CH. ANWAAR UL HAQ (JUDICIAL MEMBER).---Through this single order we intend to dispose off the titled eight appeals filed by the registered persons against the appellate order passed by the Commissioner of Inland Revenue, (Appeals), Islamabad, as common issues is involved in these appeals.
2. The appellants, in these appeals, are Independent Power Producers [IPPs] and are engaged in the business of production and sale of electricity to WAPDA. In this respect, each of the appellants has entered into Power Purchase Agreement [PPA] with Government of Pakistan/WAPDA. The basic features of the PPA, in each case, are broadly the same. The tariff of electricity supplied by the appellants, under respective PPA, is approved by National Electric Power Regulatory Authority (NEPRA). In terms of PPA, the consideration accruing to IPP in respect of sale of electricity is classifiable inter alia into following categories:-- Energy Purchase Price [EPP]: payable for each kWh of net electrical output or for each kW of Dependable Capacity and determined in terms of fuel component together with operational and maintenance expenditure; Capacity Purchase Price [CPP]: payable for each kWh of dependable capacity and comprises of components in respect of fixed operations and maintenance cost, insurance, administration, return on equity, service charges including payments of principal, interest and other fees to lenders; Energy Purchase Price Premium: payable based on the Net Electrical output delivered to WAPDA; Supplementary Charges: payable on account of unit start-up costs and pass through items as agreed in PPA; and Bonus: payable based on the Net Electrical Output if it is in excess of the Bonus Threshold.
3. The exemption of sales tax on electricity was withdrawn through S.R.O. 922(1)/99 dated August 16, 1999 prior to which date no sales tax was leviable on sale of electricity. In consequence to withdrawal of exemption of sales tax, as aforesaid, certain special provisions were initially prescribed for the levy and collection of sales tax with regard to IPPs which broadly have remained unchanged and, at present, are contained in Chapter-III of. The Sales Tax Special Procedures Rules, 2007 titled 'Special Procedure for Collection and Payment of sales tax on Electric Power'. These Rules have been framed by the Federal Government in terms of provisions contained in section 71 of the Sales Tax Act, 1990 (together with exercising of powers under other enabling provisions in the statute) which read as under:-- "71. Special Procedure.---(1) Notwithstanding anything contained in this Act, the Federal Government may, by notification in the official Gazette, prescribe special procedure for scope and payment of tax, registration, book keeping and invoicing requirements and returns, etc, in respect of such supplies as may be specified therein ......
4. The subject matter of the present appeals revolves around Understanding, interpretation and application of provisions contained in sub-rule (3) of Rule 13 of the Chapter III of the Sales Tax Special Procedures Rules, 2007 titled 'Special Procedure for Collection and Payment for Sales Tax on Electric Power', which provide as under:--
(3) In case of an LP.P, HUBCO or KAPCO, the value of supply shall be the amount received by such IPP or, as the case may be, HUBCO or KAPCO, on account of Energy Purchase Price only and any amount in excess of Energy Purchase Price received on account of Capacity Purchase Price, Energy Purchase Price Premium, Excess Bonus, Supplemental Charges, etc., shall not be deemed as a component of the value of supply.
5. The core dispute between the IPPs and the Revenue is that whether the limit provided for in the aforesaid provisions vis-a-vis the computation of 'value of supply' require apportionment of the input tax as specified in section 8(2) of the Sales Tax Act, 1990 read with Chapter IV of the Sales Tax Rules, 2006. In other words, the sole controversy is whether the mechanism / principle for computation of 'value of supply' in the aforesaid provisions of law that it shall only be to the extent of 'energy purchase price' ['EPP'] and shall not include the other receipts/components like 'capacity purchase price'[CPP'] etc. Has an effect of bifurcating the 'supply' into 'taxable' and 'non-taxable' components for the purposes of valid and lawful application of section 8(2) of the Sales Tax Act, 1990 under which there is a restriction that taxpayer could only claim / deduct input tax as is attributable to taxable supply. In the context of this and for the purposes of invocation of section 8(2) of the Sales Tax Act, 1990, the Revenue has treated the consideration on account of EPP as 'taxable' supply and that on account of CPP etc. As 'non-taxable' supply.
6. It will be appropriate to first highlight the background of the controversy involved in the matter.
The first case on the matter was made out against Messrs Fauji Kabirwala Power Company Limited (2011 PTD 1306), wherein this Tribunal upheld the orders of the authorities below with the following observations:-- "The foregoing discussion amply answers the question raised by us in the beginning of this para. The scope of the discussion is that FBR or any other executive agency is not an unelected wielder of legislative power. An agency exercising a delegated legislative power cannot change the purpose of a statute promulgated by the delegator, i.e. The legislature. In this case the effect of sections 2 (46), 7 and 8 of the Sales Tax Act, 1990 was neutralized in favour of IPPs through Sales Tax Rules, 2006 and STGO 3/2004. It is our considered opinion that F.B.R. Could not lawfully defy a statutory provision. The exclusion of capacity purchase price from the purview of value of supply given in section 2(46) read ,with sections 7 and 8 of the Sales Tax Act, 1990, through the device of STGO 3/2004 and the Rule 13 of Sales Tax Rules, 2006, cannot survive the test of judicial scrutiny if challenged before superior Courts of Pakistan. We understand that we are not supposed to arrogate ourselves to the power of judicial review of rules framed by F.B.R., however, we are not expected to become party to something that is not lawful."
This judgment of the Tribunal is presently subject-matter in reference application before the Islamabad High Court, filed by the said company in terms of section 47 of the Sales Tax Act, 1990.
7. Subsequently, the said company Messrs Fauji Kabirwala Power Company Limited filed an application for rectification against the aforesaid findings, before this Tribunal and for dealing with a larger bench consisting of five members was constituted. The said larger bench accepted the rectification application, by majority [3:2] and modified the earlier decision and hold that no apportionment was legally warranted in the facts and circumstances applicable to IPPs. This decision of the larger bench is now reported as (2013) 107 Tax 318 (Trib.). Relevant portion of the said judgment is reproduced here under:- "It is an undisputed fact that the applicant is an independent Power Producer and is involved in only one activity and that is taxable activity of producing electricity. Capacity Purchase Price one of the segments of tariff of electricity agreed by the applicant with WAPDA the only buyer of its product, electricity however Capacity Purchase Price is not to be included in the value of electricity for the purposes of levy of sales tax. Rule 25 of Chapter-IV of Sales Tax Rules, 2006 is applicable where the taxpayers are involved in taxable and exempt activities. Section 13 of the Sales Tax Act, 1990 provides that supply of such goods would be exempt from levy of sales tax as are specified in sixth schedule. Capacity Purchase Price neither is a separate goods not is include in Sixth schedule for being treated as exempt. Accordingly upholding treatment of Capacity Purchase Price in the impugned order and the proposed judgment as exempt supply an apportionment of input tax on that basis is a mistake apparent from record, for the reasons recorded in paragraphs above and required to be rectified in the impugned order. After rectification of impugned order S.T.A. No. 132/IB/2010, as held hereinabove, the apportionment of input tax to Capacity Purchase Price by the authorities below is held to be without any legal authority and hereby deleted and consequently the relief originally sought by the applicant is hereby allowed. The findings recorded in the impugned order to this effect are hereby rectified."
Against the aforesaid rectification order the department approached to the honourable Islamabad High Court through statutory reference application and constitutional petition. In both cases, their lordships were pleased to suspend the operation of the rectification order passed by this Tribunal and the said suspension orders still subsist.
8. Later on, in another appeal filed by Messrs Hub Power Company Limited, on the same issue, came up for hearing before a Division Bench of this Tribunal, at Islamabad, this appeal was accepted holding that no apportionment of input tax is warranted under any circumstances. In this order dated February 26, 2013, passed in S.T.A. No. 35/IB/13, the Tribunal not only derived strength from the rectification order, referred supra, but also otherwise concluded against the apportionment of input tax. In the course of relying upon and deriving strength from the rectification order of the larger bench, the operations of which were admittedly suspended by the honourable Islamabad High Court, the Tribunal inter alia placed reliance on PLD 1975 (Lahore) 65 and PLD 1980 (Karachi) 492 the ratio whereof is that interim order, being not in the nature of deciding any question of law, is not binding in nature and operates inter se parties to the matter only. It was held in these decisions that even if a decision is suspended the ratio decidendi therein could still be followed unless the same is reversed or overruled by a higher authority. Relevant portion of the said judgment is reproduced here under:- "We have heard the parties and let's first examine whether the Order of the Larger Bench in M.A.
(R) S.T.A. No. 27/IB/2009 dated 3 September 2012 still holds the field or not. We have carefully gone through the judgments of Honourable High Court reported as PLD 1975 Lah. 65 and 2012 CLD 2029, both the decisions uphold in an unequivocal terms that suspensory order have the effect of inter- parties only and not as judgment in rem. Besides, the Writ Petition before the honourable Islamabad High Court only challenges Re-opening of appeal on application for rectification, whereas merits of the case are not the subject matter of the petition.
Further, the honourable High Court has only suspended the operation of the impugned Order till the date fixed. If the honourable High Court dismisses the Writ Petition then the Order of the Larger Bench in M.A. Will continue to hold the field until and unless decided otherwise by any superior court; on merit of; the case. If, however the Honourable High Court allows the petition and suspends the Order of the Larger Bench even then that will decide the issue of rectification of the order and will not decide merits of the case.
The learned three Members of the Larger Bench have decided the merits in favour of the taxpayer as against the two other learned Members. Even after suspension of the Order of Larger Bench that will still hold the field as the guiding force.
Now coming to facts, both the parties, the learned AR and the learned DR, have relied on the facts and legal position as discussed/debated and decided in the case of Fauji Kabirwala Power Company Limited in support of their respective positions. We have carefully reviewed the Order of the Division Bench in S.T.A. No. 132/IB/2010 and in M.A. (R) S.T.A. No. 27/IB/2009 with respect to the legal position on merit and agree with the legal position as decided by the Larger Bench by majority in M.A. (R) S. TA. No. 27/1B/2009. Therefore, even if it is assumed that the Order in aforesaid M.A. (R) does not stay in the field, we hold apportionment of input tax to Capacity Purchase Price by the authorities to be without legal authority and is hereby deleted and consequently the relief sought by the appellant is hereby allowed in the instant appeal."
9. It is in the aforesaid background that the subject appeals viz-aviz the issue on hand in the first instance were heard by a Division Bench of this Tribunal or August 19 and 20, 2013, however, considering the complexity arising from multiple decisions given by the Tribunal in the matter as referred above, a need for constitution of larger bench was felt. Accordingly, a larger bench, comprising of seven members, was constituted to answer/dilate upon specifically the following question of law for resolution of the controversy, which both the parties to the dispute, have agreed to:-- "Whether in the facts, circumstances and legislative framework admittedly applicable to Independent Power Producers, in particular the provisions of Chapter-III of the Sales Tax Special Procedures Rules, 2007, the provisions of section 8(2) of the Sales Tax Act, 1990 read with Chapter IV of the Sales Tax Rules, 2006 (setting out principles for apportionment of input tax) are ab initio applicable with regard to receipts on account of Energy Purchase Price 'EPP' and other receipts comprising of Capacity Purchase Price 'CPP', Interest on delayed payments and Supplemental bonus income etc."
Relevant law on apportionment
10. The relevant provisions, dealing with apportionment of input tax in specified cases, are contained in section 8 of the Sales Tax Act, 1990 which read as follows: "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 or services used or to be used for any purpose other than for taxable supplies made or to be made by him;
(b) any other goods or services which the Federal Government may, by a notification in the official Gazette, specify; ...............................................................................................................................
(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."
11. It is also an admitted And undisputed position that with reference to provisions of section 8(2) of the Sales Tax Act, 1990, the Federal Board of Revenue, by exercising powers available under section 50 of the Sales Tax Act, 1990, has prescribed following provisions in Sales Tax Rules, 2006 for effecting the apportionment on input tax:-- "CHAPTER IV APPORTIONMENT OF INPUT TAX
24. Application. ---The provisions of this Chapter shall apply to the registered persons who make taxable and exempt supplies simultaneously.
25. Determination of input tax.---(1) Input tax paid on raw materials relating wholly to the taxable supplies shall be admissible under the law. ,
(2) Input tax paid on raw materials relating wholly to exempt supplies shall not be admissible.
(3) The amount of input tax incurred for making both exempt and taxable supplies shall be apportioned according to the following formula, namely: - Residual input tax credit Value of taxable supplies _____________ x Residual input tax on taxable supplies = (Value of taxable + exempt
12. The case of the department is that it was reported by its Auditors that the appellant IPP's had failed to make apportionment of input tax in respect of amount received against Capacity Purchase Price (CPP) from Messrs WAPDA during the financial period from July 2007 to June 2011. It is further added that CPP (component of bulk tariff supplied to WAPDA against consideration) was exempted from levy of Sales Tax in terms of Sales Tax Special Procedures Rules, 2007 notified vide S.R.O. 480(1)/2007 subject to the provisions of sections 7, 8 and all other relevant provisions of the Act, rules and notifications. Therefore, if a registered person deals in taxable supplies and non- taxable/exempt supplies, it can reclaim only such proportionate of input tax as is attributable to tax supplies in such manner as may be specified in terms of section 7 read with section 8 of the Sales Tax Act, 1990. Accordingly show-cause notices were issued to the appellants/taxpayers for the recovery of following amounts under section 11(2) along with default surcharge under section 34 and penalty under section 33 of the Act:-- # Name of appellant Period involved Tax Involved Rs: 1 Messrs Fauji Kabirwala Power Company Limited, Rawalpindi. July, 2007 to June, 2011672,869,554 2 Rousch (Pak) Power Limited, Karachi.July, 2007 to June, 20112,026,408,256 3 Habib Ullah Coastal Power Company (Private) Limited, Quetta.January, 2007 to December, 2009374,688,308 4 Messrs Southern Electric Power Company Limited, Islamabad. .July, 2007 to June, 2011552,132,768 5 Messrs UCH Power (Private)
Limited, Islamabad.January, 2007 to December, 20101,393,048,905 6 Messrs Orient Power Company (Private) Limited, Lahore.July, 2009 to June, 2011305,864,492 7Messrs Saba Power Company (Private) Limited, Islamabad.January, 2007 to December, 2010697,463,185 8Messrs TNB Liberty' Power Limited, IslamabadJanuary, 2007 to December, 2009907,233,563 CONTENTIONS OF THE DEPARTMENT
13. The department, all in the underlying show-cause notices and the orders-in-original, has based its findings on the contention that the taxpayers, under the law, could only claim adjustment of input tax in terms of the provisions of sections 7 and 8 of the Sales Tax Act, 1990 read with rule 15 sub-rule (1) of the Special Procedures Rules, 2007. In this respect, the department has concluded in the orders (already confirmed by the first appellate authority) that while EPP constitutes consideration for 'taxable supply', the consideration for CPP constituted 'non-taxable supply' which distinction permits it to restrict/disallow part of input tax, claimed by the taxpayers, by resorting to aforesaid provisions of section 8(2) of the Sales Tax Act, 1990 read with Chapter-IV of the Sales Tax Rules, 2004. In arriving at this conclusion i.e. The revenue stream comprised of taxable and non- taxable supplies, the Revenue relied upon provisioris of sub-rule (3) of Rule 13 of Chapter III of the Sales Tax Special Procedures Rules, 2007.
14. It is the Revenue's assertion that the mechanism for computation of 'value of supply', specified in the aforesaid provisions, has an effect of splitting the supply/consideration into 'taxable' and 'non- taxable' supplies which lawfully then warrants apportionment of input tax under section 8(2) of the Sales Tax Act, 1990 read with Chapter-IV of the Sales Tax Rules, 2006. In this connection, it is important to note that this is only basis adopted by the Revenue while initiating and concluding the adverse proceedings against the taxpayers, which are new the subject matter of the present appeals in all the cases.
CONTENTIONS OF THE APPELLANTS
15. Primarily the appellant IPP's relied on Procedural Rules notified vide S.R.O. No. 480(1)/2007 issued by the Federal Government wherein under Rule 13(3), CPP was excluded from value of supply (Section 2(46) of Sales Tax Act, 1990); hence as CPP was not a part of value of supply the respondents could not make apportionment of input tax.
16. It is the contention of the IPP's that they are involved only and exclusively in one taxable activity i.e. Production and sale of electricity. The consideration on account of CPP, as against the inference drawn by the Revenue that it constitutes 'non-taxable supply', in fact, is one of the segments of tariff/sale consideration of electricity, agreed by IPPs with WAPDA, the only buyer of its product. The CPP is not a consideration for any identifiable supply rather this is one of the components of consideration for taxable supply which, in this case, is electricity. The understanding developed by the Revenue is not only erroneous but is also based on mis-interpretation of the provisions of Rule 13(3) of the Special Procedures. These provisions do not categorize the revenue representing CPP as a consideration for 'non-taxable supply' rather these EXCLUDE the same from the amount chargeable to sales tax under the law. This exclusion has been wrongly and unlawfully equated by the Revenue with non-taxable/exempted supply.
17. It is the further contention of the IPP's that applicability of section 8(2) of the Sales Tax Act, 1990, under a correct interpretation, is restricted and limifed in cases only where there are identifiable and distinguishable taxable and non-taxable supplies. The cases where consideration in respect of one taxable supply is split into categories in a manner that part amount is required to be subjected to sales tax and part amount to be excluded from charge of sales tax remain outside the purview of apportionment, specified in section 8(2) of the Sales Tax Act, 1990 read with Sales Tax Rules, 2006. In the case of IPPs, as stated above, there is ONLY one supply i.e. Supply of electricity (which is a taxable supply), the consideration for which is split in the PPAs under different heads. It is in this context that provisions of Rule 13(3) of the Special Procedures make exclusion while prescribing the charge of tax and restrict the same to the extent of EPP. Under no circumstances, this could be construed or equated with the situation conceived by the lawmaker to be the subject matter of section 8(2) of the Sales Tax Act, 1990 read with Chapter-IV of the Sales Tax Rules, 2006.
18. It is also the contention of the IPP's that in fact an altogether erroneous conclusion drawn by the Revenue that dragged the matter into the mischief of section 8(2) of the Sales Tax Act, 1990 read with Chapter-IV of the Sales Tax Rules, 2006. For the reasons described above, it is abundantly clear that this matter ab initio did not involve the issue of takable and non-taxable/exempt supply and pertained exclusively to determination of scope of 'value of supply', still the invocation of section 8(2) of the Sales Tax Act, 1990 read with Chapter IV of the Sales Tax Rules, 2006 is flawed and wholly misconceived. It is an admitted position that in terms of provisions contained in section 8(2) of the Sales Tax Act, 1990 (i) 'apportionment' is required where a registered person deals in 'taxable supplies' and 'non-taxable supplies'; and (ii) such apportionment could only be carried out in 'such' manner as may be specified by the Board in the Rules. It is also undisputed fact that the Federal Board of Revenue, while exercising powers under the aforesaid provisions of section 8(2) of the Sales Tax Act, 1990, has prescribed Chapter IV in the Sales Tax Rules, 2006 in which 'apportionment' is specified between 'taxable supplies' and 'exempt supplies' exclusively. In these Rules, the expression used is 'exempt supplies' and not 'nontaxable supplies'; an expression used in primary legislation i.e. Section 8(2) of the Act.
19. The learned AR further submitted that aforesaid position i.e. Difference in language used in primary and subordinate legislation necessitates that one determines as whether there is any disharmony in the two. It is the taxpayers' assertion there is no such disharmony and as such both the primary and subordinate legislations are at absolute par. The learned AR submitted that the primary legislation uses terms 'taxable supply' and 'non-taxable supply'. The term 'taxable supply has been defined in section 2(41) of the Sales Tax Act, 1990 to mean "supply of taxable goods made other than a supply of goods which is exempt under section 13 ....". This, therefore, clearly follows that 'non-taxable supply' means opposite of 'taxable supply' and thus represents 'exempt supply'.
Consequehtly,, it is for the reason that under the statute 'nontaxable supply' corresponds to 'exempt supply' that in Chapter-IV of the Sales Tax Rules, 2006 the expression 'exempt supply' has been used while prescribing the principles for apportionment of input tax. Thus both the primary and secondary legislation are completely harmonious with regard to scope of apportionment.
20. The aforesaid analysis then leads the discussion to determination of position as to whether the invocation of section 8(2) of the Sales Tax Act, 1990 read with Chapter IV of the Sales Tax Rules, 2006 was lawful or not. The answer to the controversy in hand lies in determination of fact whether in the case of IPPs there is any non-taxable/exempt supply for these provisions to be applicable ab initio. In terms of simplifying the matter, the core issue that requires resolution is whether or not CPP could at all be treated as 'exempt' under the law for effecting the apportionment.
21. The next issue is to determine as to whether in terms of the legal position, CPP etc. Could be considered as 'exempt' by reference to phraseology used under Rule 13(3) of the Special Procedures Rules, 2007 which indicate "exclusion" of CPP etc. From the 'value of supply'. This is important to determine as undisputedly and admittedly the preamble of the Sales Tax Special Procedures Rules, 2007, while listing the provisions exercised by the Federal Government while framing these Rules, inter alia make a reference to section 13(2)(a) of the Sales Tax Act, 1990.
FINDINGS
22. In order to arrive at a correct, rational and lawful conclusion, it is also imperative that the Power Policy, 1994 issued by the Government and entire scheme of legislation, applicable to IPPs, is analyzed in a proper perspective. Due to shortage of electric power the Government of Pakistan in the year 1994 introduced a policy for setting up private sector BOO (Build-Own-Operate) power plants. Under this Policy WAPDA/ KESC were to purchase power under a long term contract covering the concession period. The Government of Pakistan offered Bulk Power Tariff of US Cents 6.5/kWh. For the purpose Tariff was the consideration paid by WAPDA for purchase of electric power from IPP's. The payment of Tariff was to be made in accordance with the schedule of payment for Bulk Tariff, which is being reproduced here under:-- "The Tariff of US Cents 6.5/kWh is an indicative tariff which has been calculated on an annual plant factor of 60%. The actual payment of Tariff will comprise of two components, i.e. Capacity Price and Energy Price.
Capacity Price will be paid on; monthly basis and covers the debt servicing, fixed operations and maintenance costs, insurance expenses and return on equity. The payment of Capacity Price on monthly basis will keep the investors' profit insulated against variations in the quantum of energy purchased by WAPDA/KESC."
23. Under the procedure for application of Bulk Power Tariff any change in the fuel component or variable O&M component of the energy Price would translate into changes in the escalable component of CPP. This was done to insure guaranteed return on equity i.e. Profits for the investors.
Hence an increase or decrees in Energy Price will have a proportional impact on the escalable component of CPP. It is imperative to note that Tariff (consideration for purchase of electric power) paid by WAPDA to IPP's is taxable as exemption from Sales Tax on electricity was withdrawn vide S.R.O. 922(1)/99 dated 16th August, 1999.
24. Clause 3.1 of Article 111 of standardized PPA's pertains to sale and purchase of Energy and Capacity. Article XIV of the PPA's defined the scope of taxes applicable to the IPP's. A bare perusal of this article on taxation reveals that Capacity Purchase is covered being a component of Electricity Tariff. It is clear from the above that all present and future federal, provincial, municipal or other lawful taxes, including sales tax, were applicable to the company, the Complex, the Project, Available Capacity and Net Electrical Output.
25. It has been admitted by the appellant IPP's that consideration received against electric (Tariff) is not exempted in view of S.R.O. No.922(I)/2009. It becomes necessary to see whether consideration received on account of CPP by IPP's is taxable under the substantive law i.e. The Sales Tax Act, 1990.
26. The CPP has two main components i.e. Escalable Components and Non-Escalable Component.
Whereas the non-escalable component is structured to cover the service charges including payment of principal, interest and other fee to lenders, the escalable component covers fixed operation and maintenance cost, insurance cost, the administrative cost and return on equity/return on investment. Return on equity is the amount of net income returned as a percentage of shareholders equity. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.
27. CPP is the consideration paid by WAPDA to the IPP's in order to maintain the installed capacity of their respective power plant, in other words the consideration paid signifies the sale of available capacity on part of the supplier (IPP's) and purchase of capacity on behalf of the purchaser (WAPDA). Therefore, the price of electricity i.e. Tariff consists of both the CPP and EPP.
28. Since Rules of Procedure, in this case Special Procedure Rules, 2007 deal with and lay down the ways and means by which substantive law i.e. Sales Tax Act, 1990 can be enforced; it becomes necessary to assess the sale of Capacity within the four corners of the Sales Tax Act, 1990 and its charging sections.
29. Section 3(1)(a) of the Sales Tax Act is a taxing section and sales tax is to be levied if a taxable supply is made by a registered persons in course or furtherance of any taxable activity. The expressions used in Section 3(1) and which are relevant for the purpose of resolving the controversy is:--
(i) Supply 2(33)
"Supply" means the sale or other transfer of the right to dispose of goods as owner.
It includes sale or other disposition of goods in furtherance of business carried out for consideration including putting to private business or non-business use goods acquired, produced or manufactured in the course of business (2001 SCMR 1376). To constitute supply the transaction must be in furtherance of business and business is to be construed as an activity recurring for profit motive 2008 PTD 103.
(ii) Taxable supply 2(41).
Taxable Supply has not been confined or limited to one which is a product or the goods manufactured but also include those goods which involve in some way with the progress, promotion, advancement of business/activity/taxable activity 2007 PTD 1902 = PLD 2007 SC 517
(iii) Taxable Activity 2(35).
It means an activity which is carried out on by any person not necessarily for pecuniary profit and involves in whole or in part the supply of goods' to another person irrespective of any consideration and also includes an activity carried out in the form of business, trade or manufacture 2007 PTD 1902 = PLD 2007 SC 517 It has been held by the Supreme Court in Sanghar Sugar Mills etc. 2007 PTD 1902 = PLD 2007 SC 517 that it is not only in the business or the taxable activity but sight must not be lost on the importance of the words "in course or furtherance of".
"In the course of" means connected with, related to or having some nexus with the business / taxable activity and similarly "in furtherance of is indicative of the fact that the taxable supply has been made for the enhancement / further development of the business/taxable activity. Thus, consideration paid by WAPDA for purchase of power in accordance with Schedule 1 (Tariff, Indexation and Adjustment) of the Power Purchase Agreement to the IPP's while ensuring 18% profitability also furthers the business of the appellant IPP's and shall be taxable in terms of Section 3(1) of the Sales Tax Act, 1990. Reliance may be placed on 2001 SCMR 1376; 2008 PTD 103; 2007 PTD 1902 = PLD 2007 SC 517; 2002 PTD 2845; 2001 PTD 2982; 2002 PTD 976 and 2001 PTD 2097 = 2001 SCMR 1376.
30. Special Procedure Rules, 2007 were notified vide S.W.O. No. 480(I)/2007 dated June 9th 2007 by the Federal Government in exercise of powers conferred under the Sales Tax Act, 1990. These rules are Rules of Procedure and were made to further the objectives of the legislature contained in the Sales Tax Act, 1990. Chapter-III of the said rules deals with special procedure for collection and payment of Sales Tax on Electric Power. Main dispute between. The IPP's and the respondents is in relation to sub-rule (3) of Rule 13. At the relevant time the said sub-rule was as being reproduced under:- "In case of an IPP, (HUBCO, KAPCO or WAPDA Hydroelectric Power), the value of supply shall be an amount received by such IPP or, ..., on account of Energy Purchase Price only and any amount in excess of the energy Purchase Price received on account of Capacity Purchase Price, ..., shall not be deemed as a component of the value of supply".
Whereas Rule 15 on determination of sales tax liability states that any person, including the IPP's except WAPDA and KESC, which supplies electric power shall be entitled to claim admissible input tax adjustment in the manner specified in section 7 of the Act, read with sections 8 and 8B thereof.
Following term 'value of supply' and its scope/application has been discussed and settled time and again by the Hon'ble superior courts of Pakistan. Relevant portion of Section 2(46) is being reproduced:-- "Value of supply" means,---
(a) In respect of taxable supply, the consideration in money including all Federal and Provincial duties (and taxes), if any, which the supplier receives from the recipient for that supply but excluding the amount of tax."
31. It is crystal clear from the above that the legislature while defining the scope of value of supply was careful in the choice of words used. Here the term 'means' restricts the scope of the term value of supply and no other meaning can be given to value of supply in contravention of section 2(46).
The Hon'ble Lahore High Court in Judgment titled Messrs Gujranwala Steel v. Chairman FBR and others cited as 2009 PTD 431 has laid down that no other meaning can be given to the meaning of 'value of supply' as defined in section 2(46) of the Act. Similarly in judgment titled Faujikabirwala Power Company v. Collector of Customs and Sales Tax cited as 2009 PTD 316, a Divisional Bench of the Hon'ble Lahore High Court held that definition of 'value of supply' as given in Special Procedure Rules of 2000 is subservient to the definition of the aforementioned term as contained in clause
(46) of section 2 of the Sales Tax Act, 1990. In this case the petitioner i.e. Faujikabirwala mainly relied on Rule 4(3) of Special Procedure (Electric Power) Rules, 2000, wherein value of supply was defined as the amount actually received by an IPP. Sub-rule '(3) contained a non-obstante clause. It was held that despite this rule, definition as contained in clause (46) of section 2 of the Sales Tax Act, would prevail. Further that in judgment titled Haji Sultan Ahmed v. CBR and 5 others cites as 2008 PTD 103, it was held by the Hon'ble High Court that collection of tax through adopting procedure contained in Chapter-XI of S.R.O. 678(I)/ 2007, dated 6th July 2007, was in direct conflict with the charging provision of the Act. It was ultra vires, issued without lawful authority and with no legal effect. It was reiterated by the Hon'ble Court that no meaning could be ascribed to value of supply other than as defined in clause (46) of section 2 of the Sales Tax Act, 1990. From the above case law, it is settled that no authority, including the executive, could redefine or give another meaning to the term 'value of supply'.
32. It has also been argued by the appellant IPP's that proviso to sub-clause (g) of clause (46) of section 2 empower the board to fix the value of taxable supplies or call of supplies. It is observed that this proviso is only to the extent of retail tax. The appellants are not retailers hence no other meaning other than what has already be laid down in clause (46) of section 2 and settled by the Higher Courts can be given to value of supply in this matter.
33. It is further observed that the Hon'ble Sindh High Court in the matter Messrs Usmani Associates v. CBR and another 2001 PTD 2982 held that if an apparent conflict between two provisions can be reconciled and harmonized so as to give effect to both the provisions, such interpretation shall be given effect.
34. Preamble to the Special Procedure Rules, 2007, elaborates that the executive while issuing these Rules exercised powers conferred under subsection (2) of section 13 of the Sale Tax Act, 1990. This section is being reproduced hereunder: 13(2) notwithstanding the provisions of subsection (1) -
(a) The Federal Government may, by notification in the official gazette, exempt any taxable supplies made or import or supply of any goods or class of goods, from the whole or any part of the tax chargeable, under this Act, subject to the conditions and limitations specified therein."
If subsection (2) of Section 13 of the Sales Tax Act, 1990 is read with sub-rules (2b) & (3) of Rule 13 of Special Procedure Rules, 2007, the only interpretation that follows is that Capacity Purchase Price was exempted from levy of Sales Tax, otherwise, being taxable .In terms of section 3 of the Sales Tax Act, 1990.
The power of levy of charge as contained in section 3 cannot be restricted by Rules of Procedure.
However, levy of charge under section 3 can be exempted by the competent authorities. Reliance may be placed on 2009 PTD 431, 2009 PTD 316, 2008 PTD 103, 2001 PTD 2982.
35. In addition Rule 15 of these Special Procedure Rules, 2007, subjects the claim of admissible input tax in the manner specified in section 7 of the Act, read with sections 8 and 8B thereof. This Tule is being reproduced:-- Rule 15 Determination of sales tax liability in respect of WAPDA and KESC.
(1) Any person, except WAPDA and KESC, which supplies electric power, shall be entitled to claim admissible input tax adjustment in the manner specified in section 7 of the Act, read with sections 8 and 8B thereof
(2) WAPDA and KESC shall be entitled to claim admissible input tax adjustment against sales tax paid on their taxable purchases made in the month immediately preceding the tax period.
36. According to subsection (2) of section 8 of the Sales Tax Act, 1990. "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."
According to Section 7 of the Sales Tax Act:--
(1) "For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall, subject to the provisions of section 73, 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 adjustment as are specified in section 9.
(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; "
A bare reading of the aforementioned sections (sections 8 and 7) of the Sales Tax Act read with Rule 15 of the Special Procedure Rules reveal that as the appellant IPP's case deals in taxable and non-taxable/exempt supplies, they can reclaim only such proportion of input tax as is attributable to taxable supplies in such manner as may be specified by the Board.
Sale Tax Rules, 2006
37. Having established that consideration paid by WAPDA to IPP's (tariff) is taxable and that one component of the said tariff i.e. Capacity Purchase Price is exempted, input tax claimed shall be apportioned according to the manner specified by the Board.
38. The Board in Rule 25 of Chapter-IV of Sales Tax Rules has formulated the methodology for apportionment of input tax for registered persons making taxable and exempt supplies simultaneously. As there is only one supply in the subject matter i.e. Bulk Power and as a component of this bulk power i.e. CPP is exempted under the Special Procedure Rules, 2007, hence only residual input tax credit on taxable supplies can be claimed by the appellant meaning thereby that the appellant IPP's cannot claim input adjustment without fulfilling the criteria laid down in sections 7 and 8 of the Sales Tax Act, 1990.
39. Whether there is a difference between "exclusion" and "exemption" generally and in the context of Rule 13(3) of the Rules, 2007 and section 13 of the Sales Tax Act, 1990 in particular. The primary difference between "exclusion" and "exemption" is that exclusion reduces the value of taxable supply, while exemption reduces the amount of tax. Hence, while exclusion reduces the value of supply, exemption first reduces the quantum of tax and as a consequence reduces the pay-ability of tax due, both leading to the same result of reducing the tax liability/payability of the registered person. Therefore, mathematically speaking exclusion of certain items from the value of supply and exemption work on opposite sides of the one and the same equation. At the end of day, both the incentives/methodologies "reduce" and "exempt" the tax liability of the registered person which may be in varying degree, under the provisions of Sales Tax Act.
40. In the case titled as Messrs Nishat Dairy (Pvt.) Ltd., v. Commissioner Inland Revenue (2013 PTD 1883), the Hon'able Lahore High Court on the issue of "exemption viz-a-viz tax credit" as provided under section 65D of the Income Tax Ordinance, 2001, resolve the controversy in the following terms:- "If the word "exempt" is to be given its literal, generic meaning, it means:- "to release, discharge, waive relieve from liability" or "if somebody is exempt from something, they are not affected by it, do not have to do it, pay it. This literal and generic meaning of the word "exempt" meets the purpose of section 159 and creates the legislative space to easily accommodate both tax exemption and tax credit into its fold. There is no denying the fact that in pith and substance both tax credit and tax exemption reduce the tax liability of the taxpayer in varying degrees and, therefore, fall within the scope of the said provision. The nuance between the two terms (discussed above) is immaterial, because the taxpayer stands exempt from the payment of tax at the end of the day in both the cases. Therefore, the phrase "exempt from tax" in section 159(1)(a) of the Ordinance not only takes under its fold "tax exemption" under the Ordinance but also "tax credit" under the Ordinance.
14. It is important to give support to the legislative desire behind sections 65D and 159 of the Ordinance. These provisions extend fiscal incentives for boosting our economy and must receive progressive interpretation advancing the legislature intent.
16. From the above discussion it is now clear that tax exemption and tax credit are two sides of the same coin, at last when it comes to section 159(1) of the Ordinance. Both these taxation tools reduce the tax liability of the taxpayer. The facility under section 159(1) is to relieve the taxpayer from the burden of paying advance tax or withholding tax when at the end of the tax year the taxpayer is not likely to pay tax to this extent."
Similarly, in the case titled as AL-KARAM CNG and others v. Federation of Pakistan and others (2011 PTD 1) the Hon'able Lahore High Court resolve the controversy of "exemption viz-a-viz final tax" with the following observations:- "Exemptions under the Income Tax Ordinance, 2001 are provided in section 53 read with Part-1 of the Second Schedule to the Ordinance. The purpose of exemption is that the payability of the taxpayer is restricted in terms of the exemption however the chargeability of the tax remains.
Whereas sections 156A and 234A when read with section 169 of the Ordinance reveal that the taxpayer has no chargeability under the law after the discharge of final tax under the, law. Final Tax clauses under the Ordinance therefore stand at a higher pedestal than the exemption clauses. If benefit of exemption can preclude the chargeability of tax under section 235(3), the discharge of final tax wider the Ordinance can also surely extend the same benefit to the taxpayer, if not more. It would be discriminatory to limit the meaning of "exemption" in section 159(1) of the Ordinance by excluding "final tax provisions" under the Ordinance. In the absence of any legislative integration between sections 156A, 234A and section 235, operational harmonization can be achieved by extending the benefit available to exemption clauses under section 159(1) to the final tax clauses also.
Sections 159(1) and 235(3) of the Ordinance can therefore be read down to include "final tax clauses" within the meaning of exemption under the said sections."
41. In terms of provisions of section 13(2)(a) of the Sales Tax Act, 1990 the Federal Government is empowered, through notification in the official gazette, to extend exemption to any taxable supplies from 'whole' or any 'part' of the tax chargeable under the Sales Tax Act, 1990. Thus, while framing the Special Procedures Rules, 2007 through S.R.O. No. 480(1)/2007, the Federal Government while exercising said powers as provided under section 13(2)(a) of the Sales Tax Act, 1990 excluded the value of Capacity Purchase Price, Energy Purchase Price Premium, Excess Bonus, Supplemental Charges, etc., from the value of electricity supply and restricted the same to the extent the value of Energy Purchase Price only, as provided in Rule 13(3) of the said Rules. The said exclusion constitutes "exemption" from the "value" of gross price of electricity.
42. The reliance of the AR on the decision of the honourable Lahore High Court dated 18-12-2012 in W.P 12851-2012, titled Baba Farid Sugar Mills Limited v. Federation of Pakistan etc., wherein, the scope of provisions contained in section 8(2) of the Sales Tax Act, 1990 has been ruled upon is distinguishable and not applicable in this case for the reasons that power vested with the Federal Government to grant exemption under section 13 of the Act, to the supply of goods as "whole" or "any part" was not interpreted by his lordship. Relevant portion of the said judgment is reproduced hereunder:- "6. As a matter of clarification it is observed that the exemption granted under section 13(2) (a) of the Act whereby the rate of sales tax has been reduced from 16% to 8% on the local supply of sugar by the petitioners imply that the entire local supply of sugar of the petitioners is taxable @ 8% and is a taxable supply.
7. The situation envisaged in section 8(2) of the Act is totally different. Under the said section if a registered person makes taxable and non-taxable supplies, only such portion of input tax can be claimed that is attributable to taxable supplies in such manner as is specified by the FBR. It is reiterated that in the instant case the petitioners are not making any non-taxable supply. In fact, the entire supply of sugar is taxable, however, at a reduced rate. The Impugned Circular dated 2- 5-2012 (now withdrawn) was issued assuming that reduction in the rate of Sales Tax by 50% i.e., from 16% to 8% amounts to splitting the local supply into 50% taxable and 50% non-taxable supply.
The position taken in the Impugned Circular besides being misconceived and hopelessly incoherent is legally infirm and incorrect."
(emphasis supplied)
43. We are also conscious regarding the observations of this Tribunal delivered in first judgment on the subject, as referred in para 6 above and further set our hands on the judgment of the Apex Court in the case titled as The Collector of Sales Tax and others v. Superior Textile Mills Ltd. And others (2001 PTD 1486 SC), wherein challenge was thrown mainly on the ground that rules 5 and 6 of the Special Procedure for Ginning Industry Rules were ultra vires of the Sales Tax Act, 1990 in that they had placed liability to pay sales tax on the person receiving the supply instead of the person making supply as provided by subsection (3) of section 3 of the Act. The writ petitions filed by the registered persons were allowed by a learned Single Judge of the Lahore High Court on the ground that "rules 5 and 6 of the Rules were void being in conflict with subsection (3) of section 3 of the Act". On appeal by the Collector, the Apex Court modified the judgment of the High Court, while holding that:-- "9. A plain reading of subsection (3) of section 3 of the Act and Rule 6 of the Rules, makes it manifest that rule 6 is not only substantive in nature but is also violative of subsection (3) of section 3 of the Act as it has squarely shifted the liability to pay sales tax from the person making the supply i.e. The ginner to the person receiving the supply. The 'non obstante' clause in section 71(1) of the Act, alluded to in the contentions of Mr. Izharul Haq, cannot offset the conflicting effect of rule 6 and make it intra vires for the short reason that it relates to the procedural provisions with regard to payment of sales tax. Rule 6 cannot take the place of subsection (3) of section 3 of the Act inasmuch as no deviation can be made from the substantive provisions in exercise of powers conferred by section 71(1) of the Act. It is by now firmly settled that in the event of conflict between a rule and a substantive provision of the parent Act the former is void or inapplicable to the extent of inconsistency." (Emphasis supplied)
Accordingly, we ,have observed that in exercise of the powers conferred under section 71(1) read with clause (46) of section 2, clause (a) of subsection (2) of section 13 of the Act, the Federal Government while framing subordinate legislation i.e. The Sales tax Special Procedure Rules, 2007, cannot curtail the scope of definition of the "value of supply" as provided in subsection (46) of section 2 of the Act. However, it was fully empowered under clause (a) of subsection (2) of section 13 of the Act to exempt "whole or any part of tax chargeable", which includes the "value of supply" as discussed at paras 39 to 41 above.
44. For the reasons stated above we answer the question framed in affirmative and hold that the respondent revenue having rightly applied Rule 25 of the Sales Tax Rules, 2006 for apportioned input tax claimed by the appellant IPP's.
45. Accordingly, we upheld the show-cause notices issued under section 11(2) along with default surcharge under section 34 and penalty under section 33 of the Sales Tax Act, 1990, orders, in- original as well as impugned orders-in-appeal and reject the all eight appeals of the appellants/registered persons.
Sd/ (CH. ANWAAR UL HAQ)
Judicial Member Sd/- (JAVED IQBAL)
Judicial Member Sd/- (SOHAIL AFZAL)
Accountant Member I agree with the findings of learned J.M. Ch. Anwaar-ul-Haq Sd/- 24/3/2014 (MUHAMMAD AKRAM TAHIR)
Accountant Member I agree with the findings of the learned J.M (author)
Sd/- 27/3/2014 (FIZA MUZAFFAR) Accountant Member I agree with the findings of learned author.
Sd/- 24/3/2014 (CH. SHAHID IQBAL DHILLON)
Judicial Member Sd/- (MUHAMMAD WASEEM CH.)
Judicial Member JAVED IQBAL, JUDICIAL MEMBER.---After having gone through the opinion recorded by the Learned Brother the Judicial Member Mr. Anwar-ul-Haq Chaudhry and countersigned by the L/Brothers Mr. Sohail Afzal, Accountant Member and Mr. Wasim Ahmed, Judicial Member. I respectfully find myself totally in disagreement with the opinion/proposed judgments of the five mentioned Learned Members.
The summary/reasons of disagreement are as under:-- (1)Here the matter involved is the apportionment of input tax adjustment and not the supply, or activities of further (furtherance) of business.
(2) The issue of taxable supplies or furtherance of supplies are not the issue of dispute. The special procedure rule 13(3) is not inconsistent with the rate of supply.
(3) Section 8(2) and Rule 25 of Rules, 2006 have not been properly appreciated.
(4) Only single item of supply i.e. Electricity is subject matter before the larger bench, which consist of two segments, one electric purchase price, and the other CCP which consist of....
(5) The issue to be resolved is the apportionment of input tax adjustment, while other legal and factual issues are not subject of dispute before the larger bench, which are to be decided by the D.B, then rejection of appeals on all the issues is outside the mandate of the larger bench.
(6) The cases-law quoted by the L/Judicial Member have no relevancy at all with the present matter in hand.
(7) The details of the above summary are as follows:--
(8) The nutshell of the above discussion lead to the conclusion.
2. The applicability of section 8(2) of the Sales Tax Act, 1990, under a correct interpretation, is restricted and limited in cases only where there are identifiable and distinguishable taxable and non-taxable supplies. The cases where consideration in respect of one taxable supply is split into categories in a manner that part amount is required to be subjected to sales tax and part amount to be excluded from charge of sales tax remain outside the purview of apportionment, specified in section 8(2) of the Sales Tax Act, 1990 read with Sales Tax Rules, 2006. In the case of IPPs, as stated by the L/brother there is only one supply i.e. Supply of electricity (which is a taxable supply), the consideration for which is split in the PPAs under different heads. It is in this context provisions of Rule 13(3) of the Special Procedures make it not to be taxable which can not be equated to exemption, for which notification under sections 13(2)(a) and 13(2)((b) are mandatory and also its inclusion in the Sixth Schedule. Had it the intention of legislature notification should have been issued. ,Non-taxable means not chargeable to tax and it is restricted to EPP. Under no circumstances, this could be construed or equated with the situation conceived by the lawmaker to be the subject matter of section 8(2) of the Sales Tax Act, 1990 read with Chapter-IV of the Sales Tax Rules, 2006.
3. It was in fact an altogether erroneous conclusion that drag the matter into the mischief of section 8(2) of the Sales Tax Act, 1990 read with Chapter-IV of the Sales Tax Rules, 2006. It is abundantly clear that this matter ab initio did not involve the issue of taxable and non-taxable supply and pertained exclusively to determination of scope of 'value of supply', still the invocation of section 8(2) of the Sales Tax Act, 1990 read with Chapter-IV of the Sales Tax, Rules, 2006 is flawed and wholly misconceived. It is an admitted position that in terms of provisions contained in section 8(2) of the Sales Tax Act, 1990 (i) 'apportionment' is required where a registered person deals in 'taxable supplies' and 'non-taxable supplies'; and (ii) such apportionment could only be carried out in 'such' manner as may be specified by the Board in the Rules. It is also undisputed fact that the Federal Board of Revenue, while exercising R powers under the aforesaid provisions of section 8(2) of the Sales Tax Act, 1990, has prescribed Chapter-IV in the Sales Tax. Rules, 2006 in which 'apportionment' is specified between 'taxable supplies' and 'exempt supplies' exclusively. In these Rules, the expression used is 'exempt supplies' and not 'non-taxable supplies', an expression used in primary legislation i.e. Section 8(2) of the Act.
4. The aforesaid position i.e. Difference in language used in primary and subordinate legislation necessitates that one determines as whether there is any disharmony is the two. There is no such disharmony and as such both the primary and subordinate legislations are absolute at par. The primary legislation uses terms 'taxable supply' and 'non-taxable supply'. The term 'taxable supply' has been defined in section 2(41) of the Sales Tax Act, 1990 to means "supply of taxable goods made.....Other than a supply of goods which is exempt under section 13....". This, therefore, clearly follows that 'non-taxable supply' means opposite of 'taxable supply' and thus represents 'exempt supply'. Consequently, it is for the reason that under the statute 'non-taxable supply' corresponds to 'exempt 'supply' that in Chapter-IV of the Sales Tax Rules, 2006 the expression 'exempt supply' has been used while prescribing the principles for apportionment of input tax. Thus both the primary and secondary legislation are completely harmonious with regard to scope of apportionment.
5. The aforesaid analysis then leads the discussion to determination of position as to whether the invocation of section 8(2) of the ales Tax Act, 1990 read with Chapter IV of the Sales Tax Rules, 2006 was lawful or not. The answer to the controversy in hand lies in determination of fact whether in the case of IPPs there is any non-taxable / exempt supply for these provisions to be applicable ab initio. In terms of simplifying the matter, the core issue that requires resolution is whether or not CPP could at all be treated as 'exempt' under the law for effecting the apportionment.
6. If part consideration of one supply is excluded from charge of tax, like in the case in hand, still the provisions of the statute regarding 'apportionment of input tax' does not trigger as the same, under the law, becomes applicable only where one deals in identifiable and distinguishable taxable and exempt supplies. These principles remain ab initio inapplicable in case involving 'one supply' as is the case of IPPs but where the consideration is spilt as specified in Rule 13(3) of the Special Procedures Rules, 2007. Notwithstanding this legal position, the answer to the question is even otherwise negative.
7. The provisions of subsection (11) of section 2 of the Sales Tax Act, 1990 define "exempt supply" to mean supply which is exempt from tax under section 13 of the Sales Tax Act, 1990. The provisions of section 13 specify categorically the following goods to be exempt:-- Specified in sixth schedule [S. 13(1)]; Notified by the Federal Government [S. 13(2)(a)]; and Notified by the Board through special order [S. 13(2)(b)];
8. There is no confusion that CPP and charges, other than EPP, are not specified to be exempt supplies by IPPs either in Sixth Schedule; or through notification of Federal Government; or for that matter by special order of the Board. Consequently, in these circumstances where there obviously is no 'exemption' prescribed in the statute with regard to CPP etc., the principles of apportionment of input tax under section 8(2) of the Sales Tax Act, 1990 read with Chapter-IV of the Sales Tax Rules, 2006 are not attracted at all.
9. The next ancillary issue is to determine as to whether in terms of the legal position, CPP etc. Could be considered as 'exempt' by reference to phraseology used under Rule 13(3) of the Special Procedures Rules, 2007 which prescribes exclusion of CPP etc. From the 'value of supply'. This is important to determine as undisputedly and admittedly the preamble of the Sales Tax Special Procedures Rules, 2007, while listing the provisions exercised by the Federal Government while framing these Rules, inter-alia make a reference to section 13(2)(a) of the Sales Tax Act, 1990.
10. The answer to the aforesaid proposition/question is again in negative and that too for more than one reasons.
11. Firstly, the provisions of Rule 13(3) of the Special Procedures Rules do not use the expression 'exempt', which being a connotation expressly otherwise defined and used in the statute, could not be read impliedly. These provisions, as discussed above, contains specific 'exclusion' under mandate available under non-obstante provisions of section 71 of the Sales Tax Act, 1990 which could not be equated with 'exemption' by reference to well settled principles. Of statute interpretation that fiscal statutes have to be construed strictly and one has to look at the words and language used therein. The concept of 'exemption' is critical in taxing statutes and hence should not be introduced or eliminated- by implication. It needs no emphasis that exemption provisions are required to be interpreted in stricter terms as against other provisions in fiscal statutes. It is a trite law that:--
(a) if tax is to be charged then the law should be clear, unambiguous and specific and as such no stretch of provisions could be resorted to because tax could not be levied on presumption and in this respect, reliance could be placed on 1993 PTD 69 (SC), 1996 SCMR 1470 and 2008 PTD 103;
(b) if the law is ambiguous and capable of two interpretations then one favourable to the taxpayer has to prevail and also it does not support importation/reading of words into a clear provision of law and in this connection reliance is placed inter alia on 2013 PTD 1420, 2010 PTD 808, 2009 PTD 722, 2008 PTD 838, 2002 PTD 877 and 2002 PTD 1573 and
(c) when the language of law is clear then plain reading and meaning has to be adopted and in this respect reliance is placed on 1992 SCMR 663, 1992 SCMR 2192, 1999 YLR 710 (Kar.), 2008 PTD 838 (Lah);
12. The second reason, for which this expression could not be read, by implication, is that this expression has otherwise been expressly used in these Rules. The relevant examples, in this regard, are provisions of Rule 58D [prior to substitution by S.R.O. 525(I)/2008---which stated "....The commercial importer shall be exempt from payment of sales tax on further supply...1 and Rule 58T(5) [even currently prevailing in the law---which provides "...On which extra sales tax has been paid in the aforesaid manner shall be exempt from payment of sales tax on subsequent supplies "] of the Sales. Tax Special Procedures Rules, 2007 where the expression 'exempt' is provided in these Rules. Thus, since the Sales Tax Special Procedures Rules, 2007 themselves use expression 'exempt', wherever considered appropriate, therefore, the inescapable conclusion remains that where this word is not used, it could not be read by inference/implication. Accordingly, it is safe to conclude that in the preamble where the powers of section 13(2)(a) are stated to have been exercised by the Federal Government, these are with regard to such provisions where 'exemption' is expressly provided.
13. There is still another dimension with regard to which one could conclude that exclusion in section 13(3) of the Sales Tax Special Procedures Rules, 2007 is distinguishable and distinct from 'exemption'. It shall be appreciated that in terms of provisions of section 13(2)(a) of the Sales Tax Act, 1990 the Federal Government is empowered, through notification in the official gazette, to extend exemption to any taxable supplies from 'whole' or any 'part' of the tax chargeable under the Sales Tax Act, 1990. Thus, under this provision, exemption (from whole or part of the tax) could be in respect of taxable supplies. On the contrary, the situation'in the case of IPPs, even in the light of Rule 13(3) of the Special Procedures Rules, 2007, is that the sale of electricity remains chargeable to sales tax at full rate meaning thereby that the (i) sale remains taxable supply; and (ii) that too chargeable at full rate; thus not co-relatable to situation conceived in section 13(2)(a) of the Sales Tax Act, 1990. Accordingly, the non-taxable specified in Rule 13 (3) of the Special Procedures has no nexus whatsoever, direct or indirect, with exemption conceived in the statute.
14. If one still assumes that legal positions set-out in Rule 13(3) of the Special Procedures Rules, 2007 is no bar in considering the applicability of apportionment of input, which of course is not warranted for the reasons stated above, even then no recourse could lawfully be taken to provisions of section 8(2) of the Sales Tax Act, 1990 read with Chapter IV of the Sales Tax Rules, 2006. In this regard, relevant guidance is available from recent decision of the honourable Lahore High Court dated 18-12-2012 in Writ Petition 12851-2012, titled Baba Farid Sugar Mills Limited v.
Federation of Pakistan etc., wherein, the scope of provisions contained in section 8(2) of the Sales Tax Act, 1990 has been authoritatively, unequivocally and unambiguously laid down while dealing with almost similar matter relating to sugar manufacturers. Like in the present case where 'value of supply' (in the context of single identifiable 'taxable supply') has been statutorily restricted to exclude certain amounts, there the case also pertained to single identifiable 'taxable supply' but the rate of tax was reduced by 50%. In that case, while dealing with revenue assertion that input tax claimed was required to be apportioned under section 8(2) of the Act, the honourable court held as under:-- "6. As a matter of clarification it is observed that the exemption granted under section 13(2)(a) of the Act whereby the rate of sales tax has been reduced from 16% to 8% on the local supply of sugar by the petitioners imply that the entire local supply of sugar of the petitioners is taxable @ 8% and is a taxable supply.
7. The situation envisaged in section 8(2) of the Act is totally different. Under the said section if a registered person makes taxable and non-taxable supplies, only such portion of input tax can be claimed that is attributable to taxable supplies in such manner as is specified by the FBR. It is reiterated that in the instant case the petitioners are not making any non-taxable supply. In fact, the entire supply of sugar is taxable, however, at a reduced rate. The Impugned Circular dated 2- 5-2012 (now withdrawn) was issued assuming that reduction in the rate of Sales Tax by 50% i.e., from 16% to 8% amounts to splitting the local supply into 50% taxable and 50% non-taxable supply.
The position taken in the Impugned Circular besides being misconceived and hopelessly incoherent is legally infirm and incorrect."
15. The principals settled by the honourable High Court are clear, self-explanatory and fully applicable vis-a-vis the matter in hand. In the admitted circumstances that since in this case the appellant exclusively deals in taxable supply, and that too one taxable supply, no apportionment under section 8(2) of the Sales Tax Act, 1990 could be resorted to plainly on the grounds that in this case part of the consideration was excluded by the statute from the scope of ' value of supply'. This, it is reiterated, is not a case with taxable and non-taxable supplies rather a case, involving only taxable supplies but with restricted 'value of supply' and hence the apportionment, resorted to by the Revenue is clearly unlawful and illegal. IN SHORT THE RATIO OF THIS DECISION OF THE HONOURABLE LAHORE HIGH COURT CLEARLY SETTLES THE PRINCIPLES FOR APPORTIONMENT IN ABSOLUTE TERMS AND RESOLVES THE CONTROVERSY IN THE FAVOUR OF THE TAXPAYERS. NO EXCEPTION COULD BE TAKEN FROM THIS. Consequently, it is absolutely clear that the very basis, under which these proceedings were concluded by the Revenue, have since been categorically disapproved by the honourable High Court, therefore, these could not be upheld under any circumstances and have to be set at naught.
16. In the light of the discussion above, it is taxpayers' contention that the answer to the question before the honourable Larger Bench is clearly in negative. The provisions of section 8(2) of the Sales Tax Act, 1990 read with Chapter-IV of the Sales Tax Rules, 2006 are ab initio inapplicable in the case of IPPs and as such in the cases covered by the provisions of Chapter III of the Sales Tax Special Procedures Rules, 2007 there is no requirement of apportionment of input tax. In the context of the matter, it shall not be out of place to emphasize that the legislative scheme applicable to IPPs is part of a special law which prevails over the general law. The provisions of general law, unless the legislature so warrants, could not be applied in cases covered by special law. This legal position is well-settled and reliance could be placed inter alia on 2011 PTD 2042 = 2011 CLD 1300, 2003 PTD 1321, 2008 PTD 1346, 2006 PTD 1902 and 2009 PTD 1661, ((1989) CLC 1369 (Lah.), (2005 YLR 1293 (Lah.), 2003 PTD 1392 (H.C.), 1988 PTD 535 and 2012 PTD (Trib.) 263.
17. In the present cases, while undertaking apportionment, the revenue has in fact made a direct recourse to provisions of Rule 25(3) of the Rules, setting out treatment of what law describes as 'residual input tax credit'. Under the law, however, it comes at third and last place, in sequence. The law firstly requires the identification and allowability of input tax, relatable wholly to taxable supplies, in totality. The law then requires identification and disallowance of input tax relatable to exempt supplies in total. It is the balance amount of input tax, described as 'residue input tax credit', that is required to be apportioned on the basis of turnover. The act of apportionment of entire input tax claim, without segregation into three parts, depicts the confusion. There cannot be any basis to endorse such a direct approach.
18. The copies of the invoices which were raised separately on the buyer of electricity with regard to component constituting EPP and all other components are available on record. The invoices raised on account of EPP are denominated exclusively in terms of 'fuel costs component' and other 'variable operations and maintenance costs component' whereas that on account of CPP etc. Incorporate details of escalable/non-escalable and other fixed costs component. By reference to the structure of these invoices, it is evidently clear that had the apportionment been otherwise legally permissible, an aspect discussed above, the input tax suffered on fuel and other operational / maintenance costs etc. Remains wholly allowable under Rule 25(1) of the Rules to an IPP. That is to say, had the department properly appreciated the facts and law, it would have itself not apportioned the input tax to this extent and had allowed the same against output tax liability determined against EPP, which it has treated in these cases as 'taxable supply'. The apportionment of aggregate input tax and that too directly through recourse to Rule 25(3) of the Rules is hopelessly strange and unlawful. The answer to this, question is again in negative and there cannot be any justification, under any circumstances, for apportionment of aggregate input tax claim under these Rules. There could not be any lawful basis to apportion the input tax ,relating to fuel cost etc. Which, according to Revenue's own stance, relates to EPP which it contends to be consideration for taxable supply in the matter. This, according to their own version falls under Rule 25(1) of the-Sales Tax Rules, 2006 and hence remains outside the purview of apportionment.
19. The contention (0, that input tax claim is wholly attributable to EPP: (ii) and if at all falls in the scope of Chapter-IV of the Sales Tax. Rules, 2006 it is covered by provisions of Rule 25(1); and (iii) could not be apportioned by reference to provisions of Rule 25(3); could also be substantiated through a hypothetical example. It is a generally known fact that the purchase of electricity by WAPDA depends upon availability funds and resources and as such when there is shortage of funds with WAPDA it stops purchasing electricity. In this background if one assumes that WAPDA does not purchase electricity from an IPP for the whole of a tax period or for that matter year, there shall neither be any purchase of fuel by such IPP nor shall there be any invoice for EPP. But still the IPP shall be entitled to receive and shall actually receive payments on account of CPP. Under these circumstances, since there shall not be any input on account of fuel cost, the question of its apportionment shall not arise ab initio. This position abundantly substantiates that fuel cost has no nexus with CPP and thus its apportionment by making a reference to CPP is factually incorrect, void and unlawful.
20. The legal position that IPPs could claim entire input tax adjustment against output tax liability computed in terms of EPP, without any recourse to apportionment as stated above, is well settled and unambiguous. The FBR through Sales Tax General Order No. 3 of 2004 dated June 12, 2004 has confirmed that the payment of CPP is not required to be included in the value of supply for the purposes of computing the sales tax liability by an IPP and the same represent price of net capacity of the plant which is to be paid during the contractual period. It was further confirmed that IPPs shall be entitled to claim full input tax adjustment against the sales tax paid by them on.
Account of value of Energy Purchase Price only. The relevant part of the General Order is reproduced below for ease of reference:--
9. A question has arisen as to the value of supply of the electricity supplied by Independent Power Projects (IPPs) to Messrs WAPDA and Messrs KESC. The contracts between Messrs WAPDA/KESC and different IPPs envisage a tariff structure comprising a number of categories e.g. The consideration of money on account of Energy. Purchase Price (E.P.P.), Capacity Purchase Price (C.P.P.), Energy Purchase Price Premium, Excess Energy Bonus and Supplemental Charges (S.C.) etc.
10. The EPP is payable by WAPDA/KESC on account of purchase of "electrical energy" while the consideration received by I.P.Ps. On account of CPP is for net capacity of the plant which is to be paid during the contractual period. The payment of CPP, etc. Is not reliable to the supply of electricity.
11. The issue has been examined in the Central Board of Revenue and it is ruled that the value of supply of electricity by IPPs is the amount received on account of Energy Purchase Price only.
Therefore, any amount in excess of EPP received on account of Capacity Purchase Price, Energy Purchase Price Premium, Excess Bonus, Supplemental Charges etc. Is not to be included in the value of supply as defined in clause (46) of section 2 of the Sales Tax Act, 1990. However, the assessment of sales tax is to be done in accordance with the provisions of sections 7, 8 and all other relevant provisions of the Act, rules and notification. The IPPs will be entitled to claim full input tax adjustment against the sales tax paid on purchase of furnace oil and other tax-paid purchases for making supply of electricity subject to the provisions of section 8 and the notifications issued thereunder.
12. This ruling applies only to IPPs including HUBCO and KAPCO, because of their peculiar arrangements with WAPDA/KESC and is not applicable to any other person, including Captive Power Projects, engaged in the production and supply of electricity." (emphasis is ours)
21. The instructions issued by FBR by way of Sales Tax General Order No. 3 of 2004 dated June 12, 2004 are binding on all officers of FBR including DCIR in terms of section 72 of the Act since the aforesaid General Order is still in the field. This legal position has been expressly reaffirmed by the courts repeatedly and reliance, in this respect, could be placed on 2008 PTD 1993 and 2010 PTD (Trib.) 1643. Further, it is apparent from above that IPPs are entitled to claim full input tax adjustment against value of supply on account of "Energy Purchase Price" and the apportionment of input tax credit against "Capacity B Purchase Price" as determined by department is contrary to the B provisions of law. Since Capacity Purchase Price is not relatable to the value of electricity for the purposes of levy of sales tax, as confirmed by FBR vide General Order referred to above, the question of apportionment of input tax to the extent of Capacity Purchase Price is also contrary to the provisions of law.
22. In its complete context, the General Order, by referring to section 8 of the Act in paragraph 11, quoted supra, in effect restricts the allow ability of input tax where the same relates to goods/services which are used or to be used for any purpose other than for taxable supplies. For the reason discussed above, in no way does it permit or authorize the invocation of subsection (2) of section 8 of the Sales Tax Act, 1990. That is, the General Order, through subject qualification, puts a bar on taxpayer that he could not, by taking the shelter of the General Order, claim full adjustment for input tax that relates to goods and services used for a purpose other than for taxable supplies. Likewise, the General Order does not authorize deduction of input tax on goods regarding which restriction on claim is specified in a notification issued under section 8(1)(b) of the Act, which currently is S.R.O. 490(1)/2004 dated 12-6-2004. The provision of the General Order neither, directly or indirectly, support Revenue's assertion nor do these warrant invocation of section 8(2) of the Sales Tax Act, 1990 in the case of IPP.
23. It is on the basis of the analysis, carried out above, of the legal framework with regard to applicability of section 8(2) of the Sales Tax Act, 1990 and Chapter IV of the Sales Tax Rules, 2006 in the case of power producers, that this General Order intends not to authorize the department to undertake apportionment of input tax and as such only aims to restrict allowability of input tax to an extent as is generally available to all taxpayers. These two provisions relating to apportionment are not applicable in the case of power generation companies.
24. Rules have been framed by the Federal Government in exercise of powers conferred upon it under section 71 of the Sales Tax Act, 1990 which, at the first place, is a non-obstante provision and secondly authorizes Federal Government to specify rules for determination of "scope" and "payment" of tax by a taxpayer. The exclusion specified in Rule 13(3) of the Sales Tax Special Procedures Rules, 2007 is in complete harmony with powers available to Federal Government. The exclusion, in the manner specified in the law, only aims at prescribing the "scope" of taxation and does not go beyond the mandate assigned to the Federal Government by the Parliament through legislation of section 71 in the Sales Tax Act, 1990.
25. In the context of the matter section 3 of the Sales Tax Act, 1990 [which is also referred to in the preamble of the Sales Tax Special Procedures Rules, 2007] comprises of seven subsections. The provisions of subsection (1) which commence with the phrase "subject to the provisions of this Act" render the same sub-servient to other provisions of the Sales Tax Act, 1990. The provisions of subsection (2) of section 3 again start with non-obstante phrase and exclude the operation of subsection (1). According to subsection (2)(b) of section 3 of the Sales Tax Act, 1990, the Federal Government is again empowered to specify, by notification in the official gazette, that in respect of any taxable supplies made by a registered person, the tax shall be charged, collected and paid (i) in such manner; and (ii) at such higher or low rate as may be specified. It would not be out of place in fact, through rule 13(3), Federal Govt. Has fixed the special rate, lower rate than the standard rate.
This is not in the case of IPPS, but in case of sugar supplies up to tax year 2012 also lower rate was fixed. In the period, the market price was mere that of Rs. 58 per kg, the rate of sales tax was 28.25 per kg, on the market price sugar was supplied by the sugar coupled with the valid invoices but sales tax was leviable at the rate of 28.25 per kg. Thus, this scheme of legislation also confirms the validity of mechanism prescribed in Chapter III thereof.
26. The provisions of section 71 of the Sales Tax Act, 1990, it needs to be appreciated starts with phraseology "notwithstanding anything contained in this Act" which not only extends an overriding status to these provisions but also transforms these into a special provision of the Act dealing with inter alia Procedure for Collection and Payment of Sales Tax on Electric Power. It is accepted principle of law that if there are general provision and also special provision, then special provision would prevail over the general provision.
27. Accordingly, it could be safely inferred that by recourse to overriding provisions of section 7i of the Sales Tax Act, 1990 and thereafter formulating the Rules, the Federal Government could lawfully and validly modify the "scope" of 'value of supply' and this where done, is under the mandate extended by the Parliament.
28. By reference to observation regarding the validity or otherwise of Chapter III of the Sales Tax Special Procedures Rules, 2007 vis-a-vis the mandate available to Federal Government under the primary legislation, while dealing with subject appeals, could after validating the claim of input tax of the appellants HOLD that IPPs remained liable to payment of sales tax on all components of receipts, including CPP.
29. The answer to this proposition is in negative for the following reasons:--
(i) Firstly, the matter before the Larger Bench is a specific question which it has to answer. The circumstances involved in the appeals do not necessitate going beyond the said specific question;
(ii) Secondly, it is not the subject matter of the show-cause notices issued to the appellants and as such Revenue has never raised an issue, either in the show-cause notices or at any earlier stage, that IPPs were ever liable to payment of sales on aggregate amount, including CPP. It is a trite law that revenue authorities could not go beyond the extent of show-cause notices. This principle emanates from logic that one could not be expected to place a defense regarding an issue which was never confronted;
(iii) Thirdly, as discussed in more detail in preceding paragraphs, the legislative framework specified in Chapter-III of the Sales Tax Special Procedures Rules, 2007 is fully in conformity with the primary legislation and does not suffer from any infirmity for this to be disregarded. The powers exercised by the Federal Government with regard to section 71 of the Sales Tax Act, 1990 do not offend, undermine or exceed the mandate made available to it by the Parliament;
(iv) Fourthly, it is not in the domain of the tribunal to examine the vires of law and it stands well- settled even at the level of the apex court that both the Tribunal and the High Court (in its advisory jurisdiction) could not declare any provision, be that in the form of a secondary legislation like Rules or Notification, ultra vires;
(v) Fifthly, even if the tribunal does not declare the Rules as ultra vires and still proceeds to disregard these on the strength that it is competent, in the light of principles settled by courts, to enforce implementation of primary law over the secondary law [which, as discussed above, otherwise is not a situation involved in the present cases], still this is not permissible. It is a fundamental and well-settled principle of law that what an authority is not competent do 'directly' it could not be done 'indirectly'. In this respect, reliance is placed on order of Sindh High Court reported as 2003 PTD 1276. By reference to this established principle of law, if the tribunal disregards the Special Procedures Rules, 2007, which stands on the statute book unchallenged and uninterrupted, it would tantamount to indirectly declaring these ultra vires which is not permissible; and
(vi) Sixthly, and most importantly, this Tribunal in its appellate jurisdiction is examining the lawfulness and proprietary of the orders passed by the taxation officer and all it has to determine is whether the orders passed by the taxation officer are sustainable under the law. In this regard, a valid case for examination, in this perspective, could have been before the tribunal if the taxation officer had taken this line of argument in the orders but again such orders would have been unlawful because the taxation officers, being employees/subordinates of Federal Government, could not lawfully ignore, disregard or brush aside the Rules framed by Federal Government through D exercise of legitimate powers under the law.
30. It is also to be added that the authorities below, in their respective orders, have heavily relied upon decision of the ATIR, now reported as 2011 PTD 1306. This is not to be followed by this Larger Bench, for various reasons. To resolve the same the Larger Bench has been constituted. On the request of L/brother Judicial Member vide order sheet entry dated 16-9-2013, whereby he had asked the Chairperson to constitute the Full Bench as the Hon'able Islamabad High Court has directed to pass order within the period prescribed. Also the FBR in its instructions dated January 19, 2012 to field formations not only admitted that the said decision was contrary to law but also advised them to refrain from replicating the same in the case of other IPPs. Consequently, this decision, having been already overruled and also having Nen issued in disregard to well-settled principles of law and correct scheme of legislation, is not a good precedent to be considered besides not being binding on a Bench of a larger strength.
31. The other decision is that of a five member bench, with 3:2 majority, in M.A. (R) S.T.A. No, 27/IB/2009 dated May 15, 2012 ((2013) 107 Tax 318 (Trib.)) wherein the matter has been discussed in greater detail. The relevant part of the said judgment of the Tribunal dated May 15, 2012 is reproduced below for ease of reference:-- "37. It is an undisputed fact that the applicant is an Independent Power Producer and is involved in only one activity and that is a taxable activity of producing electricity. Capacity Purchase Price is one of the segments of tariff of electricity agreed by the applicant with WAPDA the only buyer of its product, electricity; however Capacity Purchase Price is not to be included in the price of electricity for the purposes of levy of sales tax. Rule 25 of Chapter-IV of Sales Tax Rules, 2006 is applicable where the taxpayers are involved in taxable and exempt activities. Section 13 of the Sales Tax Act, 1990 provides that supply of such goods would be exempt from levy of sales tax as are specified in sixth schedule. Capacity Purchase Price neither is a separate goods nor is included in sixth schedule for being treated as exempt. Accordingly upholding treatment of Capacity Purchase Price in the impugned order and the proposed judgment as exempt supply and apportionment of input tax on the basis is a mistake apparent from record, for reasons recorded in paragraphs above and is required to be rectified in the impugned order. After rectification of impugned order S.T.A. No, 132/IB/2010, as held hereinabove, the apportionment of input tax to Capacity Purchase Price by the authorities below is held to be without any legal authority and is hereby deleted and consequently the relief originally sought by the applicant is hereby allowed. The findings recorded in the impugned order to this effect and hereby rectified. In view of the above it is not necessary to discuss further mistakes indicated by the applicant in the impugned order."
32. The Revenue is of the view that since the rectification order of ATIR was suspended by Islamabad High 'Court (IHC) in its order dated November 5, 2012 in a writ petition filed by the department and again in an interim decision dated June 25, 2013 in a reference filed by the department against the rectification order of ATIR the rectification order is not to be relied upon.
The Writ Petition No, 3729 dated November 15, 2012 and Sales Tax Reference No, 1 of 2013 was filed by the department challenging the constitution of larger bench by the Chairman ATIR for hearing of rectification application by the taxpayer and rectification of an order in terms of Sales Tax Act, 1990.
The IHC however, suspended the order as it felt that the issue whether the original order of the tribunal could be rectified in terms of the provisions of the Sales Tax Act, 1990, need further deliberations. There is nothing in the interim orders with regard to merits of the issue. Even otherwise, as held by the superior courts, like in PLD 1975 Lahore 65 and in PLD 1980 Karachi 492 (and many others), the suspension order does not generally suspend the law interpreted by a competent court.
The cases laws quoted by the L/brother Judicial Member in his judgment have no relevancy in the present matter in hand.
2011 PTD 1, AL-Karam CNG: This is relevant to income tax. It has no nexus whatsoever with the present matter in hand. In this case it has been held that in case of sales of petroleum product tax deducted as a commission or trade discount is final liability, and no adjustment or credit of tax be given to taxpayer.
2013 PTD 1883: It deals with income tax matter of exemption, it is held that though income is chargeable to tax but income should be computed, but exemption or reduction of tax should be allowed.
2001 SCMR 1376: In this case the Hon'ble Supreme Court has given its finding on the issue of baggass which is by and intermediate product of sugar, though it does not change the hand but being used in Sugar Mills and many other products, hence it is taxable supply, and has also held that section 2(46) of the Act defines the value of supply, but in cases where the determination of supply is not possible because of no consideration of money has taken placed, therefore, in such cases value of supply will be the market price of the supply excluding the amount of tax in terms of tax. Nowhere has it been denied that Federal Government is entitled to fix the value of supply. The conclusion para of this judgment is as under: 2009 PTD 431 In this case sales tax was charged on steel melter on the basis of consumption of electricity, that against per metric consumption of unit it was held consumption could not be equated with the supply, hence it was declared ultra-vires. In the matter in hand no such issue is involved, rather it has been admitted by the Revenue and by the L/Judicial Member that special rule of 2007 is applicable and on the strength of same alleged apportionment has been made out, thus the ultra- vires is not the issue of dispute.
2009 PTD 316, Fauji Kabirwala: In this case issue of self consumption of electricity was involved, following the judgment of Hon'ble Supreme Court of Pakistan it was held that self consumption is taxable.
2008 PTD 103 This case-law deals, the value of supply on the basis of consumption of electricity, which has not got mentioned in section 2(46), it is therefore held this manner of charging of tax is against law and is in conflict with section 2(46) of the Sales Tax Act, 1990.
2001 PTD 2982 In this case taxable and non-taxable supplies have been taken into consideration and furtherance of business and taxability of self consumption has been discussed. Further the fact of conflict b/w the general and other law and has been held that when the two provisions are hormonal then it is to be followed while also whether general or special law which is subsequent in time shall be followed. It is abundantly clear that cases-law relied upon and quoted in the proposed judgment by my L/Brother Judicial Member Mr. Ch. Anwar-ul-Haq has no relevancy at all. The Learned Brother has also admitted that CPP have been exclused from the value of supply and on the basis of presumption he has equated it with the exemption, while no judgment is to be based on assumption as has been held by the higher and superior courts of the country and in the neighbor country i,e, India and others, so it is against the principle of law.
2001 PTD 1486: In this case Rules 5 and 6 of Special Procedural Rules, 2007 were declared ultra-vires because in this matter the payablility of sales tax was shifted from the supplier to the receiver of the supply/buyer, while sales tax is payable by the person making the supplies. Here in this case no issue is involved.
33. The cases-laws discussed by the L/Brother Judicial Member have been distinguished. While the cases-laws referred by the L/Brother Judicial Member, but not discussed, on these, no comments have been made. However, these cases-laws have no nexus in the issue of dispute in the matter in hand.
34. The Larger Bench has been constituted to consider a specific question and there is no requirement or lawful authority to go beyond that. Even otherwise, the entire proceedings have to be examined and considered in the context of the charges framed/levelled in the show-cause notice issued to the appellants and in this perspective there could not be any lawful basis to go beyond this point. The matter involves understanding of the law in the light of case made out in the show-cause notices.
35. The interpretation carried out by this tribunal both in the rectification order issued by the five member bench and the subsequent decision of the division bench in the case of Messrs HUBCO is based on proper appreciation of the law and contains relevant guidance for the purposes of the present appeals. The interim order of the Islamabad High Court, suspending the operations of rectification order is no bar for this Larger Bench to seek appropriate guidance or for that matter for placing reliance on the same; Rather the Hon'ble Islamabad High Court vide judgment dated 28-6- 2013 in Writ Petition No,2959 of 2013 has directed the ATIR to decide the case within 20 days from the receipt of judgment. By not giving any finding would amount to not following the directions of Hon'ble High Court.
36. Regardless of any other consideration, there cannot be any justification or legal rationale for carrying out of apportionment of input tax attributable to fuel cost etc. As the same, even by reference to Revenue's stance, has to be allowed in full and without any apportionment or restriction; and
37. Input tax claimed by IPPs is to be allowed in full as adjustment against output tax charged and collected by IPPs on EPP.
38. Under the Power Policy of 1994, Messrs WAPDA is under obligation to pay two kind of payments to the IPPs; (i) Energy Purchase Price (EPP) and (ii) Capacity Purchase Price (CPP). For the period under the appeal, the value of supply is governed by Sub-Rule 3 of Rule 13 of Sales Tax Special Procedures Rules, 2007 notified vide S.R.O. 480(1)/2007 dated 9-6-2007. The Sub-Rule (3) of Rule 13 ibid read as under:- "(3) in case of an I.P.P, HUBCO or KAPCO, the value of supply shall be the amount. Received by such IPP or, as the case may be HUBCO or KAPCO, an account of Energy Purchase Price only and any amount in excess of Energy Purchase Price received Premium, Excess Bonus, Supplemental Charges, etc. Shall not be deemed as a component of the value of supply".
39. From the aforesaid Sub-Rule, it is evident that sales tax is charged on Energy Purchase Price only whereas all other payments made by WAPDA to IPPs are not subject to sales tax, however IPPs claiming the entire input tax i,e, the sales tax paid on all purchases or against the output tax charged on EPP only.
40. Now the controversy is whether the IPPs could claim input tax apportionately to the extent of EPP or could claim the entire input tax. The object of the revenue rests on the ground that in spite of valuation criteria in Sub-Rule (3) ibid in view of substantive provision of the main Statute i,e, sections 7 and 8 of the Sales Tax Act, 1990, which dictates that all kind of payments i,e, both EPP and CPP accumulatively be taken as "consideration in money" as value of supply and EPP is to be taken as taxable supply whereas the CPP is to be taken as exempt supply. This stand is not sustainable for the following reasons:--
(1) The revenue presume the CPP as an exempt supply or exempt value whereas in Rule 13(3) and nowhere else the CPP has been treated as exempt because there is no notification under section 13 of the Sales Tax Act, 1990, which declared the CPP as exempted from Sales Tax Act, 1990.
(2) Rather Rule 13(3) fix as the value of supplies under first proviso to subsection (46) of section 2 ibid and accordingly under the second proviso directed the value of at which supply is to be made.
From all the arrangement it is evident that Rule 13(3) stakes the value as taxable supply. Contrary to it there is no notification under section 8(1)(b) whereby input adjustment was denied against CPP, thus, there is no restriction exist under Section 8 of the Act, 1990.
The other important thing that is to be noted that IPPs are not making any exempt supplies rather certain part of the value at most can be said to be exempted from the output tax, therefore, under the circumstances on the basis of value of supply cannot be divided into exempt or taxable supply.
(5) That the stand of the revenue in view of the aforesaid provision of law is tantamount to challenging the Board authority which cannot be done by sales tax officers as they under section 72 are directed to follow the Board order and the field officers are hardly in freedom to challenge the Rules by themselves, at most they can invite attention of the Board of the flaws in rules for further improvement, therefore, the entire exercise seems to be coram non judice.
(6) The exercise is also hit by the Principle of Casus Omissus.
41. Regardless of any other consideration, there cannot be any justification or legal rationale for carrying out of apportionment of input tax attributable to fuel cost etc. As the same, even by reference to Revenue's stance, has to be allowed in full and without any apportionment or restriction.
42. Thus giving accumulative effect to the above discussion, it is to conclude that Rule 25 of Sales Tax Rules, 2006 is not applicable to the instant matter. In this way I negate the opinion of L/Brother Judicial Member Mr. Anwar-ul-Haq and its two counter signatories. While also regarding para-45 of the proposed judgment by L/Brother the Judicial Member, the mandate of larger bench is restricted to issue of dispute about the apportionment of input tax, while in respect of other issues agitated through various appeals, only the D.B is empowered to give its findings.
Sd/- JAVED IQBAL, JUDICIAL MEMBER