APPELLATE
TRIBUNAL INLAND REVENUE, DIVISIONAL BENCH-I,
ISLAMABAD
STA No.322/IB/2019
(Tax Period July, 2015 To June, 2016)
********
|
M/s Linkdotnet
Telecom Limited, DHQ-3, Kohistan Road, F-8 Markaz, Islamabad. |
|
Appellant |
|
|
VS |
|
|
Commissioner Inland Revenue, Unit-23, LTU, Islamabad.
|
|
Respondent |
|
Appellant by |
|
Mr. Mansoor Saeed, ITP |
|
Respondent by |
|
Mr. Imran Shah, DR |
|
Date of hearing |
|
21.01.2021 |
|
Date of order |
|
21.01.2021 |
O R D E R
M. M.
AKRAM (Judicial Member): The
titled appeal has been filed by the appellant/registered person against an
Order No.16/2019 dated 11.10.2019 passed by the learned CIR (Appeals-I),
Islamabad for the Tax Periods July, 2015 to June, 2016 on the grounds as set
forth in the memo of appeal.
2. Briefly facts culled out from the
record are that the appellant is engaged in telecommunication services and the
case of the appellant was selected for audit by the Federal Board of Revenue
(FBR) under section 72B of the Sales Tax Act, 1990 (“the Act”) for the
tax periods July 2015 to June 2016. During the audit proceedings, certain
discrepancies emerged from the record. In consequence thereof, a show-cause
notice No.919 dated 26.04.2019 was issued under section 11(2) of the Act. The
appellant was confronted with the following issues: -
(i) Inadmissible input tax on account of non-apportionment of input
tax;
(ii) Non-payment of sales tax on disposal of fixed assets;
(iii) Inadmissible input tax and
(iv) Late filing of sales tax returns and late payment of sales tax.
The appellant submitted its reply which
was considered and found unsatisfactory by the Assessing Officer. The
contravention proceedings so initiated culminated in the passing of the
order-in-original No.51//89 dated 26.06.2019 whereby default of an amount of
sales tax of Rs.146,731,913/- was established and held to be recoverable from
the appellant registered person along with default surcharge (to be calculated
at the time of payment) under section 34 and penalty of Rs.7,399,381/- under
section 33(1), 33(5) and 33(19) of the Act. The registered person being
aggrieved, filed an appeal before the learned CIR (Appeals-I), Islamabad who
decided the case vide Order No.16/2019 dated 11.10.2019 whereby except issue No.
(iii) all the issues were confirmed. Still feeling aggrieved, the appellant has
now come up before this Tribunal and has assailed the impugned order on a
number of grounds.
3. This case came up for
hearing on 21.01.2021. At the very outset, the learned AR of the appellant
contended on the issue of inadmissible input tax on account of
non-apportionment of input tax that the services of the appellant
company were chargeable to Federal Excise Duty under section 3 of the Federal
Excise Act, 2005 (“FE Act, 2005”)
but it was levied and collected in the sales tax mode as if it was a sales tax
levied under section 3 of the Act. Since the company was liable to pay FED on
excisable services, the apportionment of input tax rules given in the Sales Tax
Rules, 2006 could not be applied in the case of services. He further argued
that it would be grossly incorrect to apply these rules to the company as it
was neither engaged in the supply of taxable goods nor exempt goods. It was submitted that Rules 24 and 25 of the Sales Tax
Rules, 2006 deal with the apportionment regarding the input tax paid on raw
material and not on services; that the learned CIR(A) has erred in holding that
the appellant has violated section 8(2) of the Sales Tax Act, 1990 read with
Rules 24 and 25. He pleaded that the FED on telecommunication services can only
be assessed under Section 14 of the Federal Excise Act, 2005. FED on
telecommunication services is only to be collected and paid in “sale tax mode”.
Sales Tax Mode only allows application of Sales Tax Act, 1990 on FED on
telecommunication services only to the extent of collection and payment, which
is distinct from assessment. He further pleaded that rule 14 of the
Federal Excise Rules, 2005 has also dealt with the subject of apportionment of
input tax, but that is applicable only in the case of manufacturing and selling
of excisable and non-excisable goods. Further stated that the services of the company
were subject to FED in sales tax mode read with section 7 of the FE Act, 2005
and SRO 550(I)/2006 dated 05.06.2006. Since the basic law applicable to the
instant case is FE Act, 2005 and the proceedings in the instant case should
have been initiated under the said Act and not under the Sales Tax Act, 1990
therefore, the show cause notice and consequently the orders passed thereon are
illegal and void ab-initio. It has also been stated that the application of
sales tax mode had restricted application in pursuance of section 7 of the FE
Act, 2005 particularly with the insertion of the word “whereby” after “sales
tax mode”. The learned AR also draw attention to the sub-section (2) of section
7 ibid which was inserted through the Finance Act, 2008. The AR stressed upon
that if the assumption of the assessing officer was considered as correct in
that case the sub-section (2) will become redundant. In support of his
contentions the learned AR has placed on record the judgments of this Tribunal
reported as 108 TAX 227 and STA No.420/IB/2015 dated 15.09.2015. He, therefore,
pleaded that the appeal be accepted.
4. In
rebuttal, the learned DR has supported the orders of the lower authorities and
contended that the learned CIR(A) has passed a speaking order and there is no
infirmity in the impugned order. Further argued that the issue involved in the
instant appeal has already been decided by the Full
Bench of this Tribunal in STA No.30/IB/2012 dated 21.05.2012 in favour of the
Department. He, therefore, prayed for the rejection of the appeal.
5. Arguments
advanced by the learned counsels for the parties have been heard and the
documents placed on record examined with their able assistance. However, before
dilating upon the controversy between the parties, the Hon’ble Supreme Court in
the case titled M/s Pakistan Television Corporation Ltd Vs Commissioner Inland
Revenue (Legal), LTU, Islamabad, and others, (2019 PTD 484) observed that the SRO 648(I) of 2005
and SRO 550(I) of 2006 to the extent of levy of Federal Excise Duty inter alia
on telecommunication services is contrary to the Constitution and the scheme of
the FE Act, 2005. A tax, under Article 77 of the Constitution, can only be levied by
or under the authority of an Act of Parliament. It is levied under the charging
section of such an Act. Section 3 and the First Schedule to the Federal Excise
Act, 2005 as well as the First Schedule to the Customs Act including PCT
Heading 98.12 are statutory provisions. These can only be amended by an Act of
Parliament. Delegated legislation such as an SRO cannot amend these. Section 7
of the FE Act, 2005 provides the only collection of FED in sales tax mode for
such services as may be specified by the Federal Board of Revenue. SRO
648(I)/2005 as well as SRO 550(I)/2006, thus, merely authorized the
collection of FED on ‘Telecommunication Services’ in sales tax mode.
6. Now we
come to the main issue, the crux of the controversy
between the Appellant and the Tax Authorities raised in the instant appeal is
that: -
i. Whether
the appellant providing services in telecommunication was obliged to apportion
excisable services from non-excisable while claiming credit of input tax?
ii. Whether for the purposes of collection and manner of payment of FED in sales tax mode, all the provisions of the Sales Tax Act, 1990 and rules, notifications, orders, and instructions made or issued thereunder shall mutates mutandis, apply to the excise duty so chargeable?
The said controversy between
the parties revolves around the interpretation of the different provisions of
the FE Act, 2005, and in order to assess and analyze those provisions, it would
be advantageous to reproduce them which are applicable: -
“Section 3. Duties
specified in the First Schedule to be levied: - (1) Subject to the
provisions of this Act and rules made thereunder, there shall be levied and
collected in such manner as may be prescribed duties of excise on,-
(a)
…………………………………………………………..
(b)
…………………………………………………………..
(c)
…………………………………………………………..
(d)
services provided in Pakistan including the
services originated outside but rendered in Pakistan;
at the rate of fifteen percent ad valorem except
the goods and services specified in the First Schedule, which shall be charged
to Federal excise duty as, and at the rates, as set forth therein.
(2) ……………………………………………………
(3) The Board may, by notification in the Official
Gazette, in lieu of levying and collecting under sub-section (1) duties of
excise on goods and services, as the case may be, levy and collect duties:-
(a) …………………………………………………………..
(b) on
a fixed basis, as it may deem fit, on any goods or class of goods or on any
services or class of services, payable by any establishment or undertaking
producing or manufacturing such goods or providing or rendering such services.
(3A) …………………………………………………………..
(4) …………………………………………………………..
(5) the
liability to pay duty shall be-
(a)
…………………………………………………………..
(b)
…………………………………………………………..
(c)
in case of services provided or rendered in Pakistan, of the
person providing or rendering such service, provided where services are
rendered by the person out of Pakistan, the recipient of such service in
Pakistan shall be liable to pay duty; and
(d) …………………………………………………………..
Explanation. - Subject to sub-section (1), for the purpose of this section,
(goods) means the goods specified in CHAPTERS 1 TO 97, and “services” means the services specified in CHAPTER 98 of the First
Schedule to the Customs Act, 1969 (IV of 1969).
Section 7. Application of the provisions of the
Sales Tax Act, 1990: - (1)
In case of goods specified in the Second Schedule or such services as may be
specified by the Board through a notification in the Official Gazette the duty shall be payable in sales tax mode,
whereby: -
(a) a
registered person manufacturing or producing such goods or providing or
rendering such services shall be entitled to deduct input tax paid during the
tax period from the amount of duty of excise due from him on such goods or
services in respect of that tax period;
(b) a
registered person shall be entitled to deduct the amount of duty of excise paid
or payable by him on such goods or services as are acquired by him during a tax
period from the output tax due from him in respect of that tax period;
(c) a
registered person supplying such goods or providing or rendering such services
shall be entitled to deduct duty of excise paid or payable on such goods or
services as are acquired by him during the tax period from the amount of duty
of excise due from him on such goods manufactured or produced or services as
are provided or rendered by him during that period; and
(d) a
person shall be entitled to deduct duty of excise paid or payable, on such
goods or services as are acquired by him during a month, from the amount of
duty of excise due from him on such goods manufactured or produced or services
as are provided or rendered by him, during that month. Such services as are
provided or rendered by him, during that month.
(2)…………………………………………………………..
Explanation.---For the purposes of this section, the
expressions "input tax", "output tax" and tax period"
shall have the same meaning as are assigned to them in the Sales Tax Act, 1990.
Section 2(21a): "Sales Tax Mode" means the manner of collection and payment
under the Sales Tax Act, 1990 and rules made thereunder, of the duties of
excise chargeable under this Act specified to be collected and paid as if such
duties were tax chargeable under section 3 of the said Act and all provisions
of that Act and rules, notifications, orders and instructions made or issued
thereunder shall mutates mutandis, apply to the excise duty so chargeable.
First
Schedule
Table
II
(Excisable
Services)
|
S.No. |
Description of Goods |
Heading/sub-heading Number |
Rate of Duty |
|
6 |
Telecommunication services,
excluding such services in the area of a Province where such Province
has imposed Provincial sales tax and has started collecting the same through
its own Board or Authority, as the case may be. |
98.12 (All
sub-headings |
Seventeen percent
of charges |
It can be seen from the above provisions of law that the excise
duty on services can only be levied under section 3(1)(d) of the FE Act, 2005
on services specified thereunder or in the First Schedule thereto read with
Chapter 98 of the PCT. Section 3(1)(d) further provides that services provided
in Pakistan are liable to FED at the rate of 15% ad valorem “except the services
specified in the First Schedule, which shall be charged to FED as, and at the
rates, set forth therein.”
7. Prior to amendment
in section 7 of the FE Act, 2005 a notification S.R.O.
550(I) of 2006 dated 5th June, 2006 was issued by the Federal
Government in the exercise of the power conferred by section 7 ibid which provides that the Federal Excise Duty shall be levied and
charged in the sales tax mode as provided under the Sales Tax Act, 1990 and the
rules made and notifications, orders, and instructions issued thereunder with
the modifications as are necessary. Probably
realizing that the notification is without lawful authority in as much as it
did not take into account the substantive law. Accordingly, the amendment was
made in section 7 of the FE Act, 2004 through Finance Act, 2007, and it was
specifically provided therein that the duty shall be payable in the sales tax
mode. Simultaneously section 2(21a) was also inserted through Finance Act, 2007
which defines the expression “sales tax mode”. As noted above, the controversy at
hand relates to the tax periods from July, 2015 to June, 2016. Therefore,
amended section 7 as reproduced above would apply in the instant case which
clearly shows that the recovery of FED shall be made in the sales tax mode. The
expression “sales tax mode” has been defined in section 2(21a) which provides
that all the provisions of the Sales Tax Act, 1990 and rules, notifications,
orders, and instructions made or issued thereunder shall mutates mutandis,
apply to the excise duty so chargeable. Therefore, the Sales Tax Rules, 2006
which came into existence vide notification bearing S.R.O. No. 555(I) of 2006
dated 05.06.2006 is fully applicable in the instant case. Accordingly, rules 24
and 25 of the Sales Tax Rules, 2006 provide the mechanism for apportionment of
input tax.
8. Further while
interpreting the recovery of duties of excise in the sales tax mode and
incorporation of the provision of Sales Tax Act, 1990 in the FE Act, 2005, the
Hon'ble Islamabad High Court in its decision dated 09.03.2011 in a case titled “Pakistan
Telecom Mobile Limited v. Additional Commissioner Inland Revenue, Audit, Large
Taxpayer” (W.P. No. 1715/2010) observed as follows: -
“16. There is no cavil to the proposition that any law can be incorporated by way of reference and can be made part of another enactment. The legislation has every right to incorporate one act into another by way of reference. The dispute in the present case is not regarding the competence to incorporate law by way of reference rather the actual controversy is regarding the effect of the incorporated law.
17. In judgment reported as PLD 2001 Karachi 422, it was held that “when any law to which reference is made, is incorporated/made applicable to the proceedings under any special stature or the statue having reference, then all the provisions contained in the statute to which reference has been made are attracted except those which are expressly excluded.”
18. In judgment reported in 1985
SCMR 70, it was held that
“Effect of incorporation by reference to the provision of a formal act is as if
the new act has come into force containing all those provisions subject to such
modifications and alteration, if any, as made by indicated in adopted Act.”
19. In judgment reported in AIR 2002 SC 3499, it was held that
“When an earlier Act or certain of its provisions are incorporated by reference
into a later Act, the provisions so incorporated become part and parcel of the
later Act as if they had been bodily transposed into it. The incorporation of
an earlier Act into a later Act is a legislative device adopted for the sake of
convenience in order to avoid verbatim reproduction of the provisions of the
earlier Act into the later. But this must be distinguished from referential legislation,
which merely contains a reference or the citation of the provisions of an
earlier statute. In a case where status is incorporated, by reference into a
second statute the repeal of the first statute by a third does not affect the
second. The later Act along with the incorporated provisions of the earlier Act
constitute independent legislation, which is not modified or repealed by a
modification or repeal of the earlier Act. However, wherein later Act there is
a mere reference to an earlier Act, the modification, repeal, or amendment of
the statute this is referred to will also have an effect on the statute in
which it is referred. Whether a formal statue is merely referred to or cited in
a later statue or whether it is wholly or partially incorporated therein, is a
question of construction.
20. Keeping in view the aforementioned judgments, it becomes clear that if provisions of one Act are incorporated into another Act then the incorporated provisions become part of the Act, in which those provisions have been incorporated. The effect of the provisions is to be determined from the language of incorporated law and proper interpretation of words used.
21. In the present case Central Excise Act, 1944 was amended. Section 3 of said
Act provides that Excise Duty shall be levied and collected in such manner as
may be prescribed. By way of the impugned amendment, the prescribed manner was
adopted from the Sales Tax Act. The contention of the learned counsel for the
petitioner is that since in the amendment it was provided that Excise Duty
shall be levied and collected as if it were a tax payable under Section 3 of
Sales Tax Act, 1990, so after the said amendment charging section is that of
Sales Tax Act and not the Central Excise Act. The learned counsel for the
petitioner further contended that whenever words levied and collected are used
together in a fiscal statute then the statute becomes a charging section. This
contention of the learned counsel for the petitioner is not correct. Charging
provisions relate to the levy of charge of tax, which usually states that tax
is to be levied and on what matters, and in which manner and at what rate and
matters relevant thereto. In the instant case, the authority of levying the
Excise Duty is derived from Section 3 of the Central Excise Act and not from the
Sales Tax Act. The said provision relates to the mode and manner and receipt or
collection of tax. The assessment and collection are merely the machinery
sections. This too is not correct that if words levied and collected are used
together in a fiscal statute then said the statute would become a charging
section. In fact, the whole section determines whether the same is the charging
section or not. However, in the present case, there can be no doubt that the
charging section is Section 3 of the Central Excise Act, 1944, as far as the
modality of assessment and tax and collection of tax is concerned, those have
been derived from Sales Tax Act, 1990. Since those provisions by referred
provisions became part of Central Excise Act, 1944, therefore, legality or
constitutionality of the same cannot be questioned as under Central Excise Act
duty can be imposed on services rendered by a person.”
9. A somewhat similar
question came before the Hon’ble Islamabad High Court in the case titled Commissioner
Inland Revenue, Zone-II, Islamabad Vs M/s Wise Communication System, Islamabad,
(2019 PTD 2313). However, in the said case, the tax period related to 2005 i.e
prior to the amendment made through Finance Act, 2007 in sections 7 and
insertion of section 2(21a) of the FE Act, 2005 whereby the Hon’ble Division
Bench while deciding the Sales Tax
References Nos. 6 to 11 of 2012 observed as follows: -
“12. In view of the discussion above in the said case any procedural amendment which affects the vested rights operates prospectively. Likewise, the amendments made in the Sales Tax Rules, 2006 and section 7 even if regarded as procedural, since adversely affects the refund already taken by Messrs Telenor Pakistan (Pvt.) Limited and Wise Communication System (Pvt.) Limited cannot be held to be made applicable retrospectively and shall apply prospectively (Emphasis supplied)
Similarly, in the case titled as M/s Telenor Pakistan (Pvt) Ltd
Vs Federation of Pakistan and 4 others, (2017 PTD 2269) it has been held that: -
“10. In light of the above provisions and the case law, it is evident that Section 3(1)(d) of the Act imposes duties of excise on services rendered in Pakistan which include Telecommunication Services (Entry 6 Table-2, Schedule 1st of the Act) and Rule 43 of the Federal Excise Rules, 2005 as well as S.R.O. No. 550(I)/2006 provides the procedure and mechanisms for the collection of the referred duty. As already stated under Section 7 of the Act, the excise duty on notified services can be recovered in the Sales Tax Mode, otherwise, under the Rules. In this behalf, S.R.O. No. 550(I)/2006 dated 05.06.2006 specifically included Telecommunication Services hence, the Federal Excise Duty on Telecommunication Services can be recovered in the Sales Tax Mode and in this behalf all the relevant provisions of STA and the Rules framed under it are applicable.” (Emphasis supplied).
10. In view of the above position of law and facts, the answers to questions narrated in para 6 above are in affirmative. As far as, the imposition of penalty is concerned, the learned AR while arguing the case has not pressed the ground relating to penalty. Resultantly, the appeal of the appellant is dismissed and the order passed by the learned CIR(A) is maintained.
11. This order consists of
(09) pages and each page bears my signature.
|
|
Sd/- (M. M. AKRAM) JUDICIAL
MEMBER |
|
Sd/- (IMTIAZ AHMED) ACCOUNTANT MEMBER |
|
No comments:
Post a Comment