ZAHID SIKANDAR, JUDICIAL MEMBER:---.---

The appellant, SNGPL, inter alia has thrown challenge against orders of the taxing as well as appellate authority whereby sales tax was held chargeable on supplies made by the appellant to SWAT area during period July 2019 to December 2022 and accordingly sales tax amount of Rs.2,944,976,216/-, Further Tax at Rs.519,701,685/- and Extra Tax at Rs. 1,895,953,036/- was ordered to be recovered from the appellant along with default surcharge and penalty of Rs.268,031,547/-.

FACTS/BACKGROUND OF THE CASE:

2. Messrs Sui Northern Gas Pipe Lines Ltd. (herein after referred as ‘the registered person’ is engaged in transmission and distribution of Natural Gas to domestic, commercial and industrial consumers. Upon scrutiny of sales tax returns of the registered person for period involving July 2019 :o December 2022 it revealed that the appellant is availing exemption under Sixth Schedule Table I, Sr.No. 151(a) of Sales Tax Act, 1990 contrary to the law as exemption is available from sales tax on goods produced and supplied by industrial units located in certain erstwhile FATA/PATA. Accordingly, Show-Cause Notice vide C.No.6632 dated 12.04.2023 was issued to the registered person by the OIR confronting the observed discrepancy with the intention to recover Sales Tax, Further Tax and Extra Tax amounting to Rs.2,944.976,216/-, Rs.519,701,685/- and Rs. 1,895,953,036/- under section 11(2) along with default surcharge and penalty for the stated default. Matter was duly contested by the registered person by filing reply and raising various objections. It was mainly asserted that supplies of Natural Gas made by the company in the erstwhile FATA/PATA area are duly covered by Sr.No. 151 of Table-I of Sixth Schedule of STA, 1990. Further, non-application of sales tax on supply of gas in Swat has also been confirmed by superior courts. The said reply was rejected and the OIR vide order dated 25.08.2023 ordered recovery of the confronted amount of Sales Tax, Further Tax and Extra Tax along with default surcharge and penalty.

3. The aforesaid order-in-original was assailed in appeal before the CIR (A) but that did not bring any fruitful result for the registered person. The CIR(A) confirmed the charge of tax by endorsing the observations given by the assessing officer that exemption of sales tax in such territories is only available to the supplies made within the Tribal areas as per section Sr.No. 151 of Table-I of Sixth Schedule of STA, 1990 and the appellant is not entitled to avail exemption. This has brought the registered person before the tribunal through this appeal.

APPELLANT’S SUBMISSIONS:

4. Mr. Hassan Akhtar, Adv, the learned representative of the appellant initially briefed the history of insertion of Sr.No. 151 and insertion/rescindment of various SROs 888, 889 and 890(I)/2018 after the commencement of the Constitution (Twenty-Fifth Amendment) Act whereby the Federal Government granted exemption from sales tax on certain supplies. It is contended that supplies made by SNGPL in the erstwhile tribal areas during tax periods July 2019 to December 2022 were exempt from sales tax by virtue of Sr.No. 151 of Table-I of the Sixth Schedule to the Sales Tax Act, 1990. It is argued that Sr.No. 151 covers supplies made till 30.06.2024, to which the provisions of the Act or the notifications issued thereunder, and would have not applied Had Article 247 of the Constitution not been omitted under the Constitution (Twenty Fifth Amendment). According to the learned counsel, Sr. No. 151 restored the legal position existing prior to the commencement of the Constitutional amendment ibid and granted exemption to all such supplies (till 30.06.2024) which were exempt prior to the changes made to the constitution through the aforesaid 25th amendment. The learned AR for the registered person also placed before us copies of judgments reported in 2022 SCMR 1251 and an unreported judgment of Peshawar High Court given in Cr.A No. 74-M of 2016 titled as Chairman CBR v, GM SNGPL in support of his assertions whereby the Hon'ble Court held that SNGPL's supplies in the erstwhile tribal areas are not chargeable to sales tax on account of Pre 25th amendment position and sales tax law did not apply to Tribal Areas under Article 247 of the Constitution. The learned AR concluded that Since Sr.No. 151 restored the legal position existing prior to the 25th Constitutional amendment therefore the very issuance of show-cause notice and subsequent charge of Sales Tax, Further Tax and Extra Tax along with default surcharge and penalty by the learned officers below on supplies made by SNGPL in FATA/PATA area is illegal and unlawful.

RESPONDENT’S ARGUMENTS:

5. Conversely, Mr. Shah Jahan Khan, LA for the department assisted by Mr. Talib Hussain, DR responded to the appellant's contentions. The learned LA has not disputed to the legal position prior to the 25th Constitutional amendment rather he mainly emphasized on the interpretation of Sr.No. 151 of Table-I of Sixth Schedule inserted through Finance Act, 2019. It is submitted that S.No. 151 sub-serial (a) entails 'supplies' followed by 'and' which is then followed by sub-serial (b) incorporating the words imports of plant, machinery, equipment for installation in Tribal Areas and industrial inputs by the industries located in the tribal areas. The learned LA vehemently emphasized that Sr.No. 151 sub-serials (a) and (b) are to be read conjunctively as single preposition and contains a very narrow exemption which only covers supplies and imports of plant, machinery, equipment for installation in tribal areas and of industrial inputs by the industries located in the tribal areas. The learned maintained that if sub-serial (a) and (b) read disjunctively and read in isolation then words 'supplies' envisaged in sub-serial (a) would mean all kind of supplies exempted from payment of sales tax which certainly cannot be the intent of the legislature as it would destroy the entire purpose of Sales Tax Act, 1990. Further contends that since it is an exemption clause therefore it has to be construed strictly and if two interpretations are possible then being an exemption clause the one going in favour of the department is to be adopted. The learned LA also made reference to next Sr.No. 152 of Table-I of Sixth Schedule of STA which has envisaged exemption specifically to supplies of electricity in tribal areas and argued that both Serial numbers 151 and 152 were inserted through Finance Act, 2019 whereby S.No. 152 specifically granted exemption to supplies of electricity and had there been an intention of the legislature to grant exemption on supplies of gas in the erstwhile tribal areas it would never specifically done so. In the absence of any specific exemption the intention of legislature is to make supplies of gas in tribal areas taxable. The learned LA also attempted to distinguish the referred case laws ibid as not applicable in the present case and to draw strength from case laws reported in 2018 SCMR 939 and 2022 SCMR 1251. The learned counsel finally prayed for the dismissal of the instant appeal.

DETERMINATION BY THE TRIBUNAL

Background of insertion of Sr. No. 151 of Table-1 of Sixth Schedule STA:

6. At the very outset, it is important to highlight the background of insertion of Sr.No. 151 in Sales Tax Act, 1990 which would make the interpretation much clearer. Before the 25th Constitutional Amendment, Income Tax and Sales Tax laws were not applicable to the erstwhile FATA. However, on omission of Article 247 of the Constitution through the aforesaid amendment, all the laws including tax laws enforced in the country particularly in the provinces of Khyber Pakhtunkhwa and Balochistan, ipso facto, became applicable to the defunct FATA. Soon after, the Federal Government realized that inhabitants of the defunct FATA needed breathing space for entering into the tax regime and accordingly three SROs 888, 889 and 890(I)/2018 all dated 23.07.2018 were issued granting sales tax exemption on certain supplies. Still, concerns were raised by the local trading community that the said notifications were narrow in scope and those did not restore the position as existed prior to the 25th constitutional amendment. In order to address the concerns and while realizing the restiveness amongst the residents of defunct FATA in relation to levy of sales tax to the said erstwhile Tribal areas, the Federal Government ab-initio rescinded the said notifications and issued SRO 1212(I)/2018 dated 05.10.2018. For the sake of convenience and ready reference SRO 1212(I)/2018 is reproduced below:

S.R.O 212(I)/2018. WHEREAS prior to commencement of the Constitution (Twenty-Act, 2018 (XXXVII of 2018), the Sales Tax Act, 1990, was not in force in the Tribal Areas as defined in Article 246 of the Constitution of the Islamic Republic of Pakistan, hereinafter called as the Constitution, and the levy of sales tax yas not attracted to the supply transactions made in the said Tribal Areas;

AND WHEREAS Article 247 of the Constitution stood omitted on commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018) with effect from the 31st day of May, 2018 and the Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA) stood merged in the Provinces of Khyber Pakhtunkhwa and Balochistan under paragraph (d) of Articlt 246 of the Constitution;

AND WHEREAS on commencement of the Constitution (Twenty- fifth Amendment) Act, 2018 (XXXVII of 2018), the Sales Tax Act, 1990 is in force in the said Provinces including the erstwhile Tribal Areas forming part thereof;

AND WHEREAS a phased approached was needed for the full application of fiscal laws to the said erstwhile Tribal Area, a decision was made to exempt all those supplies and transitions from levy of federal tax which were not applicable to the said areas by virtue of said Article 247 and accordingly three sales tax Notifications No. S.R.O.888(I)/2018, No. SRO. 889(I)/2018 and No S.RO. 890(I)/2018, all dated the 23rd July, 2018, were issued by the Federal Government granting exemption from sales tax to the supplies specified therein:

AND WHEREAS concerns were raised by the trading community of the said erstwhile Tribal Areas to the effect that the three aforesaid Notifications did not restore the position as existed prior to the commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018);

NOW, THEREFORE, in order to address the concerns so raised and to restore the position in relation to levy of sales tax to the said erstwhile Tribal Areas, the Federal Movement, in exercise of the powers conferred by clause (a) of subsection (2) of section 13 of the Sales Tax Act, 1990, is pleased to-

(a) ab-initio rescind its Notification No.S.R.O 888(I)/2018, No.S.R.O 889(I)/2018 and No.S.R.O 890(I)/2018 all dated 23rd July, 2018 and;

“(b) exempt from whole of sales tax, by whatever name called, as levied under the Sales Tax Act, 1990, or notifications issued thereunder, on supplies made till the 30th June 2023, to which the provisions of the said Act of 1990 or the notifications issued thereunder, would have not been applied had Article 247 of the Constitution not been omitted under the Constitution (Twenty- fifth Amendment) Act, 2018 (XXXVII of 2018).”

7. There is no cavil to the preposition that before 25th Amendment Act, 2018 and merger of FATA into settled area, the residents and inhabitants of Tribal Areas were enjoying immunity from every kind of tax. However, this immunity was done away with by the Constitutional 25th Amendment Act, 2018 whereby Tribal Areas were merged into…………….TO BE CONTINUED (JOURNAL FOR THE MONTH OF FEBRUARY, 2025