COMMISSIONER INLAND REVENUE, (PESHAWAR ZONE), REGIONAL TAX OFFICE, PESHAWAR Versus SULTANI TEA AND FOOD COMPANY, PESHAWAR
SYED ARSHAD ALI, J.--- This Sales Tax Reference has been filed by the petitioner-department under Section 47 of the Sales Tax Act, 1990 ("the Act") , seeking the advice of this Court on the questions of law framed in the memo. of reference, allegedly arising out of the order dated 08.09.2021 passed by the learned Appellate Tribunal Inland Revenue, Islamabad ("the Tribunal") , whereby the respondent's appeal was accepted and the orders of both fora below were annulled.
2. According to the respondent, it is engaged in the business of tea, mobile accessories, wristwatches, bottles, and other goods, which it sells to consumers. The present issue arises from the sales tax audit of the respondent for the tax year 2016,2017, during which it was observed that the registered person had imported various items, including green tea, mobile phone accessories, wristwatches, and bottles. It declared sales amounting to Rs. 24,389,000/- to unregistered consumers but failed to charge further tax at the rate of 2% under Section 3(1A) of the Act, read with SRO 648(I)/2013 dated 09.07.2013. A show-cause notice was issued, confronting the respondent with this allegation and demanding the additional tax under Section 3(1A) of the Act.
3. The respondent partly contested the show-cause notice with respect to the sale of green tea, while agreeing to pay further tax on the sale of mobile accessories. Regarding green tea, the respondent contended that it is a Third Schedule item, and all requirements applicable to such items had been fulfilled. Specifically, the respondent argued that it had separately mentioned the retail price and GST rate of 17% on the packaging, which was prepared under its registered trademark "Yashfeen Green Tea."
Opinion of the Assessing Officer
4. The Assessing Officer rejected the defence/claim of the respondent on the ground that it had made bulk supplies to unregistered persons, as evident from the invoices, and since it was not registered as a retailer, the respondent was not exempt from the levy of further tax. Accordingly, the Assessing Officer confirmed the allegations in the show-cause notice and held the respondent liable for recovery of further tax amounting to Rs. 487,780/-, along with penalty and default surcharge, vide assessment order dated 07.09.2018 ("assessment order"). On first appeal, the assessment order was upheld vide order dated 17.01.2019. However, on further appeal before the learned Tribunal, both orders were annulled on the ground that the sale of tea falls under the Third Schedule of the Act, and therefore, the Tribunal ordered the deletion of both orders vide order dated 08.09.2021.
5. The department has filed the instant Sales Tax Reference whereby the following notable questions of law have been framed for adjudication:
A. Whether prior to insertion the expression "Import of goods" in section 3(2)(a) of the Sales Tax Act, 1990, the import of goods were exempt from the payment of "Further Tax under S. No. 6 of SRO 648(I)/2013 dated 09/07/2013?
B. Whether the learned ATIR was justified to treat the taxpayer as manufacturer without conducting any inquiry although the taxpayer is registered with the sales tax department under the head "Personal service activities/others"?
C. Whether the learned ATIR has not erred in law by ignoring the insertion of expression "Import of goods" in section 3(2)(a) of the Sales Tax Act, 1990 with effect from July, 2019?
D. Whether prior to implementation of Finance Act, 2019, the import of goods were chargeable to sales tax at the rate of seventeen per cent of their retail price as specified in Third Schedule?
Opinion of this Court
6. Sales tax is an indirect tax charged under Section 3 of the Act, which provides that, subject to the provisions of the Act, a tax known as sales tax shall be charged, levied, and paid at the rate of 17% (at the relevant time) on all taxable supplies made by a registered person in the course of furtherance of any taxable activity carried on by him, as well as on goods imported into Pakistan, irrespective of their final destination within the territories of Pakistan. The liability to pay sales tax rests with the person making taxable supplies, subject to the mechanism provided under Section 7 of the Act.
7. Section 3(1A) of the Act was initially inserted through the Finance Act, 1998, and has since undergone various amendments. It envisages that where taxable supplies are made to a person who has not obtained registration, a further tax at the rate of 2% of the value shall be charged, levied, and paid in addition to the rate specified in subsections (1), (1B), (2), (5), and (6) of Sections 3 and 4 of the Act. Section 3(1A), per se, does not impose an additional liability upon the registered person; rather, it requires the registered person to ensure that supplies are made within the supply chain to registered persons.
8. Through a proviso to Section 3(1A), the Federal Government is authorized to specify taxable supplies in respect of which further tax shall not be charged, levied or paid, by issuing a notification in the official gazette. In the present case, it is admitted that the respondent is engaged in the sale of tea. The Federal Government, through S.R.O. 648(I)/2013 dated 09.07.2013, described six categories of goods in respect of which further tax shall not be charged on taxable supplies. For ease of reference, the said SRO is reproduced below:-
Islamabad the 9th July 2013
NOTIFICATION (SALES TAX)
S.R.O. 648(T)/2013.- In exercise of the powers conferred by the proviso to subsection (1A) of section 3 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that further tax at the rate of one percent shall not be charged, levied or paid on the taxable supplies mentioned in column (2) of the Table below namely:-
1 ..
2 ..
3 ..
4 ..
5 ..
6. Items falling in the Third Schedule to the Sales Tax Act, 1990.
The Third Schedule
S. No.
Description
Respective sub-headings Respective sub-headings of 09.02
14.
Tea
10. Unlike Section 3(1) of the Act, which envisages the imposition of tax on the value of goods, certain goods are identified in the Third Schedule in terms of subsection (2)(a) of Section 3, which reads as follows:-
(a) taxable supplies and import of goods specified in the Third Schedule shall be charged to tax at the rate of eighteen per cent of the retail price or in case such supplies or imports are also specified in the Eighth Schedule, at the rates specified therein and the retail price thereof along with the amount of sales tax shall be legibly, prominently and indelibly printed or embossed by the manufacturer, or the importer, in case of imported goods, on each article, packet, container, package, cover or lebel, as the case may be:
Provided that the Federal Government may, subject to such conditions and restrictions as it may impose, by notification in the official Gazette, declare that the tax on goods specified in the Third Schedule shall be collected and paid at such higher rate or rates on the retail price thereof, as may be specified in the said notification:
Provided further that the Board, may, by notification In the official Gazette, exclude, any taxable supply or import from the said Schedule or include any taxable supply or import therein.
11. The items mentioned in the Third Schedule, which are generally consumable goods, are subject to a fixed charge at the rate of 17% (at the relevant time, now 18%) of the retail price. This retail price must be legibly, prominently, and indelibly printed or embossed by the manufacturer on each article, packet, container, package, cover, or label, as the case may be. Prior to the Finance Act, 2019, taxable supplies in Pakistan, as provided in the Third Schedule, were subject only to the fixed rate of tax; however, through the Finance Act, 2019, "import of goods" was also included in the Third Schedule. Tea (sub-heading 09.02) is one of the items listed, appearing at Serial No. 14 of the Third Schedule.
12. It is the case of the Revenue that, since the respondent deals in the import of tea- and the words "import of goods" were inserted through the Finance Act, 2019, therefore, prior to the Finance Act, 2019, the import of tea did not fall within the ambit of the Third Schedule, and thus, SRO 648(I)/2013 dated 09.07.2013 was not applicable. However, this contention of the Revenue does not impress us for the reason that, undisputedly, the respondent not only imports tea but, as asserted by the respondent, the imported tea is packed in one-kilogram packets, with the retail price embossed/printed on the packets, and thereafter sold in the market. Thus, the respondent undertakes both activities: import of goods as well as making taxable supplies. A "taxable supply" has been defined under Section 2(41) of the Act, which reads as follows:- "taxable supply" means a supply of taxable goods made by an importer, manufacturer, wholesale; (including dealer), distributor or retailer other than a supply of goods which is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent under section 4.
13. Therefore, any taxable supplies made by the importer of goods described in the Third Schedule are exempt from the imposition of further tax under SRO 648(I)/2013 dated 09.07.2013. The insertion of "import of goods" in Section 3(2)(a) of the Act, in the present case, is of no significance, as the respondent, as stated above, also deals in the supply of Third Schedule items. Accordingly, the opinion rendered by the learned Tribunal is not open to exception. The Sales Tax Reference is answered in the negative. A copy of this judgment shall be sent to the learned Tribunal in terms of Section 47(5) of the Act.
MQ/79/P Reference dismissed.