DIGRI SUGAR MILLS LTD., KARACHI VS ADDITIONAL COLLECTOR OF CUSTOMS, SALES TAX AND CENTRAL EXCISE (ADJUDICATION), HYDERABAD, 2008 PTD-KARACHI-HIGH-COURT-SINDH 1673 (2008)

(a) Sales tax---

----Amendment made in Sales Tax Act, 1990 would be presumed to be in the notice of Sales Tax Department particularly performing on adjudication side.

(b) Sales Tax Act (VII of 1990)---

----Ss. 2(25) & 3(1-A) (as omitted by Finance Act (II of 2004)---Taxation supply to a person liable to be registered---Liability of supplier to pay further tax under S.3(1-A) of Sales Tax Act, 1990---Scope---Person liable to be registered would be deemed by virtue of S. 2(25) of Sales Tax Act, 1990 to be a registered person not liable to pay further tax even before omission of S.3(1-A) thereof by Finance Act, 2004.

Ms. Danish Zuberi for Applicant.

Shaukat Ali Qureshi for Respondents.

Date of hearing: 8th May, 2008.

JUDGMENT

MRS. YASMIN ABBASEY, J.---The question involved in the present case is that whether the supplier has to pay further tax under section 3(1-A) of Sales Tax Act, 1990 if he supplies the taxable goods to unregistered persons.

The facts of the case which cropped up the issue are that on 21-7-2007 applicant Messrs Digri Sugar Mills, who is dealing with the sugar business received a show-cause notice that he has short paid the amount of further tax on their taxable supplies made to unregistered persons.

In reply thereto applicant has categorically denied to have supplied the taxable items to an unregistered person or who were not liable to be registered. It is stated by them that they had made taxable supplies to the persons, who were either registered or liable to be registered under the Act of 1990, therefore, cannot be held liable to pay further tax under Sales Tax Act, 1990.

Elaborating the same issue, during the course of arguments. Ms. Danish Zuberi, learned counsel for applicant argued that by virtue of section 2(25) of the Sales Tax Act a person, who is liable to be registered is deemed to be a registered person, therefore, for the supplies made by them to the registered persons or the persons liable to be registered, they cannot be held responsible for payment of further tax. The fact that applicant has not made any supplies out of the two categories specified under subsection (25) of section 2 neither has been specifically denied in the order-in-original nor the impugned judgment had made any observations thereto.

Apart from it the vires of inserting section 3(1-A) in Sales Tax Act, by amendment through Finance Act, 1999 were challenged before the Peshawar High Court and it was observed therein that:---

"The amendment brought by Finance Act, 1990 whereby clause (c) of subsection (2) in section 3(1-A) of Sales Tax Act, 1990 was inserted, is declared to be unconstitutional, being discriminatory and imposing a penalty under the garb of taxation, and further being ultra vires of the very scheme of taxation laid down in the Act. The amendment is, therefore, not enforceable against the petitioners. There shall be no order as to costs."

In consequences thereof by Finance Act, 2004 (II of 2004), dated 30-6-2004 section 3(1-A) was omitted but this fact has been overlooked by the learned Tribunal while deciding the matter even after this amendment on 30-11-2006. Therefore, even otherwise when the very provision has been declared unconstitutional, to charge the applicant on a wrong footing is a clear defiance of the order of the Peshawar High Court and so also the amendment made in the Act. It is also pertinent to note that even the show-cause notice of 21-7-2004 is subsequent to that amendment and being a Government functionary it is assumed that the officials of Sales Tax Department particularly performing on the adjudication side should have notice of the amendment made in the Act. In spite of that initiating proceedings for recovery under an omitted provision, by the Sales Tax Department against the applicant will be deemed to be mala fide practice.

Even otherwise if the omitted subsection is read then also there is no ambiguity in the words and language of the enactment as omitted subsection (1-A) of section 3 clearly specifies that "if the taxable supplies are made to person other than a registered person, there shall be charged, levied and paid a further tax at the rate of 3% of the value." So if subsection (IA) is read in collaboration with section 2(25) of the Act a person liable to be registered will be deemed to be a registered person not liable to pay further tax even before its omission.

In view of the foregoing reasons, we hereby set aside the impugned order of Tribunal and allow the Reference Application of the Applicant.

S.A.K./D-18/KReference accepted.