ALLAMA IQBAL OPEN UNIVERSITY vs COMMISSIONER INLAND REVENUE, WITHHOLDING TAX ZONE, REGIONAL TAX OFFICE, ISLAMA

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ALLAMA IQBAL OPEN UNIVERSITY VS COMMISSIONER INLAND REVENUE, WITHHOLDING TAX ZONE, REGIONAL TAX OFFICE, ISLAMABAD. Ss. 11(4) & 11(4a) [as introduced through Finance Act, 2016]---Withholding agent, responsibility of---Introduction of provision of law---Applicability at relevant time---Scope---Petitioner Allama Iqbal Open University being a university was involved in distance learning education for which the university prints its educational material by itself, instead of getting it printed from printers or publishers outside. In consequence of such activity, the Department treated the petitioner as a withholding agent and made it responsible to deduct and deposit sales tax on taxable goods and services as were supplied to it. Validity: In the present case, the show-cause notice did not disclose that under which provisions of the Sales Tax Act, 1990 the petitioner was supposed to act as a withholding agent in respect of the supplies made to it and further to deduct tax and to file monthly return in said regard. Provision of Section 11(4) of the Sales Tax Act, 1990 relates to short payment of tax or erroneous issuance of refund due to inadvertence, error or misconstruction, thus, envisages a situation requiring payment of amount by the person who is responsible for deficiency in payment of tax and in consequence whereof a show-cause notice could have been issued. There is, however, nothing in Section 11(4) of the Sales Tax Act, 1990 which deals with the responsibility of withholding of taxes. The situations and events demonstrated in the show-cause notice were, in fact, covered in terms of Section 11(4a) which was introduced by the Finance Act, 2016, whereas, the tax periods disclosed in the show-cause notice were from July, 2012, to June, 2013. The provisions of Section 11(4a) of the Sales Tax Act, 1990 which could have held the petitioner liable were not in existence at the relevant time when the show-cause notice was issued and similarly the alleged default was not covered by Section 11(4) on which the order-in-original and order of the Commissioner was based. Although it was noted in the impugned order that Section 11(4a) was introduced through the Finance Act, 2016, yet in the impugned order it was not demonstrated at all as to on what basis the petitioner could be saddled with the responsibility of being a withholding agent, and the rules which were referred to could not be said to have been framed with reference to or in pursuance of Section 11(4a) of the Sales Tax Act, 1990. Thus, the provisions of Section 11(4) of the Sales Tax Act, 1990 were wrongly applied. The recovery provisions of Section 11(4a), in consequence of not deducting or depositing the tax, came much after the issuance of the show-cause notice via the Finance Act, 2016 and could not at all have been pressed into service. The Supreme Court set aside the impugned order of the High Court by converting the petition into an appeal and allowed the same.

ALLAMA IQBAL OPEN UNIVERSITY vs COMMISSIONER INLAND REVENUE, WITHHOLDING TAX ZONE, REGIONAL TAX OFFICE, ISLAMABAD — 2026 PTD 472 SUPREME-COURT

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