Justice Nadeem Azhar Siddiqi: This a ppeal has been filed by the appellant challenging the Order- in-Appeal No.26/2017 dated 06.03.2017 passed by the Commissioner (Appeals) in Appeal NO. 279/2016 filed by the Appellant against the order in Original No. 776/2016 dated 01.09.2016 passed by the Assistant commissioner (Mr.Kaleemuddin Siddiqui) SRB, Karachi.
1. The facts is 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 of the 2 schedule of the Sindh Sales Tax on Service Act, 2011 (herein after referred as the Act).
2. It was alleged in the Order-in-Original that during scrutiny of Financial Statement for the tax periods of January, 2015 to December, 2015 it was revealed that the appellant paid quarterly technical fee to M/s Hutchison Harcourt limited (HHL) for their franchise services. It was further stated that franchise service is a taxable service under tariff heading 9823.0000. It was further alleged in the order-in-original that from Note 21 of the Financial Statement the appellant has paid fees on franchise services amounting to Rs.644,483,000/= which involves the SST of Rs.64,448,300/=.
3. That a show-cause notice dated 03.05.2016 was served upon the appellant to explain as to why short paid/not paid Sindh Sales Tax on Franchise Fee amounting to Rs.64,448,300/= should not be assessed and recovered along with penalty and default surcharge.
4. The appellant filed written reply dated 20.05.2016. The crux of the reply of the appellant is that the appellant will pay the royalty upon approval of State Bank of Pakistan. It was further stated that the safes tax shall be payable on the 15 day of the month, following the payment month laid down in the franchise agreement. The appellant has also denied imposition of penalty and default surcharge.nd th
5. The Assessing Officer has passed Order-in-Original in the sum of Rs.63,919,300/= and imposed default surcharge under section 44 of the Act and penalty under Table 3 of section 43 of the Act.
6. The said order of the Assessing Officer was challenged by the appellant by way of filing appeal before the Commissioner (Appeals). During the pendency of appeal before the Commissioner (Appeals) the appellant paid the principal amount of sales tax, The Commissioner (Appeals) ordered that the appellant shall only be required to pay the penalty if he fails to pay the default surcharge within a period of 15 days of the receipt of appellate order .
7. Mr. Muhammad Raza learned representative of the appellant submits that the agreement between the appellant and its principal was entered on 23.12.2015 effective from 1 January, 2015 and unless the State Bank acknowledged the Agreement remittance of Technical Fee to Franchiser is not possible. Fie then submits that after receiving the acknowledgment of State Bank dated 24.05.2016, as per clause 3 of the Agreement the amount become due and payable quarterly. He then submits that till to date the remittance was not made but the principal amount of Sales Tax amounting to Rs.63,919,260/- was deposited on 04.10.2016 during pendency of appeal before Commissioner (Appeals). Mr, Raza submits that in terms of Rule 36 (v) the sales tax is only payable following the month in which tax was actually paid. He then subMits that after the order in appeal, in compliance of appellate order default surcharge in the sum of Rs.1,311,308/- was paid on 16.03.2017 for the period 16.07.2016 to 04.10.2016. He then submits that the period was calculated keeping in view the observations made by Commissioner (Appeals) in para 4 of the order. He then submits that the appellant has deposited the default surcharge which may be considered keeping in view of the latest notification dated 18.05.2017 issued in exercise of powers under section 45 of the Act by which certain exemptions were provided to the tax payers. He submits that para 1 of the Notification is applicable and not para 3 of the said notification. He then submits that para 3 will only apply to those tax payers who have late paid the principal amount but has not yet discharged default surcharge on such late payment. He then submits that para 3 is discriminatory and the Tribunal has the power to take judicial notice of the same. He then submits that Commissioner (Appeals) in para 4 has held that the 1 payment was due on 15.07.2016 and remaining payments were to be made accordingly as per clause 12 of the agreement on 15th of the Month following the month of payment of fee. He then submits that excess amount was paid in terms of para 1 of the Notification, which may be refunded to the appellant. Mr Raza files additional grounds of appeal, which are taken on record. Mr. M Raza files additional grounds of appeal, which are taken on record. Mr M Raza also placed on record the copy of Technical Service Agreement and the acknowledgement of State Bank dated 24.05.2017.
8. Mr. vicky Dhingra states that in terms of para 3 of the Notification the appellant is required to pay default surcharge of Rs.1,803,406/- and penalty of Rs.319,594/- before 09.06.2017 against the total outstanding of Rs.3,195,965/-. He then submits that as per the agreement the appellant has received the taxable services from 1t Jan 2015 till December, 2015 duly recorded as expenses in his financial statement, however failed to pay the taxes prescribed by rules. He then referred to Rule 36(v) wherein the date of payment of tax has been prescribed according to which the appellant was required to pay on 15th day of quarter ended. He submits that Rule 36(1) is a provision for determination of value of services and not the date of payment of taxes. In case Rule 36(1) is interpreted as per arguments of Mr. Raza Rule 36(1) becomes redundant. Mr. Vicky states that in terms of S.T. Act, 2011 there is no such requirement of taking approval from State Bank, This has already been settled in earlier Decision of Tribunal in the case of KICT xis SRB Appeal No,AT-55/2014. The Commissioner (Appeal's) has not provided any relief regarding default surcharge but has conditionally provided relief regarding penalty, which the appellant has failed to avail as it had only partially paid the amount of default surcharge on 17.03.2017 after lapse of 15 days from the date of receipt of appellate order.
9. We have heard the learned representative of the parties and perused the record made available before us.St
10. From perusal of record it appears that during pendency of Appeal before the Commissioner (Appeals) and before order in appeal dated 06.03.2017 the appellant has deposited the principal amount of tax on 04.10.2016. The Commissioner (Appeals) ordered that the appellant shall only be required to pay the penalty if he fails to pay the default surcharge within a period of 15 days of the receipt of appellate order. The appellant deposited a sum of Rs. 1,311,308/= 16.03.2017 on account of default surcharge for the period 16.07.2016 to 04.10.2016 as per the observation made by Commissioner (Appeal) in para 4 of the order-in-appeal.
11. During pendency of the appeal SRB issued Amnesty/Exemption Notification dated 18,05.2017.
The appellant is also entitled to the benefits under the Notification. The arguments of the appellant that the Notification is discriminatory have force. In the Notification more benefits were given to those tax payers who have neither paid tax nor default surcharge & penalties on the date of Notification and lessor benefits were given to those tax payers who have deposited tax before the date of Notification and was only in arrears of default surcharge and penalties. It is expected that SRB will take care of the situation while issuing the Notification in future.
12. In this case the appellant has received the acknowledgement of technical services agreement from State Bank of Pakistan on 25th May, 2016. As per clause 3.1 of the Franchise Agreement the fee shall be paid quarterly and payment for each quarter shall comprise of one fourth of the Annual fixed fee and the variable fee which shall be determined by the actual performance in terms of TEUs handled, during the relevant quarter. The fee paid for the first three quarters of a financial year shall be adjusted in the payment for the fourth quarter based upon the annual audited financial statements for that financial year. Clause 12 of the same Agreement provides that the appellant is only liable to make payment subject to approval of State Bank of Pakistan. The Sales Tax Rules do not provides that payment of franchise fee is subject to the approval of State Bank. 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 date prescribed in the agreement or in case of no agreement the tax shall be payable on the 15th day on quarterly basis. The Agreement for the period from 1st January, 2015 was finalized on 12.2015 effective from 15t January 2015. It means that at the relevant Time there was no Agreement in field and tax has to be deposited as Provided in the Rule 36 (v). Technically no approval from State Bank is Required and the requirement is the acknowledgement of the agreement By state Bank, which was received on 25th May, 2016.
13. Even if the contention of the appellant is accepted that no amount of franchise fee can be remitted without acknowledgment of the State Bank of Pakistan, the first quarterly payment of franchise fee should have been remitted within a reasonable time on receipt of acknowledgment from State Bank and tax for the first quarter of 2015 should have been deposited as per Rule 36 (v) after receipt of acknowledgement, which was not done and there is no explanation of the same. However, the entire amount was deposited on 041.0.2016, which reflects the compliant attitude of the a appellant.
14. As far as the imposition of penalty is concerned the lapse on the part of the appellant has been sufficiently explained and it cannot be said that appellant has willfully failed to deposit the tax as provided under Rule 36 (v). As far as the imposition of default surcharge is concerned the appellant has voluntarily deposited the same in compliance of the order-in-appeal for the period from 15th July, 2016 to 04th October, 2016 amounting to Rs.1,311,308/= and has sufficiently discharged its liability and is neither liable to pay any more amount in this regard nor is entitled to the refund of the amount.
15. In view of the above discussion the order-in-original and order-in-appeal are setaside to the extent of payment of penalty in full and default surcharge for the period before 15 July, 2015.
16. The appeal is partly allowed to the extent mentioned in paragraph and Above and is hereby disposed of.
(Agha Kafeel Barik)
TECHNICAL MEMBERth Karachi Dated: 15.08.2017 (Justice Nadeem Azhar Siddiqi)
CHAIRMAN 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.