FLYING CEMENT COMPANY LTD. VS APPELLATE TRIBUNAL INLAND REVENUE, 2017 PTD-LAHORE-HIGH-COURT-LAHORE 627 (2016)

(a) Interpretation of statutes---

----Fiscal law---Machinery provision---Scope---Machinery provision is to be construed liberally for achieving purpose of statute.

Deans Associates (Pvt.) Limited v. Inspecting Additional Commissioner of Income-Tax, Range No.1, Company Zone I, Lahore 2002 PTD 441; Commissioner of Income-Tax and Wealth Tax, Sialkot Zone Sialkot v. Messrs Thapur (Pvt.) Sialkot 2002 PTD 2112 and L.T-Col. Nawabzada Muhammad Amir Khan v. The Controller of Estate Duty and others PLD 1961 SC 119 rel.

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

----Ss. 2 (46) (b), 9 & 47---Reference---Commission on sales---Trade discount---Scope---Grievance of applicant company was that after issuance of sale invoice in respect of supplies some adjustments of commission was paid subsequently through 'debit credit note'---Validity---After issuance of tax invoice, events permissible under law were dealt with under S. 9 of Sales Tax Act, 1990---Applicant was registered person who paid commission on achieving given target of sale/purchase by recipient of supplies and the same was not known at the time of issuing invoice---Trade discount, as envisaged in S.2(46)(b) of Sales Tax Act, 1990, was different in nature from commission assertively paid by applicant and it was to be determined whether commission paid after issuance of invoice was permissible under law---Such aspect was not delineated upon by Appellate Tribunal Inland Revenue, therefore, matter was remanded to the Tribunal for determination, keeping in view the interpretation of S. 9 of Sales Tax Act, 1990---High Court answered the question in negative which was in favour of the applicant---Case was remanded in circumstances.

Rana Muhammad Afzal for Applicant.

Sarfraz Ahmad Cheema for Respondents.

Date of hearing: 7th September, 2016.

JUDGMENT

SHAHID JAMIL KHAN, J.--Following question of law is pressed and argued before us, from amongst the questions proposed for our opinion, which is arising out of order dated 03.11.2010 passed by Appellate Tribunal Inland Revenue ("Appellate Tribunal"):--

"Whether in the facts and circumstances of the case, the learned Appellate Tribunal was justified to hold that the case of the applicant does not fall within the scope of sub-clause (b) of Section 2(46) and Section 9 of the Sales Tax Act, 1990?"

2.Brief facts of the case are that the applicant registered person, after issuance of invoices, in respect of supplies made for the tax period 2005-06, made some adjustments, of the commission paid subsequently, through 'debit credit note' while filing monthly sales tax returns. The adjustments so made were confronted to be against the law vide show cause notice, which resulted into an order-in-original. Being unsuccessful before the first appellate authority, the applicant registered person filed appeal before the Appellate Tribunal. The second appeal was also dismissed and decisions given by both the authorities were upheld. The judgment by Appellate Tribunal is assailed through this tax reference.

3.Learned counsel for the applicant, by referring to operative part of Appellate Tribunal's order, submits that the interpretation of Section 9 of the Sales Tax Act, 1990 ("Act"), under which the adjustments were made through debit credit note, is against the spirit and clear language of the provision.

4.Learned counsel for the respondents department has opposed the submissions and argues that the adjustments of the commission paid are against the spirit of Section 2(46)(b) of the Act, wherein "value of supply" is defined. By reading the definition, he submits that value of the supplies could not have been changed on the basis of commission paid after issuance of invoices.

5.Heard, record perused.

6.Before answering the question, it would be appropriate if operative part from Appellate Tribunal's order is reproduced for ease of reference:--

"4. The submissions advanced by both the parties have been heard and the relevant orders perused. It has been noticed that as per sub-clause (b) of Section 2 (46) of the Act, 'value of supply' means

"in case of trade discounts, the discounted price excluding the amount of tax; provided the tax invoice shows the discounted price and the related tax and the discount allowed is in conformity with the normal business practices".

Section 9 of the Act stipulates that

"9. Debit and credit note.---Where a registered person has issued a tax invoice in respect of a supply made by him and as a result of cancellation of supply or return of goods or a change in the nature of supply or change in the value of the supply or some such event the amount shown in the tax invoice or the return needs to be modified, the registered person may, subject to such conditions and limitations as the Board may impose, issue a debit or credit note and make corresponding adjustment against output tax in the return."

5. Plain reading of sub-clause (b) of Section 2 (46) of the Act indicates that there are following conditions for admissibility of trade discounts:

(i) the tax invoice shows the discounted price and the related tax; and

(ii) the discount allowed is in conformity with the normal business practices.

There is noting on record to prove that the tax invoices issued by the registered person show the discounted price and the related tax.

Decision with regard to value of supply is taken before making a taxable supply and that is the reason for incorporating these provisos which made the transaction transparent and untainted. Tax invoices issued by a registered person at the time of supply of goods under Section 23 of the Act are serially numbered containing various particulars which, inter alia, include value inclusive of tax. These details are also reflected in Sales Tax Records maintained under Section 22 of the Act. Section 9 of the Act follows the journey and events after issuing a tax invoice and making of a taxable supply till receipt of goods by the recipient. Though the registered person is authorized under section 9 of the Act to issue a debt and credit note or to make corresponding adjustment against output tax in the return but under the following situations:

(i) Cancellation of supply; or

(ii) Return of goods; or

(iii) A charge in the nature of supply; or

(iv) Change in the value of supply; or

(v) Some such event.

In the instant case none of the above situations are covered. Change in the value of the supply did not take place as a result cancellation of supply or return of goods or a change in the nature of supply or by some such event between the journey of the goods from the suppliers to the recipients. Hence making adjustment and issuing of a debit or credit note under Section 9 of the Act on the basis of trade discounts subsequent to the supply is neither lawful nor legally covered.

6. In view of the above, we are of the view that conditions of sub-clause (b) of Section 2 (46) of the Act is required to be fulfilled at the time of making taxable supply and issuing of tax invoices which have not been done. The appellant is, therefore, not authorized under the law to invoke these provisions on the basis of Section 9 of the Act after making of taxable supply. The appeal fails and is dismissed accordingly."

7.Provisions of Section 9 of the Act allow the registered person to make corresponding adjustments against output tax, after issuance of invoice, by writing a "debit and credit note" with monthly return in case of:--

(i)Cancellation of supply; or

(ii)Return of goods; or

(iii)A change in the nature of supply; or

(iv)Change in the value of supply; and

(v)Some such event

Section 9 deals with situation after issuance of tax invoice by the supplier, if particulars of an invoice, as enumerated under Section 23, are changed due to any one of the five eventualities, ibid. Out of the five eventualities, 'cancellation of supply' and 'return of goods' are clearly understandable events for invoking the provisions of Section 9. However, for remaining two eventualities i.e., 'change in the nature of supply' and 'change in value of supply', the events are not specified. In other words change in value or nature of supply can be for more than one reason, therefore, these eventualities cannot be given restricted meanings. The fifth eventuality, 'some such events', is inclusive and general in nature, which has to be extensively interpreted on touchstone of ejusdem generis doctrine. Nevertheless, the events of change in particulars of an invoice have to be permissible under the law of Sales Tax.

8.It is settled principle for interpreting a Fiscal Statute that a machinery provision is to be construed library for achieving the purpose of statute. Reference can be made to the judgments by a Single and Division Bench of this Court reported as Deans Associates (Pvt.) Limited v. Inspecting Additional Commissioner of Income-Tax, Range No.1, Company Zone I, Lahore (2002 PTD 441) and Commissioner of Income-Tax and Wealth Tax, Sialkot Zone Sialkot v. Messrs Thapur (Pvt.) Sialkot (2002 PTD 2112). In L.T-Col. Nawabzada Muhammad Amir Khan v. The Controller of Estate Duty and others (PLD 1961 SC 119), the Supreme Court of Pakistan re-enunciated this principle of interpretation in following words:--

"Stress was laid during argument on the rule that statutes imposing taxes should be strictly construed. Any effort to invoke the aid of this rule in the present case is misconceived. There is a distinction between provisions which impose taxes and those which provide for the machinery by which tax is assessed and realized. The provisions relating to imposition of tax are to be strictly construed in favour of the subject so that if there be any substantial doubt it has to be resolved in his favour. But the machinery sections are to be liberally construed. If the incidence of tax be clear the machinery sections should be so construed as to make the realization of the proper tax possible. They should not be so construed as to defeat the intention of the legislature and to prevent the realization of the tax that is in fact due. The distinction stated above was recognised by the Federal Court of Pakistan in Khan Bahadur Amiruddin and others v. West Punjab Province (PLD1956 FC 120), where the learned Judges while dealing with a case under the Punjab Immovable Property Tax Act said:

"The Act in question is no doubt a Taxing Act and unless the liability to be taxed is clear the interpretation should be in favour of the subject. But no question of interpretation arises regarding section 3, which, in unambiguous terms, determines the liability of the lands to be taxed. The provisions that have to be interpreted are those relating to the machinery of the assessment and in respect of such provisions of a taxing Act the Privy Council in Income-tax Commissioner v. Mahabi Ramjidas AIR 1940 PC 124, observed that that construction should be preferred which makes the machinery workable."

9.Appellate Tribunal's decision, supra, shows that it was swayed by definition of the "value of supply" as given in section 2(46)(b), which deals only with 'trade discount' known at the time of issuing an invoice. Whereas change in value of supply is one of the eventualities, mentioned in Section 9. It needs to be reiterated that provision of Section 9 deals with events, permissible under law, after issuance of tax invoice. Applicant registered person's case appears to be that the commission was paid on achieving a given target of sale/purchase by the recipient of the supplies, which was not known at the time of issuing invoice.

10.As it is observed, hereinabove, that the trade discount, as envisaged in section 2(46)(b) is different in nature from the commission assertively paid in this case, yet it is to be determined, whether the commission paid after issuance of invoice was permissible under the law. Admittedly, this aspect was not delineated upon by the Appellate Tribunal, therefore, the case has to be remanded for the determination, keeping in view our opinion and interpretation of section 9.

11.Our answer to the question of law, supra, is in Negative i.e., in favour of the applicant registered person

12.Impugned order dated 03.11.2010 is set aside and matter is remanded to Appellate Tribunal.

Reference Application is disposed of accordingly.

13.Office shall send a copy of this judgment under seal of the Court to the Appellate Tribunal as per section 47(5) of the Sales Tax Act, 1990.

MH/F-24/L Case remanded.