1. By this single judgment order we intend to dispose the afore-titled appeals having identical questions of law and facts. These appeals have been filed by M/s. PTVCL, M/s. Asia Satellite and M/s. Interactive (Pvt.) Ltd. Represented by their respective counsels and the State represented by the respective DRs or Legal Advisors as named above. The fundamental issues raised in appeals are whether the appellant's provided or received excisable services and if they did who had the responsibility to pay the taxes.
2. Brief facts of the case are that an information was received by the Directorate General of Intelligence and Investigation (Customs, Federal Excise and Sales Tax), Islamabad that two foreign companies namely M/s. AsiaSat, through its local agent M/s. Interactive Communication Islamabad having its office at F-7/1, Islamabad and M/s. Shin Satellite also a foreign entity through her local agent, i. e. Dr. Saqib Lari, Chief Executive Officer, M/s. Transmit Communication (Pvt.) Ltd.
2. 34-F, Muhammad Ali Housing Society Karachi, Telephone: 021-4542310 Fax:. 021- 4548415 have rendered Telecommunication Services to M/s. P.T.V.C.L., Islamabad during 2001-2004 but did not pay central excise duty leviable thereon. The services so provided by M/s. AsiaSat and M/s. Shin Satellite Co. Ltd. Were liable to be registered under the Pakistan Telecommunication Authority (Reorganization) Act, 1996. By virtue of their falling under PCT Heading No. 9812-9000 of the 1st Schedule to the Central Excise Act, 1944, these services are chargeable to central excise duty @ 15% provided in S.R.0.456(1)/1996, dated 13.6.1996 and S.R.0.333 (1/2002, dated 15.6.2002 read with S.R.0.617 (1) /2000, dated 2.9.2000.
3. Accordingly the Directorate General, of Intelligence and Investigation, Islamabad asked M/s. P.T.V.C.L., Islamabad vide letter C. No.1/DGCI/RC/2004/857, dated 29.5.2004 to furnish the record and detail of the services so received. The P.T.V.C.L., Islamabad vide their letter No. DCAD/F.EXC (03- 04) PGM/602, dated 12..6.2004 intimated that they have received the following telecommunication services from AsiaSat, Islamabad and M/s. Shin Satellite in pursuance of a contract negotiated with each company:- (a)Services provided by AsiaSat.
3. (a ) Transponder (Channel Access Service)
(b) Digital Video Plate Form.
4. Total: Central Excise Duty Involved: Rs.
5. 444,968,863.00 Rs. 61,129,766.00 Rs.
6. 506,098,629.00 Rs. 75,914,794.00 (b)Services provided by M/s. Shin Satellite (a ) M/s. Shin Satellite (1)
7. Transponder.
8. (I ) Equipment rental
(ii) Channel Access Service.
(b) M/s. Shin Satellite (11)
9. Transponders:
(i) Equipment Rental.
(ii) Channel Access Service.
10. Total: Central Excise Duty Involved: Rs. 18,003,084.00 Rs. 84,832,523.00 Rs. 19,689,301.00 Rs. 78,042,833.00 Rs.
11. 2,00,567,741.00 Rs. 30,085,161.00
4. Following up on the information turned in by the P.T.V.C.L a contravention report was made of and sent for adjudication to the competent adjudicating authority at Rawalpindi who issued show- cause notices both dated 30.9.2004 to the appellant on account f their failure to charge and collect tax and deposit central excise duty or sales tax paid or received from P.TA/.C.L. Contrary to the provisions of Section 3, 3-B & 4(3) of the Central Excise Act, 1944 read with S.R.O. 456(1 )/1996, dated 13.6.1996, S.R.0.333(1 )/2002, dated 15.6.2002 and 5. R.0.617(1 )/2000, dated 2.9.2000 and therefore, demanded deposit of central excise duty recoverable under Rule-10 (1) of the Central Excise Act, 1944 read with Rule 210 (2) ibid identifying punishment for violation of Sections 3, 6, 14, 23, 26 & 36(2) of the Sales Tax Act, 1990 punishable under Section 33(2cc) and Section 33(3) ibid. The case was heard at length and after due deliberations an order-in- original No. 24-25/2004, dated 31.12.2004 was passed against M/s. P.T.V.C.L., Islamabad, M/s. Asia Satellite, Islamabad and M/s. Interactive (Pvt.) Ltd. Confirming the tax demanded in the show-cause notice. This order-in-original mutatis mutandis applied to M/s. Shin Satellite, too, who did not join the appellate proceedings.
5. Aggrieved by the said order the appellants have filed this appeal before Appellate Tribunal, (Customs, Central Excise and Sales Tax), Islamabad now renamed as Appellate Tribunal Inland Revenue. The grounds of appeal questioning the nature of the transaction between the appellants, its chargeability to tax and the liability of the M/s. PTVCL, M/s. Asia Sat and M/s. Interactive (Pvt.) Ltd.
12. To pay central excise duty are common. However, it is the contention of the M/s. PTVCL that even if central excise duty was determined to be essentially payable, it should be demanded only from M/s. AsiaSat and M/s. Interactive (Pvt.) Ltd. Who provided certain services to M/s. PTVCL. Except for this, the rest of the grounds are similar. The common grounds of appeal discussed in the appeal memo, of the appellants i.e. M/s. PTVCL, M/s. Asia Sat and M/s. Interactive (Pvt.) Ltd. Herein after referred as appellants and their respective pleadings during several hearings held on different dates are consolidated and summarized for sake of brevity as follows:- 5.1 M/s. P.T.V.C.L. Contended that , the Respondent No. 1 has ignored the clear provisions of the Central Excise Act, 1944 and the Sales Tax Act, 1990 and has unlawfully proceeded against the Appellant. The Appellant could neither be served with the captioned show-cause notice nor proceeded against for levy and recovery of Central Excise Duty (CED). Neither the Central Excise Act, 1944 nor the Sales Tax Act, 1990 provides for recovery proceedings to be initiated or held against the recipient of services/taxable supplies. The supply/provision of services in question was being made by M/s. AsiaSat and M/s. Interactive (Pvt.) Ltd., hence, only M/s. AsiaSat and liable to pay CED, if any found due to be paid.
13. 5.2 That Respondent No. 1 has failed to appreciate that any recovery proceedings (commencing with the issuance of show-cause notice) in respect of CED not levied or short-levied for any inadvertence, error or misconception could only be initiated and held against a "registered person" who is liable to pay CED under the Sales Tax Act, 1990. Clearly, the Appellant does not fall within the definition of a "registered person", as defined in Section 14 of the Sales Tax Act, 1990.
14. 5.3 That Respondent No. 1 has wrongly held that the Appellants could be proceeded and the taxes/duties recovered from them. Their mutual contracts are privileged under the privity of contract clause contained in the contract. The central excise department thus had no jurisdiction to implead the appellants in the proceedings in question.
15. 5.4 That Respondent No. 2 is bent upon pursuing the case only against the Appellant and even the responsibility of conveying the Show-cause Notices to M/s. Asia Sat and M/s. Shin Satellite is being unlawfully shifted to the Appellant. This speaks volumes about the conduct of Central Excise authorities in imposing the CED liability on the Appellant and extracting tax from it by hook or crook without even bothering to fulfill the procedural formalities of law.
16. 5.5 That even otherwise, it is illogical and irrational to proceed against the penalize the Appellant (PTVCL) for the fault, if any, of M/s. Asia Sat and M/s. Interactive (Pvt.) Ltd.
17. 5.6 That the demand raised by Central Excise authorities vide show-cause notice No. CE/Coll/ADJ/122004/10976, dated 30th September, 2004 is time-barred.
18. 5.7 That services received by the Appellant (PTVCL) from M/s. Asia Sat and M/s. Interactive (Pvt.)
19. Ltd. Do not fall within, the definition of "excisable services" as laid down in Section 2(20) of the Central Excise Act, 1944.
20. 5.8 The Appellant has merely obtained "on lease" for its use a transponder on the satellite operated by M/s. Asia Sat and, being a lease arrangement, the amounts paid to M/s. Asia Sat and M/s. Interactive (Pvt.) Ltd. Are merely lease rentals for the Appellant's use of the transponder and are not to be taken as compensation for any services rendered by M/s. AsiaSat or M/s. Interactive (Pvt.) Ltd.
21. Use of leased/rental equipment by the Appellant and payment of charges/rentals in respect thereof to M/s. Asia Sat and M/s. Interactive (Pvt.) Ltd. Shall not amount to provision of services by the latter to the Appellant to start with.
22. 5.9 Without prejudice to the foregoing, assuming without conceding that the same do amount to services, the said services are neither originating from, nor terminating in, Pakistan or its tariff area, but rather, both originate and terminate thirty-six thousand kilometers in upper space i.e. Well outside the territorial and aerial limits/jurisdiction of Pakistan.
23. 5.10 The nature of the services is as under:- The Appellant sends/uplinks and carrier signal to upper space where it is received by a Transponder device fixed inside a satellite.
24. The transponder device modulates and amplifies the received signal and retransmits the same signal back to earth.
25. That services utilized by the Appellant only relate to the use of the Transponder device inside the satellite. The unlinking of the carrier signal as well as the receiving of the amplified signal are both carried of by the Appellant without utilizing the services of M/s. Asia Sat in any manner.
26. As such, the entire services are performed in the upper space well beyond the jurisdiction/limits of Pakistan and its tariff area.
27. 5.11 The services must be differentiated from the signal since it is the signal which is received back on the earth which is in fact the very same signal earlier generated by the Appellant but only amplified and modulated by the transponder which is all done and completed at the satellite orbiting in the upper space.
28. 5.12 That respondent No. 1 has also erroneously held that the services received by the Appellant from M/s. Asia Sat fall under the head 98.12 of the First Schedule to the Central Excise Act, 1944.
29. Respondent No. 1 has failed to appreciate the technical information provided to him by the appellant's technical expert and has wrongly concluded that a Television and Transponder, on the one hand, and telephone, telegraph, telex and telefax, on the other, are "alike" as the said word has been employed in the head 98.12 of the First Schedule to the Central Excise Act, 1944.
30. 5.13 That Sr. No. 9812 of the First Schedule to the Central Excise Act, 1944 only relates to or covers services pertaining to telecommunication work relating to "telephone, telegraph, telefax and alike".
31. 5.14 That accordingly, it must be ascertained whether the transponder services in question are being rendered in relation to telecommunication work in respect of "telephone, telegraph, telex, telefax and alike" or not.
32. 5.15 That in the instant case, the transponder services are being rendered in relation io television broadcast. Hence, it has to be seen if "television" is "alike or similar to "telephone, telegraph, telex or telefax".
33. 5.16 That "television" is markedly different from "telephone, telegraph, telex and telefax".
34. 5.17 That the word "Others" listed in sub- heading/Sr. No. 9812.9000 shall be deemed to refer to the word "alike" mentioned in the main heading/Sr. No. 9812 and must be interpreted likewise.
35. 5.18 That even under the rule of ejusdem generic,, the transponder services in respect of "television" do not come within the same classification as would similar services for "telephone, telegraph, telex and telefax" because of the differences highlighted above.
36. 5.19 That Respondent No. 1 has failed to advert to the detailed written arguments submitted by the Appellant and has not even mentioned the same in the Order dated 31.12.2004. This alone has resulted in miscarriage of justice. The contents of the said written arguments may kindly be read as an integral part of the grounds of instant appeal as well.
37. 5.20 That the impugned Order is against the facts of the case and the law, both statutory and case- law, on the subject.
38. 5.21 In addition to the grounds given above, the appellant argued as under:-
(a) The Special Procedure for collection of Central Excise Duty on Telecommunication Services rules of levy of C.E.D on Telecom services received by PTVCL. Under Rule 96ZZJ of Central Excise Rules, Chapter 98 of the First Schedule of Central Excise Act, 1944 provides as under:- "Every person, firm or company engaged in providing or rendering Telecommunication Services in respect of Telephone, Teleograph Telefax, Telex & alike shall pay the Central Excise Duty leviable on services provided or rendered". (Heading No. 9812-0000)
39. (a)Telephone 9812- 1000 (b)Telegraph 9812- 2000 (c)Telex 9812- 3000 (d)Telefax 9812- 4000 (e)Others 9812- 9000 The services from (a) to (d) Are Telecommunication Services chargable to. However, the following services are also liable to C.E.D. Under S.R.O. 456(1)/996, dated 13.6.1996.
(a) Amount of demand notes for installation of telephone.
(b) Shifting charges.
(c) Restoration/Closing charges.
(d) Conversion into STD/Non-STD.
(e) Replacement of Steno Sets.
(f) Provision of extension.
(g) Package of digital facilities,
(h) ISD facilities.
(i) Changing of Telephone Numbers.
(j) Leased Circuits.
40. No services except the above-mentioned are liable to Central Excise Duty. Such arrangement was mutually agreed on 12.11.1999 between the Federal Board of Revenue, Islamabad and M/s. P.T.C.L.
41. Islamabad circulated vide FBR letter No. 1(17)- CEB/96, dated 17.11.1999. Later on the (Revenue Division) Central Board of Revenue, issued Special Exemption Order No. 03/2005 on 12.11.2005 wherein the "Other Charges" were exempted on the amount of charges billed and received by M/s. P.T.C.L in connection with Telecommunication Services falling under PCT Heading 9812-9000.
42. 5.22. That the issue under discussion relates to the Telecommunication Services (Transponders) provided by M/s. Interactive (Pvt.) Ltd. And M/s. Asia Sat to M/s. Pakistan Television Go. Ltd. Under an agreement between the two wherein it was agreed that all the taxes will be paid by the customers.
43. The services relates to (a) equipment rental & (b) channel access services against payment of "rental charges" and "Service Fee" and rental charges are not subject to central excise duty.
44. 5.23 That the transponders are installed in upper space outside the tariff area of Pakistan, hence the question of levying central excise duty on something that is outside the territorial jurisdiction of Pakistan cannot be subjected to central excise duty.
45. 5.24 That the signals from transponders neither originate nor terminate in Pakistan.
46. 5.25 That the agreement between PTVCL and owners of transponder is protected by "Privity" of Contract. Hence, the central excise duty cannot be demanded. The clauses of the contract are privileged communication between parties to it and no third party can demand payment of tax on the basis of the contract to which it is not a party.
6. The para-wise comments of the respondent framed in the form of questions and narration of arguments and pleadings during hearing of the case are consolidated as follow:- 6.1 Whether the appellants are mere recipient of the services and therefore Central Excise Duty was not leviable and chargeable from them?
47. M/s. Asia Sat have provided "Transponder services" (Radio Circuitry) and "Digital Video Plate Form/equipment Rental Services" and M/s. Interactive have provided access channel system to Pakistan Television Corporation Limited, the Appellant. The PTVCL received the said telecom services through its specially designed telecommunication facilities like satellite up-link stations at Islamabad and Karachi. PTV utilized the radio circuitry to emit its electronic signals to satellite/Thai Com-3 for onward transmission to designated places around the world. The appellant never denied the receipt and utilization of the services on account of equipment rental and channel access. It is also an admitted fact, that the telecom-services have been received in Pakistan.
48. According to the provisions of charging Sec. 3 of the Central Excises Act, 1944 Central Excise Duty was payable on the excisable services provided or rendered in Pakistan. It reads as under:- "There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods, produced or manufactured in Pakistan or imported into Pakistan and on such goods, as the Federal Government may, by notification in the official Gazette, specify, as are produced or manufactured in the non-tariff areas and are brought to the tariff areas, and. On all excisable services, provided or rendered, in Pakistan, as, and at the rates, set forth in the First Schedule".
49. The legislature has clothed the term "Services provided or rendered in Pakistan" with very wide meanings. It not only encompasses services originating from Pakistan but also includes services originating beyond the jurisdiction of Pakistan but terminating in Pakistan. Reference Section 2(20) of the Central Excise Act, 1944 which reads as under:- "Excisable services mean services, facilities and utilities specified in the first schedule read with Chapter 98 thereof, including the services, facilities and utilities originating from Pakistan or its tariff area or terminating in Pakistan or its tariff area."
50. In light of the above provisions of law, a recipient of excisable services in Pakistan is as much service provider as other service providers do and is liable to pay Central Excise Duty on services so received/provided. The insertion of word "including" in the definition of excisable services is not- accidental one, rather it has certain meanings which should have been assigned to it, as redundancy is not permissible in law. The word "include" enlarges the meanings of the words and phrases occurring in the body of a statute. Reliance is placed on the following rulings of the Honourable Supreme Court:- "The word "include" is very generally used in interpretation clauses in order to enlarge the meaning of words or words or phrases occurring in the body of statute."
51. "Where the interpretation clause of statute states that certain things are included in a term, the term includes, unless the context otherwise requires not only those things which the interpretation clause declares that it shall include but also such things as the terms signifies according to its natural import."
52. PLD 1989 SC 128, PLD 1976 LHR 423 (DB), PLD 1967 LHR 553 (DB), AIR 1932 PC 121 It is pertinent to mention here that on the same analogy "International Incoming Calls" received by M/s. PTCL became excisable to which exemption was granted vide SRO No. 477(11/2003. Dated 7.6.2003 (Annex-A) Therefore, there is no doubt in the fact that the Appellants are service providers in the eye of law; hence they are liable to pay leviable Central Excise Duty.
53. Without prejudice to the above, this legal position was very much in the knowledge of the appellants that is why they- took up responsibility to pay in land duty/taxes in consequence of the services. There is documentary evidence in hand that the appellant have paid income tax on behalf of M/s. Shin Satellite Limited (Annex-B). But in the case of Central Excise Duty they adopted a different policy.
54. It is, further, pointed of that the ground telecommunication facilities have, directly, been operated by the appellants for the purpose of up-linking, hence it is incorrect to contend by them that they are mere recipient of the services.
55. 6.2 Whether or not there was any loss to revenue to the public exchequer in the instant case wherein the appellant had neither charged Central Excise Duty from its service provider nor had claimed any input adjustment?
56. The appellants received excisable telecommunication services from M/s. Asia Sat and M/s. Interactive during the period from July, 2001 to June, 2004 but, as explained above, but they did not pay Central Excise Duty amounting to Rs. 105,999,955/- payable thereon. The factum of massive evasion of duty on the part of the appellants was detected in 2004 and it was reported to the concerned adjudicating authority according by the Directorate General Intelligence & Investigation-FBR Islamabad. As a result of failure on the part of the appellants to pay Central Excise Duty, state exchequer suffered loss to the tune of Rs. 105,999,955/-. The loss of revenue was detected within statutory limitation and a process was initiated for its rectification (recovery of revenue) according to mechanism provided in the relevant statute. As for as adjustment of input tax by the appellant is concerned, since the appellants did not discharge their liability to payment of duty in time and manner prescribed by law, they cannot exercise, at this stage, input adjustment right which was contingent upon their liability. It is pointed of that exercise of right to input adjustment is time specific as well as service specific. Kind attention is drawn to the proviso to Section 3(11) of Central Excises Act, 1944 which is reproduced as under:- "Provided that in case of excisable services notified under the third proviso to sub-section (1).
(a) A registered person shall be entitled to deduct the amount of duty of excise paid on such services as are received by him during the tax period from the amount of duty of excise due from him on such services in respect of that tax period.
(b) A registered service provider shall be entitled to deduct duty of excise paid on such services as such services as are received by him during the tax period from the output tax due from him in respect of that tax period; and
(c) A registered service provider shall be entitled to deduct duty of excise paid on Such services as are received by him during the tax period from the amount of duty of excise due from him on such services as are provided or rendered by him during the period."
57. Hence State exchequer suffered loss to the tune of Rs. 105,999,955/-.
58. 6.3 That an agreement arrived at between Appellant i.e. P.T.V.C.L. And the providers of transponder namely, the M/s. Asia Sat does not constitute service within the meaning of telecommunication service is not tenable. In the presence of two agreements namely (1) Transponder Service Agreement and (2) Equipment Rental Agreement singed by the Managing Director, P.T.V.C.L., Islamabad and M/s. Asia Sat is an ample proof of rendering and providing telecommunication services. According to clause 1.4 of the said agreement of transponder service means providing an assigned transponder capacity of satellite in the form of frequency bandwidth for use by the customer. Apart from its providing rental equipment means providing facility of signal transmission which may be used by the customer. Though, it was rented equipment but its use in isolation would not serve the purpose or constitute telecommunication service. Hence the transponder and the rental equipment are interdependent on each other and they are originated from and terminated in Pakistan. In these agreements the word "service" has very distinctly been used. Hence the stance taken by the Appellant has no legal force. And it constitutes telecommunication service."
59. 6.4 That the issue under discussion relates to the Telecommunication Services (Transponders) provided by M/s. Asia Sat a foreign entity to M/s. Pakistan Television Co. Ltd. Against an agreement between the two wherein it was agreed upon that all the taxes will be paid by the customers. The services relates to (a) equipment rental & (b) channel access services against payment of "rental charges" and "Service Fee" net of any taxes and duties payable by the PTVCL to S.S.A. a foreign entity as per one of the clause of the agreement. The value of the service is Rs. 200,567,741/- and F.E. Duty implications of Rs. 30,085,161/-.
60. 6.5 That there is no exhaustive list of Telecommunication Services which fall under the sub- Heading "9812-9000 - Others". In view of very rapid day-to-day advancements in Telecommunication Sector, it is not possible to prescribe specifically any exhaustive list. 1 Hence all Telecommunication Services fall under "9812.9000 - Others" with the exception of those specified at 9812. 1000, 2000, 3000 & 4000 and if escaped from the purview of aforesaid heading would fall rn the definition of "alike" appearing in the S.R.O. 456(1)1996, dated 13.6.1996. Kind attention is invited to the list of services declared under the Sub- Heading 9812-9000-Others in Para (2) above.
61. 6.6 That mere change of nomenclature does not exclude a service from the ambit of taxable Activities whatsoever. To say that the functions/signal/services of the Transponders are not like the functions/signal/services of Telephone is erroneous as the purpose of using these gadgets form the same meanings.
62. 6.7 That PCT Heading No. 9813-0000 of the Federal Excise Act whereby a number of services are not defined therein. For example, banking companies, insurance companies, cooperative financing societies, modarbas, musharkas, leasing companies yes liable to central excise duty. Therefore, in its application the relevant Special Law has to be seen. In case there is no Special Law then general law and finally the dictionary meaning. Therefore, sub-heading "9812-9000 - Others" clearly applies to all instruments which have been adverted with the passage of time as a result of advancement in the scientific technologies that has to be clearly interpreted to expand the scope of any one or more of the services specified under the aforesaid heading by reading it with conjunction with any one of them. In fact the services provided and rendered by the PTVCL expressly falls within the purview of excisable services under Sub- Heading 9812-9000 - Others of the First Schedule of the Act.
63. 6.8 That non-inclusion of the "Transponders" in the S.R.0.333 (1)/2002, dated 15.6.2002 has no force in the light of above explanation. Had the legislature been in knowledge of these developments use of the words such as "others" "alike" and "include" would not have found in Tariff. In the instant case the requisite enactment provisions of law exists which is binding on the persons in Pakistan rendering 838 C.L. Pakistan Company & Tax Law Reports Vol. XVI Telecommunication Service.
64. 6.9 That though primarily the Asia Sat and M/s. Interactive are responsible to pay the evaded federal excise duty, penalty and additional duty being the service provider. However, when viewed in the context of contract/agreement clauses as explained above the burden of taxes would fall on PTVC especially when the Asia Sat and M/s. Interactive would invoke the clauses of their contract.
65. Tax laws are amoral, apply equally to. All persons, and do not distinguish between a federally owned large corporation and a common person of lower status, as far as chargeability, levy and recovery of evaded duties are concerned.
66. 6.10 That the case of transponders is identical in nature and circumstance as of International Incoming Calls which were excisable services within the meaning of S.R.0.456(1)/1996, dated 13.6.1996 which were subsequently exempted from payment of Federal Excise Duty on VAT mode on 7th June,2003. Had there been a legislative intent to exempt transponders, an exemption order would have 1 been issued by the Federal Government, which is not the case here.
7. The case analysis and findings of this Tribunal: We have closely examined this case. The learned Collector of Customs, Central Excise and Sales Tax Adjudication's comprehensive judgment, in this case is not stopping us from labouring the re- nalysis of the case. The controversy ranges from questions like characterization of the services provided by the M/s. Asia Sat and M/s. Interactive, the liability to pay central excise duty in respect of such services to the question of who has the onus of paying duties. In light, of the exhaustive written and verbal arguments and case-law presented by the appellants and respondents, we would like to review the technical and legal framework of these appeals to find answers to the following questions and accordingly enter our findings with regard to each question:- 7.1 What is a transponder and whether it provides a telecom service First of all, it seems imperative to figure of whether transponder generates telecom signals within the meanings of Pakistan Telecom Services Regulation Act of 1996. This in turn necessitates understanding the nature and function of transponder and the access channel system, through which telecom services have been provided by M/s. Asia Sat and M/s. Interactive to PTVCL.
67. Wikipedia contains the following definitions of transponders:- Definition:- A transponder is a wireless communications, monitoring, or control device that picks up and automatically responds to an incoming signal. The term is a contraction of the words transmitter and responder. Transponders can be either passive or active.
68. A passive transponder allows a computer or robot to identify an object. Magnetic labels,' such as those on credit cards and store items, are common examples. A passive transponder must be used with an active sensor that decodes and transcribes the data the transponder contains. The transponder unit can be physically tiny, and its information can be sensed upto several feet away.
69. Simple active transponders are employed in location, identification and navigation systems for commercial and private aircraft. An example is an RFID (radio-frequency identification) device that transmits a coded signal when it receives a request from a monitoring or control point. The transponder output signal is tracked, so the position of the transponder can be constantly monitored. The input (receiver) and output (transmitter) frequencies are reassigned. Transponders of this type can operate over distances of thousands of miles.
70. Sophisticated active transponders are used in communications satellites and on board space vehicles. They receive incoming signals over a range, or band, of frequencies, and retransmit the signals on a different band at the same time. The device is similar to a repeater of the sort used in land- based cellular telephone networks. The incoming signal usually originating from a point on the earth's surface, is called the uplink. The outgoing signal, usually sent to a point or region on the surface, is the downlink. These transponders sometimes operate on an interplanetary scale.
71. From the review of the foregoing definitions of transponders, it transo'res that the transponder owned by M/s. Asia Sat alone cannot, but, with the aid and help of rental equipments i.e. The channel access system attached the earth in Pakistan, by M/s. Interactive receives signals from down link to uplink. Similarly the "rental equipment" alone cannot perform functions of telecommunication service in the absence of a transponder in upper space. Therefore, the satellite's transponder and rental equipment are interdependent and in the absence of one, the other by itself cannot deliver telecom service. With regard to the nature of service provided by M/s. Asia Sat and M/s. Interactive Satellite to PTVCL, we determine that these service are essentially telecom services and cannot be characterized as any thing else. All electronic signals whether satellite based or otherwise, in connection with speech, sound, data, signal, writing, image or video, emitted within, into, or from Pakistan are covered by the definition of Telecommunication Services envisaged in the Pakistan Telecommunication Regulation Act, 1996. Similarly, M/s. Interactive being, intermediary provider of telecom services to PTVCL through access channel system is also providing a telecom service to the PTVCL.
72. 7.2 Whether Transponder provide telecom service within the tariff area of Pakistan and whether there services enjoy the benefit of exemption.
73. In this case the PTVCL is receiving signals through satellite uplink stations-of Islamabad and Karachi utilizing the radio circuitry to emit its electronic signal to Satellite through M/s. Asia Sat for transmitting it to the designated places in the world. Therefore, such services are being received in Pakistan through rental equipment and channel access system. The telecom signals being rendered to M/s. PTVCL through satellite in upper space either originate or terminate in Pakistan or its tariff area defined in Section 2(20) of the Central Excise Act, 1944. Given the respective role and responsibly of M/s. PTVCL, Asia Sat and M/s. Interactive in the context of their inter se contractual agreements, we find that the PTVCL, using the access channel installed in tariff area of Pakistan sends T.V. Signals to the satellite in upper space and the providers of transponders through radio circuitry between the access channel and transponder enable PTVCL to send its electronic signals to the satellite for onward transmission to the designated placed around signals to the satellite for onward transmission to the' designated placed around the world against payment of "Service Fee" and "Rental Charges" as discussed above. Material fact is that PTVCL is using those channels which have been provided by M/s. Asia Sat liable to be licensed by the P.T.A. Under Section 2(v) read with 2(g) of Pakistan Telecom Regulatory Authority Act. According to Clause 4.1.3 of the agreement titled "Representation and Warranties" the procurement of approvals, licenses and the like is the sole responsibility of M/s. PTVCL which shall have its full effect and force during the life of the agreement. Contrary to its covenanted role under the agreements the PTVCL failed to obtain a license/approval from the Government of Pakistan for the appellants involved in appeal. The PTVCL also failed to charge 15% of Federal Excise Duty on the invoices submitted to it by M/s. Asia Sat and M/s. Interactive for receiving the contractual amount. The upshot of the above discussion is that telecom services are being rendered by the appellant in Pakistan inasmuch as the radio bandwidth beam or channel base through which PTV is up-linking its transmission to the respective Satellite with the help of "rented equipment in Pakistan". Unlike the international leased circuits used by the P.T.C.L. For International Calls, the services in question procured by PTVCL don't enjoy the benefit of exemption from payment of the federal excise duty.
74. During the hearing of the case, the appellant claimed that international calls were chargeable to excise duty under SRO 456 (I) /1996, dated 13.6.1996. However, international calls were determined to be outside the tariff area of Pakistan and therefore, were given exemption from central excise duty vide entry 98.12 (47)V in SRO 477(1)2003, dated 7.6.2003 read with another special exemption order issued vide central excise exemption order No. 1/2003, dated 27.06.2003. The exemption of excise duty in respect of international calls was given retrospective effect although the excise duty on such services had already been charged and recovered by the Pakistan Telecommunication Limited (PTCL) from the consumers of international calls. According to the appellants, this exemption mutatis mutandis applies to telecom services provided by the appellant as the signals produced by the transponders are similar to the signals produced by international calls. On the analogy of the PTCL, the service provided by the appellants merit exemption from duty as the doctrine of consistency applies to this case. responding to the appellant's contention, the D. R stated that the retrospective exemption of excise duty notified vide SRO 477(1 )/2003, dated 7.6.2003 read with special exemption order No. 1/2003, dated 27.06.2003 had no bearing on the telecom services provided by the Appellant. He further stated that the central excise department had initiated adjudicating proceedings against the PTCL for recovery of over Rs. 20 billion and the adjudicating authorities adjudicated the case confirming the validity of demand against the PTCL. The PTCL's appeal before the Tribunal resulted in order in remand directing the adjudicating authority to reconfirm whether the incidence of tax had been passed on by the PTCL to its consumers of international calls. However, during pendency of the adjudicatory proceedings, the PTCL was allowed retrospective exemption of federal excise duty since 1996 regardless of the fact that the PTCL had already realized the federal excise duty from its consumers and recognized the same in their accounts also.
75. We are astonished to have learnt about the existence of a retrospective exemption order that enabled the PTCL to reap colossal wind fall profit nearly as enormous as the proceeds from the privatization of such a great national assets. We don't know the rationale of this kind of the special exemption order which not only violated the fundamental prohibition against retrospective legislation but also Section 3(B) of the Central Excise Act The effect of this exemption is unjust enrichment of PTCL. In parliamentary form of Government the law making is the exclusive domain of the legislature However alongside the delegation doctrine also exists to allow the administrative agencies to frame rules for achieving the stated objectives of a statute promulgated by the legislature. A rule framed in exercise of delegated legislative authority is valid only if it . Is made to advance public interest and purpose of the statute. In judicial review of rule framed under delegated legislative authority, superior courts of law have laid down certain criteria for testing the validity of a rule framed under delegated legislative authority which include "the intelligible test", "the welfare test" and "the statutory objective tests". Any rule which does not conform to the aforesaid criteria of public interest or other tests mentioned above in unlikely to survive the test of judicial scrutiny, if challenged before a Court having jurisdiction to interpret of law. Since the case before us does not relate to PTCL, we will refrain from further comment on it.
76. The whole discussion of SRO 477(1 )/2003 and central excise exemption order No. 1/2003 is totally of of context of this appeal. Therefore, leaving aside the vires of SRO 477(1 )/2003 read with another special exemption order issued vide central excise exemption order No. 1/2003, dated 27.06.2003 given retrospective effect from 01.01.1996, we confine ourselves to the figure of whether the exemption order No. 1/2003 mutatis mutandis applies to telecom services provided by our appellants. Having analyzed the SRO and the exemption order we conclusively determine that the retrospective exemption in question being PTCL specific does not and cannot extend to the telecom services provided by the appellants of this case. The appellants do not fall in the purview of SRO 477(1)/2003, dated 7.6.2003 read with the central excise special exemption order No. 1/2003, dated 27.06.2003.
77. 7.3 Whether the telecom services provided by the transponder or access channel base are liable to Central Excise Duty.
78. The transponder is a device similar to the repeater of the sort used in the land based cellular telephone network. In the instant case such function and service is being performed through the' rental equipments erected to the earth. The words services provided or rendered in Pakistan as enunciated under subsection (2) of Section 20 of the Central Excise Act, 1944 imports meanings as follows:- Section 2(20): "Excisable Services mean services, facilities and utilities specified in the 1st Schedule of the Central Excise Act, 1944 read with Chapter 98 thereof, including the services, facilities and utilities originating from Pakistan or its tariff area or terminating in Pakistan or its tariff area".
79. A plain reading of the definition of transponder given in para 6.1 explains that transponders generate telecom signals within the tariff area of Pakistan and therefore, this service cannot be excluded from the purview of excisable services being "the services terminating in Pakistan and its tariff area" which is an excisable service within the meaning of Section 3 of the Central Excise Act, 1944 which reads as under:- Section 3: "There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods, produced or manufactured in Pakistan or imported into Pakistan and on such goods as the Federal Government may, by notification in the official Gazette, specify as are produced or manufactured in the non-tariff areas and on all excisable services, provided or rendered in Pakistan as at such rates, as set forth in the 1st Schedule". It is therefore clear that the transponder is rendering certain service which terminates in the tariff area of Pakistan as a service provider inasmuch other service providers do. Therefore, Central Excise Duty is payable on such service under Section 3 of the Central Excise Act, 1944. Besides above the Economic Coordination Committee has also concurred with the chargeability of Central Excise Duty on the "Others" service as contained in Para (2) of the E.C.C. Decision No. 44(4)/2002, dated 28.3.2002 (levy of General Sales Tax (GST) on remaining services of M/s. P.T.C.L. The insertion of the word "alike service" in the body of the S.R.O. 456(1 )/2006, dated 13.6.2006 is not accidental. The services like "Voice Cast"
80. (Voice Broadcasting Services) and "VAST" very Small Aperture Terminal Service have also not elsewhere been provided specifically under PCT Heading No. 9812-9000 - Others" yet these are subject to excise duty. The perception that decision of the E.C.C. Referred to in Para (2) above has ousted such-like services from the purview of Section 2(2)) of the Central Excise Act, 1944 is not correct because central excise duty is chargable from Service like "Voice Cast" (Voice Broadcasting Service) and "VAST "(Very Small Aperture Terminal Service) and the P.T.C.L. Has been paying central excise duty. The charge of. Central excise duty on services falling under the alike service of PTC Heading 9812-0000 was never challenged by the P.T.C.L. In any appellate forum and therefore has attained finality. The use of the word "alike service" is meant to enlarge the meaning of the words and phrases occurring in the body of a Statute. The Honourable apex Court through various judgments, while interpreting the meanings of the phrase "ejusdem generis" has explained the term "alike service" as follows:- "Where the interpretation clause of statute states that certain things are included in a term, the term includes, unless the context otherwise requires not only those things which the interpretation clause declares that it shall include but also such things as the terms signifies according to its natural import."
81. Since the federal excise duty was paid on the above services by M/s. P.T.C.L. Under the category of "alike service" under PCT Heading 9812, therefore, the telecom signals generated by transponders are also liable to federal excise duty on the same analogy and rightly falls under "alike Service". The international incoming calls operating on mechanism and characteristics identical to the transponders were liable to federal excise duty. The telecom signals generated by transponders, being similar to the above two categories needs equal treatment under the Doctrine of Consistency. We have already given our finding that the retrospective exemption of duty granted by FBR to international calls does not apply to telecom services provided by transponder because SRO 477(1) of 2003 which is already bad enough law is PTCL specific as it specifies PTCL as the only beneficiary of the exemption.
82. 7.4 Whether the C.E. Duty can be demanded from the PTVCL which is recipient of the service and whether the contract between PTVCL and Asia Sat is protected by the "privity" of contract clause".
83. Rule 96ZZJ of the Central Excise Act 1944 provides special procedure for collection of Central Excise Duty on telecommunication services as provided under S.R.0.456(1)/1996, dated 13.6.1996. S.R.0.333
(1) 2002, dated 15.6.2002 extends exemption from central excise duty to goods imported, produced or manufactured locally and services named therein. A careful examination of the S.R.O. Suggests that no exemption from payment of central excise duty is available to "alike" service of PCT Heading 9812-9000. Section 3 of Chapter-ll of the Federal Excise Act, .2005 deals with duties specified in the 1st Schedule to be levied. Accordingly under Section 5(c) the liability to pay duty shall be:- "In case of services provided or rendered in Pakistan, of the person providing or rendering such services."
84. In the case at hand the charging of central excise duty (On VAT mode) from PTVCL is lawful and consistent with Section 2(20) of the Act reproduced as under:- Section 2(20): "Excisable Services mean services, facilities and utilities specified in the 1st Schedule of the Central Excise Act, 1944 read with Chapter 98 thereof, including The services, facilities and utilities originating from Pakistan or its tariff area or terminating in Pakistan or its tariff area".
85. In this particular case the PTVCL is not just a recipient. Actually the nature of the transaction is such that on one hand, the PTVCL receives telecom signals from the satellite with the help of transponders and the access channel system and on the other hand delivers telecom signal to the satellite through and the access channel system. It is unique transaction of a two way exchange of telecom signals. There is no doubt that the PTVCL is both the recipient and provider of telecom signals characterizable as service within the meaning of the Central Excise Act and therefore, liable to central excise duty.
86. Now we turn to the privity of contract argument. An agreement/contract of privity between its parties is an inter se arrangement for settlement of fiscal, administrative, technical issues and so on but cannot oust operation of a public law or jurisdiction of a state agency. The Federal Government is not a party to the agreement between PTVCL and AsiaSat or Interactive (Pvt.) Ltd., and in no way restricts or neutralizes the operation of a public law or jurisdiction of a state agency like the FBR or any office subordinate to it. Since the ground telecommunication facilities have directly been operated by the PTVCL, their contention that they are mere recipient of the services in unfounded. Further from the record it is revealed that PTVCL have paid income tax on behalf of Asia Sat vide debit advice dated 26.1.2006 but in the case of payment of central excise duty they have taken a divergent position. The Privity of contract is not applicable in this case because it was the PTVCL who voluntarily delivered copy of its contracts with M/s. Asia Sat and M/s. Interactive to the revenue authority.
87. 7.5 Whether the PTVCL is a withholding Agent for Asia Sat or M/s. Interactive.
88. Clause 4.4 of the Agreement between PTVCL and M/s. Asia Sat provides as under;- "The rental payable hereunder shall be paid in full without deductions. Of with holdings whether on account of taxes, imposes or duties, but if by reason of law, any tax, impose or duty must be deducted or withheld from any payments hereunder the rental payable hereunder shall be increased (by the payment of additional rental) to such amount as will result in the Lessor receiving after all such deductions or with holdings the full amount of rental that would have been payable hereunder but for such deductions or with holdings".
89. The contractual clause reproduced above suggest that PTVCL elected to act as withholding agent within the meanings of Section 68 of the Sales Tax Act, 1990. Conceptually, a withholding agent like PTVCL in this case, is rarely a disinterested observer, he is, for example, a tenant paying his landlord; a debtor paying his creditor; a licensee paying his licensor; a corporation paying its shareholder; or a fiduciary paying his beneficiary. To all of these payees he owes some duty.
90. Unfortunately, under Pakistan's tax statutes the withholding agent is required to attend to the tax matters of the supplier of services. A withholding agent has to pay to the tax department, leviable taxes of of the sums paid to the provider of a service and in this case the foreign supplier or provider of telecom service. The withholding agent is made personally and primarily liable for these amounts. The failure to pay off his liability under the law is not limited to the amounts he should have paid, rather, it also includes interest, and penalties and in appropriate cases even criminal sanctions. In the instant case the PTVCL as withholding agent has voluntarily chosen to place itself at the apex of a triangle, being pulled by the foreign payee at one comer and the tax departments of Pakistan, at the other. Facing possible areas of confusion, a potential ..Withholding agent must nevertheless act. His action (or inaction) will have legal implications for the purpose of tax statutes.
91. The PTVCL as a withholding agent has erred on the down side. He pays the foreign payees i.e. Rs.
92. 506 million to M/s. Asia Sat and withhold nothing from that payment for which he will be inevitably held responsible. Although, the withholding agent is not a guarantor or surety for the foreign payee's tax obligations, he is primarily, not secondarily, liable for the tax. His liabilities also include interest and penalties, if under-withholding has some statutory implication. The voluntary payment of the tax due by the foreign payee can absolve the withholding agent of liability for the tax and penalties; however this is not the case here. Further pursuant to the clause 4.5 of the agreement the customer (PTVCL) undertakes to indemnify the Lessor (Asia Sat) harmless against all liabilities whatsoever the Lessor (Asia Sat) suffers or incurs in respect of any taxation, impose, duty or other like charge in any country, State or territory imposed on the Lessor (Asia Sat) by reason of the operations of business of the Customer (PTVCL), utilizing, or otherwise arising as a consequence of the use of, the Transponder by' the Customer. A voluntary acquiescence to such a contractual clause by PTVCL, shows how recklessly, it negotiated its contract with the foreign providers of telecom services. It is unfortunate that most international contracts are negotiated by our State functionaries in a manner that in case of any controversy, it is only the State which takes the financial hit and then the financial burden is passed on to the people of this country. The PTVCL could have been on the right side of law if it had deducted duties from payments of its payees. The PTVCL still has the option of recovery of duty from the Appellants, if it choses so. Why the country should suffer loss of public money for the PTVCL's mindless negotiation of a contractual stipulation.
93. It is hard to imagine a contract in which the tax liability of the payee is picked up by the payer voluntarily. The PTVCL or its suppliers of telecom services have no reason to assume that this is a tax free country and the parties to the contract in question will get away without payment of duties and taxes. However, it is none of our business to comment upon the provisions of the contract relating to payment of taxes and therefore, we would stop short of discussing the public interest aspect of PTVCl's voluntary assumption of the responsibility to pay all taxes under clause 4.4 of the contract with M/s. Asia Sat or its local agent Interactive Communication. All we are concerned about is the determination of chargeability of excise duty in respect of the telecom services provided to the PTVCL by the Appellants which has to be paid by some one after all.
94. In view of the foregoing discussion, it is determined that PTVCL is liable to pay the taxes as a withholding agent for M/s. Asia Sat and M/s. Interactive. The PTVCL is not justified in aiding the M/s. AsiaSat and M/s. Interactive to avoid or evade C.E. Duty and thereby injuring the government's revenue. Nonpayment of tax due in the manner provided under the provisions of Sales Tax Act, 1990 and the rules made thereunder also attracts penal action. It is, therefore, established without any shadow ,of doubt that the demand of duty and taxes can be lawfully made from the PTVCL.
8. In view of the threadbare findings entered by us in para 6.1, 6.2, 6.3, 6.4 and 6.5 on the grounds of appeal and the analysis of the arguments put forth by both the parties verbal and written, we are of the considered opinion that the appellants could not establish their case that the services provided and rendered by them do not fall within the purview of the telecommunication services as provided under S.R.O. 456(1 )/1996, dated 13.6.1996 read with P.C.T. Heading No. 9812-9000 and, therefore, not chargeable to being central excise duty or sales tax in vat mode. On the other hand, the Respondents have successfully carried their contention that central excise duty is recoverable from the M/s. Asia Sat and M/s. Interactive on their repetitive share of the payments received from PTVCL on account of provisions of telecom service so the transponders and access channel system. The PTVCL as withholding agent has the on use of depositing the duties with the concerned revenue authorities. Similarly, the providers of channels access system whether agents of the providers of the transponders service or otherwise i.e. Independent of the provider of transponders telecom service are also determined to be providers of excisable services. As such the M/s. Interactive is also obligated to pay the leviable taxes in respect of the service fee received from the PTVCL. The PTVCL, having voluntarily assumed the role of a withholding agent is obligated to either charge the duties from the payments made to its service providers or pay those by itself. The bottom-line is that no agreement among the parties to a service or supply transaction containing certain clauses whereby the liability to pay a chargeable or leviable tax is confused to avoid payment of duties cannot be construed to preclude the application of a public law to such transaction or the jurisdiction of a public agency to recover a tax from the provider of any such sen-ices, unless expressly exempted. Therefore, the order-in-original No. 24-25/2004, dated 31.12.2004 and the order in appeal passed by the Respondents is found to be lawful, hence upheld.
95. The appeal of the appellants i.e. PTVCL, M/s. Asia Sat and M/s. Interactive is dismissed accordingly.
96. The respondent is directed to very carefully scrutinize the amounts of taxes recoverable from PTVCL in respect of payments made by it to M/s. Asia Sat and M/s. Interactive and make sure that there is no overlap in the recovery of taxes from any of the appellants.
9. This order consists of 17 pages each bears our official seal and signature.