SYED NADEEM SAQLAIN, JUDICIAL MEMBER.---(1). Through the titled appeal, the appellant/registered person has agitated against the impugned order dated 28-1-2000, passed by the learned Additional Collector Sales Tax, Lahore.
2. Facts in brief are that the appellant entered into agreement with the PTCL for supply, installation, testing and commissioning Diesel Engine Generating sets for PTCL on the Turn-Key basis. In order to execute the work, the appellant entered into agreements with Messrs Bahum Associates, who agreed for site survey, installation, testing and commissioning of Diesel Engine Generating Sets and completion thereof in accordance with the specification contained in the tender documents and contracts made by the appellant with the PTCL. The appellant supplied Generating Sets to the PTCL and sales tax invoices were issued on the value as per contract between the appellant and the PTCL and sales tax in respect thereof was also paid accordingly. However, during the audit of the appellant, it was observed that they supplied the goods Sets to PTCL but there was a lot of difference between the agreement price and the sales tax paid. The appellant claimed that this difference in value of Sets was service charges. Accordingly a show-cause notice was issued alleging therein contravention of sections 2(46), 3, 6, 7 and 26 of the Sales Tax Act, 1990 (hereinafter called the Act) and the appellant was called upon to show cause as to why the penal action should not be taken against him. The appellant was also asked to pay sales tax along with additional tax under sections 11(2)(4), 34 and 36(1) of the Act. In pursuance of the show-cause notice issued by the department, Order in Original dated 28-1-2000 was passed by the learned Additional Collector, Sales Tax, Lahore. Feeling dissatisfied by the impugned order, the appellant is in further appeal before the Tribunal.
3. The learned A.R. has strenuously argued the case and contended that the full sales tax was paid on Generating Sets which were manufactured by the appellant and supplied to PTCL. It was argued by the learned A.R. that other accessories including noise control system, fuel tank, board/manual override system, exhaust system, silencer system radiator etc. and services like installation, commissioning and salt testing were sublet to Messrs Bahum Associates. It was stated that payment in that regard was made by the appellant to the Bahum Associates to whom the assignment of installation was sublet. The learned A.R. informed the bench that the entire payment along with tender money was received from the PTCL. Further contended that while sales tax was paid on the receipts received on account of sale of sets for the obvious reason that the appellant was manufacturer and the same was taxable supply. The learned A.R. further explained that the difference of value alleged by the Department was due to the fact that PTCL was also charged for the services rendered for the installation of the accessories and ancillary equipment. It was stated that payment received for the installation of Generators was not part of the goods sold to the PTCL, hence the same was not liable to sale tax. In support of his contention, he relied upon judgement of the Karachi High Court reported as 2005 PTD 2582. In the supra cited case, it was held that charges received for installation of the generators sold by the assessee were not to be included in the value of supply. Upon an appeal filed by the department, whereby the issue in question was brought up before the High Court for adjudication, the same was dismissed with the following observations:-- "The short point involved is whether the charges received for installation of generators sold by the respondent are to be included in the value of supply and incidental question is, "whether the rendering of such services is included in taxable activity?"
The honourable High Court dismissed the appeal of the department with the observations:-- "Mr. Raja Muhammad Iqbal has taken us through the definitions contained in section 2(33), (35) and (46) of the Sales Tax Act, 1990. He is notable to show that the receiving of installation charges could be included in the value of supply by any stretch of imagination in the value of supply in accordance with the law as prevailing in the year, 2000. Only substantial questions of law are to be entertained by this Court. As no substantial question of law requiring interpretation has been shown, therefore, the appeal is dismissed in limine."
4. A judgment from the erstwhile Customs, Excise and Sales Tax Appellate Tribunal, Lahore was also presented before the bench wherein it was held that "taxable supplies envisages supply of taxable goods i,e, the goods other than those which have been exempted under section 13 ibid. The said section do not envisage service inclusion of service/testing charges for sales tax purpose." In the aforesaid judgment, the order-in-original was set aside since the same suffered from factual and legal infirmity.
5. Having heard the submissions made at the bar, we are of the considered view that arguments advanced by the learned A.R. carry weight. The judgments cited by the learned A.R. are also on all fours to the case of the assessee whereby it has been laid down that payment of the charges received on account of installation could not be considered to be part value of supply or even do not fall within the ambit of definition of taxable goods. There is also no denying the fact that there is no dispute with regard to the payment of sales tax regarding the actual manufacturer's taxable supply of the appellant.
6. We, therefore, following the ratio settled in the supra cited case, accept the appeal of the appellant. The Order-in-Original passed by the Additional Collector is hereby set aside.