The titled Federal Excise Appeal has been filed at the instance of appellant calling in question the impugned order vide Order-in-Appeal No, 21/2009 passed on 11.05.2009, passed by the learned Collector (Appeals)., Lahore.
2. Brief facts leading to the instant appeal are that the staff of the Directorate General of Intelligence & Investigation, FBR, Islamabad reported to the office of learned Deputy Collector (Adjudication), Regional Tax Office, Lahore that in pursuance of specific information received therein that the appellant had not paid the requisite Federal Excise Duty on service i,e, commission/brokerage falling in PCT, Heading 9813.0000 during the period from 01.07.2006 to 30.06.2007. The management of the appellant Company was allegedly asked vide Letter Bearing No, 1 (126)DGCl/PECH/Misc/2006/5347 dated 6-11-2007 to provide the relevant information/data of commission received on account of foreign exchange but the appellant did not provide the same.
However, on receipt of annual accounts for the year 2006-2007 from State Bank of Pakistan and to facilitate the appellant without going into litigation, the management of the appellant company vide Letter No, 1 (187)DGCl/Tech/2007/137 dated 09-1-2008 was asked to pay Federal Excise Duty amounting to Rs,540,625/- on net dealing worth Rs, 10,812,509/- received by the appellant during 2006-07 followed by a final reminder on 20-3-2008. However no response was shown. It was observed that the Federal Government vide sub-section (1)(d) of Section 3 of Federal Excise Act, 2005 levied Federal Excise Duty @ 5% on excisable services provided or rendered by Foreign Exchange Office/Dealers falling under Heading 98139000 of table 2 of the First Schedule to the Federal Excise Act, 2005. In this regard the procedure for payment of Federal Excise Duty on such services was also laid down vide Rule 40 of the Federal Excise Rules, 2005. In this case, the Deputy Collector (Adjudication) levied Federal Excise Duty @ 5% which comes to Rs,5,40,625/- on services rendered by the appellant alongwith default surcharge. He also imposed a penalty of Rs, 10,000/- under Section 19(1) of the Federal Excise Act, 2005 on the appellant.
3. Being aggrieved, the appellant filed appeal before the learned Collector (Appeals) who vide impugned order (cited supra), has also rejected the plea of the appellant that federal excise duty @ 5% is leviable only on the transfer of money including telegraphic transfer whereas foreign exchange dealings and transfer of funds were not covered by the said federal excise duty. This claim statedly held no legal force as the appellant had shown income amounting to Rs, 10,812,509/-including income on TT/DD and on foreign exchange dealings (inclusive of all charges received against services provided or rendered to their customers). It was, therefore, concluded that income from these services would represent the "commission" of the appellant in terms of sub-rule (2) of Rule 40B of the Federal Excise Rules. The appellant has come up in present appeal before us for eviction of excise duty imposed/levied @ 5% which has been calculated by the department amounting to Rs, 5,40,625/- alongwith default surcharge and penalty of Rs, 10,000/- imposed under Section 19(1) of the Federal Excise Act, 2005.
4. We have heard the rival arguments put forth by the authorized representatives of both the parties at length and have perused the orders passed by the authorities below. The appellant company mainly contested its case on the ground that the presumption of correctness is always attached to the financial details provided by the auditors who are required to work according to the statutory provisions of Chartered Accountant's Act, 1961 which entails with it penal consequences in case the auditors/chartered accountants show any discrepancy in the financial statement(s). In the instant case, the appellant/company is a private limited company registered with the Securities and Exchange Commission of Pakistan (SECP), submitted its financial statements for the year 2006-07 to the said commission authenticated and verified by the same auditors/chartered accountants namely M/s. Riaz & Co., which was admitted by SECP as all the entries therein corroborated with the original record maintained by the company.
5. During the course of arguments, the grievance of the department is that the appellant company did not respond promptly to the various letters written by the department in connection with deposit of the amount of Rs,8,66,393/- under the Federal Excise Act, 2005. However it is maintained that this assertion of -the department is incorrect as the appellant company responded without any inordinate delay to the letters addressed by the department. It was contended that both authorities did not appreciate the fact that the appellant company makes profit but most of the time like other foreign exchange companies experiences loss and the buying and selling rates of the foreign exchange company are also published for which the profit and losses are declared for income tax purposes and not fully covered by the Federal Excise Duty. It was argued that the appellant company like other exchange companies takes the request of the client to the scheduled bank which after completion of necessary formalities transfers the amount for which the appellant company does not impose additional charges on the clients. These services are provided by the banks on which pay Federal Excise Duty and as such the appellant company is not liable to pay the Federal Excise Duty.
6. In a recent judgment passed by the Honorable Chairman of the Appellate Tribunal Inland Revenue, Pakistan [Division Bench] in the case of M/s. Zarco Exchange Company (Put) Limited., Lahore Vs. Collector, RTO., Lahore vide order dated: 08.10.2011 bearing Federal Ex. No, 86/LB/2000 wherein the core issue relates to imposition of federal excise duty (hereinafter "FED") @ 5% on receipts representing "client fee shares from foreign associates" during the period 01.07.2006 to 30.06.2007 wherein the receipts aggregating to Rs, 147,938,081/- were incorrectly concluded by the adjudicating officer at Rs,7,396,904/- as Federal Excise Duty besides imposition / levy of default surcharge and penalty aggregating to Rs, 10,000/-. The said issue was disposed of by the Honorable Tribunal as under:-- "....we posed a specific query to the AR that if the disputed transaction remained outside the purview of levy then does this mean that no FED could legally be imposed on remittance business.
In response thereof, the AR submitted that the subject provisions could only bring into the tax charge such transactions which involved outward remittances. According to AR the FED remained payable on such remittances which were made by local customers to offshore recipients as it is in such a case that the services could be rendered or provided in Pakistan for which invoice could be issued for charge of and recovery FED. According to AR the intention of law remained only to recover FED in such like cases and as such there was no legal basis for collecting FED in the case of inward remittances, as has been done in the case of the appellant.
We have heard the arguments put forth by the learned representatives of both the sides and perused the available record and have given earnest consideration to the facts and circumstances involved in the present case. In the background of disputed facts, we feel inclined to agree with the submissions of the learned AR that in connection with inward remittances the customer was the remitter of funds and the service was rendered or provided to him outside Pakistan. The provisions of law, as were applicable at the relevant time, prescribed the charge of FED on such services that were provided or rendered in Pakistan and since in connection with disputed amount the service was provided outside Pakistan there were no legal basis for burdening the appellant with the charge of FED. The amendments, as were introduced, subsequently, also strengthen the case of the appellant that at no time the export of service remained the subject of levy of FED. The AR has rightly pointed out that FED, by nature, is an indirect tax and the scheme of law vis-a-vis services rendered in Pakistan contains adequate provisions for recovery of FED from the customer. Since, in this case, customer was not any local person, therefore, the question rendering the service in Pakistan does not arise. Resultantly, we accept the present appeal, vacate the orders of the authorities below and hold that no FED was charge in the disputed transaction there being no rendering or provision of service in Pakistan".
7. Respectfully following the ratio decided by the Division Bench of the Tribunal (as mentioned supra), as facts and circumstances of the instant case in hand before us are similar on legal and factual grounds, the period of transaction also being same i,e, 01.07.2006 to 30.06.2007, we hereby accept the version of the appellant / company on the ground that the department has miscalculated the amount of remittances / commission in the case of the appellant company being in actual is Rs,866,396/- on which 5% Excise Duty is to be levied as contemplated in Federal Excise Act, 2005 and not on Rs, 10,812,509/-. It is apparent that both the authorities below erred in passing the judgments dated 11.05,2009 and 25.02.2009 respectively. Hence the said orders are vacated, having not been passed by applying judicious mind or by developing proper juristic understanding of the matter. The appellant company hereby is directed to pay Federal Excise Duty @ 5% on Rs, 866,395/- for the period 01.07.2006 to 30.06.2007. Order accordingly.