M/S KPK Text Book Board vs DC

2013 P T D 1651

[Peshawar]

Before Nisar Hussain Khan and Rooh-ul-Amin Khan, JJ

Messrs KHYBER PAKHTUNKHWA TEXT BOOK BOARD, PESHAWAR

Versus

DEPUTY COMMISSIONER IR (E&C) and 2 others

Sales Tax Reference No.11-P of 2013, decided on 13th May, 2013.

Sales Tax Act (VII of 1990)---

----Ss.3, 2(3), 2(46) 13 & Sched.---Constitution of Pakistan, Art. 199---Constitutional petition--- Scope of sales tax---Supplies---Exemptions---"Supply of books", and "printing services"--- Distinction---Exemption available to textbooks did not extend to printing services---Taxpayer was Textbook Board engaged in the publishing and supply of textbooks---Taxpayer was served with a show cause notice on the ground that no sales tax was collected or withheld from printers, and subsequently an assessment order was passed against the taxpayer---Contention of the taxpayer/Textbook Board was that under the provisions of the Sales Tax Act, 1990 newspapers, books, journals, and periodicals were exempted from sales tax, and the process of printing was part and parcel of a book, and was therefore also exempted from sales tax Validity---Process of printing was not excluded from the definitions envisaged in Ss. 2(c), 2(33) and 2(46) of the Sales Tax Act, 1990 and it was evident on record that the Textbook Board was also engaged in the procurement of textbooks from different printers and dealt in purchase of miscellaneous taxable times used in printing and publishing of books---Supply of books and printing services were altogether different functions and S. 3 of the Sales Tax Act, 1990 provided exemption on the supply of books but did not exempt printing services provided by different printers and vendors-- -Any exemption provided to printers under garb of Sixth Schedule to the Sales Tax Act, 1990 would be a sort of amendment in the Act, and the Textbook Board was not vested with the power to extend exemption to a third person, that was the printing service providers---Textbook Board, if had printed textbooks on its own, then it might claim the exemption provided by the Sales Tax Act, 1990----Where the taxpayer Textbook Board paid tax on the purchase of paper from a third party, then printing services, particularly provided by private printers could not be exempted from the levy of tax; and it was an admitted fact that the Textbook Board every year paid a huge amount to the printers on account of only printing services and raw materials which included paper used in printing of books, were provided by the Textbook Board---Supply of books was no doubt exempted from payment of sales tax, however printing services by vendors to the Textbook Board were not exempted and the Textbook Board being a withholding agent was under the legal obligation to withhold/collect the sales tax from the printers---No illegality existed, therefore, in the impugned order---Reference was answered in the negative.

General Order No.3/2004 rel.

Ishtiaq Ahmad for Appellant.

Ghulam Shoaib Jally for Respondent.

Date of hearing: 13th May, 2013.

JUDGMENT

ROOH-UL-AMIN KHAN, J.---Appellant Messrs Khyber Pakhtunkhwa Text Book Board, Hayat Abad, Peshawar has filed instant Sales Tax Reference against the Deputy Commissioner IR (E&C), Inland Revenue, Regional Tax Office Jamrud Road, Peshawar etc. under section 47 of the Sales Tax Act, 1990, challenging the validity and legality of order of the Appellate Tribunal Inland Revenue, on the following questions of law:-

(1)Whether exemption under entry No.32 sixth Schedule of the Sales Tax Act, 1990 (hereinafter called "the Act") is available to a "book" which is the compendium of number of printed or written pages bound together or such exemption is available to a bound compendium of paper pages neither written or printed?

(2)Whether under circumstances of the case taxability under section 3 of the Act, is on supply of goods or on printing?

(3)Whether the printers of newspapers, books, journals, periodicals, currency notes, bank notes, shares, stocks and bonds are enjoying exemption through out Pakistan under sixth Schedule to the Act, if yes whether the appellant has been discriminated?

(4)Whether the provisions of sixth schedule to the Act duly enacted by the parliament shall prevail or the notification or General Order issued by the FBR?

(5)Whether this honourable court has decided the questions of law raised in the Tax Reference No.3-P/2012, if no, whether the Tribunal could reverse its judgment when no such directions were given to the Tribunal?

2.Brief but relevant facts forming the background of instant Reference are that petitioner publishes Text Books through Printers thus is Withholding Agent within the meaning of Sales Tax Act. During the course of audit by the Audit Team, it was observed that no Sales tax was collected/withheld by the petitioner from the Printers w.e.f. 1-7-2009 to 30-6-2010, as such, the petitioner was served with a show cause notice, to which he filed reply. The Taxation Officer,

being unsatisfied from the reply of the petitioner, ordered the amount of Rs.30,220,339 to be recovered from the petitioner, as Sales Tax in terms of S.R.O. 660(I)/2007 dated 30-6-2007 read with sections 11(2) and 36(1) of the Sales Tax Act, 1990, along with penalty at the rate of 5% of the tax involved. Being discontented with the treatment meted out by the Taxation Officer, the petitioner filed an appeal before the CIR(A), who cancelled the impugned order, against which, Commissioner Inland Revenue RTO, Peshawar, filed appeal before the Appellate Tribunal Inland Revenue Peshawar Bench, but the same was dismissed. Respondents filed T.R. No.3 of 2012, before this court which was accepted on 13-11-2012, and the judgment/order dated 20-2- 2012, of the Appellate Tribunal was set aside and the matter was remanded with the direction for decision afresh in light of relevant provisions of law by writing a well speaking order. After remand, the Appellate Tribunal Inland Revenue, Peshawar Bench, vide order dated 28-1-2013, set aside the order of CIR(A) and restored the order of Assessing Officer. Hence, this petition.

3.Arguments of the learned counsel for the parties heard and record perused with their assistance.

4.Record divulges that Khyber Pakhtunkhwa Tax Book Board Peshawar is a statutory body vide N.-W.F.P Text Book Board Ordinance, 1971, and is mainly involved in research in curriculum, Text Books, development, teacher training and arranging workshops for teachers and writers of Text Books, but being withholding Agent within the meaning of Sale Tax Act, did not collect Sales Tax from the Printers w.e.f. 1-7-2009 to 30-6-2010, thus was served with a notice dated 2-4-2001, to the effect that the process of Printing is not included in the exemption provided for Text Books and Syllabus Books. In rebuttal, the petitioner claim the exemption from Sales Tax under S.No. No.32 of Chapter I of Sixth Schedule of the Sales Tax Act, 1990. Section 13 of the Act ibid, provides exemption on supply of goods or imports of goods specified in the section subject to such conditions as may be specified by the Federal Government. S.No.32 of Table 1 of Sixth Schedule of the Sales Tax Act, 1990 provides newspapers, books, journals and periodicals excluding directories of all sorts. The contention of the learned counsel for the petitioner that Printing is part and parcel of the book and without printing the mere bound papers shall not be called as book is unpersuasive. No doubt, the books are exempted from the levy of tax in terms of section 13 read with sixth Schedule of the Sales Tax Act, 1990, but the process of printing is not included in such like exemption. In this respect, a general order bearing No.3 of 2004, which is quite relevant, shall clarify the entire controversy which is reproduced below:--

"Various queries have been raised by taxpayers regarding the chargeability of sales tax and value of taxable supply in cases where raw materials and/or semi-manufactured goods are supplied by the principals to their vendors for further processing. Following clarifications are issued for information and guidance in this regard:--

(i)The first question is whether a vendor providing a "service" e.g. printing, textile processing, corrugation, etc, is a manufacturer or not. The definition of "manufacture" as given in section 2 (16)(c) of the Sales Tax Act, 1990, covers the process and operations of assembling, mixing, cutting, diluting, bottling, packaging, repackaging or preparations of goods in any other manner. A "Manufacturer" is a person who is involved in any of the said processes. Therefore, vendors, by very nature of their job, are manufacturers and liable for registration or enrollment, as the case may be.

(ii)The definition of "supply" in section 2(33) of the Act states that "supply" includes sale, lease or other disposition of goods in the course or furtherance of business carried out for consideration. The supply by such vendor is covered by words "other disposition of goods" and hence is chargeable to sales tax.

(iii)The most important question now is the value on which such vendor shall charge and pay the tax. According to the definition laid down in section 2(46) of the act, "value" is the consideration in money against which the registered person supplies the goods. Therefore, a vendor is required to charge sales tax on the consideration/charges of conversion. If during this "disposition of goods", he has used tax-paid raw materials procured by the vendor himself, tax credit of the same shall be available to the vendor.

(iv)The aforesaid principle will inter alia apply even the cases where goods are chargeable to sales tax on the basis of retail price. The principal will pay tax on the basis of retail price whereas the vendor will be liable to pay tax only or his gross conversion charges.

(v)There is, however, one exception to the foregoing, under section 2(46)(f), in case of processing of non-taxable raw materials, the value of processed goods will be the open market price of finished goods and not the processing charges alone.

(2)All previous instructions/circulars/General orders on the subject may be treated as withdrawn issued by the C.B.R. Islamabad, under the signature of Mr. Akhtar Ali Secretary (STP), vide File C.No.2 (3) STP/96.".

5.The bare reading of the above order depicts the process of printing is not excluded from the definition as envisaged in sections 2 (16)(c), 2(33) and 2(46) of the Sales Tax Act, 1990. It is evident from the record that Text Books Board is not only engaged in supply of Text Books, but also engaged in procurement of Text Books from different Printers and also deals in purchase of miscellaneous taxable items used in printing and publishing books. It is not denied by the learned counsel for the petitioner that the petitioner almost perform the role of withholding Agent and withheld/deposit the due taxes on behalf of the government. It is also not controverted by the learned counsel for the petitioner that the printing of book is not exempted from the tax, but he tried to amalgamate the supply of books and printing services, whereas, the supply of books and Printing services, are altogether two different functions. Section 3 of the Sale Tax Act, 1990 provides exemption on supply of books but never exempt the printing services providing by various Printers/vendors. Any exemption to the Printers server under the garb of S.No.32 of Table 1 of Sixth Schedule of the Sales Tax Act, would be a sort of amendment in section 13 of the Act ibid. The Text Book Board is not vested with the power to extend the exemption to third person i.e. the Printing Server. Had the Text Book Board printed the books from its own sources, it might have claimed exemption provided by S.No. 32 of Table 1 of Sixth Schedule of the Sales Tax Act. The Punjab Text Book Board do not pay tax on printing of the books, because they have their own printing facility and publish the books from their own Printing Press, but the case of Khyber Pakhtunkhwa Printing Press, is otherwise. Above all, the tax on Printing of the books shall be payable by the Printers while the petitioner, being withholding agent, is under legal obligation to withhold and collect tax from the Printers.

6.The argument of the learned counsel for the petitioner that papers, ink, cards and certain other materials are essential ingredients of a book, therefore, these items without any printing, shall not be termed as a book. In the same breath, he admitted that Text Book Board purchase the papers in the open market and supply it to the Printers. It was also admitted that the papers are also not exempted from the Sales Tax and the Board regularly use to pay the tax to the sellers. Where the Board pays tax on purchase of the papers from a third party, how the printing services, particularly provided by private printers can be exempted from the levy of tax. It is admitted fact that the Text Book Board, every year, pay a huge amount to the Printers on account of only printing services and even the raw material i.e. papers used in the printing of books are

also provided by the Board.

7.For what has been discussed above, it can easily be gathered that no doubt, the supply of books is exempted from the payment of sale tax, but printing services by vendors to the Text Book Board, are not exempted from the Sales Tax and the Board being Withholding Agent is under legal obligation to withheld/collect the Sales tax from the Printers.

8.In view of the above, we are of the opinion that impugned order is based on properly material on file and the law on the subject which is not open to interference. Consequently, this reference is answered in negative and stands dismissed.

KMZ/392/P Order accordingly.