Justice Nadeem Azhar Siddiqi: This appeal has been filed by the appellant challenging the Order-in-Appeal No.57/2014 dated 25.04.2014 passed by the Commissioner (Appeals) in Appeal NO. 35/2013 filed by the Appellant against the Order in Original No. 96/2013 dated 05.09.2013 passed by the Assistant Commissioner (Ms. Anum Shaikh SRB, Karachi.
1. The facts of the case as mentioned in the Order-in-Original are that the Appellant is registered with SRB as service provider in the category of Terminal Operator under Tariff heading 9819.9090 and Franchise Services Tariff Heading 9823.0000 of the 2nd schedule of the Sindh Sales Tax on Service Act, 2011 (herein after referred as the Act) which are chargeable to sales tax and as per rule 36 (v) of the Sindh Sales Tax on Services Rules, 2011 sales tax on franchise payment shall be liable on the 15th day of the month, following the payment moth laid down in the agreement.
2. It was alleged in the Order-in-Original that examination of tax profile of the appe llant revealed that the appellant has failed to deposit Sindh sales tax on Franchise Services by due date as required under rule 36 (v) of the Rules (herein after referred as the Rules) pertaining to the tax periods July, 2011 to March, 2013). The Details are as under: S. No.Quarter of the financial yearDue date of paymentDate of payment madeAmount of sales tax involvedAmount paidDefault for No. of days in paymentPayable Amount
(1) (2) (3) (4) (5) (6) (7) (8)
11 Quarter (July- Sep 201 1)17.10.201128.12.201113,874,22213,874,22272 days 330,609st 2 nd Quarter (Oct-Dec 2011)16.01.201205.07.201213,581,91813,581,918169 days 755,891 33 Quarter (Jan- Mar 2012)16.04.201227.02.201312,078,98812,078,988311 days 1,270,027 44 Quarter (Apr- Jun 2012)16.07.201227.02.201312,609,44412,609,444227 days946,534 51 Quarter (Jul- Sep 2012)15.10.2012 '27.02.201314,999,24614,999,246130 days 642,132 6 nd Quarter (Oct-Dec-12)15.01.201324.05.201318,303,67118,303,671128 days 772,542 73 Quarter (Jan- Mar 2013)15.04.201224.05.201314,823,31614,823,31621 days 101,403 4,818,138
3. That a show-cause notice dated 19.07.2013 was served upon the appellant to explain as to why penalty and default surcharge may not be imposed for failure to make payment by due date as shown in the above table. The appellant filed reply dated 25.07.2013 and has taken certain legal pleas with reference of S 17 of the Act and rule 36 of the Rules. The crux of the reply of the appellant is that the show-cause notice is based on misinterpretation of the relevant rule and the Agreement. It was further stated that the sales tax shall be payable on the 15 day of the month, following the payment month laid down in the franchise agreement. It was further stated that the term "the payment month" refers to the actual payment/remittance date of the technical service fee. It was also stated that sales tax is due to appellant on 15 day of the month following the month in which 'e technical services fee is remitted to the Foreign Service Provider , the table below shows the dates of payment of technical services fee, and the payment dates of Sales Tax on franchise services that are well within the time stipulated above: S. No. Quarter of Technical Services FeeTechnical Service Fee paid onSindh Sales T ax on Services Paid onPaid within 15 day of the month following the payment month 1 July-Sept 2011 --Quarter23-Dec-11 28-Dec-22 Yes 2 Sept-Dec 2011 -- Quarter6-Jun-12 5-Jul-12 Yes 3 Jan-Mar 2012 -- Quarter25-Feb-13 27-Feb-13 Yes 4 Apr-Jun 2012 -- Quarter 25-Feb-13 27-Feb-13 Yes 5 July-Sept 2012 -- Quarter25-Feb-13 27-Feb-13 Yes 6 Sept-Dec 2012 -- Quarter22-May-13 27-May-13 Yes 7 Jan-Mar 2013 -- Quarter22-May-13 27-May-13 Yes
4. The Assessing Officer has passed Order-in-Original and imposed default surcharge of Rs.3,290,705/= under section 44 of the Act and penalty of Rs.4,272,372/= under Table 3 of section 43 of the Act.
5. The said order of the Assessing Officer was challenged by appellant by way of filing appeal before the Commissioner (Appeals), who has uphold the order in original and confirmed the penalties imposed by the Assessing Officer and dismissed the appeal, hence this appeal.
6. Mr. Ghazanfar Siddiqui the learned advocate for the appellant submits that before the order in appeal, availing the Notification dated 17.04.2014 5% of the default surcharge was deposited with SRB, which fact has been ignored by the Commissioner (Appeals) while confirming the penalties and default surcharge. He then submits that the appellant paid the2 rd th st 2 rd th th th sales tax after payment of royalty to its foreign Franchiser for the periods from July, 2011 to March, 2013 (Seven Payments). He then submits that the rule 36 (1) as applicable for the periods under consideration requires franchisee to make payment of sales tax on royalty remitted to the franchiser and not on accrued basis. He then submits that Rule 36 was amended in July, 2015 and words "remitted or paid or payable" were added and from this amendment it implies that franchisee is required to pay sales tax on royalty whether the same is paid or payable to franchiser. He then submits that Rule 10 (iv)
(a) & (b) of the Foreign Exchange Manual requires franchisee to submit application of remittance on royalty with its external Auditor so it may ascertain correctness of royalty payment. As soon as the Auditor certified/confirmed the royalty the appellant immediately paid related tax. He then submits that Royalty Agreement signed by the appellant with the Foreign Franchiser was approved by State Bank of Pakistan in terms of Rule 10 (ii) (d) of Foreign Exchange Rules vide its letter dated 17.01.2013 and before approval no payment can be made. He submits that there is no deliberate delay on the part of the appellant and delay if any has been adequately explained and imposing penalty and default surcharge is without first establishing mens rea.
7. Mr. Vicky after going through the record submits that a sum of Rs.164,536/- was paid on 22.04.2014, which is 5% of Rs.3,290,705/- on account of default surcharge imposed by the Assessing Officer. He then submits that the Assessing Officer has imposed default surcharge in the sum of Rs.3,290,705/= and penalty in the sum of Rs.4,272,372/- against which the appellant has only paid a sum of Rs. 164,536/- by availing amnesty Notification dated 17.04.2014 and is not entitled to claim the refund of the same as the amount of Rs.164,536/- was voluntarily and unconditionally deposited with the SRB under the amnesty. Mr. Vicky then submits that appellant has late paid the tax on Franchise service as detailed in para 3 of the Assessment order (order in original). He then referred to Rule 36 sub-Rule (v) and submits that where there is no date fixed in the agreement or in case of no agreement the tax shall be payable on the 15 day on quarterly basis. He submits that since the agreement between the Appellant/Franchise and Franchiser no date is mentioned the appellant is liable to pay tax on quarterly basis which was not paid as prescribed. He also referred to section 17 sub-section (2) of the Act and submits that the appellant is continuously receiving service and is liable to pay as provided in this section. He relied upon reported case of LHC reported as 2016 PTD 786,and 2016 PTD 643.
8. Mr. Ghazanfar Siddiqui advocate in rebuttal states that since the appellant was not liable to pay any default surcharge he is pressing this appeal for refund of the amount of default surcharge as the para 5 of the amnesty Notification dated 17.04.2014 also provides for refund of the amount in case the default surcharge is not payable.
We have heard the learned representative of the parties and perused the record made available before us.
9. From perusal of record it appears that during pendency of Appeal before the Commissioner (Appeals) and before order in appeal dated 25.04.2014 an Amnesty/Exemption Notification dated 17.04.2014 was issued by SRB for waiver of 100% penalty and 95% default surcharge, which was availed by the appellant and before passing of the order in appeal dated 25.04.2014 the appellant deposited the 5% of default surcharge on 22.04.2014 with SRB, as per notification. The appellant is entitled to the benefits provided in the said Notification dated 17.04.2014 and the Commissioner (Appeals) should allow the benefits of the Notification to the appellant and by not extending the benefits of the Notification the Commissioner (Appeals) has committed gross illegality. After depositing of amount of default surcharge, this appeal was filed on 07.07.2011.
10. Now the question is whether the sales tax on franchise services were deposited as provided in rule 36 or not. Rule 36 (v) provides that the sales tax shall be payable on the 15th day of the month, following the payment month laid down in the franchise agreement. Where there is no dateth prescribed in the agreement or in case of no agreement the tax shall be payable on the 15th day on quarterly basis. The appellant in the reply stated as under: "That the sales tax shall be payable on the 15th day of the month, following the payment month laid down in the franchise agreement. The term "the payment month" refers to the actual payment/remittance date of the technical service fee. The sales tax is due to appellant on 15th day of the month following the month in which the technical services fee is remitted to the Foreign Service Provider"
11. If for the time being the arguments of the appellant is accepted that the appellant is liable to deposit tax on the 15 day of the month, following the payment month even then the appellant has not deposited the tax as claimed. For example the sales tax for the quarter September, 2011 to December, 2011 was not paid within time as stated. As per its own showing the franchise fee for the quarter September, 2011 to December, 2011 was paid on 06.06.2012, whereas the sales tax was deposited on 05.07.2012 after thirty days and not after fifteen days of the payment month without any explanation of delay. Rule 36 provides the mechanism for payment of sales tax and the appellant has to follow the same. The appellant cannot alter or change the rules which, suits to it. The appellant has not placed any document in support of its contention that the payment of franchise fee was paid after certification of the Auditor.
12.From perusal of the relevant provisions of the Foreign Exchange Manual no permission from State Bank is required for payment of franchise fee for the periods July, 2011 to December, 2011 as stated by the appellant itself in the chart above mentioned. For remaining periods the requirement of the State Bank as per Regulation 10 (Remittance of Royalty/Franchise and Technical Fees) is not the approval of State Bank but as per Note (iv) appended with Regulation 10 the requirement is that "Remittance of Royalty/Franchise and Technical Fees may be allowed by the Authorised Dealer designated for the purpose, without the prior approval of the State Bank subject to the following: (a)
Application for remittance of Royalty/Franchise and Technical Fees is submitted by the firm concerned in the prescribed form (Appendix V-49) in triplicate along with copy of the acknowledgement letter issued by the State Bank. (b) The correctness of the information furnished in the application (Appendix V-49) must be certified by the auditors of the firm in the space provided for the purpose. An additional statement showing calculation of Royalty/Franchise and Technical Fees duly certified by the auditors should also be enclosed with the application.
13.The appellant submitted a chart to show the dates of certification by the Auditor, date of payment of Technical Fee and date of payment of sales tax as follows: S. No.QuarterSBP Approval date for extension agreementAudited Financial statements authorized for IssuanceCertification date of V -49 by the auditorsTechnical services fee paid onSales tax paid on 1Sep-11 N/A N/A 22-Dec-11 23-Dec-11 28-Dec-11 2Dec-11 N/A 2-Apr-12 9-May-12 6-Jun-12 5-Jul-12 3Mar-12 17-Jan-13 N/A 8-Feb-13 25-Feb-13 27-Feb-13 4Jun-12 17-Jan-13 N/A 8-Feb-13 25-Feb-13 27-Feb-13 5Sep-12 17-Jan-13 N/A 8-Feb-13 25-Feb-13 27-Feb-13 6Dec-12 17-Jan-13 ' 25-Mar-13 9-May-13 22-May-13 24-May-13 7Mar-13 17-Jan-13 N/A 9-May-13 22-May-13 24-May-13
14. From perusing the above provisions it appears that all the seven payments were neither made as provided in the rule 36 nor the same was paid as per the contention of the appellant. The above chart further shows that the payment of tax for quarter March 12 was deposited on 27.02.2013, whereasth the due date of payment was 16.04.2012. The appellant has to furnish the details to the auditor for certification and on its turn the auditor of the appellant has to certify the correctness of the information mentioned in the Appendix V-49. It is not known when the appellant has furnished the details to the Auditor for certification and when the Auditor has actually certified the payment. If the appellant has delayed furnishing the information to the auditor or the auditor has taken time in certifying the information the appellant cannot blamed others.
15. Under the law a thing is required to be done according to the procedure provided/prescribed and the thing not done as required by law cannot be given legal sanctity.
16. In view of the above discussion it is held that the appellant is entitled to the benefit of the Amnesty Notification dated 17.04.2014 and the Commissioner (Appeals) ought to have allowed the benefit even if not claimed by the appellant and by not doing so has committed an illegality, which cannot be ignored. The order in original and order in appeal are setaside except to the extent of payment of default surcharge of Rs. Rs.164,536/- paid under the Amnesty Notification dated 17.04.2014. The appellant is not entitled to the refund of the amount deposited under Amnesty Notification dated 17.04.2014.
17. The appeal is partly allowed to the extent mentioned in paragraph 16 Above and is hereby disposed of.
(Agha kafeel Barik) (Justice Nadeem Azhar Siddiqi)
TECHNICAL MEMBER CHAIRMAN Karachi Dated: 09.05.2017 Copies supplied for compliance:-
1. The Appellant through authorized Representative.
2. The Assistant Commissioner (Unit-), SRB, Karachi.
Copy for information to:-
3. The Commissioner (Appeals), SRB, Karachi
4. Office Copy.
5. Guard File.