JAVID IQBAL, JUDICIAL MEMBER.---These appeals have been filed by the taxpayer/appellants against Order-in-Appeal No.49 and Order-in-Appeal No.50/51 of 2013 dated 27/09/2013 passed by Commissioner Inland Revenue (Appeals) Peshawar whereby he rejected all the appeals of the appellants.
Brief of S.T.A. No.105
2. Brief facts of the case as reported are that during desk audit of appellant's record for the financial year July, 2010 to June, 2011, the respondent department observed that the appellants supplied Sui Gas to its shops/offices etc. but failed to get themselves registered in the Sales Tax in accordance with section 14 of the said Sales Tax Act, 1990 read with Sales Tax Rules, 2006 and Sales Tax Special Procedure 2007. It was further observed that appellants made taxable applies of Gas of Rs.1,826,826/- as per Income Tax Return without payment of sales tax of Rs.310,560/- (@ 17%) thereon in violation of section 3 read with clause b of sub-rule (2) of Rule 20 as defined in Chapter IV under the hearing "Special Procedure for Collection and Payment of Sales Tax on "Natural Gas".
The appellant is stated violated the provisions of sections 2(25), 3, 6, 11, 22, 23 and 26 of the Sales Tax Act, 1990 read with Rules 5 and 6 of Sales Tax Rules, 2006 notified vide S.R.O. 555(1)/2006 dated 05.06.2006 read with clause (b) of sub-rule (2) of Rule 20 of Sales Tax Special Procedures Rules, 2007.
3. The above mentioned discrepancies were communicated to the appellants by the department vide show-cause notice C. No. Audit-III/ ST/Shahid Gul and Partners /2013/1084 dated 23.05.2013.
The appellant contested the observations before the Assessing Officer however, the Assessing Officer being not satisfied with their contentions has stated established sales tax demand of Rs.310,560/- along with Default Surcharge and Penalty vide impugned Assessment Order.
Brief of S.T.A. No.106
4. Precisely, brief facts of the case as reported are that during desk audit of appellants' record for the financial year July, 2010 to June 2011, the respondent department observed that the appellant's engaged in the business of power generation (electricity) and its subsequent sale/supplies but failed to get themselves registered In the Sales Tax in accordance with section 14 of the said Sales Tax Act, 1990 read with Sales Tax Rules, 2006 and Sales Tax Special Procedure, 2007. It was further observed that appellants made taxable supplies of Electricity and disposal of fixed assets of Rs.41,048,683/- as per Income Tax Return without payment of sales tax of Rs.6,567,789/- MI 16%) thereon in violation of section 3 read with clause (b) of sub-rule (2) of Rule 13 as defined in Chapter III under the hearing "Special Procedure for Collection and Payment of Sales Tax on "Electric Power".
The appellants is stated violated the provisions of sections 2(25), 3, 6, 11, 22, 23 and 26 of the Sales Tax Act, 1990 read with Rules 5 and 6 of Sales Tax Rules, 2006 notified vide S.R.O. 555(1)/2006 dated 05.06.2006, read with clause b of sub-rule (2) of Rule 13 of Sales Tax Special Procedures Rules,2007.
5. The above mentioned discrepancies were communicated to the appellant by the department vide show-cause notice C.No.Audit-III/ ST/Shahid Gul and Partners /2013/822 dated 27.03.2013. The appellants contested the observations before the Assessing Officer, however, the Assessing Officer being not satisfied with their contentions has stated established sales tax demand of Rs.6,567,789/- along with Default Surcharge and Penalty vide Impugned Assessment Order.
Brief of S.T.A. No.107
6. Precisely, brief facts of the case as reported are that the appellants engaged in the business of power generation (electricity), natural gas to its clients but failed to get themselves registered in the Sales Tax in accordance with section 14 of the said Sales Tax Act, 1990 read with Sales Tax Rules, 2006 and Sales Tax Special Procedure 2007. It was further observed that appellants made taxable supplies of Electricity, Sui Gas and fixed assets of Rs.39,744,548 + Rs.2,022,347 + Rs.1,304,135)
Rs.43,071,030/- as per Income Tax Return for the year 2011-12 to its shops/offices etc without payment of sales tax thereon in violation of section 3 read with clause b of sub-Rule (2) of Rules 13 and 20 as defined in Chapters-III and IV under the heading "Special C Procedure for Collection and Payment of Sales Tax on Electric Power and Natural Gas and, whereas the said registered person was liable for registration in terms of subsection (25) of section 2 of the Sales Tax Act,1990.
Therefore, the said registered person has evaded sales tax 16% of Rs.6,891,365/- in violation of sections 2(25), 3, 6, 11, 22, 23 and 26 of the Sales Tax Act, 1990 read with Rules 5 and 6 of Sales Tax Rules,2006 notified vide S.R.O. 555(I)/2006 dated 05.06.2006 read with clause b of sub-rule (2) of Rule 13 of Sales Tax Special Procedures Rules, 2007.
7. The above mentioned discrepancies were communicated to the appellant by the department vide show-cause notice C.No.Audit-III/ ST/Shahid Gul and Partners/2013/1083 dated 23.05.2013. The appellants contested the observations before the Assessing Officer, however, the Assessing Officer being not satisfied with their contentions has stated established sales tax demand of Rs.6,891,26/- along with Default Surcharge and Penalty vide impugned Assessment Order.
8. The appellants felt aggrieved went in appeals before L/CIR(A) who vide impugned orders rejected all the appeals. Being further aggrieved by the impugned orders in appeal, the appellants filed the instant appeals to this Tribunal.
9. We have carefully perused the available record and have anxiously considered the written as well oral submissions made by the learned counsel for the appellants and departmental representative for the respondents. We now intend to go into the deeper appreciation of the factual and legal issues involved in the case in chronological, systematic and legally convincing manner as given in the succeeding paras, so as to arrive at the proper, just and fair decision in the instant appeal.
10. First issue:--Whether the appellants are engaged in the business of power generation and whether they are engaged in sale/supplies of such electricity allegedly produced and generated by the appellant, as has been held in the impugned order.
The Federal Government issued Notification No. S.R.O. 480(1)/2007 dated 09/06/2007 whereby Sales Tax Special Procedure Rules were issued. Chapter III thereof pertains to Collection and Payment of Sales Tax on electric power. Each procedure specified in the said notification begins with "Application" of the rules. Meaning thereby the applicability of the rules are not general in nature but applicable to specified persons. Rule 11 of the said chapter restricts the applicability of the said rules to the electricity generation, transmission and distribution of Electric Power Act, 1997 including their distributors, dealers and agents or by any other persons dealing in importation, generation, production: transmission, distribution and supply of electric power. It has been alleged in the impugned assessm ent order that the appellants are engaged in the business of power generation and supply thereof. Here question arise as to whether the appellants were qualified to be a company as specified in rule 11 of the said rules. Chapter III of the said rules is not applicable to the appellant for the following reasons:--
(i) The, appellant is a partnership formed for management of a private building comprising of hundreds of shops and offices. The status of the appellant was not disputed by the respondents.
(ii) The appellant is not a company licensed under Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (XL of 1997).
(iii) The appellant is neither registered with NEPRA nor licensed by the NEPRA for electricity generation and distribution as has been specified in the rule 12 of the said rules.
(iv) The appellant is not distributor, dealer and agent of any company licensed under the, said Act, 1997 or for that matter registered with NEPRA.
Therefore, we are in agreement that the appellant falls out of the purview of the applicability of the said rules.
11. Second issue:--Whether the appellants were liable to be registered under the Sales Tax Act, 1990.
The Sales tax law provides that registration will be required for such person and be regulated in such manner and subject to the rules as the Board may be notification in the official gazette prescribe. Chapter I of Sales Tax Rules, 2006 notified through S.R.O. 555(1)/2006 dated 05.06.2006 provides for regulation and manner for registration. Rule 4 E of the said Rules prescribes the requirement of registration which is reproduced for ready reference.
"Requirement of registration:-- The following persons engaged in making of taxable supplies in Pakistan (including zero rated supplies) in the course of furtherance of any table activity carried on by them, if not already registered, are required to be registered in the manner specified in this chapter namely:--
(a) a manufacturer not being a cottage industry.
(b) a retailer whose value of supplies, in any period during the last twelve months exceeds five million rupees.
(c) an importer.
(d) a wholesaler (including dealer) and distributor.
(e) a person required, under any other Federal law or Provincial law, to be registered for the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected under the Act and a commercial exporter, who intends to obtain sales tax refund against his zero rated supplies.
From the above provisions of law it is clear that the appellants are not manufacturers, retailers an importers wholesalers (including dealer) and distributors commercial exporters or possessing any other category as specified in the rules. Here a question can be raised that the appellants are distributors of electricity which is purchased in bulk and F then distributed to various shops and offices. To substantiate their claim, the appellants referred to the definition of "distribution" in their arguments. It is deemed appropriate to reproduce the definition of distribution as provided in the rules for ready reference:-- "Distribution", in relation to Chapter III, means the ownership, operation, management or control of distribution facilities for the movement or delivery or sale to consumers of electric power but shall not include the ownership, operation, management and control of distribution facilities located on private property and used solely to move or deliver electric power to the person, owning, operating, managing and controlling those facilities or to tenants thereof shall not constitute distribution.
During the hearing proceedings, the respondents never disputed that the building managed by the appellant was a private building. From the above definition, the exclusion of the appellant from the term "distributor" is clear beyond any iota of doubt. Therefore, the appellants are not liable to be registered in the light of the record placed on file before us. In addition to the above the appellants placed on file a clarification issued by the FBR C.No. I(ii) STR/2004 dated 14.04.2005 stating that generation, distribution and utilization of the electricity in private properties or buildings is not liable to sales tax because the provisions of the said Chapter-V (now Chapter-III) are not attracted in case of private properties or building various the generations and distribution arrangements have been made internally. We also agree to the clarification of the FBR as the matter has been clarified in accordance with law and rules.
12. Third issue: - Whether the appellant are liable to pay sales tax on Sale of fixed assets.
The record placed on file reveals that the appellants made sales of fixed assets for all the years under appeal. The appellant in the income tax return declared the aforesaid transaction but appellant cannot be subjected to sales tax on account of the aforesaid transaction as the appellant does not fall in any of the category of registered persons prescribed by the law and also explained in proceedings paras. The overall economic activity made during the period of time needs to be analyzed and if that activity is in continuity and confirmed to be taxable activity then a person is liable to be registered. During the hearing proceedings the appellant produced letter of Assistant Collector HQ letter C. No. ST (Tech)/Clarification/02/2000/2489 dated 12.02.2002 whereby it was clarified to the appellant that a person who is not engaged in making of taxable supplies in Pakistan, is not required to be registered. Resultantly the appeals instituted on behalf of R/P succeeds on all the issues of dispute.