M/s LMK Resources Pakistan (Pvt) Ltd Vs The Commissioner IR, Zone 1, LTO, Islamabad.

 

APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-1

ISLAMABAD

 

STA No.493/IB/2024

 

M/s LMK Resources Pakistan (Pvt) Ltd; 9th Floor, No.55-C. PTET/ U Fone Tower, Jinnah Avenue, Islamabad.		Appellant
	Vs
The Commissioner Inland Revenue, Zone-I, LTO, Islamabad.		Respondent
Appellant by		Mr. Waseem Abbass, ITP
Respondent by		Mr. Imran Shah, DR
Date of hearing		28.10.2024
Date of order		28.10.2024

Mian Sadruddin vs The Commissioner Inland Revenue, AEIO, LTO, Islamabad

 

APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,

ISLAMABAD

 

ITA No.1174/IB/2024
(Tax year 2019)

******

Mian Sadruddin, H.No.12, Nazim Uddin Road, Sector, F-7/1, Islamabad. CNIC:6110105786555		Appellant
	Vs
The Commissioner Inland Revenue, AEIO, LTO, Islamabad.		Respondent

 

Appellant By:                                         Mr. Kaleem Khan, ACCA

Respondent BY:                                     Mr. Naveed Hassan,DR

 

Date of Hearing:                                    12.09.2024

Date of Order:                                       23.09.2024

M/s Motorway Operation and Rehabilitation Engineering, Vs Commissioner Inland Revenue, LTO, Islamabad.

 

APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I, ISLAMABAD

 

MA(Rect.) No.241/IB/2024

In ITA No.868/IB/2024

 (Tax Year, 2023)

 

MA(Rect.) No.242/IB/2024

In ITA No.783/IB/2024

 (Tax Year, 2017)

 

M/s Motorway Operation and Rehabilitation Engineering, 509, Kashmir Road, R.A.Bazar Saddar, Rawalpindi.		Applicant/Appellant
	Vs
Commissioner Inland Revenue, LTO, Islamabad.		Respondent
Appellant by:		Mr. Mazhar Ilahi, Advocate
Respondent by:		Mr. Khalid Sultan, DR
Date of hearing:		26.09.2024
Date of order:		28.10.2024

O R D E R

M.M.AKRAM (JUDICIAL MEMBER): Through the titled miscellaneous applications, the appellant has requested rectification under Section 221 of the Income Tax Ordinance, 2001 ("the Ordinance") regarding the order dated 29.08.2024, issued by this Tribunal in ITA No. 868/IB/2024 & ITA No. 1306-1307/IB/2015. In that order, the appeals were returned to the appellant on the basis that, as a state-owned enterprise (SOE), the appellant is not entitled to file an appeal before this Tribunal. The grounds for this request are outlined in the aforementioned applications.

2.      We have heard the parties and perused the record. The crucial question before us is whether the applicant taxpayer is a State-Owned Enterprise (SOE) within the scope of Section 3 of the State-Owned Enterprises Act, 2023. In this respect, the relevant excerpt from the said Section 3 is quoted below: -

“3.     Scope and application.--- (1) Notwithstanding anything contained in any other law for the time being in force, this Act shall have application to all public sector companies as defined in sub-section (54) of section 2 of the Companies Act, 2017 (XIX of 2017) and other corporate bodies which are owned and controlled by the Federal Government including those established under special enactments”. (Emphasis supplied)

The above legislative quote describes that the SOE Act applies to: -

 

(i)          Public Sector Companies as defined in sub-section (54) of section 2 of the Companies Act, 2017; or

 

(ii)         The Corporate Bodies that are owned and controlled by the Federal Government.

 

To answer the question of whether the applicant taxpayer (MORE Pvt. Ltd.) is an SOE, we now analyse whether the taxpayer comes within the ambit of either of the above two propositions.

A.  Whether the taxpayer is a corporate body which is owned and controlled by the Federal Government?

 

MORE (Pvt.) Limited is a company registered under the Companies Ordinance, 1984 hence, it is a corporate body. Now the second limb of the question boils down to the determination of the issue of ownership and control by the Federal Government.

3.      We had an opportunity to read and analyse the “Form A: Annual Return of Company having share capital” of the taxpayer which outlines the list of shareholdings as below: -

Sr No.	Name	No. of shares
1.	Mr. A. Sami	1
2.	Frontier Works Organisation	110417139
3.	Mr. W. H. Abbasi	1
4.	Mr. M. B. Khan	1

 

An analysis of the above table reveals that unlike Pakistan Telecommunication Company Limited, Pakistan Services Limited etc., the taxpayer does not have shareholdings of the Federation of Pakistan in the name of the president of Pakistan. Hence, the taxpayer company is not owned by the Federal Government. Contrarily, many of the shareholdings of the taxpayer are in the names of Frontier Works Organisation (FWO), a formation of the Pakistan Army, which as per subsection (1A) of Section 8 of the Pakistan Army Act, 1952 comes within the ambit of the “entities affiliated with or controlled by the Pakistan Army” duly “approved by Federal Government”; hence, the taxpayer company is also not controlled by the Federal Government either, as enunciated in subsection (d) of Section 2 of the SOE Act, 2023.

Pakistan Army Act, 1952

Section 8

(1A)  “affiliated entities” mean entities affiliated with or controlled by the Pakistan Army, including but not limited to statutory bodies, trusts, foundations, organisations and other entities approved by the Federal Government.(Emphasis supplied)

4.      It is pertinent to point out that the above amendment was incorporated in the Pakistan Army Act, 1952 vide Pakistan Army Amendment Act, 2023 which came into force on 18 August 2023. This post-dated the enforcement (30.01.2023) of the State-Owned Enterprise Act, 2023. Besides, the provisions of the Pakistan Army Act, 1952 are given overriding effect under an amendment introduced by the Pakistan Army Amendment Act, 2023 by way of insertion of Section 176E: -

         “176E.        Overriding effect.—

The provisions of this Act shall have effect notwithstanding anything inconsistent contained in any other law, rules or regulations for the time being in force and such law, rules or regulations shall, to the extent of any inconsistency, cease to have effect.”

Given the fact that the major shareholder of the taxpayer company, the FWO, is the formation of the Pakistan Army and under the new amendments to the Pakistan Army Act, 1952, it is controlled by the Pakistan Army. Furthermore, the fact that the taxpayer is not owned by the Federal Government and the Pakistan Army Act, 1952 has an overriding effect hence, we do not need to further examine the scope of the definition of the controlled by the Government as enunciated in subsection (d) of section 2 of the SOE Act, 2023. However, we venture to examine the proposition only for brevity.

5.      SOE Act 2023

Section 2. Definitions.

          (d) Controlled by the Government

(i)          In the case of a company, if the Federal Government directly or indirectly has the right to appoint a majority of directors or control over management or policy decisions, exercisable by a person individually or through any person acting in concert, directly or indirectly, whether by virtue of Federal Government shareholding, management right, shareholders agreement, voting agreement or otherwise.

 

(ii)         In the case of an entity created by an Act of the Majlis-e-Shoora, if the Federal Government has the power to appoint a majority of the persons who are directors of that entity or otherwise has the power to determine the outcome of decisions about the entity’s management or financial and operating policies.

 

The perusal of the above definition reveals the following either of the following attributes of the “Controlled by the Government”, that is: -

(a)     A company which is in relation to which the Federal Government directly or I ndirectly has the right to appoint the majority of the directors; or

(b)     A company in relation to which the Federal Government has control over management or policy decisions, exercisable by a person individually or through any person acting in concert, whether by virtue of Federal Government shareholding, management right, shareholders agreement, voting agreement or otherwise; or

(c)     In the case of an entity created by an Act of the Majlis-e-Shoora, if the Federal Government has the power to appoint a majority of the persons who are directors of that entity;

(d)     In the case of an entity created by an Act of the Majlis-e-Shoora, the Federal Government otherwise has to power to determine the outcome of decisions about the entity’s management or financial and operating policies.

We have carefully examined the above attributes and find that the directors of the taxpayer company are appointed by the shareholders of the company which does not include the Federal Government nor there is any evidence of any indirect role of the Federal Government in determining the outcome of the decisions about entity’s management or financial and operating policies. In a nutshell, the company is neither owned by the Federal Government nor is controlled by the Federal Government yet is merely an affiliated entity of the Pakistan Army much less than an artificial judicial person. It is pertinent to point out that both the aspects, that is, (i) owned by the Federal Government; and (ii) controlled by the Federal Government must co-exist, whereas, in the instant case neither of the attributes is met. Hence, the taxpayer company is not an SOE within the scope of Section 3 of the SOE Act, 2023 in this context.

6.      Now, this situation leads us to the alternative question of whether the taxpayer company is a public sector company within the meaning of subsection (54) of Section 2 of the Companies Act, 2017.

B.      Whether the taxpayer company is a public sector company as defined in sub-section (54) of section 2 of the Companies Act, 2017?  

In this respect, it would be beneficial if the definition of the public sector company as enacted in the Companies Act, 2017 as re-produced below is analysed at the outset.   

                    Companies Act, 2017

                 Section 2. Definitions

“public sector company” means a company, whether public or private, which is directly or indirectly controlled, beneficially owned or not less than fifty-one per cent of the voting securities or voting power of which are held by the Government or any agency of the Government or a statutory body, or in respect of which the Government or any agency of the Government or a statutory body, has otherwise power to elect, nominate or appoint majority of its directors and includes a public sector association not for profit, licenced under section 42:

 

Provided that nomination of directors by the Commission on the board of the securities exchange or any other entity or operation of any other law shall not make it a public sector company;”

 

In other words, a company which meets either of the following legal tests is called a Public Sector Company under Section 2(54) of the Companies Act, 2017.

a.   A company which is directly or indirectly controlled by the Federal or Provincial Government or its agency,

b.   A company which is beneficially owned by the Federal or Provincial Government or its agency; or

c.    A company not less than 50% of voting securities or voting power of which are held by the Federal or Provincial Government, or its agency or

d.   A company in respect of which the Federal or Provincial Government or its agency has otherwise power to elect, nominate or appoint the majority of its directors and includes a public sector association not for profit, licenced under section 42:

A perusal of the above attributes of a public sector company reveals that the ownership or control of the Federal Government is hallmark of the definition of the public sector company, which as concluded in the first part of our determination is absent in the case of taxpayer company. This leads us to conclude that the taxpayer company does not come within the ambit of a public sector company as defined in subsection (54) of Section 2 of the Companies Act, 2017. 

7.      Conclusion

Based on the above analysis and reasoning, we conclude that MORE (Pvt.) Ltd., the taxpayer company, does not qualify as a State-Owned Enterprise (SOE) under the scope of Section 3 of the State-Owned Enterprises Act, 2023. Accordingly, the rectification applications are accepted, and the office is directed to schedule the main appeals for a regular hearing on 11.11.2024. Notices to the parties should be issued accordingly.

        

		(M.M. AKRAM)                    JUDICIAL MEMBER
	(IMRAN LATIF MINHAS)  ACCOUNTANT MEMBER

 

 

 

M/s Badar Enterprises. Vs CIR, (Mardan Zone), RTO, Peshawar.

 APPELLATE TRIBUNAL INLAND REVENUE, PESHAWAR 

(SINGLE BENCH)

STA No.101/PB/2021

MA (Condonation) No.25/PB/2021

(Tax Period July-2017 to June-2018)

 

M/s Badar Enterprises,

Plot # 193/1-2, Road # 7, Industrial Estate,

Gadoon Amazai, District Sawabi.                                          …Appellant

 

                                           Versus

 

CIR (Mardan Zone), RTO, Peshawar.                                   …Respondent

 

Appellant    by              :                Mr. Ishtiaq Ahmad, Advocate/AR

Respondent by              :                ­­­­­­­­­­­­­Mr. Ishfaq Ahmad, DR

 

Date of Hearing            :                11.10.2024

Date of Order               :                11.10.2024

 

Commissioner I.R (Corporate Zone), RTO, Peshawar. Vs M/s Gadoon Textile Mills Ltd.

 

APPELLATE TRIBUNAL INLAND REVENUE, PESHAWAR,

(Single Bench)

STA No.76/PB/2018

(Tax Period- July-2016)

*******

Commissioner I.R (Corporate Zone), RTO, Peshawar.		Appellant
	Vs
M/s Gadoon Textile Mills Ltd., Gadoon Amazai, Swabi.		Respondent
Appellant By:		Mr. Aziz ur Rehman, DR
Respondent By		Mr. Usman Gul, G.M
Date of Hearing:		10.10.2024
Date of Order:		10.10.2024

M/s Four Season Fast Food, Peshawar Vs Commissioner Inland Revenue (Unit-22 Zone Peshawar), RTO, Peshawar.

 APPELLATE TRIBUNAL INLAND REVENUE, PESHAWAR

(SINGLE BENCH)

STA No.122/PB/2020

(Tax Period July-2018 to June-2019)

*****

M/s Four Season Fast Food, Arbab Road, Peshawar Cantt.		Appellant
	Vs
Commissioner Inland Revenue (Unit-22 Zone Peshawar), RTO, Peshawar.		Respondent
Appellant By:		Mr. Muhammad Azam, Advocate/AR
Respondent By:		Mr. Aziz Ur Rehman, DR
Date of Hearing:		03.10.2024
Date of Order:		03.10.2024

 

O R D E R

 

M. M. AKRAM (Judicial Member): The titled appeal has been filed by the appellant registered person against an Order in Appeal No.123 of 2020 dated 20.10.2020 passed by the learned Commissioner Inland Revenue (Appeals), Peshawar on the grounds as set forth in the memo of appeal.

2.      The key facts culled out from the record are that the appellant was registered with the respondent department as a restaurant under Sales Tax Registration No. 0501210004473. It was alleged that the appellant fell under the category of a manufacturer and was legally obligated to file sales tax returns for the periods from July 2018 to June 2019. However, the appellant failed to submit these returns, violating Section 26(1) of the Sales Tax Act, 1990 ("the Act"). As a result, a show cause notice was issued, proposing a penalty of Rs. 5,000 for each month of non-compliance under Section 33(1) of the Act. In response, the appellant submitted a written reply, but the Assessing Officer was unsatisfied with the explanation. Consequently, the assessing officer issued Assessment Order No. 99/2020 dated 30.06.2020 under Section 11(1) of the Act, raising a sales tax demand of Rs. 60,000 for the appellant's failure to file the required tax returns in violation of Section 26(1) of the Act. The appellant, dissatisfied with the decision, appealed before the Commissioner Inland Revenue (Appeals), who dismissed the appeal through Order in Appeal No. 123 of 2020 dated 20.10.2020. The appellant has now filed the current appeal before this forum, challenging that decision on a number of grounds.

3.     The case was heard on 03.10.2024. Mr. Muhammad Azam, Advocate, appeared on behalf of the appellant/registered person, while Mr. Aziz Ur Rehman, DR, represented the department in the appeal.

4.      We have heard the parties and perused the record. It is an admitted fact that the appellant operates a restaurant under the name "Four Season Fast Food," where food is both prepared and served at the request of customers who visit the restaurant. Following the 18th Constitutional Amendment, specifically with reference to Item No. 49 of Part-I of the Fourth Schedule to the Constitution, and in conjunction with Article 8 of the 7th NFC Award, the Provincial Assembly of Khyber Pakhtunkhwa (KPK) enacted the Khyber Pakhtunkhwa Finance Act, 2013 ("2013 Act"). The First Schedule of the 2013 Act lists services, including those under tariff heading 9801.2000, and Schedule-II of the 2013 Act designates taxable services, which include "services provided or rendered by hotels, restaurants, marriage halls, pandals and shamiana services, lawns, caterers, motels, guest houses, by whatever name called, including any ancillary services." Notably, tariff heading 9801.2000 pertains to "services provided by restaurants."

5.      To address the controversy between parties regarding whether the food prepared and served in restaurants to customers qualifies as a good or a service, it is essential to examine the tariff classification of goods and services, along with the rules for interpreting these tariffs. Prepared foods are classified as goods under various headings of the Pakistan Customs Tariff (PCT) in Chapter 21 (Miscellaneous Edible Preparations) of the First Schedule to the Customs Act, 1969. In this context, tariff heading 21.06 (Food preparations, not elsewhere specified or included) is particularly relevant. However, the services provided by restaurants are specifically categorized under PCT Heading 9801.2000 in Chapter 98 (Services) of the same First Schedule to the Customs Act, 1969. It is important to note that the General Rules for Interpretation (GIR) of the Tariff Schedule are also part of this First Schedule, and Rule 3 of the GIR specifies that when goods are potentially classifiable under two or more headings, the heading providing the most specific description should be preferred over a more general one. Additionally, if the goods cannot be classified based on Rule 3(a) or 3(b), they should be classified under the last numerical heading among those equally meriting consideration. According to Rule 3 of the GIR, it is clear that tariff heading 9801.2000, "Services provided or rendered by restaurants," should take precedence over headings 21.04 ("Soup or broth") and 21.06 ("Food preparations not elsewhere specified or included"), as it provides a more specific description and is numerically the last of the three headings. Furthermore, these tariff headings and descriptions from the First Schedule of the Customs Act, 1969, have been adopted in the Schedules of the Sales Tax Act, 1990, Section 2(23) of the Federal Excise Act, 2005, and the Schedules of the 2013 Act. Therefore, the GIR applies equally in determining the correct heading for classification purposes. For the reasons outlined above, it is evident that the food prepared and served by the appellant's restaurant should be classified as a "service" under tariff heading 9801.2000, rather than as "goods" under any preceding headings in Chapters 1 to 97 of the PCT.

Top of Form

6.      Reference is also made to the United Nations International Standard Industrial Classification of All Economic Activities (ISIC), Rev.4. In this classification, Section "I," Division 56, Group 561, Class 5610 is defined as follows:

"1. Accommodation and Food Service Activities

56 Food and beverage service activities

This division covers food and beverage serving activities that provide complete meals or drinks ready for immediate consumption, whether in traditional restaurants, self-service or take-away establishments, or through permanent or temporary stands, with or without seating. The key factor is that meals fit for immediate consumption are offered, regardless of the type of facility providing them. Excluded from this division is the production of meals that are not intended for immediate consumption, or prepared food that is not considered a meal (see Division 10: Manufacture of food products and Division 11: Manufacture of beverages). Also excluded is the sale of non-self-manufactured food that is not classified as a meal, or meals that are not fit for immediate consumption (see Section G: Wholesale and retail trade).

561 Restaurants and mobile food service activities

See class 5610.

5610 Restaurants and mobile foods service activities

This class covers the provision of food services to customers, whether they are served while seated or serve themselves from a display, whether they consume the prepared meals on-site, take them away, or have them delivered. It also includes the preparation and serving of meals for immediate consumption from motorized vehicles or non-motorized carts.

This class includes activities such as:

• Restaurants
• Cafeterias
• Fast-food restaurants
• Pizza delivery
• Take-out establishments
• Ice cream truck vendors
• Mobile food carts
• Food preparation in market stalls 

Additionally, it covers restaurant and bar services connected to transportation, when conducted by separate units.

This class excludes:

• Operation of concession eating facilities (see 5629).

7.      In contrast, the manufacturing of prepared meals and dishes is classified as "goods" under Section "C" (Manufacturing), Division "10", Group "107" (Manufacture of other food products), and Class "1075" (Manufacture of prepared meals and dishes) of ISIC. This classification applies when meals are processed for preservation (e.g., frozen or canned) and are typically packaged or labeled for resale. However, Class 1075 does not include the preparation of meals for immediate consumption, such as those in restaurants. Accordingly, under the United Nations ISIC classification, the provision of food services for on-site consumption, takeout, or delivery is categorized under "5610 - restaurant and mobile food service activities," supporting my findings in paragraph 5 of this Order.

8.      In the case Mondis Refreshment Room and Bar, Karachi versus Islamic Republic of Pakistan and another (PLD 1983 Karachi 214), involving a question whether the service of liquor (a "goods" liable to Provincial Excise Duty) in a Refreshment room or Bar could attract the levy of central excise duty on the services provided or rendered by restaurants, it was held that:-

"54. Taking up the second point of Mr. lqbal Kazi that in view of the provisions of Entry 43(b) of the Third Schedule of 1962 Constitution, the Federal Legislature had no power to levy duty on liquor, the argument of Mr. lqbal Kazi was that by levying excise duty on liquor, the Central Legislature has legislated in respect of a matter which was specifically excluded from its purview. He submitted that the levy of duty on services rendered or provided in a place where liquor is sold was in fact, levy of duty on liquor. He further submitted that it is settled principle that what cannot be done directly cannot be done indirectly. He relied on the Attorney General of Saskatchwan v. the Attorney General of Canada (1). In our view the point raised is misconceived for duty has not been levied on liquor but on 'excisable service' which expression has been defined as services, facilities and utilities as specified in Part II of the First Schedule to the Act, wherein the meaning of 'restaurant' is explained as an establishment, organization, place where food or drinks are sold, whether or not it provides any other services, facilities or utilities and includes a night club and cabaret. From the explanation it is clear, that the duty is levied on services, facilities and utilities, provided or rendered in a restaurant which is a place where a person is provided with drinks and food and where he takes rest, sometime for hours, and where he may be provided with other services, facilities and utilities. It is therefore, these services, facilities and utilities which have been taxed. However, the basis of levy of the duty is the charges recovered for the drinks, foods and other services, facilities and utilities. The Legislature instead of levying duty in that manner could have very well taxed the entrance in a hotel or restaurant or occupation of a chair or table therein but it has chosen a different basis, it being sovereign it could do so subject however, to any limitation provided in Constitution. Really therefore, the duty is on services, facilities and utilities in hotel or restaurant. So far as AIR 1949 PC 190 is concerned the principle in support whereof it has been cited and which has already been quoted, is not in dispute but what can be questioned is the application of the principle to the provisions of law under consideration".

9.      Based on the reasons outlined in the preceding paragraphs, I conclude that the services provided by the appellant's restaurant are taxable under tariff heading 9801.2000 of Schedule-II to the 2013 Act. Therefore, restaurant services fall under the jurisdiction of KPK Province, and the Federation has no authority to levy taxes on them. The penalty imposed by the assessing officer under the Sales Tax Act, 1990, is unlawful, void from the outset, and beyond their jurisdiction. As a result, the decisions made by the lower authorities are annulled, and the appellant's appeal is accepted.

 

	-SD- (M. M. AKRAM) JUDICIAL MEMBER