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