The titled appeal has been filed by the Registered Person against the impugned Order-in-Appeal dated 12-02-2013 passed by the learned Commissioner Inland Revenue (Appeals) Multan, for the tax period from July 2010 to June 2011, while disposing of appeal against the Order-inOriginal No,01/2012 dated 19-11-2012, passed by the learned Deputy Commissioner Inland Revenue, Enforcement and Collection Unit No,05, Zone-II, RTO, Multan, whereby the appellant was directed to deposit sales tax amounting to Rs,4,363,058,313/- together with applicable default surcharge and penalty leviable in terms of the provisions contained in the Sales Tax Act, 1990 (hereinafter 'the Act').
2. Brief facts of the case are that the appellant is a public limited company, incorporation under the provisions of Companies Ordinance, 1984 and engaged in the business of distribution and supply of electricity after purchasing from National Transmission and Distribution Company (NTDC) within the area of thirteen (13) different districts of Southern Punjab. The DCIR/adjudicating officer passed Order-in-Original No,01/2012 dated 19-11-2012, on the basis of difference in the value of net sales declared by the appellant in its financial statement/return of total income for the tax year 2011 at Rs,95,010,316,149/- as against the declared sales in sales-tax returns of the relevant period at Rs,61,955,815,823/-. The difference, which primarily constituted the amount of subsidy received by the appellant from the Government of Pakistan as tariff differential, was subjected to tax treating the same as part of the value of taxable supplies for the purpose of section 3(1)(a) of the Sales Tax Act, 1990. An amount of Rs,925,295,652/- was also included in the value of taxable supplies considering it as unexplained difference. Being aggrieved, the appellant filed an appeal before the Commissioner of Inland Revenue (Appeals), Multan who vide Order dated 12-02-2013 uphold the treatment given by the assessing officer by confirming the impugned order.
3. Again feeling dissatisfied with the impugned order of the learned CIR (Appeals), the taxpayer has now come up in appeal before this Tribunal and assailed the Orders of the authorities below.
Following grounds of appeal were taken:--
1. That the order passed by the Commissioner of Inland Revenue (Appeals), RTO, Multan is bad in law and against the facts of the case.
2. That the order passed by the Deputy Commissioner Inland Revenue E & C Unit 05, RTO Multan reating the Government subsidy as taxable supplies is in violation of sections 2(19), 2(46), 3(1)(a) of the Sales Tax Act, 1990, Rule 13 of Chapter III of the Sales Tax Special Procedure Rules, 2007 and Article 4 of the Constitution of Pakistan.
3. That the order passed by the Deputy Commissioner Inland Revenue E & C Unit 05, RTO Multan is against the Value Added Tax (VAT) Mechanism which is the fundamental principle underlying the levy of sales tax under the Sales Tax Act, 1990.
4. That the appellant has duly discharged its obligation of charging and collecting sales tax from its customers at end consumers price (the price of electricity) as shown in the electricity bills (sales tax invoice) in compliance with sections 2(46) and 3(1)(a) of the Sales Tax Act, 1990 and Chapter III of the Sales Tax Special Procedures Rules, 2007.
5. That the end consumersprice (the price of electricity) is duly prescribed by the Government under its policy of supply of electricity to the people of Pakistan at an affordable cost which represents the fair value of the taxable supply (the supply of electricity). The Deputy Commissioner Inland Revenue E & C Unit 05, RTO Multan has ignored the fact that in case any relief given by the government while prescribing the electricity price, is charged to sales tax, the burden will be passed on to the poor consumers, which is clear violation of Article 4 of the Constitution of Pakistan.
6. That the omission of zero rated supplies and other adjustments from the sales tax returns is a procedural lapse and addition thereof to taxable supplies by the Deputy Commissioner Inland Revenue E & C Unit 05, RTO Multan is unjust and unlawful."
4. On due date of hearing, Mr. Rana Usman, FCA, appeared on behalf of the appellant/Registered Person while department was represented by Syed Bahadur Ali, Additional Commissioner/D.R. And Mr. Agha M. Akmal Khan, Legal Advisor.
5. During the hearing of appeal, we have heard the opposing counsel at length and examined the record. After giving earnest consideration to the rival arguments the matter, which mainly revolve treating of government subsidy as taxable supply, is disposed of in the manner as indicated below.
TREATMENT OF SUBSIDY AS TAXABLE SUPPLIES
6. At the very outset, it was argued by the learned counsel for the appellant that the treatment meted out by the DCIR and subsequently upheld by the first appellate authority is bad in law and against the facts of the case. He agitated treating of government subsidy as taxable supplies in violation of sections 2(19), 2(46), 2(1)(a) of the Sales Tax Act, 1990, Rule 13 of Chapter III of the Sales Tax Special Procedures Rules, 2007 and Article 4 of the Constitution of Pakistan. He argued that the DCIR was wrong in assuming the chargeability of sales tax on account of subsidy received from Government of Pakistan as consideration on account of taxable supply by placing reliance on section 2(46) of Sales Tax Act, 1990. He clarifies that section 2(46) of Sales Tax Act, 1990 means in respect of a 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 Section 2(46) clearly prescribes two conditions in respect of "Value of Supply" namely consideration in money to be received by supplier for a taxable supply; and it should be received from the "Recipient of taxable supply".
7. In this regard, it was argued that in the first place no money has been received by the company on account of subsidy. Secondly, as mentioned above, MEPCO being one of the DISCOs, is supplying electricity to its consumers in the prescribed jurisdiction. Consumers being the "recipient of taxable supplies" make only the payment of electricity charges billed to them whereas the subSidy is paid by the Government and the Government is not the recipient of the taxable supply of the company. The electricity is sold to general public against properly generated invoices/bills along with the sales value of the electricity. No default has been made on this account by the company. The learned counsel for the appellant further defines that Sales Tax is only payable at the price being charged to the recipient of the taxable supplies. The maximum price on which sales tax can be charged is the open market price of the taxable supply. As per section 2(19) of the Sales Tax Act, 1990, open market price means the consideration in money which that supply or a similar supply would generally fetch in an open market. According to the facts of this case, the government being the sole source of supplying/selling electricity to consumers determines the electricity prices which are charged to consumers by DISCOs. That the price as determined by the government is .The only price which a willing supplier/seller is charging to consumers/willing buyer and that is the only price which electricity can fetch in the open market. If the subsidy amount is considered as part of electricity price, it will create disparity and will hypothetically increase the open market price and will unjustifiably burden the consumers. Therefore, the order passed by the DCIR is against the basic principle of the sales tax to be charged on open market price as defined in section 2(19) of the Sales Tax Act, 1990.
8. Regarding scope of tax in pursuance of section 3(1)(a) of the Sales Tax Act, 1990, it is submitted that the said section prescribes that:-- "Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of (seventeen) per cent of the Value of-(a) taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him"
(emphasis is ours.)
9. The subsidy by the government to distribution companies to be treated as taxable should first meet the criteria of "Supply" as defined section 2(33) of the Sales Tax Act, 1990 which states that "supply means a sale or other transfer of the right to dispose of goods as owner " It is stated that in this case on account of subsidy, there is no sales, transfer or disposal of goods by the company in the course or furtherance of its taxable activity. Therefore, it does not attract charging of sales tax under the Sales Tax Act, 1990.
10. The learned counsel for the appellant further highlighted 13(2)(b) of Special Procedure Rules, 2007 for Collection and Payment of Sales Tax on Electric Power which reads as under:- "In case of generation, transmission, distribution and supply of electric power by a public sector project like WAPDA a private sector project including an IPP, a Captive Power Unit or any other person, the responsibility to collect sales tax shall be of the person making the supply, and the value shall be the price of electric power including all charges, surcharges excluding the amount of late payment surcharge, rents, commissions and all duties and taxes whether local, Provincial or Federal, but excluding the amount of sales tax, as provided in clause (46) of section 2 of the Act."
11. The above rule clearly prescribes that the sales tax on electricity is levied on the "price" of the electric power. From time to time, the Government of Pakistan notifies the price of electricity to be charged from public on the recommendation of NEPRA and the company is under obligation to charge such prescribed price from the consumers. Generally, the cost of procurement of electricity and other operational costs/expenditure are to be covered from the revenues generated by the company, therefore, the Government of Pakistan provides subsidy to the company to meet the shortfall in revenues due to lower unit rates as prescribed by the government as financial support.
12. It was further argued that charging of sales tax on subsidy is a clear violation of the Article 4 of the Constitution of Pakistan which is reproduced below for ready reference:--
4. RIGHT OF INDIVIDUALS TO BE DEALT IN ACCORDANCE WITH LAW ETC. To enjoy the protection of law and to be treated in accordance with law is the inalienable right of every citizen, wherever he may be, and of every other person for the time being within Pakistan.
2) In particular:-
(a) No action detrimental to the life, liberty, body, reputation or property of any person shall be taken except in accordance with law.
(b) No person shall be prevented from or be hindered in doing that which is not prohibited by law: and
(c) No person shall be compelled to do that which the law does not require him to do.
13. As stated above, that the price of electricity is determined by the government and accordingly DISCOs are directed to charge such prices to the consumers. The company billed to its customers/consumers on the basis of the government notified price which comes within the ambit of law of the country. This is the basic right of the citizens of Pakistan to be dealt in accordance with law of the land. In case the subsidy is treated as taxable supplies and tax is charged on such amount then the burden will be passed on to the consumers and this shall be against the basic right of the individuals.
14. It is also submitted that sales tax in Pakistan is levied and collected following the mechanism of VAT. Such mechanism allows the charging and collection of tax on multi-stage collection principle.
The price of electricity, as directed by the government, is the only price prevailing in the market and represents the open market price and also the end consumer price. Since the price to be charged to the end consumer is that as notified by the government in official gazette and sales tax is restricted on the price being charged to the end consumer, therefore, the subsidy being received by the company cannot be subjected to chargeability of sales tax. In fact the subsidy provided by the government is to provide financial support to the company and all such subsidy receipts are also exempt from the chargeability of Income Tax under Clause 102A of Part 1 of Second Schedule to the Income Tax Ordinance, 1979.
15. The learned counsel for the appellant further placed reliance on the decision in the case of Messrs Faisalabad Electric Power Company v. The CIR Zone-I, RTO Faisalabad vide order S.T.A.
No,874/LB/2013 dated 19-05-2014, wherein on the same issue, orders of the authorities below were vacated by holding as under:-- In arriving at this conclusion, we are fortified with the ratio settled in the judgment of the Hon'ble Supreme Court of Pakistan, cited as PLD 1990 Supreme Court 68, ruling "Where the statute's meaning is clear and explicit, words cannot be interpolated. In the first place, in such a case, they are not needed. If they should be interpolated, the statute would more than likely fail to express the legislative intent, as the thought intended to be conveyed might be altered by the addition of new words:. The upshot of the above discussion is that we hold that the revenue, in this case, erred in law in subjecting to tax the subsidy received from the Government which was not consideration for supply of electricity and thus not chargeable to tax. The orders of the authorities below, on this point, are vacated being unlawful.
16. In view the above, it was argued that the subsidy received from the government has wrongly been treated as chargeable to Sales Tax as it C does not represent the "Value" of taxable supply made to the recipient.
17. Regarding unexplained difference amounting to Rs,925,295,652/-, where demand has been raised. It was explained that the difference represents sale of electricity amounting to Rs,701,510,143/- to zero rated customers/consumers which were inadvertently and unintentionally omitted from the sales tax returns and difference of Rs,223,785,508/- represents exempt supply, self consumption and various adjustments in billing. The unpremeditated omission of zero rated or exempt, supply does not result in evasion or reduction in tax liability. Further, the inadvertent omission is not prejudicial or detrimental to the interest of revenue, so do not constitute sales tax liability of the taxpayer.
18. It was further argued that the necessary summary/requisite information was supplied to the assessing officer and subsequently to the Commissioner IR (Appeals) Multan, but due to voluminous information it consumed considerable time to extract the relevant information regarding these sales and no finding in this regard was recorded in the body of the original order. It was further stated that omission of zero rated supplies and other adjustments from the sales tax returns was a procedural laps having no revenue impact.
19. In view of the above the learned counsel for the appellant prayed to accept the appeal and to vacate the orders passed by the authorities below.
20. On the other hand, the learned D.R., vehemently supported the impugned orders of the authorities below and also contested the arguments of the learned counsel for the appellant in the manner indicated below.
21. At the very outset, the learned D.R. Started his arguments by explaining charging section i.e, section 3(1)(a) of the Sales Tax Act, 1990, wherein sales tax shall be charged, levied and paid on the value of "taxable supplies" made by a registered person in the course or furtherance of any "taxable activity" carried on by him. Hence, the expressions taxable supplies and taxable activity, need to be interpreted in their proper connotations. The term taxable activity as defined under section 2(35) of the Sales Tax Act, 1990, means any economic activity carried on by a person whether or not for profit and includes, as per clause (d), anything done or undertaken during the commencement or termination of the economic activity. The component of subsidy as highlighted in the tariff of NEPRA, received by the registered person is basically a taxable activity being part and parcel of registered person's economic activity as defined in the law quoted supra and rightly treated as taxable activity by the assessing officer.
22. It was further argued by the learned D.R. That no definition of the expression "taxable supplies" has been provided in the Sales Tax Law. However, the expression "value of supply" has been defined under section 2(46) of the Sales Tax Act, 1990 which means that in respect of a 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. As per proviso to this clause, in the situations where exact consideration regarding value of supply is not determinable on account of different components thereof, the "open market price" is to be taken as "value of supply" for the purposes of charging section. Similarly, sub-clause (c) of Section 2(46) provides that "in case where for any special nature of transaction it is difficult to ascertain the value of a supply, the open market price" has to be taken as value of supply. In the case of appellant, the differential of the open market price determined by NEPRA and the reduced price charged from the consumers of electricity, which is borne by the government as subsidy is essential component of the open market price and chargeable to tax under section 3(1)(a) of the Sales Tax Act, 1990. The chargeability of subsidy under section 3(1)(a) is further strengthened from the fact that keeping in view the special nature of economic activity of the Electric Power sector, and after considering all the peculiarities associated with this sector, a separate Chapter i.e, Chapter III has been provided for in the Sales Tax Special Procedures Rules, 2007. As per Rule 13(2)(b) of aforesaid Rules, the value for the purpose of chargeability of sales tax is to be determined as provided in clause (46) of section 2 of the Sales Tax Act, 1990. As discussed above, the value of supply is to be determined on the basis of open market price determined by NEPRA in this case. No specific provision is available in this Chapter which provides for determination of the value of supply excluding the component of "subsidy" or in a manner other than provided in section 2(46) of the Act which clearly lends credence to the action of the officer passing the impugned order in original by treating the open market price as value of supply and charging tax on the escaped component i.e, subsidy provided by the government. The appellant itself in the electricity bills gives bifurcation of the tariff determined by NEPRA and that billed to the consumers after adjustment of Subsidy in the following manner: NEPRA tariff-Subsidy rate= GOP tariff 17.6500 -1.6500 = 16.0000
23. It is evident from above that there are two components of the tariff determined by NEPRA i.e, one that is paid by consumers and the other that is paid by the government. As total value of supply of electricity is to be taken for the purposes of section 3(1)(a) of the Sales Tax Act, 1990.
Accordingly, the escaped component i.e, subsidy has been rightly charged to tax in the impugned Order-in-Original.
24. The appellant in its audited accounts for the year 2009 has clubbed the amount of subsidy in the figure of sales. The total sales figure has been reflected as Rs,62,745,023,253/-. As per Note 23 to the Accounts, the bifurcation has been provided as under:-- Sale of electricityRs.44,158,286,535/- Tariff Subsidy Rs.18,586,736,718/-
25. The above bifurcation of the figure of total Sales clearly suggests that the appellant itself treats the Subsidy as part of Sales. Hence, total figure of sales is taxable within the meaning of section 3(1)(a) of the Sales Tax Act, 1990.
26. The learned D.R. Further highlighted that on the similar issue of taxability of government subsidy in the case of Oil Refineries, the learned Commissioner IR (Appeals) Multan, at pages-10 and 11 of the impugned order had observed as under:- " that the Federal Board of Revenue vide letter C.No,1(30)STR/99(Vol-I) dated 03-07-2003 seeking guideline from the Law and Justice Division whether the oil refineries are bound to pay sales tax only on the prices received from the consumers/customers of the electricity or sales tax shall be charged and paid inclusive of subsidy received from the Government of Pakistan. The FBR vide letter No,1(17)STR/ 2000 dated 04-09-2003 communicated the opinion of the Law and Justice Division in case of Oil Marketing Companies which is reproduced below: It is crystal clear that the value of supply as defined under section 2(46) of the Sales Tax Act, 1990 means the open market price of the supply when the consideration for a supply is partly in kind (subsidy in the instant case) and partly in money or the supply is made for a consideration which is lower than the open market price and similarly value of a supply has to be the open 'market price where for any special nature of a transaction in this case the price has two components i.e, (1) price paid by the Oil Marketing Companies and (2) price received in the form of subsidy from GOP under the Parity Pricing Formula and the value of taxable supplies for all purposes includes the components of value paid as subsidy under the parity Pricing formula by GOP. The decision made vide Sales Tax General Order No,1 of 2000 dated 24-01-2000 reported as 2000 PTD Statute 186 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 Project, engaged in the Production and supply of electricity. Thus the Oil Refineries are required to pay sales tax on the total value of supplies and not on the component of price received from the OMC."
In the light of clarification of Law and Justice Division, the amount of subsidy received on account of price differential by the appellant from the Government of Pakistan attract sales tax. Moreover, as per S.R.O. 911(1)/2007 dated 10-09-2007 price differential claim/subsidy received on account of high speed diesel from the import value or value of supply. Meaning thereby the price differential claims/subsidy received on account of all supplies other than high speed diesel shall be part of value of taxable supple is under section 2(46) regardless it is received or not received/or from where it is received and chargeable to sales tax under section 3 of the Sales Tax Act, 1990. Thus, I feel no hesitation to uphold the treatment of the Assessing Officer."
27. By supporting the findings the learned CIR (Appeals) Multan and following the same analogy, it was argued that the subsidy in the case of appellant has rightly and lawfully been declared as per of total value of supplies and taxed accordingly as the differential price in the form of subsidy is taxable unless specifically excluded from the value of supply. Reference is made to S.R.O.
911(1)/2007 dated 10-09-2007 in this regard.
28. The learned counsel for the appellant, during the course of hearing, argued that treating the amount of subsidy received from the government as part of taxable supplies was not only against the provisions of Sales Tax Act, 1990 but also on account of the reason that the subsidy was not received in the form of cash but as mere book adjustment which could not be construed as being part of taxable supplies. He further argued that electricity bill was considered as sales tax invoice and only the price charged to the end consumer could be subjected to sales tax under the law.
Considering the amount of government subsidy as taxable would, according to him, subject the consumers of electricity to the burden of extra amount of tax charged on subsidy. The learned D.R, on the other hand, argued that the whole issue needs to be understood and decided strictly within the ambit of "taxable supplies': and "taxable activity" as mentioned in the charging section i.e, section 3(1)(a) of Sales Tax Act, 1990. He argued that taxable activity is essentially the outcome of "economic activity" as defined in section 2(35) of the Sales Tax Act, 1990. According to him, since the government subsidy is an integral component of power tariff, hence part and parcel of the appellant's economic activity and squarely fell within the definition of "taxable activity.He further argued that the expression "taxable supplies" needs to be explained strictly as provided in Section 2(46) of the Sales Tax Act, 1990. The said provision of law, he stressed, refers to the expression "open market price" as the ultimate determinant of the value of supplies in the situations where there is either no exact value of supply or consideration determinable, or supply at reduced rate on account of trade discounts etc. Or special transactions are involved. In this case, he argued that the price of electricity determined by NEPRA is to be taken as "open market price" for the purpose of determining the value of supply chargeable to sales tax. It was, according to him, immaterial how the burden of this price is shared between the general public as consumers of the appellant and the government. He also submitted a copy of electricity bill issued by the appellant showing the tariff fixed by NEPRA which was billed to the consumer after reducing the per unit amount of subsidy borne by the government. Countering the argument of the learned counsel of the appellant that subsidy was provided by the government to the appellant to meet its expenses, the learned D.R. Argued that had it been the case, the subsidy would not have been calculated on per unit basis which according to him was done to share the burden of the consumers of electricity by paying certain amount of every unit on their behalf to the appellant thus rendering it taxable being part and parcel of the total amount of tariff fixed by NEPRA. The tax component of this amount, he argued, was illegally being consumed by the appellant.
29. After having heard both the sides, examining the record and given serious consideration to the material as well as the decisions relied upon the opposing counsels, we hold that there are two issues involved in the case. The first issue revolves around the fundamentally legal controversy as to whether, the amount of subsidy received by the appellant from the Government of Pakistan as tariff differential in the normal course of its business activity is taxable under the Sales Tax Act, 1990 or not? The second issue is based on factual mistake regarding unexplained difference purportedly on account of zero rated supplies. E The learned counsel for the appellant has referred to the judgment of the Honourable Supreme Court of Pakistan PLD 1990 SC 68 whereby the Honourable Apex Court have settled the issue relating to interpretation of law holding that words provided for in the law are to be taken in their literal meaning, and that no interpolation should be made to stretch their meanings. Since the issue of subsidy essentially involves the applicability or otherwise of the charging provisions of the Sales Tax Act, 1990, it has to be decided in accordance with the judgment of the Honourable Supreme Court of Pakistan referred supra by strictly interpreting the requirements and conditions provided in the charging section i.e, section 3 of the Act which deals with scope and payment of tax. For the sake of convenience, the said provision of law is reproduced as under:-
3. Scope of tax.---(1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of seventeen per cent of the value of-
(a) taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him; and
(b) goods imported into Pakistan.
30. A plain reading of the charging section suggests that it is attracted if three fundamental conditions exist simultaneously i.e, firstly, the person is "registered" under the Act; secondly, that the person carries on a "taxable activity" and lastly that he makes "taxable supplies". There is, no controyersy as to whether the appellant is a "registered" person for the purposes of Sales Tax Act, 1990. The second condition concerning "taxable activity" needs to be understood in the light of definition of the term provided in section 2(35) of the Act as given below:--
(35) "taxable activity", means any economic activity carried on by a person whether or not for profit, and includes-
(a) an activity carried on in the form of a business, trade or manufacture;
(b) an activity that involves the supply of goods, the rendering or providing of services, or both to another person;
(c) a one-off adventure or concern in the nature of a trade; and
(d) anything done or undertaken during the commencement or termination of the economic activity, but does not include-
(a) the activities of an employee providing services in that capacity to an employer;
(b) an activity carried on by an individual as a private recreational pursuit or hobby; and
(c) an activity carried on by a person other than an individual which, if carried on by an individual, would fall within sub-clause (b)
As evident from the above, an inclusive definition of the term "taxable activity" has been provided in the law. The only precondition involved is that it has to be in the form of an "economic activity". It is immaterial whether the purpose of that economic activity is to earn profit out of it or not. As per clause (a), all activities in the form of business, trade or manufacturing fall within the ambit of the term "taxable activity". Accordingly, all activities associated with the appellant normal course of business falls within the ambit of taxable activity and scope of the above said definition.
31. The third condition for applicability of the charging section is that during the course or furtherance of taxable activity, the registered person should have made "taxable supplies" the value of which is subjected to tax at the applicable rate. Ironically, however, no definition has been provided in the Statute for the term "taxable supplies". Therefore, it needs to be understood in conjunction with other applicable terms used in the Act in general and charging section in particular. A direct and simple answer in that situation is that once the condition of "taxable activity" has been satisfied; all supplies made by the registered person would automatically be treated as taxable unless specifically exempted from the charge of sales tax. Under the Sales Tax Act, 1990, the only supplies which fall outside the scope of charging section are "exempt supplies" as provided in section 13 of the Act. By deductive reasoning, therefore, it can safely be said that in the course or furtherance of a taxable activity, all supplies that are not exempt under section 13, are taxable supplies. Further examination into the subject leads to another integral component of the charging section i.e, the term "value of supply". The definition provided in the Act goes as under: (46)"value of supply" means....
(a) in respect of a 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: Provided that --
(i) in case the consideration for a supply is in kind or is partly in kind and partly in money, the value of the supply shall mean the open market price of the supply excluding the amount of tax;
(ii) in case the supplier and recipient are associated persons and the supply is made for no consideration or for a consideration which is lower than the open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax; and
(iii) in case a taxable supply is made to a consumer from general public on installment basis on a price inclusive of mark up or surcharge rendering it higher than open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax.
(b) in case of trade discounts, the discounted price excluding the amount of tax; provided the tax invoice shows the discounted price and the related tax and the discount allowed is in conformity with the normal business practices;
(c) in case where for any special nature of transaction it is difficult to ascertain the value of a supply, the open market price;
(d) in case of imported goods, the value determined under section 25 of the Customs Act, including the amount of customs-duties and central excise duty levied thereon;
(e) in case where there is sufficient reason to believe that the value of a supply has not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representatives of trade and the Inland Revenue constituted by the Commissioner and
(f) in case the goods other than taxable goods are supplied to a registered person for processing, the value of supply of such processed goods shall mean the price excluding the amount of sales tax which such goods will fetch on sale in the market:
(g) in case of a taxable supply, with reference to retail tax, the price of taxable goods excluding the amount of retail tax, which a supplier will charge at the time of making taxable supply by him, or such other price as the Board may, by a notification in the official Gazette, specify.
Provided that, where the Board deems it necessary it may, by notification in the official Gazette, fix the value of any imported goods or taxable supplies or class of supplies and for that purpose fix different values for different classes or description of same type of imported goods or supplies: Provided further that where the value at which import or supply is made is higher than the value fixed by the Board, the value of goods shall, unless otherwise directed by the Board, be the value at which the import or supply is made.
32. The learned counsel of the appellant highlighted the terms "consideration in money" and "the recipient" as the only conditions to determine the value of a supply. His argument is based on the logic that since subsidy has not been received by the appellant in the form of money but it is just a book adjustment, and since the recipient of supply of the electricity is general public and not the government, the definition of the term "value of supply" cannot be extended to the amount of subsidy received by the appellant. However, as evident from above, exceptions to these conditions have been provided after using these expressions which suggest that in case of any doubt or on account of special nature of business practices or transactions, the "cipen market price" shall be the only determinant factor in this respect. The learned D.R., on the other hand, stressed the point that in the case of a subsidy, only the open market price of electricity can be subjected to sales tax, which, in the current situation, is the price of electricity fixed by NEPRA. He argued that if the contention of the appellant, that the price charged, to the consumers of electricity is the open market price for determination of the value of supply, is taken to be correct then there is no point in fixing the tariff by NEPRA in the first place. Although the learned counsel to the appellant has tried to dissociate the subsidy received from the government from the value of supplies, the fact remains that it is an essential component of the total value of supply fixed by NEPRA in the form of power tariff i.e, price at which the electricity is to be sold; or in other words, "open market price". Therefore, given the definition of the term "value of supply", and in the back drop of the fact that the tariff for sale of electricity to the general public is actually fixed by NEPRA and the subsidy provided by the government to the appellant is only meant to reduce the burden of open market price on consumers, we feel inclined to accept the argument put forth by the respondents as logical, in view of the above discussion. This view is also buttressed up by the fact that subsidy has neither been given exemption in the Sales Tax Act, 1990, nor any separate treatment has been provided in Chapter III of the Sales Tax Special Procedures Rules, 2007. It appears to be a conscious decision of the legislature to subject all components of "open market price" to sales tax. Reference to Article 4 of the Constitution of Pakistan is not relevant in this case as no violation of law has been made by treating the amount of subsidy received in the form of a part of the price structure, as taxable.
Reference to the issue adjudicated by the Hon'ble ATIR, Lahore Bench, Lahore in the case of Messrs Faisalabad Electric Company, Faisalabad (FESCO) bearing S.T.A. No,874/LB/2013 is also not of help to the appellant because now this issue has to be examined strictly according to the provisions of applicable law without stretching the meanings of these provisions. The learned Members, while deciding the issue of subsidy in the case of M/s. FESCO, had held that:-- The direct concession to the consumers such as social policy of the Federal Government in terms of Section 31(1) of the Regulation of Generation Transmission and Distribution of Electric Power Act, 1997, means concessional charge of Sales tax to the consumers and concessional charge including zero rated charge is not tantamount to exemptions under Section 13 of the Act. The reliance by the revenue on PLD 2007 Supreme Court 517 is, therefore, not apt. Under Section 23 of the Act, a registered person is required to issue invoice in the name of the recipient (buyer). In the present case, such invoice is issued in the form of the electricity bills and under rule-14 of the Sales Tax Special Procedures Rules, 2007, tax is "to be deposited on accrual basis i.e, the amount of Sales tax actually billed to the consumer or purchasers for that tax period". Thus the charge of Sales Tax is confined to the amount of price of electricity billed to the consumer. Subsidy is not part of that price billed to the consumer so, in our considered opinion; it falls out of the purview of the charge of Sales Tax.
33. After having examined the issue, as discussed above, we intent to differ with these observations of our learned brothers. Firstly, if it is assumed that as a social policy of the Federal Government, it grants direct subsidy to the consumers, then by implication, we have to admit that all pecuniary liabilities associated with such transaction i.e, including sales tax liability pertaining to that part of consumerscost of electricity, should also be discharged by the Federal Government. Secondly, as against the observation of our learned brothers, we note that the amount of subsidy is actually made part of the bills issued to the consumers. The amount of subsidy is clearly reflected in the bills issued by the appellant company to its consumers as reduced from the tariff fixed by NEPRA.
We also observed that taxing statutes always expressly exclude things from the chargeability under special circumstances in the shape of exemptions. So the specification of exemption of law is necessary where the amount is chargeable to tax under the law. We cannot stretch the law while interpreting it to exclude a thing from its applicability which otherwise falls within its charge and is not specifically excluded. The arguments taken by the learned counsel for the appellant are, therefore, farfetched and departure from the express provisions of law as explained above and have failed to convince us that the provisions of the charging section of the Sales Tax Act, 1990 are not attracted to the amount of subsidy despite being part and parcel of economic activity of the appellant and integral component of the tariff fixed by NEPRA for the sale of electricity. Further, the Federal Board of Revenue has also clarified the similar issue in the case of Oil Refineries, after seeking guideline from the Law and Justice Division that sales tax shall be charged and paid inclusive of subsidy received from the Government of Pakistan. Accordingly, we decline to interfere with the findings of the Commissioner IR (Appeals) Multan and uphold the treatment of the as essing officer. The appeal on this score is, therefore, dismissed.
34. As far as the unexplained difference in value of supply is concerned, we hold that the same requires reconciliation of sales - amount as per return and accounts. Accordingly we deem it proper to remand back the case on this issue for re-examination in the light of information/necessary documents according to the facts and circumstances of the case.
35. The appeal of the registered person stands dispose of in the manner and to the extent stated above.