APPELLATE TRIBUNAL INLAND REVENUE, DIVISIONAL
BENCH-I,
ISLAMABAD
FEA No.26/IB/2022
(Tax Period Jan-2016 to Dec-2016)
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M/s Pakistan Mobile Communication Limited
(Formerly Warid Telecom (Private) Limited, Jazz Digital Headquarters, 1-A,
IBC Building, F-8 Markaz, Islamabad. |
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Appellant
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VS |
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Commissioner Inland Revenue, LTO, Islamabad. |
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Respondent |
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Appellant by: |
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Mr.
Zaka Ud Din, ACA |
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Respondent by: |
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Mr.
Imran Shah, DR |
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Date of hearing: |
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13.06.2023 |
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Date of order: |
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13.06.2023 |
O R D E R
M. M. AKRAM (Judicial
Member): The titled appeal has
been filed by the appellant/registered person against the Federal Excise Duty Order-in-Appeal
No.110/2021 dated 19.12.2022 passed by the learned Commissioner Inland Revenue
(Appeals-I), Islamabad on the grounds as set forth in the memos of appeal.
2. The brief facts of the case are that the
Commissioner Inland Revenue, Audi-ll, Large Taxpayers Office, Islamabad
informed that the appellant case has been selected for audit under section 42-B
of the Federal Excise Act, 2005 (“FE Act, 2005”) by FBR through
parametric computer ballot for the period from Jan-2016 to Dec-2016. The Deputy
Commissioner Inland Revenue, Unit-XI, Audit-11, Large Taxpayers Office,
Islamabad, having jurisdiction over the case of the appellant-Company,
conducted the audit which revealed certain observations/discrepancies. As per the
impugned order, the Assessing Officer held that the appellant has failed to
make payment of Federal Excise Duty (FED) in Sales Tax mode against
Telecom Services in violation of Sections 3, 4, and 18 read with Table-ll of
First Schedule to the Federal Excise Act, 2005 and SRO 550(1)/2006, dated
05/06/2006. Accordingly, it was held that FED amounting to Rs.39,388,949/ is
recoverable from the appellant along with default surcharge under section 8 (to
be calculated at the time of payment) and penalty under section 19(1) of the
Federal Excise Act, 2005. Secondly, the assessing officer in the impugned order
held that the appellant has made short payment of FED due to excess
claimed/in-admissible Input Tax on account of apportionment of input tax in
violation of section 7 read with Rule 43 of the Federal Excise Act, 2005
further read with section 8(2) of the Sales Tax Act, 1990. Accordingly, it was
held that FED amounting to Rs.155,21,661/- is recoverable from the appellant
along with default surcharge under section 8 (to be calculated at the time of
payment) and penalty under section 19(1) of the Federal Excise Act, 2005.
03. Accordingly, a show cause notice was issued
to the appellant on the said discrepancies detected from the relevant record.
The contravention proceedings so initiated culminated in the passing of the
impugned Order whereby default of FED in Sales Tax mode amounting to
Rs.39,388,949/- on account of non-payment of FED in Sales Tax mode on Telecom
Services and Rs.156,218,661/- against apportionment of input tax was
established and held to be recoverable from the appellant along with default
surcharge under section 8 (to be calculated at the time of payment) and penalty
under section 19(1) of the Federal Excise Act, 2005. Being aggrieved, the
appellant preferred the appeal before learned CIR(A), Islamabad, who vide Order
in Appeal No.110/2021 dated 19.12.2022 confirmed the treatment accorded by the
assessing officer to the extent of non-payment of FED against alleged
telecommunication services. However, regarding the issue of apportionment of
input tax, he remanded the case to the assessing officer with certain
directions. Still feeling aggrieved, the appellant filed the instant appeal
before this Tribunal on a number of grounds.
4. The case came up for hearing on 13.06.2022.
The learned counsel appearing on behalf of the appellant contended that the income
earned by the Appellant amounting to Rs. 192,078,000 pertains to the rendering
and providing of passive infrastructure services which is not excisable under
the FE Act, 2005 read with Federal Board of Revenue Clarification
No.1(17)CEB/96/38971-R dated 10 March 2010. Further argued that the Hon’ble
Sindh High Court vide interim Order dated 20 January 2015 in the case of Suit
No. 767/2013 has held that the plaintiff has made out a prima facie case since
the levy of Sales Tax on passive infrastructure services falls outside the
scope of telecommunication services. Similarly, the Hon’ble Lahore High Court
has also stayed the imposition of Sales Tax on the rental of passive
infrastructure services vide Order dated 26 February 2015 in the case of WP No.
5316 of 2015. In support, he placed on record the copies of the said judgments
wherein interim relief was given to the respective petitioners. However, the
matter is still pending before the court. He explained that the whole premise
of the lower authorities is based on the understanding that the Appellant had
rendered certain services which were excisable under the PCT heading 98.12 of
the Table-ll of the First Schedule to the FE Act, 2005 which is wholly and
squarely incorrect and not based on facts as provisions of passive
infrastructure services are not covered in the First Schedule to the FE Act,
2005. Further, it has been stated that the department itself accepted the
appeals of the other registered person on the same grounds in an identical
issue. However, the appellant has been treated discriminately without any
justifiable reasons. In support, he placed on record the copies of the
appellate orders. He further argued that both the authorities below have erred
in imposing FED on account of other income which includes the reversal of
payables, audit adjustments, bank profits etc. which by any stretch of the
imagination could not be treated as rendering or providing telecommunication
services. He, therefore, pleaded that the appeal be accepted.
5. On
the contrary, the learned DR submits that the appellant has failed to pay FED
on account of Telecom Services in violation of section 3 of the FE Act, 2005
read with SRO S50(1)/2006 dated 05/06/2006. He has read the definition of the
expression “services” given in section 2(23) of the FE Act, 2005 and contended
that the submissions of the appellant that the impugned amount is a BTS rental income
is totally incorrect inter alia on the grounds that the appellant has
not declared any rental income during the impugned period in their Income Tax
Return filed for the tax year under consideration. Moreover, the sharing party
i.e Telenor has also not deducted withholding of income tax under section 155
of the Income Tax Ordinance, 2001 instead of that the sharing party has
deducted the tax under section 153(1)(b) of the Ordinance considering the same
as against the payment for Services. In support, he placed on record a copy of
the Income Tax Return. Further argued that the clarification of PTA vide
PTA/Wireline Licensing/Misc/2012 dated 15/11/2012 relied upon by the appellant
specifically covers Broadband Infrastructure Services, therefore, not relevant
to the instant case. Moreover, PTA has also issued a license for
Telecommunication Infrastructure (Tower) Provider License to the appellant. The
appellant has also admitted that they have been licensed by the Government of
Pakistan/ Pakistan Telecommunication Authority (PTA) to provide cellular
mobile telecommunication services in Pakistan. As per the definition of the PTA
(Re-Organization) Act, 1996 it can only provide a license for the
establishment, operation, or maintenance of any telecommunication system or
provision of any telecommunication service. He explains that the word "license"
means an authorization granted by the Authority for the establishment,
operation or maintenance of any telecommunication system or provision of any
telecommunication service. It has been
stated that as per the show cause notice (SCN), an amount of Rs. 324,884,328 is
recoverable from the appellant as non-payment of FED against Telecom Services. Further
pointed out that the appellant has been paying sales tax on such services under
the Provincial Services Acts as well during the tax periods under
consideration. The learned DR also invited our intention to the different
definitions of the words incorporated in the Infrastructure Sharing Agreement executed
between the parties and contended that the nature of the agreement is providing
or rendering telecommunication services rather than passive infrastructure
services. Thus, according to him, the appellant had rightly charged the FED on
such an account. He, therefore, prayed that the appeal be dismissed.
6. We have heard the parties at some length
and have perused the record in their valuable assistance. The record shows that
originally the assessing officer issued the show cause notice on the following
two points;-
i. Non-payment
of FED in sales tax mode against alleged telecom services i.e. alleged BTL
rental & other income shown in the financial accounts by the appellant.
ii. Short payment of FED due to excess claim/inadmissible input tax on account of Apportionment of Input Tax.
At
present, in the instant appeal, the appellant contested point No. (i) only
which relate to the non-payment of FED in sales tax mode against alleged
telecom services. The perusal of the record reveals that the assessing officer without
first considering or determining the nature of the source held that the
appellant is receiving rental income from BTS (Base Transceiver Station) and
income from others which falls within the ambit of Telecommunication Services. However,
according to the revenue department, the appellant has not been charging/paying
FED against the said services. For convenience, as per Order-in-Original
No.05/91 dated 18.01.2021 the demand of FED was created in the following
manner:-
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Description of income as per Order. |
Value |
Alleged FED |
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BTS
Rental. |
192,078,000 |
35,534,430 |
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Other
income. |
20,835,239 |
3,854,519 |
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Total. |
212,913,239 |
39,388,949 |
On the other hand, the learned AR for the appellant at the very outset placed on record the copy of the Infrastructure Sharing Agreement (ISA) executed between the appellant and M/s Telenor Pakistan (Pvt) Ltd, Financial statements for the year ended 30.06.2016 and detail of the “Other income” which includes the reversal of payables, audit adjustments, bank profits, etc which by no stretch of imagination comes within the ambit of telecommunication services. As far as the BTS rental is concerned, the AR contended that the income earned by the Appellant amounting to Rs. 192,078,000 pertains to the provisions of "Passive Infrastructure and Related Operations and Maintenance Services", which are not excisable under the FE Act, 2005. Under the circumstances, the following pivotal question arises from the arguments advanced by the parties for our consideration:-
"Whether in the
facts and circumstances, the provisions of Passive Infrastructure Services by
the appellant to M/s Telenor Pakistan (Pvt) Ltd (Sharing Party) come within the
ambit of “Telecommunication Services” and would become liable to Federal Excise
Duty under Serial No.6 of Table II of First Schedule to the Federal Excise Act,
2005?
7. Before
dilating upon the proposed question, first we have to understand the tower
sharing. Tower sharing is the practice of two or more telecommunications
companies sharing the same physical tower to improve coverage and reduce costs.
This can be done by co-locating antennas on the same tower, or by sharing the
tower's infrastructure, such as its power supply and ground equipment. Tower
sharing has a number of benefits, including: -
- Reduced
costs: Sharing a tower can save each company the cost of building and
maintaining their own tower.
- Improved coverage: By
co-locating antennas, companies can improve coverage in areas where it
would be too expensive or difficult to build a new tower.
- Environmental
benefits: Sharing a tower can reduce the environmental impact of
telecommunications infrastructure, as it requires less land and materials.
The
appellant has been licensed/registered with the Pakistan Telecommunication
Authority (PTA) for providing telecom infrastructure facilities to various
telecommunication operators in Pakistan. The main objective of sharing the
infrastructure is for ensuring the economy by avoiding multiple telecom sites
for different Mobile Service Providers in the same area. For providing the said
services, the appellant has entered into Infrastructure Sharing Agreement (ISA)
with M/s Telenor Pakistan (Pvt) Ltd (“Telenor” sharing party). We have
keenly gone through the said agreement to ascertain the exact nature of the services.
Under the agreement, Telenor is charged by the appellant for the "Site
Access Availability" i.e., for the access granted to them to the passive
infrastructure, owned and possessed by the appellant and for the related
operation and maintenance services offered by the appellant for the effective
and efficient use of the passive infrastructure. These charges are in the
nature of service charges/rental/lease income and are not in the nature of
consideration received for telecommunication services or for transfer of the right
to use any goods. The appellant provides required services along with the
sharing of passive infrastructure i.e. Tower sites and shelter rooms for
installation and safekeeping of equipment like antenna mounts, diversity
frames, Base Transceiver Station (BTS), cable ladder extension, D/C power,
telecom equipment, etc. belonging to the Telenor (Sharing Party) as per (Annexture-1
of the Agreement), while other equipment at the site like cable ladder, tower
extension, tower strengthening, A/C power, power generator, power management
systems, batteries, electrical wiring, etc. are used to ensure 24 x 7 power
supply for the smooth running of BTS and other equipment. The air conditioners
are used to keep the temperature below inside the shelter room for the smooth
running of BTS. The appellant is also responsible for the safety of the
operator's equipment at its site. For all these services (site access, power
supply, power conversion, air conditioning, and safekeeping), the appellant receives
a consolidated service revenue from the Telenor (Sharing Party). The telecom tower and
shelter, both put up by the appellant, are called the "passive
infrastructure". In addition to the tower and shelter, the appellant as
stated above, also provides diesel generator sets, air conditioners, electrical
and civil works, DC power system, battery bank etc. All these are known as
passive infrastructure. The "active infrastructure" consists of the
BTS, associated antenna, back-haul connectivity, and other requisite equipment
and associated civil and electrical works required to provide
the telecommunication services by the telecom operator (Telenor) at
a telecommunication site other than the passive infrastructure. Whereas
the active infrastructure is owned and operated by the sharing telecom operator
i.e. Telenor, the passive infrastructure is owned by the appellant.
8. The right, title, possession, and control
in the passive infrastructure located at the telecommunication site including
and not limited to the tower, shelter, diesel generator sets. batteries, air
conditioners, and electrical and civil works including any enhancement carried out
by the appellant vest solely with the appellant.
9. The sharing party i.e., Telenor, the
telecom service provider, on the execution of a service agreement, has the
right to install equipment such as BTS equipment, associated antennae and
active infra network equipment, and other requisite equipment required to
provide telecommunication services by it to its customers. The right, title,
and interest in all such equipment installed on the site by the sharing party would
remain with such operator only. A detail of such equipment is given in
Annexure-1 of the agreement.
10. The appellant provides the developed
facilities on a shared basis to Telenor. The Telenor installs its Cellular
& Antenna along with other requisite equipment which receives and sends the
electronic signals in the infrastructure facility. The appellant is responsible
for the supervision, operation, and control of the services relating to
passive infrastructure equipment, including maintenance, service, supervision, repair,
security, etc. The agreement between the appellant and the Telenor is on a non-exclusive
basis and the appellant retains the right to provide access to the site
including any infrastructure to other telecom service providers, for any
purpose at its discretion and the telecom operators also retain the right to
seek passive infrastructure services from other passive infrastructure
providers.
11. With this backdrop, the appellant contends
that the said transaction viz. provision of passive telecom infrastructure
facility/services does not come within the ambit of telecommunication services.
According to him, at best it may be called the “Business Support Services” and
as such, the appellant was not obliged to pay the FED for such services. It is
pointed out by the appellant that the PTA has issued separate licenses to the Telecommunication Services Providers
(TSP) and Telecom Infrastructure Providers (TIP/TTP) which means that both
transactions are distinct and separate. The PTA itself vide clarification
bearing PTA/Wireline Licensing/Misc/2012 dated 15th November 2012
has clarified that sharing of telecoms infrastructure is not a telecom service.
12. As is clear from the terms of the ISA as
well as the intention of the parties as could be gathered from the terms
of the agreement, there is no intention to provide the telecommunication
services to each other. Passive infrastructure refers
to the physical components of a telecommunications network that do not actively
transmit or receive signals, such as towers, poles, ducts, and shelters.
Passive infrastructure services involve the provision, maintenance, and
management of this physical infrastructure to telecommunications operators. Passive infrastructure services are
an important part of the telecommunications ecosystem. They help to reduce the
cost of building and maintaining telecommunications networks, and they can also
improve the efficiency and reliability of these networks.
Articles-VIII of
Telecommunication Infrastructure (Tower) Provider License also provides the definitions
which clearly differentiate between tower and telecommunication as follows:
(m) "Telecom Infrastructure facility" means
provision of physical infrastructure which would be utilized by other licensed
telecom operators for providing various services. The infrastructure setup by
the Licensee would be in addition to the infrastructure already set up by
various Licensed telecom operators;
(p) "Telecommunication Tower" means a structure on which transmitting and/or receiving antennae are located.
Accordingly, a "Telecom Infrastructure Provider (TIP) License" is also available on PTA's website http://www.pta.gov.pk/images/infrastructure license.pdf. Clause 1.1 of such license provides that: -
1.1 SCOPE OF THE
LICENCE
1.1.1 This License authorizes the licensee to
establish and maintain the following Telecom Infrastructure
Facilities to lease, rent out or sell end-to-end links to
Telecom Operators licensed by Authority on mutually agreed terms strictly
keeping in view their license conditions:
(a) Earth stations & Satellite Hub;
(b) Optic fibre cables;
(c) Radio communications links;
(d) Submarine
cable landing center within fifteen miles of the coastal area of Pakistan subject
to approval by the Authority & clearance of the Ministry of Defence and
Ministry of Interior;
(e) Towers,
poles, ducts, and pits used in conjunction with other infrastructure facilities;
and
(f) Such
other Telecommunication infrastructure as the Authority may, by Regulation,
require.
1.1.2 The licensee shall not provide any telecommunication/ broadcasting service" (underline ours for emphasis)
There is another category of
infrastructure licenses issued by PTA, which is called “Telecommunication
Infrastructure (Tower) Provider License", and is more relevant to the
instant case http://www.pta.gov.pk/images/tower license.pdf.
The scope of such license, as provided in Clause 1.1, is reproduced below:-
1.1 SCOPE OF THE
LICENSE
1.1.1.
This license authorizes a firm/person to
establish and maintain the following Telecom Infrastructure
Facilities to lease, rent out or sell to Telecom
Operators licensed/registered by the Authority on mutually agreed terms
strictly keeping in view their license/ license conditions:
(a) Telecommunication Towers,
(b) Such other Telecommunication infrastructure
as the Authority may, by Regulation, require.
1.1.2 The Licensee shall not provide any telecommunication service."(Emphasis supplied)
There are certain guidelines for
lease/rent/sale of infrastructure/ Telecommunication Towers available on PTA’s website http://www.pta.gov.pk/images/Guidelines. These
guidelines also require that the arrangement should be covered under a
Rent/Lease Agreement. For the foregoing reasons, the scope of said licenses
covers the lease, renting out, or sale of infrastructure under a proper lease/rent
agreement. It does not imply the provision of any telecom services. In other
words, the license expressly bars infrastructure
service providers from providing any telecommunication service. Further, the telecom
infrastructure facility and telecommunication tower are clearly distinct from the
telecommunication service. Under the circumstance, the services rendered by the
appellant under the Infrastructure Sharing Agreement (ISA) do not come within
the ambit of PCT Heading 98.12 of the First Schedule to the Federal Excise Act,
2005 and accordingly, the appellant was not obliged to pay the FED on such
services. Similarly, the other income amounting to Rs. 20,835,239 shown in the financial
accounts relates to the reversal of payables, audit adjustments, bank profits,
etc. which by no stretch of the imagination comes within the ambit of
telecommunication services. The revenue department has illegal and without any
cogent reason treated the said income as telecommunication services.
13. For what has been discussed above, the
answer to the above-proposed question is in the negative, against the
department. As a result, the appeal of the appellant is accepted and the orders
passed by the lower authorities are modified to the extent of the matter which
is now subject matter in the appeal.
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Sd/- (M.M. AKRAM) JUDICIAL
MEMBER |
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Sd/- (MUHAMMAD IMTIAZ) ACCOUNTANT
MEMBER |
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CERTIFICATE U/S 5 OF THE LAW REPORT ACT
This
case is fit for reporting as it settles the principles highlighted above.
-SD-
(M. M. AKRAM)
JUDICIAL
MEMBER
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