Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss. 2(40), 7(2)(i) [as amendment by Finance Act (I of 2003)] & 23‑‑ Adjustment of input tax on basis of tax invoice from a registered or un registered person‑‑‑Scope‑‑‑Qualification of registered or unregistered person was not available under un‑amended S. 7 of Sales Tax Act, 1990‑‑‑Right to seek an adjustment under S.7 of Act, 1991 was independent of provision of S.23 thereof‑‑‑Provision of S.23(2) of Act, 1991, thus, could not be read in S.7 thereof‑‑‑Tax invoice was qualified to be by a registered person after amendment made in S.7(2)(i) of Act, 1990 through Finance Ordinance, 2003‑‑‑Input tax was a species of sales tax, which was paid only once‑‑‑Adjustment of input tax at the time of payment of output tax was co‑related with journey of raw material to finished products‑‑‑Provisions of Sales Tax would be construed strictly to avoid any possibility of double taxation‑‑‑If assessee was not allowed adjustment of output tax against a valid tax invoice showing payment of input tax, then same would lead to double taxation, which was not sustainable under present scheme of Sales Tax Act, 1990.  

Mrs. Farhat Zafar for Appellant.

Farhat Nawaz Lodhi for Respondents.

Date of hearing: 25th February, 2004.

JUDGMENT

MANSOOR AHMAD, J.‑‑‑Collector, of Sales Tax, Rawalpindi filed this tax appeal from the judgment, dated 125th of April, 2002 passed by Customs, Central Excise and Sales Tax, Appellate Bench, Islamabad.

2. Messrs Islamabad Feeds, Rawalpindi the respondent, adjusted a sum of Rs.7,15,956 against an output tax pertaining to the period December, 1996 to March, 1997. It was discovered by the Sales Tax Authorities that Messrs Islamabad Fees procured raw material from Messrs Muddassar Traders, Islamabad who was not registered persons within the scope of Sales Tax Act, 1990 and thus was not empowered to issue any tax invoices. A Show‑Cause Notice No. ST/Adj/15/97/3522‑24, dated 28‑7‑1997 was issued to Messrs Islamabad Feeds Rawalpindi by Additional Collector (Adj) wherein it was pointed out that the respondents adjustment for the sum of Rs.7,15,956.00 was inadmissible as the tax invoice was issued by Muddassar Traders, Islamabad who was not registered with Sales Tax Department and was not empowered to issue Sales tax invoices or replacement invoices as per Sales Tax Act, 1990. Reply was submitted by respondent but it was found unsatisfactory and the Additional Collector vide its Order‑in -Original No. 68 of 1998, dated 10‑12‑1998, directed the respondent to pay sales tax equal to Rs.715,956. Also additional tax under section 34 of the sales tax was levied and a penalty equal to 5% of the principal amount was imposed.

3. The appeal was filed by respondent‑Company assailing the Order‑in‑Original before the Customs Central Excise and Sales Tax Appellate Tribunal Islamabad. Vide judgment, dated 22‑4‑2002, the appeal was accepted and the respondent was found entitled to adjustment of the input tax. Department has filed the present appeal from the order of the Tribunal.

4. The question of law raised by the Department is that whether the respondent was entitled to adjustment in terms of section 7(2) read with section 23 sub‑clause (2) of Sales Tax Act 1990. To appreciate this question some relevant facts are that Rafhan C.P.C which is a registered person within the ambit of Sales Tax Act supplied feed to Muddassar. Traders. On this taxable supply Messrs Rafhan C.P.C.,paid input tax of Rs.7,15,956. Messrs Rafhan C.P.C. made the taxable supply to Messrs Muddassar Traders, their agent from whom respondent acquired the feed through cash memo alongwith tax invoice pertaining to Refhan C.P.C. and on the basis of that tax invoice adjusted input tax paid. It is not a case of the department that tax invoice although standing. in the name of Messrs Rafhan C.P.C. did not relate to the relevant taxable supply. The view point of the department is that Messrs Rafhan C.P.C. after having made supply to Messrs Muddassar Traders have gone out of the picture and as the supplier qua the respondent‑Company was by Messrs Muddassar Traders, who was not a registered person, therefore; adjustment of the input tax on the basis of taxable supply could not be made. Relevant provision of the Sales Tax Act in this behalf would be section 7 and 23 which are reproduced as under:‑‑

"(7) Determination of tax liability.‑‑‑(1) For the purpose of determining the tax liability in respect of taxable supplies made during a tax period a registered person shall subject to the provisions of section 73, be entitled to deducted input tax paid during the tax period for the purpose of taxable supplies made, or to be made, by him from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9.

(2) a registered person shall not be entitled to deduct input tax from output tax unless,‑‑

(i) In case of a claim for input tax in respect of a taxable supply made in Pakistan, he holds a tax invoice in respect of such supply for which a return is furnished;

(ii) In case of goods imported into Pakistan, he holds the bill of entry duly cleared by the customs under section 79 of section 104A of the Customs, 1969 (IV of 1969);

(iii) In case of goods purchased in auction, he holds a treasury challan showing payment of sales tax;

(iv) ***"

"(23) Tax Invoices.‑‑‑(1) A registered person making a taxable supply, shall issue a serially numbered tax invoice at the tine of supply of goods containing the following particulars, namely:‑‑

(a) name, address and registration number of the suppliers;

(b) name, address and registration number of the recipient;

(c) dame of issue of the invoice;

(d) description and quantity of goods;

(e) value exclusive of tax;

(f) amount of sale's tax; and

(ff) amount of sales tax as specified in subsection (1A) of section 3;

(g) value inclusive of tax:

Provided that the Board may, by notification in the official Gazette, specify such modified invoices (***) for different persons or classes of persons:

Provided further that not more than one tax invoice shall be issued for a taxable supply.

(2) No person other than a registered or a person paying turnover tax (or retail tax) shall issue an invoice under this section:"

5. Relevant feature of the case is that the provision of section 7 supra were amended through Finance Ordinance 2003 and relevant amendment is reproduced:‑‑

"(b) in subsection (2),

(i) in clause (i),‑‑

(a) the words "in Pakistan" shall be omitted; and

(b) after the words, "invoice", the words "in his name and bearing his registration number", shall be inserted"

6. We have considered the arguments at the bar and found that under the provision of section 7(2)(1) the adjustment of input tax was permissible on the basis of tax invoice. It was not provided that the tax invoice should be from a registered person. The tax invoice is a document which is described in section 2 read with section 23 and it is a document which reflect the payment of input tax also enumerating the name of the registered person, the period and other particulars. It is true that a person unregistered with Sales Tax Department was not empowered to issue any tax invoice but in the instant case the question is not whether the tax invoice was issued by an authorized person but the question is whether on the basis of a tax invoice showing the payment of input tax by Messrs Rafhan C.P.C. the respondent who have acquired the feed through a middle trader, which happens to be an unregistered person would be precluded to claim the adjustment, under the provision of section 7(2). Answer to this question is that adjustment is to be claimed on the basis of a tax invoice relating to a taxable supply the holder thereof may be a registered or unregistered person. The object appears to be that taxable supply showing the payment of input tax would be document required for claiming adjustment. Phraseology of section 7(2)(1) provided a. wide leverage and predicating the same with qualification of registered or unregistered person was not available under unamended section 7. The right to seek an adjustment under section 7 was independent of the provision of section 23, therefore, provision of sub‑clause 2 of section 23 could not be read in section 7. It was after the Finance Ordinance, 2003, that the tax invoice is qualified to be by a registered persons. Input tax is a species of sales Tax and it is paid only once. The adjustment of the input tax at the time of payment of output tax is co‑related with the journey of raw material to the finished products. The provisions of the Sales Tax have to be construed strictly to avoid any possibility of double taxation. In case against a valid tax invoice showing the payment of input tax if the respondent is not allowed adjustment of output tax, it would lead to double taxation which is not sustainable under the present scheme of Sales Tax Act 1990.

7. Accordingly, we do not find any substance in the appeal filed by the Revenue and the same is dismissed.

S.A.K./C‑10/L Appeal dismissed.