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ISLAMABAD: The Appellate Tribunal Inland Revenue (ATIR) has declared that the purchases made from the persons located in erstwhile Federally Administered Tribal Areas (Fata) and the Provincially Administered Tribal Areas (Pata) and carrying their business in such areas not liable to pay sales tax because of non-extension of the Sales Tax Act, 1990, in the said areas.

According to a recent order of the ATIR in the matter of a steel re-rolling mill, the tribunal has ruled that it is evident that the Sales Tax Act has not been extended to the Fata or the Pata; therefore, none of the provisions of the Act is applicable. Thus, the question of withholding of tax does not arise against a person who is located in the Fata or the Pata and carrying on his business only in such areas.

The ATIR has issued the order in favour of the taxpayer company and against the assessing officer of the Commissioner Inland Revenue Corporate Zone, RTO, Peshawar.

During the audit of the said re rolling mill for the tax periods from 2014 to 2016 and 2018, it has been observed that the unit has made domestic purchases of the goods from unregistered persons.

Being a company (withholding agent) as per Sales Tax Special Procedure (withholding) Rules, 2007, the appellant was required to withhold/deduct and deposit one percent withholding sales tax on the value of taxable purchases made. Later, the assessing officer of the RTO, Peshawar, passed the assessment order, which was challenged by the unit before the ATIR. Now, the ATIR come to the main controversy, it has been alleged by the respondent department (Commissioner Inland Revenue Corporate Zone RTO Peshawar) that the mill did not withhold the sales tax on local raw material i.e. purchases, while making payment to the recipient. The settled law is that the Sales Tax Act has not been extended either to the Fata or the Pata within the meanings of Article 247(3) of the Constitution.

There are a number of authorities of the superior Courts, on the point, that when a law is not extended to a tribal area through notification by the president or the governor, as the case may be, in the manner required by Article 247(3) of the Constitution, then no law or Act of the National Assembly or the provincial assembly could legally be stated to have been extended to such areas.

The purchases made from the persons located in the Fata/Pata, and carrying their business in such areas not liable to pay sales tax because of non-extension of the Act in the said areas.

Therefore, the findings of the lower authorities that the appellant had allegedly committed a default in non-deduction/withholding of tax on the purchases made from the person located in Fata/Pata are in direct conflict with the provisions of Article 247(3) of the Constitution of Islamic Republic of Pakistan, 1973.

Since the Sales Tax Act has not been extended to tribal area, the appellant is not obliged to deduct tax from the purchases made from the person located in the Fata/Pata, the tribunal order added.

The Tribunal added that by giving self-contradictory findings by the same assessing officer on the same and an identical issue under both the statute, ie, the Ordinance and the Act, is not appreciated and not acceptable by any stretch of imagination.

The Commissioner Inland Revenue (Appeals) also without considering this fact has rejected the appeal of the appellant and confirmed the treatment accorded by the assessing officer.

Expressing serious concern over the performance of the tax department and Commissioner Appeals, the ATIR regretted that, "The conduct of both the authorities amounts to clear judicial indiscipline and irresponsible exercise of adjudication function. Such exercise of adjudication powers, if allowed to go unchecked, would lead to collapse of entire dispute resolution mechanism".

Such adjudication orders burden not only the taxpayer who has to incur avoidable expenses on challenging such order before the Courts/Tribunal, but also impose clearly avoidable costs for the government, as the Tribunals'/Courts' valuable time is also consumed in hearing appeals against such clearly erroneous and in disciplined orders, which should never have been passed, it added.

Copyright Business Recorder, 2021

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