2021 SLD 1311 Equiv.

Citation: 2021 PTD 1187 = 2021 PTCL 689 = =

SINDH HIGH COURT

Constitutional Petitions Nos.D-4651, D-4652, D-4653, D-4654, D-4655, D-4656,

D-4657, D-4658, D-4659, D-4660 and D-4661 all of 2014, decided on 27th
October, 2020. Date of hearing: 24th October, 2020.

PRESENT:
IRFAN SAADAT KHAN, JUSTICE
MUHAMMAD FAISAL KAMAL A LAM, JUSTICE

PETITIONER(S): MESSRS SHIELD CORPORATION LIMITED THROUGH ASSISTANT

FINANCIAL CONTROLLER
VS
RESPONDENT(S): GOVERNMENT OF SINDH THROUGH SECRETARY FINANCE
DIVISION, SINDH SECRETARIAT, KARACHI AND 3 OTHERS

Naveed Amjad Andrabi, Anwer Kashif Mumtaz, Ammar Athar Saeed and Usman
Alam (in all the Petitions) for Petitioners.
Kafeel Ahmed Abbasi, Ghulam Murtaza Korai and Shamshad Ali Narejo (in all the
petitions) for Respondents.

Law: Sindh Sales Tax on Services Act (II of 2011)

Sections: 2(52)(63), 15, 15-A, 43
Law: Sindh Sales Tax on Services Rule, 2011
Sections: 22, 22-A, 28

JUDGMENT
IRFAN SAADAT KHAN, JUSTICE:---."”

Since the issue raised in all the instant captioned petitions is common hence all these are
proposed to be disposed of by this consolidated judgment.

2. Briefly stated the facts of the case are that the petitioners are Limited Companies
engaged in different business and are having proper Sales Tax Registration Number, who
filed their sale tax return electronically. That the petitioners are liable to withholding sale
tax on services at the applicable rates in respect of the value of taxable service provided to
them. It is the claim of the petitioner that if the said services were provided to them by
unregistered persons, input tax of such sale was not allowed to the petitioners while e-
filing the sales tax returns and therefore since their sales tax liability has increased due to
the non-allowability of input tax in respect of the taxable service provided to them by
those unregistered person, the same is causing serious prejudice to the petitioners, which
according to them is unconstitutional and without jurisdiction, therefore these petitions
may be allowed by allowing the petitioners input adjustment of the deductions made by
those unregistered persons and to declare the procedure of withholding tax, as provided
under Sindh Sales Tax Rules, 2011, Sindh Sales Tax Special Procedure (Withholding) Rules,
2011 and 2014 to be illegal, unconstitutional and without jurisdiction.

3. Messrs Naveed Amjad Indrabi, Anwar Kashif Mumtaz, Ammar Athar Saeed and Usman
Alam, Advocates, have appeared on behalf of the petitioners and submitted that as per the
Sindh Sales Tax Services Act, 2011 the process of input tax adjustment has been defined

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 under Section 15 of the said Act and procedure for the said input adjustment has been
provided under Sales Tax Services Rules, 2011: As per the learned counsel registered
person is allowed to claim adjustment of the input tax in respect of the services received
by the said person, which it claims in its monthly sales tax return, however, a person
claiming input tax in respect of the services received by it from unregistered person is not
allowed such facility with the result that the petitioners cannot claim the said input tax in
their monthly tax return and as per the learned counsel for the petitioners the same is
causing heavy financial burden to the petitioners, as in the case of registered persons full
amount of input tax adjustment: is being claimed and allowed to them but so far as input
tax claim of unregistered persons is concerned the same is not allowed for no fault of the
petitioners and the same, according to them, is a discriminatory treatment with them.
They further stated that the concept of withholding sales tax on services was introduced in
the year 2014 according to which withholding agents are required to withhold sales tax on
the applicable rate of the value of the taxable services provided to them, which as per the
learned counsel for the petitioners should be made available and applicable to the persons
e- filing their monthly sales tax return as an input adjustment irrespective of the fact that
the taxable services have been received by an unregistered person.

4. As per the learned counsel for the petitioners if the withholding agent obtains taxable
services from an unregistered person, the said withholding agent, which in the instant
matter are the petitioners, should not suffer on account of this complacency / shortcoming
of the unregistered person as the sales tax on taxable services have duly been deducted
by the withholding agent i.e. the petitioners and the petitioners should not be penalized by
not allowing them to claim the said withholding tax on the taxable services received by
them even through unregistered persons. The learned counsel then read out the relevant
provisions of the law which are; Sections 2 (52), 2(63), 15 and 15A of the Sindh Sales Tax
on Services Act, 2011, Rules 22, 22A and 28 of the Sindh Sales Tax on Services Rules,
2011, definition of the term "Withholding Agent" as given in Rule 2(8) of the Sindh
Withholding Tax Rules, 2011 and also Rule 3(3) thereof, Rules 1(2), 2(10), 2(11) and Rule
3(4) of the Sindh Withholding Tax Rules, 2014.

5. The learned counsel further stated that in case of deduction of input tax, whether from
a registered or unregistered person, the person deducting the same should be given credit
of the said input tax adjustment. They further stated that if Section 15A of the Sindh Sales
Tax on Services Act, 2011 and Rule 22A of the Sindh Sales Tax on Services Rules, 2011 are
examined, it may be seen that these are inclusive definitions and hence widest possible
interpretation has to be given to these two terms and the petitioners should not be
restricted not to claim the input tax adjustment in respect of the services received by them
from unregistered person. in support of their contentions the learned counsel have placed
reliance on the decision given in the case of Commissioner Inland Revenue (Zone-1) LTU,
Karachi v. Messrs Linde Pak Ltd., Karachi (2020 SCMR 333). They further stated that since
the procedure is causing great financial loss to the petitioner, the same may be whittled
down and the, petitioners may be allowed to claim sales tax adjustment, even if they
receive taxable services, even from those unregistered persons.

6. Messrs Kafeel Ahmed Abbasi, Ghulam Murtaza Korai and Shamshad Ali Narejo,
Advocates, have appeared on behalf of the respondents and at the very outset stated that
the instant petitions are not maintainable and are liable to be dismissed in limine. They
stated that the law framers have categorically put a bar upon the unregistered persons
that no benefit could be given in respect of the taxable services obtained from those
unregistered persons with the main objective to get those unregistered persons registered
in the sale tax department and to documentize the economy to discourage the policy of
obtaining taxable services from those unregistered persons with a view to boost and

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 encourage the registered persons in respect of allowing input tax adjustment. They further
stated that the petitions are not maintainable on the ground that the petitioners are
enrolled with Sindh Revenue Board (SRB) as a withholding "˜agent and not as a service
provider and if they want to claim any input tax adjustment, they should approach the
sales tax department rather than approaching SRB. They stated that Sindh Sales Tax on
Services Act, 2011 is based on value addition and every person obtaining a taxable service
is saddled with the responsibility to withhold the input tax but the input of that withholding
tax has been restricted to the extent of registered persons only and there is no violation of
either any constitutional mandate or of any fundamental right as no illegality, on the part
of the respondents, has been made, as incorrectly claimed by the petitioners.

7. They further stated that the amendment made in the withholding rules and procedures
do not affect the petitioners, as in case of obtaining taxable service and paying input tax
from unregistered persons the element of input tax adjustment would become cost
component of the goods being dealt with by the petitioners and will ultimately be passed
on to the consumer, causing no financial loss or prejudice to the petitioners. They,
therefore finally submitted that petitioners have approached this Court with unclean hands
by claiming input tax adjustment in respect of the taxable services received by them
through unregistered persons which, according to them, is barred hence these petitions
may be dismissed.

8. We have heard the learned counsel for the parties at considerable length and have also
perused the record and the decisions relied upon by the learned counsel Tor the
petitioners.

9. Before proceeding any further, we deem it appropriate to reproduce herein below the
relevant law relied upon by the learned counsel appearing for the petitioners as well as for
the respondents.

Sindh Sales Tax on Services Act, 2011

2(52) "input tax", in relation to a registered person, means"”

(a) Tax levied under this Act on the services received by the person;
(b) Tax levied under the Sales Tax Act, 1990 on the good imported by the person:
(c) Tax levied under the Sales Tax Act, 1990, on the goods or services received by the
person; and
(d) Provincial sales tax or Islamabad Capital Territory sales tax levied on the services
received by the person:

Provided that the Board may, by notification in the official Gazette, specify, that any or all
of the aforesaid tax shall not be treated as input tax for the purposes of this Act subject to
such conditions and limitations as the Board may specify in the notification:

2(63) "person" means-

(a) an individual;
(b) a company, an agency or an association of persons incorporated, formed, organized or
established in Pakistan or elsewhere:
(c) the Federal Government;
(d) a Provincial Government:
(e) a Local Authority or Local Government in Pakistan; or
(f) a foreign Government, a political sub-division of a foreign Government, or a public

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 international organization;

Explanation:"” The use of the word "he" in this Act shall be taken to refer to any or of the
persons mentioned in sub-clauses fa) to (f) above.

15. Adjustments.- The Board may, [by notification in the Official Gazette, and] subject to
such conditions and restrictions as it may prescribe and 2[***], allow registered persons
to Claim adjustments or deductions, including refunds arising as a result thereof, in
respect of the sale tax paid on or in respect of any taxable services or class of taxable
services provided by them 3[:]

[Provided that the refund arising as a result of a claim of adjustments or deductions, if any
shall be made on yearly basis in the month following the end of the financial year.]

[15A. Input tax credit not allowed.--- W Notwithstanding anything contained in this Act, a
registered person shall not be entitled to claim, reclaim, adjust or deduct input tax in
relation to-

(a) the goods or services used or to be used for any purpose other than for the taxable
services provided or rendered or to be provided or rendered by him:

(b) the goods in respect of which sales tax has not been deposited in the Federal
Government treasury by the respective suppliers of goods;

(c) the services in respect of which the Provincial sales tax has not been deposited in the
treasury of the respective Provincial Government and the services in respect of which the
Islamabad Capital Territory sales tax has not been deposited in the treasury of the Federal
Government;

(d) further tax, extra tax or value addition tax levied under the Sales Tax Act, 1990, and
the rules or notifications issued thereunder:

(e) fake, false, forged, flying or fraudulent invoices or the invoices issued by persons
black-listed or suspended by Board or FBR? or any other Provincial Sales Tax Authority:

(f) capital goods and fixed assets not exclusively used in providing or rendering of taxable
services;

(g) the following goods or services, excluding the ones directly used and consumed in the
economic activity of a registered person in provision of the services paying sales tax at a
rate not less than thirteen per cent ad valorem:-

(i) Vehicles classified under Chapter 87 of the First Schedule to the Customs Act, 1969 (Act
No, IV of 1969) and parts (including batteries and tyres and tubes) of such vehicles:

(ii) calendars, diaries, gift, souvenirs and giveaways:

(iii) garments, uniforms, fabrics, footwear, hand wear, headwear for the employees;

(iv) food, beverages and consumptions on entertainments, meetings or seminars or for the
consumption of the registered person or his Directors, shareholder, partners, employees or
guests;

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 (v) electricity, gas and telecommunication services supplied at the residence of the
employees or in the residential colonies of the employees;

(vi) building materials including cement, bricks, mild steel products, paints, varnishes,
distemper, glass products;

(vii) office equipment and machines (excluding electronic fiscal cash registers), furniture.
fixtures or furnishings;

(viii) electrical and gas appliances, pipes and fittings

(ix) wires, cables, sanitary fittings, ordinary electric fittings, electric fans and electric bulbs
and tubes; and

(x) crockery, cutlery, utensils, kitchen appliances and equipment:

(h) Utility bills not in the name of the registered person unless evidence of consumption of
such utilities is provided to the satisfaction of the officer of the SRB not below the rank of
an Assistant Commissioner;

(i) Goods or services procured or received by a registered person during a period

exceeding six months prior to date of commencement of the provision of taxable services
by him;

(j) Goods or services used or consumed in a service liable to sales tax at ad valorem rate
lesser than thirteen per cent or at specific rate for] at fixed rate or at such other rates not
based on value:

(jj) goods or services as are liable to sales tax whether a federal sales tax or a provincial
sales tax at specific rate or at fixed rate or at such other rates not based on value or at a
rate lesser than thirteen per cent ad valorem and are used or consumed as inputs in the
provision of a taxable service under this Act:

Provided that in case of telecommunication services paying sales tax at a rate not less
than nineteen and a half per cent ad valorem, the amount of sales tax paid on goods and
services at ad valorem rates not exceeding seventeen per cent, can be claimed by the
person providing the taxable telecommunication services.

(k) the amount of sales tax paid on the telecommunication services in excess of [nineteen
and a half] per cent ad valorem and the amount of sales tax paid on other taxable goods
or services in excess of thirteen per cent ad valorem; and

(l) such goods or services as are notified by the Board to be in-admissible for input tax
claim or reclaim or credit or adjustment or deduction.

(2) in case where a registered person deals! with taxable and non-taxable or exempt
services, he shall be entitled to claim or reclaim, for input tax credit or adjustment or
deduction, only such proportion of the input tax as is attributable to taxable or non-exempt
services in such manner as may be prescribed by the Board.

(3) No person other than a person registered under sections 24, 24A or 24B of this Act
shall claim or deduct or adjust any input tax in respect of sales tax paid on any goods or
services provided or procured by him for use or consumption in the provision of taxable

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 services.]

Sindh Sales Tax on Services Rules, 2011

22. Determination of Input Tax."”[(1)] Subject to the provision of Rule 22A and other
relevant provisions of the Act and the rules and notifications issued thereunder, a
registered person who holds a tax invoice (for the purchase of goods or services used or
consumed in providing or rendering of taxable services) in this name bearing his sales tax
registration/NTN, shall be entitled to deduct/adjust input tax paid during the relevant tax
period, subject to the condition that the input tar in relation to the taxable services shall
be worked out first and the amount so worked out, shall be bifurcated for the services
provided or rendered in Sindh and also taxed in Sindh and for those provided or rendered
outside Sindh and also not taxed in Sindh.

Provided that where the registered person did not deduct or adjust the input tax in the
relevant period, he may claim such input tax deduction or adjustment in the tax returns
for any of the "˜[six] succeeding tax periods.

(2) The Input tax paid on goods and services used in providing or rendering non-taxable or
exempt services 2[or the services liable to reduce rate of tax or specific rate of tax] and
also on the services provided or rendered outside Sindh shall not be admissible.

(3) in case an input is used in providing or rendering taxable services and also non-taxable
or exempt services 3 [or the services liable to reduce rate of tax or specific rate of tax]
and the services provided or rendered outside Sindh, the input tax shall be apportioned
according to the following formula for availing of input tax adjustment /deduction;

Value of taxable services

Residual in put tax x admissible input tax

credit = on
taxable services

(value of taxable +
value of non-
taxable/exempt
service 4[/reduce
rate/specific rate])

(4) Monthly adjustment of input tax claim, based on sub-rules (1), (2) and (3) of this rule,
by a registered person shall be subject to reconciliation and audit by the officers of the
SRB.

(5) Any inadmissible Input tax adjustment, claimed or made by a registered person, shall
render him liable to action under the provisions of the law besides being liable to penalty
and default surcharge under sections 43 and 44, respectively, of the Act in addition to his
liability to pay the amount involved.]

[22A. Input tax credit not allowed.- In addition to the provisions of section 15A of the Act
in this regard, a registered person shall also not be entitled to claim or reclaim or adjust or
deduct input tax in respect of:-

(i) sales tax claimed as input tax where the registered person, making such input tax

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 credit/adjustment, has not made the payment, within one hundred and eighty days from
the date of the tax invoice, of the invoiced amount (including the sales tax amount) of
input goods and services, other than the input utilities (telecom, electricity and gas),
courier services and also the directly imported goods, through a crossed cheque drawn on
a bank, or by a crossed bank draft or crossed pay order or any other crossed banking

instrument showing the transfer of the amount of tax invoice in favour of the goods
supplier or the service provider from the business bank account of the buyer or service
recipient making or claiming or reclaiming such input tax credit/adjustment.

Provided that online transfer of payment from the business bank account of the buyer or
the service recipient to the business bank account of the goods supplier or the service
provider, as well as payment through credit card or debit card, shall be treated as
transaction through banking channel, subject to the condition that such a transaction is
verifiable from the bank statements of the business bank accounts of the buyer or service
recipient;

1[(ii) ****]

(iii) goods or services acquired for personal or non-business consumption;

(iv) goods or services in respect of which input tax adjustment is barred under any federal
or provincial law, for the time being in force, relating to sales tax; and

(v) carry forward of the input tax adjustment relating to tax period June, 2011, or earlier;]

28. Determination of Tax liability."” (1) While determining his tax liability, a service
provider shall be entered to claim input tax credit for the tax paid on account of taxable
purchases and utilities like telephone, gas and electricity consumed proportionately for
furtherance of taxable activity, against its output tax liability, subject to any conditions,
limitations or restrictions prescribed under the Act or l[the rules made thereunder].

Provided that no input tax adjustment shall be allowed against the purchase invoice or
may bill, which is not in the name of the service provider and/or does not contain his
registration number. However in case the utility bill is not in the name of service provider,
input tax against the come may be allowed only if the bill contains its registration number
and shows the same business address as has been declared for sales tax purposes:

Provided further that the input tax credit shall be admissible only for the amount of tax
that has been paid on the purchases or utilities consumed during the tax period for which
return is being submitted.

(2) A service provider who is providing or rendering taxable as well as non-taxable

services can claim only such proportion of input tax as is attributable to the taxable
services.

Sindh Sales Tax Special Procedure (Withholding) Rules, 2011

2(8) "Withholding agent" means the withholding agent under these rules and includes the
accounting office which is responsible for making payment against the taxable services
received by a government department or government office.

3(3) A withholding agent, having Free Tax Number (FTN) or National Tax Number (NTN)

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 and falling under clause (a), (b), (c), (d) or (e) of sub-rule (2) of Rule 1, shall on receipt of
taxable services from unregistered persons, deduct sales tax at the applicable rate of the
value of taxable services provided or rendered to him from the payment due to the service
provider and, unless otherwise specified in the contract between the service recipient and
the service provider, the amount of sales tax for the purpose of this rule shall be worked
out on the basis of gross value of taxable services.

Sindh Sales Tax Special Procedure (Withholding) Rules, 2014

1(2) They shall apply to taxable services as are provided or rendered to following persons,
hereby specified as "withholding agents", for the purposes of deduction and deposit of tax,
namely:-

(a) offices and departments of Federal Government, Provincial Governments, and Local or
District Governments:

(b) autonomous bodies;

(c) public sector organizations, including public corporations, state-owned enterprises and
regulatory bodies and authorities;.

(d) organizations which are funded, fully or partially, out of the budget grants of the
federal or provincial governments;

(e) companies, as defined in clause (28) of section 2 of the Act;

(f) FBR registered or SRB registered persons or the persons specified in clauses (a), (b),
(c), (d) and (e) of sub-rule (2) of Rule 1 of there Rules who receive or procure
advertisement services (tariff heading 98.02 and the sub-headings thereof, other than
those of sub-heading 98024000 and also other than such of the advertisements of sub-
heading 9802.9000 as are transmitted or displayed on the website or web page of
newspapers and periodicals published in Sindh) 3[. * * * ] or renting of immovable
property services (tariff heading 9806.3000) or services of auctioneers (tariff heading
9819.9100) or services of inter-city transportation or carriage of goods by road (tariff
heading 9836.0000, other than those through pipeline or conduit for through specialized
car carriers or through the fleer of logistic companies owning not less than 25 goods
transport vehicles]), and also the persons providing or rendering the services of
advertising agents (tariff heading 9805.7000) who issue release orders or book
advertisement space in relation to advertisement services (tariff heading 98.02 and the
sub-headings thereof);

(g) SRB-registered persons receiving or procuring taxable service from un-registered

persons;

(h) SRB-registered persons or insurers (tariff heading 9813.1000 and the sub-heads
thereof) receiving or procuring the services provided or rendered by insurance agents or
insurance brokers (tariff heading 9855.0000);

(i) persons or passengers using the services of a cab aggregator (tariff heading
9846.0000) required to deduct or withhold the tax in elation to the services provided or
rendered by the owners or drivers of the motor vehicles using the services of the cab
aggregators (tariff heading 9846.0000); and

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 (j) persons receiving or procuring such of the services of contractors (tariff heading
9814.2000) and construction (tariff heading 9824.0000) as are liable to reduced rate of
tax at 2% or 5 % under Notification No. SRB 3-4/9/2017 dated 2nd June, 2017 or are
liable to reduced rate of tax at 5% under Notification SRB-3-4/3/2018 dated 6th February,
2018 and No.SRB-3- 4/8/2013 dated 1st July, 2013.]

Provided that a person shall be treated as a withholding agent, for the purpose of there
rules, only if he is resident in Sindh or has a place of business in Sindh.

2(10) "Un-registered person" means a person who is liable to be registered under the Act
but is actually not registered and does not hold a Sindh sales tax registered number
(SNTN): and

2(11) "Withholding agent" means a person as specified in sub- Rule (2) of Rule 1 of these
Rules provided that he is resident in Sindh or has a place of business in Sindh

2[provided that in relation to the provisions of clause (i) of sub- Rule (2) of Rule 1 of these
rules, the cab aggregator resident in Pakistan and the branch office or resident
representative (in Pakistan) of the cab aggregator not resident in Pakistan shall be the
withholding agent for the purposes of these rules.]

Explanation."”The accounting offices responsible for or making payments against

invoices/bills for the taxable services received by an office or department of the Federal
Government. Provincial Governments or Local or District Governments shall be treated as
a withholding agent for the purpose of these rules.

3(4) A withholding agent having Free. Tax Number (FTN) or National Tax Number (NTN) or
Sindh Sales Tax registration number (SNTN) and falling under sub-rule (2) of Rule 1, shall,
on receipt of taxable services from unregistered persons, deduct the amount of sales tax
at the tax rate applicable to the taxable services provided or rendered to him, from the
amount invoiced or billed or demanded or charged by such un-registered service provider
and unless otherwise specified in the contract between the service recipient and the
service provider, the amount of sales tax for the purpose of this rule shall be worked out
on the basis of gross value of taxable services 1[under the tax fraction formula]:

Provided that in case a withholding agent receives taxable services from an un-registered
person, he shall be responsible to obtain and keep in record a copy of the CN1C of the un-
registered service provider if he is an individual and a copy of the NTN certificate of the
un-registered service provider if he is an AOP or a company. The withholding agent shall
also be responsible to enter the name, CNIC and NTN of the un-registered service provider
correctly in the relevant columns of the return Form SST-03 or SSTW-03, as the case may
be.

10. From the arguments advanced by the learned counsel appearing for the petitioners
and the respondents the core controversy involved in the instant petitions being that
whether the petitioners are entitled to claim input adjustment in respect of the taxable
supplies or services received by them from the unregistered persons. It may be noted that
the term "unregistered person" has been defined in the law which means a person who is
liable to be registered but not registered. From the above provision of the law it may be
noted that a person obtaining a taxable services from another person, whether the other
person is registered or not, is liable to deduct tax in respect of taxable services received by
the person. It may further be noted that the term "input tax" has been defined in the law
which means a tax levied on the services received by the person and the person would

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 include a company etc. and in the instant matter it is an undeniable fact that the
petitioners fall, not only under the definition of a person but are also covered under the
definition "withholding agent".

11. As per the above law a withholding agent is saddled with the responsibility, while
receiving taxable supplies or services from another person, to deduct the tax on the said
taxable services. It is also an undeniable fact that in the instant matter the petitioners are
the withholding agents who have received taxable services from certain persons, who are
unregistered persons, but being the withholding agents, i.e. the petitioners have duly
deducted the input tax in respect of the services received by them. The problem, however,
which is arising in the instant matter is with regard to the filing of the returns as it is noted
that while filing those returns there is no provision with regard to input adjustment of
unregistered persons and due to this reason the input tax adjustment claimed by the
petitioners was being disallowed /rejected by the computer generated form, since the
system does not accept the said input adjustment because of the fact that taxable services
though have been obtained by the withholding agents i.e. the petitioners but since these
were from unregistered persons hence the system does not accept the same as the term
"unregistered person" does not find place in the said system.

12. From the perusal of the above law it may be noted that the law does not bar obtaining
of the taxable services from an unregistered persons, however the only impediment which
finds place in the law is with regard to the person who otherwise is liable to be registered
but not registered would be considered as an unregistered person and a penalty has been
provided under Section 43 of the Act, 2011 for the act of non-registration. in the instant
matter, it may be noted that the learned counsel appearing for the respondents have not
pointed out even a single provision of law whereby it has been provided that no input tax
adjustment would be available on the taxable services obtained by a withholding agent or
a registered person from an unregistered person though it has been pleaded by the
learned counsel for the petitioners that e-return does not accept the same but from the
law explained before us by the learned counsel for the respondents it may be noted that
no provision of law is cited through which input adjustment could be denied to a
withholding agent obtaining taxable services from an unregistered person; rather the
proviso to Section 3(4) of the Sindh Sales Tax Special Procedure (Withholding) Rules,
2014, mentioned above, clearly stipulates that withholding agent, who receives taxable
services from an unregistered person, is responsible to obtain and keep in record a copy of
the CNIC of the unregistered service provider, if he is an individual and a copy of the NTN
certificate of the said unregistered person if he is an AOP or a company.

13. The reading of the above proviso clearly indicates that taxable services could be
obtained from an unregistered person and the withholding agent is only required to obtain
a copy of CNIC of the said unregistered person, if he is an individual but if it is a company
or NTN holder, a copy of the NTN certificate, meaning thereby there is no restriction for
obtaining taxable services from an unregistered person and the only responsibility
assigned to a person obtaining taxable services from an unregistered person is with regard
to obtaining CNIC (in the case of an individual) and NTN certificate (in the case of a
company). Thus when the law does not put a bar upon receiving taxable services from an
unregistered person, there cannot be any bar on claiming input adjustment in respect of
the taxable services obtained from the unregistered person also, as the learned counsel
appearing for the department (respondents), as stated above, have failed to point out any
provision of the law which specifically bars denial of the input adjustment in respect of the
taxable services obtained by a person, being withholding agent, from an unregistered
person but the only requirement is with regard to obtaining a copy of CNIC or NTN
certificate, as the case may be. The above provisions of law also clearly stipulate entering

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 the name, CNIC and NTN of the unregistered persons in the sales tax form which also
supports the contention of the petitioners that even if they have obtained taxable services
from the unregistered persons, they are entitled for input adjustment and since the form
so designed by the department / respondents is not accepting and recognizing
unregistered persons for input adjustment, there appears to be a defect in the said form
which needs to be corrected.

14. It may be noted that while arguing the matter, the learned counsel appearing for the
respondents stated that under sales tax and income tax, registered persons and
unregistered persons, filers and non-filers, are treated differently and hence no
discriminatory treatment has been meted out in the instant matter. In our view this
argument of the department has no force as in the case of sales tax the law itself clearly
provides different rates of taxes for registered and unregistered persons and similar is the
case with income tax matters. In the income tax matters there is also clear, distinction
with regard to tax rates for filers and non-filers but in the law before us no such distinction
has been provided; hence resort to sales tax law and income tax law cannot be taken with
regard to Sindh Sales Tax on Services. It has further been noted that if a person is
unregistered, penal provisions are provided under the law for those unregistered persons
but in our view a person, who is a registered person, obtaining taxable Services, from
unregistered person cannot be denied the input tax adjustment simply on the ground that
the other said person is unregistered.

15. The upshot of the discussion made above being that, in our view, the petitioners are
entitled to claim input adjustment in respect of the taxable services provided to them by
unregistered persons. SRB, therefore, is directed to make necessary amendment
/provision in the e- return to enable the persons filing their returns via e-filing to claim the
input tax adjustment from unregistered persons also and till such time the petitioners may
be allowed to file their returns manually in order to avoid any confusion created in this
behalf. All the petitions, therefore, stand allowed along with the listed applications. Let a
copy of the judgment be forwarded to the Chairman, SRB, for information and compliance.

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