of the Punjab through Collector District Khushab, Jauharabad and others v. Haji Yaqoob Khan and others 2007 SCMR 554; Overseas Pakistanis Foundation and others v. Sqn. Ldr. (Retd.) Syed Mukhtar Ali Shah and another 2007 SCMR 569; Messrs Shah Nawaz Khan and Sons v. Government of N.-W.F.P. and others 2015 SCMR 945; Director, Directorate-General of Intelligence and Investigation and others v. Messrs Al-Faiz Industries (Pvt.) Limited and others 2006 SCMR 129; Messrs Ayesha Textile through Managing Partner v. Deputy Collector (Incharge Audit Division), Sales Tax and Central Excise Lahore and 4 others 2005 PTD 2442; Commissioner of Income Tax, Zone-C, Lahore v. Messrs Margalla Textile Mills Ltd., Lahore 2008 PTD 1982; Sui Northern Gas Pipelines v. Deputy Commissioner Inland Revenue and others 2014 PTD 1939; Muhammad Jameel Das (W. Gopal Das) and another v. The Pakistan through Secretary, Ministry of Communication, Government of Pakistan 2 others 1999 CLC 541; Messrs Ahmad Traders through Sole Proprietor v. Frontier Works Organization (F.W.O.) headquarters, Rawalpindi through Director-General and another 2008 CLC 1132; Messrs FMC United (Pvt.) Ltd. v. Federation of Pakistan and others W.P. No.19897 of 2013, Messrs Hirnina and Co. Pakistan Ltd. Karachi v. Commissioner of Sales Tax Central, Karachi 1971 SCMR 128; Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v. Federation of Pakistan and others 2014 PTD 243; The Collector of Sales Tax and others v. Superior Textile Mills Ltd., and others PLD 2001 SC 600; Messrs Mandiali Paper Mills Ltd. Lahore v. Collector of Central Excise and Sales Tax, Lahore and 2 others 2006 PTD 2429; Inspecting Additional Commissioner of Income-Tax and others v. Messrs MICRO PAK (Pvt.) Limited and others 2002 PTD 877; Commissioner of Income Tax, Zone-C, Lahore v. Messrs Margalla Textile Mills Ltd., Lahore 2008 PTD 1982 and Sui Northern Gas Pipelines v. Deputy Commissioner Inland Revenue and others 2014 PTD 1939 ref.

Muhammad Ajmal Khan and Sumaira Khanum for Petitioners.

Abrar Ahmad for Respondents.

Date of hearing: 21st January, 2016.

JUDGMENT

MUHAMMAD SAJID MEHMOOD SETHI, J.---Brief facts, as stated in this writ petition, are that petitioner is a "registered person" within the meaning of section 2(25) of the Sales Tax Act, 1990, read with Section 2(20) of the Federal Excise Act, 2005, and is duly registered by respondent No.2/Chairman, Federal Board of Revenue, Islamabad, in the status of importer and distributor. Respondent No.4/ Deputy Commissioner Inland Revenue, Lahore, issued notice dated 06.11.2015, for short withholding of sales tax as per Sales Tax Special Procedure (Withholding) Rules, 2007, requiring the petitioner to deposit short paid sales tax amounting to Rs.5,336,298/-. Through the instant petition, said notice has been assailed with the following prayer:--

"In view of the circumstances narrated above, it is humbly prayed that this Honorable Court may be pleased:--

a.To declare the impugned notice dated 06.11.2015 (Annex-B) is illegal, unlawful and not sustainable in the eye of law.

b.To declare the impugned notice dated 06.11.2015 (Annex-B) as coram non judice and non est in law.

c.To restrain the respondents to proceed further in the matter till the final decision of this petition.

d.Any other appropriate relief for which the petitioner is entitled may also be allowed to the petitioner with costs.

2.Learned counsel for petitioner submits that respondent-department was not justified to proceed for the recovery of tax which was not deducted by withholding agent but paid by the person from whom it was required to be deducted by himself through filing of statutory returns. He adds that even otherwise, there is no provision under the law which empowers respondent No.4 to recover the amount which was not deducted/withheld by the petitioner at the time of making payments. Learned counsel has relied upon Yousaf Ali v. Muhammad Aslam Zia and 2 others (PLD 1958 Supreme Court 104), Mian Muhammad Nawaz Sharif v. President of Pakistan and others (PLD 1993 Supreme Court 473), Federation of Pakistan and others v. Shaukat Ali Mian and others (PLD 1999 Supreme Court 1026), National Bank of Pakistan and 117 others v. SAF Textile Mills Ltd. and another (PLD 2014 Supreme Court 283), Province of the Punjab through Collector District Khushab, Jauharabad and others v. Haji Yaqoob Khan and others (2007 SCMR 554), Overseas Pakistanis Foundation and others v. Sqn. Ldr. (Retd.) Syed Mukhtar Ali Shah and another (2007 SCMR 569), Messrs Shah Nawaz Khan and Sons v. Government of N.-W.F.P. and others (2015 SCMR 945), Director, Directorate-General of Intelligence and Investigation and others v. Messrs Al-Faiz Industries (Pvt.) Limited and others 2006 SCMR 129, Messrs Ayesha Textile through Managing Partner v. Deputy Collector (Incharge Audit Division Sales Tax and Central Excise Lahore and 4 others (2005 PTD 2442), Commissioner of Income Tax, Zone-C, Lahore v. Messrs Margalla Textile Mills Ltd., Lahore (2008 PTD 1982), Sui Northern Gas Pipelines v. Deputy Commissioner Inland Revenue and others (2014 PTD 1939), Muhammad Jameel Das (W. Gopal Das) and another v. The Pakistan through Secretary, Ministry of Communication, Government of Pakistan and 2 others (1999 CLC 541), and Messrs Ahmad Traders through Sole Proprietor v. Frontier Works Organization (F.W.O.) Headquarters, Rawalpindi through Director-General and another (2008 CLC 1132).

3.On the other hand, learned counsel for respondents submits that petitioner has not withheld sales tax as required vide Sales Tax Special Procedure (Withholding) Rules, 2007, as amended through various SROs. He adds that as per Rule 1 of the Sales Tax Special Procedure (Withholding) Rules, 2007, petitioner is a withholding agent and as per Rule 2(2)(A), petitioner had to withhold 1/5th of the total sales tax shown in the sales tax invoice issued by the supplier and made balance payment to him. He adds that the impugned proceedings have been initiated strictly in accordance with law.

4.Arguments heard. Record perused.

5.It would be beneficial to reproduce the relevant part of the impugned notice dated 06.11.2015, which reads as under:--

"Subject:-SHORT WITHHOLDING OF SALES TAX AS PER SALES TAX SPECIAL PROCEDURE (WITHHOLDING) RULES, 2007.

The Sales Tax Special Procedure (Withholding) Rules, 2007 were amended through S.R.O. 98 (I)/2013 dated 14.02.2013, S.R.O. 505(I)/2013 dated 12.06.2013, S.R.O. 897(I)/2013 dated 04.10.2013 and S.R.O. 485(I)/2015 dated 30.06.2015. As a consequence of these amendments all companies as defined in the Income Tax Ordinance, 2001, as well as all persons registered as Exporters are required to withhold sales tax on their taxable purchase in the following manner:--

A Withholding agent other than recipient of advertisement services shall deduct an amount equal to one-fifth of the total sales tax shown on sales tax invoices issued by a registered person.

A withholding agent shall deduct an amount equal to one-tenth of the total sales tax shown on the sales tax invoice issued by persons registered as wholesaler, dealer or distributor.

A withholding agent, other then FTN holder, shall on purchase of taxable goods from persons liable to be registered but not actually registered under Chapter I of the Sales Tax Rules, 2006, deduct sales tax at the rate of one percent or seventeen percent of the value of taxable supplies made to him from the payment due to the supplier and the amount of sales tax for the purpose of this rule shall be worked out on the basis of gross value of taxable supply.

2. Whereas, it has been noticed during scrutiny of record available with the department for the months of February, 2013 to August 2015 that you have not withheld sales tax as required vide Sales Tax Special Procedure (Withholding) Rules, 2007 as amended through S.R.O. 98(I)/2013 dated 14.02.2013, S.R.O. 505(I)/2013 dated 12.06.2013, S.R.O. 897(I)/2013 dated 04.10.2013 and S.R.O. 485(I)/2015 dated 30.06.2015, resultantly you have short-paid sales tax amounting to Rs.5,356,298/-. Detail is as under:--

..

3. You are, therefore, directed to deposit the short-paid sales tax along with default surcharge under section 34 and penalty under section 33 of the Sales Tax Act, 1990 by 13.11.2015. In case of failure, action under the Sales Tax Act, 1990 shall be initiated accordingly."

6.Perusal of the above reproduced notice shows that allegedly petitioner failed to withhold sales tax as required by the Sales Tax Special Procedure (Withholding) Rules, 2007, read with the SROs mentioned above. It has been claimed by learned counsel for respondents that petitioner has short-paid sales tax amounting to Rs.5,356,298/- and he, being a withholding agent as per Rule 1 the Sales Tax Special Procedure (Withholding) Rules, 2007, is required to withhold 1/5th of the total sales tax shown in the sales tax invoice issued by the supplier and make balance payment to him as per Rule 2 (2)(A) of the Rules ibid. Reference has also been made to the judgment dated 10.04.2014, passed in W.P. No.19897 of 2013 titled Messrs FMC United (Pvt.) Ltd. v. Federation of Pakistan, etc., wherein it has been observed that withholding agent is liable to deduct and deposit sales tax at specified rate and in such manner as the Federal Government may prescribe. The relevant part of the said judgment is reproduced as under:--

"8. Section 3(7) of the Sales Tax Act authorizes the Federal Government to specify any person or class of person as a withholding agent for the purposes of deduction and deposit of sales tax at a specified rate and in such manner as the Federal Government may prescribe. Section 71 of the Act, which is a non-obstante clause allows for new procedure to be adopted in particular case ."

7.Learned counsel for petitioner has read out the provisions of Rule 4 of the Sales Tax Special Procedure (Withholding) Rules, 2007, and Sections 3 and 11 of the Sales Tax Act, 1990, to claim that the respondent-department is not justified to proceed for recovery of tax within the contemplation of the aforesaid provisions of law, which was not deducted by the withholding agent and no such power is vested with respondent No.4. In support of his contentions, he relied upon Messrs Hirnina and Co. Pakistan Ltd. Karachi v. Commissioner of Sales Tax Central, Karachi (1971 SCMR 128), Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v. Federation of Pakistan and others (2014 PTD 243), The Collector of Sales Tax and others v. Superior Textile Mills Ltd., and others (PLD 2001 Supreme Court 600), Messrs Mandiali Paper Mills Lid. Lahore v. Collector of Central Excise and Sales Tax, Lahore and 2 others (2006 PTD 2429), Inspecting Additional Commissioner of Income-Tax and others v. Messrs MICRO PAK (Pvt.) Limited and others (2002 PTD 877), Commissioner of Income Tax, Zone-C, Lahore v. Messrs Margalla Textile Mills Ltd., Lahore (2008 PTD 1982), and Sui Northern Gas Pipelines v. Deputy Commissioner Inland Revenue and others (2014 PTD 1939). Upon being confronted to show the proof of payment of tax made by petitioner's suppliers as claimed by him, learned counsel for the petitioner has failed to provide proof that the alleged suppliers of the petitioner have discharged their sales tax liability by filing their sales tax returns respectively. Hence, the impugned notice cannot be held to be illegal and without lawful authority, within the contemplation of the law laid down by the superior Courts, referred above by learned counsel for petitioner.

8.It is well-settled that High Court, in Constitutional jurisdiction, cannot go into question involving minute details nor can it decide facts of which either no foundation is laid or otherwise involves disputed questions of facts which necessitates taking of evidence. The questions raised by petitioner through instant petition cannot be resolved without entering into process of inquiry in the present case, which renders the instant writ petition incompetent.

9.Since the petitioner has failed to point out that the impugned notice is illegal, without lawful authority and coram non judice within the contemplation of law laid down by the Hon'ble Supreme Court of Pakistan in the afore-referred judgments, therefore, writ is not maintainable against the impugned notice.

10.Resultantly, this petition is disposed of with the direction to respondent No.4 to decide the impugned notice strictly in accordance with law, after granting an opportunity of hearing to petitioner and all concerned, while considering the questions raised by learned counsel for the parties and decide the same strictly in accordance with law, through a speaking order, within a period of one month from the date of receipt of certified copy of this order, under intimation to the Deputy Registrar (Judl.) of this Court.

MH/E-1/LOrder accordingly.