1. JUDGMENT: MR. MUHAMMAD WALI KHAN, MEMBER (TECHNICAL).--(1). This judgment disposes of Appeal No, 03/ST/IB/2003 filed by M/s. Pearl Continental Hotel, Bhurbon, Murree (hereinafter called the appellants) against the Order-in-Original No, 40/2002 dated 4.11.2002 passed by the Additional Collector of Customs, Sales Tax and Central Excise (Adjudication), Rawalpindi (hereinafter called the adjudicating officer).
2. 2.Briefly, facts leading to this appeal are that during the course of audit of record of the appellants for the period from April, 2000 to June, 2001, the following discrepancies were observed:-- (i)They claimed wrong input tax on different items which are not used/consumed in their taxable supply on which sales tax involved is Rs, 1,659,454.00 which is violation of sections 7 and 8 of the Sales Tax Act, 1990 (hereinafter called the Act).
3. (ii)They have claimed wrong input tax amounting to (Rs, 497,098.00 on electricity during the month of April, 2000 to June, 2000 which is also violation of sections 7 and 8 of the Act.
4. (iii)They supplied food to their employees amounting to Rs, 6,464,643.00 during the period from July, 2000 to June, 2001 but did not pay sales tax amounting to Rs, 969,696.00 on that supply which is also violation of sections 3(1) and 6(2) of the Act.
5. 3.Accordingly, vide show cause notice C. No, ST/ADJ/31/2001/4066 dated 22.4.2002 issued by the adjudicating officer, the appellants were called upon to show cause within 10 days of the receipt of the said notice as to why they should not pay the evaded amount of sales tax of Rs, 3,126,248.00 under section 36 of the Act alongwith additional tax due under section 34 thereof and as to why they should also not be penalized under section 33 thereof for violation of the provisions of the Act.
6. 4.The case was subsequently heard by the adjudicating officer who did not find the explanation given by the appellants convincing and held them guilty of non payment of sales tax amounting to Rs, 3,126,248.00 on all the three counts given in the show cause notice and directed them to pay the same alongwith additional tax due under section 34 of the Act. He also imposed a penalty equal to 3% of the evaded amount on the appellants under section 33(2)(cc) of the Act.
7. 5.The appellants have assailed the order of the adjudicating officer before us.
8. Mr. Abdul Bari Rashid, Advocate appearing for the appellants argued the case. He mainly focused his arguments on the following points:-- (a)The impugned order is against the law and facts as (b)it has been passed without considering the legal provisions of the Act concerning deduction of input tax by the appellants and the reasons for denial of such deduction are not given in the impugned order.
9. (c)The impugned order failed to determine and decide (d)the basic issue in the context of nexus of input sales tax adjustment of goods purchased and utilized in rendering and providing of taxable services under the Act. In the absence of this rationale present under section 7 and section 8 of the Act and without a decision thereon the impugned order is without jurisdiction and bad in law.
10. (The impugned order lacks judicious application of mind. The same is non-speaking. Deduction of input tax from the output tax in the present case is a sine qua non without which output tax cannot be assessed or ascertained. The items which have been procured and utilized in or for the taxable services comprise of the stock-in-trade of the appellants. CBR vide its letter C. No, 2(77)/STB/1995 dated 19.10.1999 has clarified that stock in trade are the goods and commodities which are purchased for sale or for conversion into finished goods/products. In the said perspective the these items on which input tax was paid are such which constitute an integral part of making up a finished product with reference to quality of the services rendered or provided by hotels. In absence of these items a five star hotel service cannot be provided or rendered at an optimum value to the customers. The impugned order has ignored this vital point and is vague, hence the same is liable to be set-aside.
11. (d)Adjustment of input tax on the goods which are used to keep the appellants' business operational and in absence thereof the taxable activity cannot be sustained. This fundamental feature is a basic requirement of section 7 and section 8 of the Act. The attention of the adjudicating officer was drawn to CBR letter C. No, 2(77)STP/95 dated 28.03.2002 which also states that goods and commodities which are purchased for sale or for conversion into finished products are stock-in-trade. The same rationale is applicable vis-a-vis the taxable product of service and the input sales tax of the appellants cannot be denied.
12. (e)The negative list of goods arrayed in SRO 578(1)/98 dated 12.6.1998 does not hit the items utilized and claimed by the appellants. The respondent has failed to appreciate SRO 578(1)/98 dated 12.6.1998 which is illustrative and is for general guidance. It is subject to the overriding consideration of actual use of the inputs for the purposes of rendering taxable supplies and services. This principle has been well recognized in judgments passed by the Honourable Supreme Court of Pakistan, the Honourable High Courts and the Honourable Customs, Central Excise and Sales Tax Appellate Tribunal in cases reported as 1999 SCMR 1422, PTCL 2001 CL. 509, PTCL 2002 CL. 115, PTCL 2002 CL. 50, GST 2002 CL. 18 and 2002 PTD 2077 respectively.
13. (f)The impugned order is based on forced construction of law and facts of the case. The same is arbitrary and confiscatory in as much as the adjudicating officer failed to appreciate the effect of judgment of Honourable Lahore High Court in Writ Petition No, 6052/2002 of M/s. Nishat Mills Limited versus Federation of Pakistan wherein the issue regarding input adjustment on diesel has already been decided. The impugned order is not sustainable.
(g) That the food consumed by employees on job during of the appellants during working hours at canteen is an exempt supply in terms of Serial No, 3 clause (vii) of the Sixth Schedule to the Act. The impugned order has been passed in negation to this mandate of the Act. The impugned order is liable to be set-aside.
14. In view of the above the appellants prayed that the order of the adjudicating office may be set aside and the show cause notice may be vacated.
15. 7.Learned DR, on the other hand, supported the impugned order of the adjudicating officer and stated that there is no dispute regarding deduction of input tax paid on goods that were used in the supply of taxable food items but items listed in para 7 of the memo. of appeal are not meant for preparation of food and majority of these items are also hit by SRO 578(1)/98, dated 12.6.1998.
16. Therefore input tax on these items cannot be allowed and the learned adjudicating officer is justified in holding such deduction unlawful. He pointed out that services provided by the appellants came into the tax net under the Punjab Sales Tax Ordinance, 2000 with effect from 1.7.2000. Therefore the appellants cannot claim input tax on electricity consumed in rooms rented out by them during April, May and June, 2000. He further stated that supply of food to the employees of the hotel is not exempt from sales tax since S. No, 3(vii) of the Sixth Schedule to the Act is restricted to food served in messes run on the basis of mutuality and industrial canteens for workers of a particular class and not to hotels and its employees. According to him the hotel of the appellants is neither a mess run on the basis of mutuality nor is it an industrial canteen for workers of a particular class to qualify for exemption. To a question whether other hotels within the jurisdiction of the Collect orate of Sales Tax and Federal Excise, Rawalpindi were paying sales tax on food supplied to their workers the learned DR replied in negative.
8. We have heard both the parties and examined record of the case carefully. Basically, the appeal revolves around three questions the answer to which shall determine the fate of this appeal. The questions are as under:--
(a) Whether or not the appellants are justified in seeking adjustment of input tax on items (including those listed in para 7 of the memo. of appeal) in providing taxable services?
(b) Whether or not the appellants were justified in seeking input tax adjustment on electricity consumed by them during the month of April, May and June, 2000?
(c) whether or not food supplied by the appellants to their employees is exempt from sales tax under S. No, 3(vii) of the Sixth Schedule to the Act?
17. Before we examine these questions in the light of rival arguments of both the parties. it would be appropriate to reproduce below sections 7, 8 and S. No, 3(vii) of the Sixth Schedule to the Act as these were prevalent during the relevant period to which the appellants' appeal relates, section 3 of the Punjab Sales Tax Ordinance, 2000 and S. No, 1(a) of the Schedule of the said Ordinance and SRO 578(1)/98, dated 12.6.1998 to have a clear picture of the legal provisions that have a bearing on this appeal:-- (a)Section 7 of the Act.
18. "7. Determination of tax liability.--(I) For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall be entitled to deduct input tax paid during the tax period for the purpose of taxable supplies made, or to be made, by him from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in Section 9.
19. (2)A registered person shall not be entitled to deduct input tax from output tax unless:-- (i)in case of a claim for input tax in respect of a taxable supply made in Pakistan, he holds a tax invoice in respect of such supply for which a return is furnished; (ii)in case of goods imported into Pakistan, he holds the bill of entry duly cleared by the customs under section 79 or section 104 of the Customs Act, 1969 (IV of 1969)."
20. (b)Section 8 of the Act.
21. "8. Tax credit not allowed.--(1) Notwithstanding anything contained in this Act, a registered person shall not be entitled to reclaim or deduct input tax paid on:-- (a)the goods used or to be used for any purpose other than for the manufacture or production of taxable goods or for taxable supplies made or to be made by him; (b)any other goods which the Federal Government may, by a notification in the official Gazette, specify; and (c)on the goods under sub-sections ( 1A) and (5) of section 3.
22. (2)If a registered person deals in taxable and non-taxable supplies, he can reclaim only such proportion of the input tax as is attributable to taxable supplies in such manner as may be specified by the Board.
23. (3)No person other than a registered person shall make any deduction or reclaim input tax in respect of taxable supplies made or to be made by him.
24. (4)No person engaged in taxable activity specified in section 3A shall make any deduction or reclaim input tax, nor shall this tax be creditable as input tax for the taxable activity of any other registered person.
25. (5)Notwithstanding anything contained in any other law for the time being in force or any decision of any Court, for the purposes of this section, no input tax credit shall be allowed to the persons who paid fixed tax under any provisions of this Act as it existed at any time prior to the first day of December, 1998.
26. (6)Notwithstanding anything contained in any other law for the time being in force or any provision of this Act, the Federal Government may, by notification in the official Gazette, specify any goods or class of goods which a registered person cannot supply to any person who is not registered under this Act."
27. (c)Section 3 of the Punjab Sales Tax Ordinance, 2000 and S. No, 1(a) of the Schedule thereof.
28. "3. Scope of tax.--( 1 ) Subject to the provisions of this Ordinance, there shall be charged, levied and paid a tax on services known as sales tax on services at the rate of fifteen per cent of the value of the taxable services rendered or provided in the Province of Punjab.
29. (2)The tax shall be charged and levied on the services specified in the Schedule to this Ordinance, in the same manner and at the same time, as if it were a sales tax leviable under section 3, 3A or 3AA, as the case may be, of the Sales Tax Act, 1990.
30. (3)All the provisions of the Sales Tax Act, 1990, and the rules made and notifications, orders and instructions issued thereunder shall, mutatis mutandis, apply to the collection and payment of tax under this Ordinance in so far as they relate to:-- (a)manner, time and mode of payment; (b)registration and de-registration; (c)keeping of records and audit; (d)enforcement and adjudication; (e)penalties and prosecution; and (1)all other allied and ancillary matters."
31. S. No, 1(a) of the Schedule to the Punjab Sales Tax Ordinance, 2000. "l.Services provided or rendered by hotels, marriage halls, lawns, clubs and caterers:-- (a)Services provided or rendered by hotels."
32. (d)S. No, 3(vii) of the Sixth Schedule to the Act.
33. "Serial No.Description Heading Nos, of the First Schedule to the Customs Act, 1969 (IV of 1969).
(1) (2) (3)
3. Unprocessed foodstuf f for humanconsumption which shall mean: vii) Cooked or prepared food stuff served in messes runon the basis of mutuality and industrial canteens for workers of a particular class."Respective headings (e)SRO 578(I)98, dated 12.6.1998.
34. "Notification No, S. R.O. 578(1)/98, dated 12th June, 1998.--In exercise of the powers conferred by clause (b) of sub-section (1) of section 8 of the Sales Tax Act, 1990, and in supersession of Ministry of Finance and Economic Affair's Notification No, S.R.O. 1307(1)/97, dated the 20th December, 1997, the Federal Government is pleased to specify that the following goods acquired otherwise than as stock in trade by a registered person to be the goods in respect of which input tax shall not be claimed, namly:-- (1)Vehicles falling in Chapter 87 of the First Schedule to the Customs Act, 1969 (IV of 1969).
35. (2)Building materials.
36. (3)Office equipment excluding electronic fiscal cash registers, furniture, fixture and furnishings.
37. (4)Electrical and gas appliances.
38. (5)Telecommunication equipments.
39. (6)Generators and generating sets, excluding generators and registered manufacturer for use in manufacture of taxable supplies.
40. (7)Wires and cables and ordinary electrical fittings.
41. (8)Crockery, cutlery and utensils, etcetera.
42. (9)Supply of food, beverages, garments, fabrics, etcetera and consumption on entertainments.
43. (10)Gifts and give-aways.
44. (11)P.O.L. products other than JP-1 purchased by PIA and other domestic airlines, furnace oil, lubricants and greases.
45. 2.This Notification shall take effect from the 1st day of July, 1998."
46. 9.Under section 3 of the Punjab Sales Tax Ordinance, 2000 effective from 1.7.2000 services provided or rendered by hotels located in the Punjab are chargeable with sales tax @ 15 of the value of taxable services provided or rendered by such hotels and the tax is to be charged and levied in the same manner and at the same time as it was a sales tax levied under section 3 of the Act and all the provisions of that Act and the rules made and notifications, orders and instructions issued thereunder, mutatis mutandis, apply to the payment and collection of the tax under the aforesaid Ordinance. The term "service" has neither been defined in the Act nor in the aforesaid Ordinance. It has, however, been defined in the Pakistan Hotels and Restaurants Act, 1976 (Act LXXXI of 1976) to mean "any service provided in a hotel or restaurant." According to the Black's Law Dictionary, Sixth Edition "This term has a variety of meanings, depending upon the context or the sense in which used" and, inter alia, includes "public utilities of furnishing of water, heat, light and power, etc."
47. According to the Chambers Twentieth Century Dictionary, 1972 Edition the term, inter alia, means "of industry, etc., providing services rather than manufactured products." The appellants' hotel is a five star hotel and they are .providing multiple services to its customers which include the following:-- (a)Boarding and lodging comprising of fully furnished air conditioned rooms with such additional facilities as refrigerators, security vaults, complete oaths with accessories and personalized services.
48. (b)Utilities of telephone, fax, television and cable network.
49. (c)Dry cleaning and laundry.
50. (d)Recreational facilities both indoor and outdoor comprising of various facilities including amongst other swimming polls, tennis courts, golf courses, gymnasium etc. (e)Dinning rooms, restaurants, bars, ceremonial halls, conference rooms, marriage halls.
51. 10.All the above services provided or rendered by the appellants are taxable services and fit into the definition of "service" as given above. To provide these services to the satisfaction of the clients inputs are required. In this perspective a bare reading of section 7 of the Act would show that the appellants are entitled to deduct input tax paid during a tax period from the output tax due from them on the taxable services provided or to be provided by them during the said period to determine their output tax liabilities. Since sales tax is a value added tax charged, levied and paid at the stage of each value addition and the tax burden is ultimately to be passed on to the consumers, an inbuilt mechanism of input tax deduction from the output tax liability of a taxpayer in terms of section 7 or its refund in terms of section 66 of the Act has been provided in the law to guard against fraudulent input tax deduction and to avoid double taxation. To check misuse of the facility of input tax deduction and to ensure value addition safe guards have been provided under sub-section (2) of section 7 and section 8 of the Act. Keeping this legal position in view a glance through the list of items listed in para 7 of the memo. of appeal would show that these items are nothing but inputs for providing the aforesaid services by the appellants. Section 7 of the Act no where prescribes that in respect of hotels input tax adjustment is restricted to food items only.
52. There is also nothing on record to show that adjustment of input tax in respect of the items in question was made without adhering to the provisions of sub-section (2) of section 7 or these were used for any purpose other than taxable services rendered or provided by the appellants within the meaning of clause (a) of sub-section (1) of section 8 or the adjusted tax was paid under sub- sections (1A) and (5) of section 3 of the Act. Therefore adjustment of input tax paid on those items by the appellants is justified. So far as application of SRO 578(1)/98, dated 12.6.1998 is concerned, this SRO has been issued under clause (b) of sub-section (1) of section 8 of the Act and is restricted to any other goods which the Federal Government may, by a notification in the official Gezette, specify on which the registered person shall not be entitled to reclaim the input tax paid thereon.
53. This means that goods referred to in clause (a) of sub-section (1) of section 8 of the Act are not hit by SRO 578(I)/98, dated 12.6.1998 even if some or all the goods used for taxable services are listed in this SRO. The claim of the learned DR that most of the items mentioned in para 7 of the memo. of appeal are covered by the SRO and therefore adjustment of input tax paid thereon cannot be allowed shall give over riding effect to clause (b) and the notification issued thereunder over clause (a) of sub-section (1) of section 8 of the Act, which, if accepted, would render clause (a) redundant and no redundancy can be attributed to the legislation.
54. 11.The above mentioned interpretation is also against the rule of harmonious construction of statutes as held by the superior Courts including the judgment of the apex Court in the case reported as 2004 SCM R 456. On the rule of harmonious construction Justice G.P. Singh in his book titled as "Principles of Statutory Interpretation", Ninth Edition, 2004 at pages 131-32 and relying on the Indian case laws says:-- It has already been seen that a statute must be read as a whole and one provision of the Act should be construed with reference to other provisions in the same Act so as to make a consistent enactment of the whole statute. Such a construction has the merit of avoiding any inconsistency or repugnancy either within a section or between a section and other parts of the statute. It is the duty of the Courts to avoid "a head on clash" between two sections of the same Act and, whenever it is possible to do so, to construe provisions which appear to conflict so that they harmonise. It should not be lightly assumed that "Parliament had given with one hand what it took away with the other".
55. The provisions of one section of a statute cannot be used to defeat those of another "unless it is impossible to effect reconciliation between them". The same rule applies in regard to sub-sections of a section. In the words of GAJENDRAGADKAR, J.: "The sub-sections must be read as parts of an integral whole and as being interdependent; an attempt should be made in construing them to reconcile them if it is reasonably possible to do so, and to avoid repugnancy". As stated by VENKATARAMA AIYAR, J.: "The rule of construction is well settled that when there are in an enactment two provisions which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This is what is known as the rule of harmonious construction". That, efteci should be given to both, is the very essence of the rule. Thus a construction that reduces one of the provisions to a "useless lumber" or "dead letter" is not harmonious construction."
56. The contention of the learned DR being against the express provisions of the law and the rule of harmonious construction of statutes laid down by superior Courts cannot be accepted. Therefore the answer to the first question is in affirmative because deduction of input tax in the instant case is not restricted to food items only. The appellants are providing a number of taxable services to their customers as given above and they are entitled to the deduction of input tax paid on input goods that have been used for providing those taxable services. This brings us to conclude that the charge of wrong input tax adjustment of Rs, 1,659,454.00 could not be established. Therefore demand of this amount alongwith additional tax and penalty from the appellants is not justified.
57. We therefore set aside the order of the adjudicating officer in so far as it relates to the first charge.
58. 12.So far as the second question is concerned, services provided or rendered by the appellants came into the sales tax net under the Punjab Sales Tax Ordinance, 2000 effective from 1.7.2000. This means that under section 7 of the Act the appellants could claim deduction of input tax paid during the month of July, 2000 onwards for the purpose of determining their tax liability in respect of the taxable services rendered or provided by them during July, 2000 onwards and not prior to the month of July, 2000. Even the amendments made in clauses (14) and (20) of section 2 of the Act vide Finance Ordinance, 2002 whereby central excise duty charged, levied and paid under section 3 of the Central Excises Act, 1944 on services provided or rendered was taken to be a tax charged, levied and paid under the Act to justify deduction of the input tax from the output tax is of no help to the appellants since this amendment was made effective from 18.6.2001. The appellants have put forth no cogent reasons justifying deduction of input sales tax paid on electricity for the months of April to June, 2000 from their output tax liabilities of those months. There was no legal justification with the appellants for the deduction of the tax amounting to Rs, 497,098.00 paid on electricity in the months of April to June, 2000 as input tax while determining their output tax liabilities for those months. This being the factual and legal position, we find no illegality in the decision of the adjudicating officer in holding the appellants liable to pay the said amount of sales tax along with additional tax and penalty. The answer to the second question being in negative we uphold the decision of the adjudicating officer on this account.
59. 13.Coming to the third question, the appellants have claimed that hotels providing services fall in the category of industry. In support of their claim they have relied on the definition of "industry" given in clause (xvii) of section 2 of the Industrial Relations Ordinance, 2002. This clause is reproduced below:-- "(xvii) "industry" means any business, trade, manufacture, calling, service, occupation or employment engaged in an organized economic activity of producing goods or services for sale, excluding those set-up exclusively for charitable purposes, operating, through public or private donations where "charitable purpose" includes provision of education, medical care, emergency relief and other needs of the poor and indigent;"
60. They have also relied upon the Government of the Punjab Notification No, AEA-III-4-1/85,dated 26.10.1986 in which hotels are categorised as 'Service Industry' vide S. No, 24 of Schedule B thereof.
61. On the basis of these legal instruments it was claimed by the appellants that they are a "Service Industry" providing services and the food served to their employees was exempt from sales tax under item No, (vii) of S. No, 3 of the Sixth Schedule to the Act. A written letter of the Director, Finance of the appellants' hotel at Bhurbon dated 13.2.2006 was placed before the Tribunal by the learned counsel of the appellants which states as under:-- "A separate kitchen is being used for the supply of food to workers in the canteen. The situation of the separate kitchen is evident from the map attached herewith, of the floor on which the kitchen is situated. Moreover, the issues from the stores, of food and beverage items to the kitchen being used for canteen, are separate from other kitchens.
62. The average number of employees, pertaining to the audit period from April 2000 to June 2001, was 410 of which there were 15 department heads/managers. The department heads/managers had their families settled here and managed their own food. However, the canteen was used by them occasionally.
63. The audit report regarding the aforementioned appeal, on the basis of which show cause notice was issued, is also attached herewith to facilitate comprehension of the issues.
64. If further clarification regarding any of the issues is required, we would be highly obliged to be of any assistance."
65. 14.A perusal of entry No, (vii) of Serial No, 3 of the Sixth Schedule to the Act would show that cooked or prepared foodstuff served in messes run on the basis of mutuality and industrial canteens for workers of a particular class is exempt from sales tax. The Industrial Relations Ordinance, 2002 was legislated in the year 2002. The period involved in the instant appeal is from April, 2000 to June, 2001. Therefore the Ordinance in question is not relevant to the present case.
66. However, from the definition of the term "industry" given in this Ordinance the intention of the legislature appears to be clear i,e, it recognizes "service" as an industry. Therefore this definition can be taken for guidance only. When the Punjab Sales Tax Ordinance, 2000 vide which sales tpx has been levied on services rendered or provided by hotels, the Industrial Relations Ordinance, 2002 in which industry has been defined to include "service" and Notification No, AEA-III-4-1/85, dated 26.10.1986 the Government of the Punjab in which hotels have been categorized as "Service Industry" vide S. No, 26 of the Schedule "B" thereof are read together it becomes crystal clear that M/s. Pearl Continental Bburbon, Murree (the appellants) are an industry providing service of the types discussed above. They have confirmed that they are maintaining a separate kitchen for their employees and during the period under scrutiny 410 employees used that kitchen/canteen. Fifteen of those employees were department heads/managers who had their families settled there and managed their own food and used the kitchen/canteen only occasionally. The term "workers of a particular class" used in item No, (vii) of Serial No, 3 of the Sixth Schedule to the Act has neither been defined nor explained by way of an explanation in the Act. On the other hand the Industrial Relations Ordinance, 2002 vide section 2(xxx) thereof defines the term "worker" as under:-- "2(xxx) "worker" and "workman" means any and all persons not falling within the definition of employer who is employed in an establishment or industry for remuneration or reward either directly or through a contractor, whether the terms of employment to express or implied, and for the purpose of any proceeding under this Ordinance in relation to an industrial dispute includes a person who has been dismissed, discharged, retrenched, laid-off or otherwise removed from employment in connection with or as a consequence of that dispute or whose dismissal, discharge, retrenchment, lay-off or removal has led to that dispute but does not include any person who is employed mainly in a managerial or administrative capacity."
67. 15.If we go by thy definition of "worker" and "workman" given in the Industrial Relations Ordinance, 2002, the persons performing managerial or administrative functions do not fall within this definition. As such the food supplied occasionally to the department heads/managers from the appellants' separate kitchen meant for its employees is not exempt from the levy of sales tax. But this law being enacted later in time is not applicable to the present case. At the same time due to the fact that the term "workers of a particular class" having been not defined in the Act, a doubt has been created as to what is meant by "workers of a particular class". The benefit of this doubt must go to the Appellants. In holding so we gain support from the following case laws:-- (a)Where there is doubt in the matter, an interpretation favourable to the subject should be preferred. (AIR 1963 AU 153+ PLD 1972 Kar. 210 + PLD 1975 Lah. 158 + PLD 1976 Kar. 673 + PLD 1979 Kar.
68. 545 + PTCL 1990 CL. 778 + PTCL 1990 CL. 848 +PTCL 1990 CL. 1088).
69. (b)There is no cavil about the settled principle of interpretation that taxing provisions should be strictly interpreted and the benefit or ambiguity, if any, should go to the subject (1994) 50 Tax 79 (H.
70. C. Kar.).
71. (c)The cardinal principles of interpretation of a fiscal statute seem to be that all the charge upon the subject are to be imposed by clear and unambiguous words. There is no room for any intendment nor there is any equity or presumption as to a tax. A fiscal provision of a statute is to be construed liberally in favour of the taxpayer and in case of any substantial doubt, the same is to be resolved in favour of the citizen. (1992 SC 980 and (1992) 66 Tax 246 SC Pak.)
72. (d)According to the well accepted principles of interpretation the doubt has to be resolved in favour of the citizen. In these circumstances, the law makers could clarify its intention by adding an explanation which cannot be legitimately objected to (1996) 74 Tax 9 (H.C. Lah.).
73. Secondly, it is an admitted position that sales tax is not being charged on food items provided to the employees of hotels situated in the jurisdiction of the Collectorate of Sales Tax and Federal Excise, Rawalpindi. Therefore demanding sales tax on food items served on the employees from the appellants amounts to discrimination which cannot be allowed. It, therefore, follows that for the purpose of the present appeal the 410 employees of the appellants who were provided food from the employees kitchen were workers of a particular class for the purpose of item No, (vii) of S. No, 3 of the Sixth Schedule to the Act. Thus the answer to the third question is also in affirmative.
74. Accordingly we hold that food supplied to the employees of the appellants from a separate kitchen/canteen meant for the employees was exempt from sales tax in terms of entry No, (viii) of Serial No, 3 of the Sixth Schedule to the Act as this kitchen/canteen was an industrial canteen for supply of food to the employees of the hotel. We are, however, mindful of the fact that the appellants have made adjustment of input tax paid on supplies of goods received by them and some of these goods were used for preparation of food in the separate kitchen/canteen for serving to the employees. Service of food to the employees was not a taxable supply since it was exempt from sales tax. Therefore adjustment of input tax paid on items used in the supply of exempt goods/services is not justified within the meaning of section 8 of the Act. The appellants shall pay the amount of input tax which they adjusted against exempt supplies in accordance with sub-rule
(3) of rule 3 of Apportionment of Input Tax Rules, 1996 in consultation with the Collectorate of Sales Tax and Federal Excise, Rawalpindi, if necessary, and report compliance within two weeks of the receipt of this order. However, considering the fact that the main allegation against the appellants could not be established, we remit the additional tax and penalty imposed on the appellants on this account.
75. 16.The appeal is disposed of in the above terms.
76. 17.Announced.
77. 18.Parties may be informed accordingly.