Justice (Retired) Nadeem Azhar Siddiqi. This appeal has been filed by the Appellant challenging the Order in Appeal No.215/2016 dated 16.12.2016 passed by the Commissioner (Appeals) in appeal No. 130/2015 filed against the Order-in-Original No. 289/2015 dated 26.05.2015 passed by (Ms. Anbreen Fatima) Assistant Commissioner-SRB, Karachi.
01. The facts of the case as stated in the order-in-original are that the appellant is registered with SRB under the service category of Freight Forwarding Agents falling under Tariff Heading 9805.3000 of the Second Schedule of the Sindh Sales Tax on Services Act, 2011 (hereinafter referred to as the Act) and are liable to pay Sindh sales to on services @ Rs.400/= per bill of lading till 30t" June, 2013. It was also stated that record shows that appellant also involved in providing or rendering taxable service of courier falling under Tariff Heading 9808.0000 of the Second Schedule of the Act.
02. The allegations against the appellant in the order-in-original are as under:- 1) During examination of the tax profile of the registered person with SRB, it was observed that M/s TCS (Pvt) Ltd., during the tax periods from July, 2011 to October, 2014, have claimed input tax against appellant amounting to Rs.12,713,338/=, whereas the appellant have only declared Sindh sales tax of Rs.202,953,/,- during the afore referred tax periods. ii) Scrutiny of the Annual Audited Accounts for the year ended June,2012 and June, 2013 reveals that the registered person has earned revenue against the taxable services of Freight Forwarding Agent, Shipping Agent and Courier amounting to Rs. 192,683,5027= during the tax periods from July, 2011 to June, 2012 and Rs. 223,207,591/, during the tax periods from July, 2012 to June, 2013, which involve Sindh sales tax of Rs.30,829,360/= and Rs.34,113,215/= respectively. However no such amount has been deposited with SRB. iii) Scrutiny of the tax profile of appellant reveals that the registered person has failed to e- file their sales tax returns related to the tax periods from August, 2014 to October, 2014.
3. The appellant was served with show-cause notice dated 24,11.2014 as to why the tax liabilities of Rs.63,122,620/= may not be assessed along with default surcharge and penalties.
4. The appellant filed written reply dated 24.12.2014 on 29.12.2014. In the reply the appellant submitted that at the time of registration the activity of appellant should have been "Courier Service" instead of "Freight Forwarding agents and the appellant has applied for rectification.
It was further stated that services of "Inland Carriage of Goods By Air" is covered by the Federal Excise Act, 2005 and according to FBR, the sales tax collected from courier service companies in respect of inland carriage of goods by air service are to be declared/offered/adjusted in FBR's monthly sales tax returns against input taxes of appellant and resultantly sales tax is to be deposited with FBR. It was further stated that appellant's mostly services/revenue are of inland carriage and related sales tax is declared in FBR and the appellant declares Sindh sales tax only on receipts (other than inland carriage services) i.e. courier receipts in monthly SRB returns and that TCS exclusively declares it's input tax on SRB monthly sales tax returns.
5. The Assessing Officer has held that the revenue earned under the head of "carg o income" is exclusively covered under the tariff heading 9808.0000 (Courier Services) of the Second Schedule of the Act, rather the services provided by the persons involve in in inland carriage of goods by air. The Assessing Officer treated the cargo income amounting to Rs.184,179,827/-- related to tax periods from July, 2011 to June, 2012 and Rs.197,686,137/ related to the tax periods from July, 2012 to June, 2013 pertains to the courier services and determined and assessed the sales tax to Rs.29,468,772/= and Rs.31,629,782/=. The Assessing Officer also imposed default surcharge (to be calculated at the time of payment) and penalties amounting to Rs.70,299,637/=.
6. The appellant has challenged the said Assessment Order (order-in- original) by filing the appeal before the Commissioner (Appeals). The Commissioner (Appeals) after lengthy discussion held that the appellant is a freight forwarding agent within meaning of description in the definition contained in section 2 (47) and the description at tariff heading 9805.300 (Freight Forwarding Agents) of the 2"
Schedule of the Act. The Commissioner (Appeals) in view of its finding adjourned the appeal sine die pending appeals before Supreme Court of Pakistan, which order was challenged before this forum.
7. Mr, Zafar Khokhar the learned Advocate for the appellant submits that the purpose of approaching the Commissioner (Appeals) was that the order-in -original was passed beyond the scope of show cause notice as in the show cause notice it was alleged that the appellant is providing services in the field of shipping Agent and Freight Forwarder and the appellant was also asked about the input tax claimed by TCS. However, in the order in original the Assessing Officer treating the services of "Inland Carriage of Goods by Air" as rier Courier Services" under tariff heading 9808.0000 taxed the same without nsidering that the appellant is regularly paying FED on its services of Inland Carriage of Goods by Air to FBR. Regarding claim of input tax by TCS Mr. Zafar submits that TCS has acquired services from appellant for which invoices were issued to TCS in the FED mode and after collecting the FED from TCS the same was deposited with FBR and TCS has wrongly claimed input tax from SRB as the appellant neither collected Sindh Sales tax from TCS nor deposited the same with DRB. Mr. Zafar Khokhar further submits that the order of the High Court impugned by SRB in the Supreme Court is riot applicable to the appellant as neither the appellant is a Shipping Agent nor a Freight Forwarder and the Commissioner (Appeals) wrongly stay the proceedings of appeals instead of deciding the same on merits.
08. Mr, Mehrab Khan the learned AC submits that the appellant was voluntarily registered in the category of Freight Forwarder 9805.3000 and the appellant is also member of Pakistan International Freight Forwarders Association. He submits that since the appellant is registered with SRB under the, , specific category all his other taxable services can be taxed by the concerned officer of SRB. He then submits that out of three services provided by appellant the dispute is about cargo income which comes within the ambit of courier services and was rightly taxed. Mr. Mehrab submits that the appellant received parcels from the clients and handover to some other airlines company for onward delivery/shipment. He then submits that the appellant is performing the function of cargo handling on behalf of its clients. The show cause notice was rightly issued and order in original was rightly passed under section 23 and with section 2(30) of Act of 2011.
09. Mr. Zafar in rebuttal states that the Commissioner (Appeals) failed to consider the arguments and the case law provided to him during the course of arguments. He submits that the Assessing Officer taxed the services of courier allegedly provided by the appellant and not on its alleged services as freight forwarding agent. He then submits that it was never the case of the Department that appellant is providing the services of freight forwarding agent and the Commissioner (Appeals) has wrongly held that the appellant is a freight forwarder.
10. We have heard the learned representatives of the parties and perused the record made available before us.
11. The arguments of the appellant that the order-in-original was passed beyond the scope of show cause notice, as in the show cause notice it was alleged that the appellant is providing services in the field of Shipping Agent Freight Forwarder and the appellant was also asked about the input tax claimed by TCS is not correct. In the show cause notice it was clearly mentioned that the appellant has earned revenue against the taxable services of Freight Forwarding Agent, Shipping Agent and Courier.
12. As far as the contention of the appellant that it services covered under the Excise Act 2005 is also not correct. The levy of sales tax on services was conferred upon the provinces by amending Entry No. 49 of Federal Legislative List, Part I of the Constitution. The Sales Tax on Services has been levied by the Provinces under the exception of Entry No.49, which provides that (except sales tax on services), In this case the Sales Tax on Services has been levied by the legislature of Province of Sindh in terms of mandate given by the Constitution 18th amendment. The Entry No. 49 before amendment was read as under: "49. Taxes on the sales and purchase of goods imported exported, produced, manufactured or consumed".
Entry No. 49 of the Fourth Schedule of the Constitution after 181E' amendment read as under: "49. Taxes on the sales and purchase of goods imported exported, produced, manufactured or consumed. (Except sales tax on services)".
13. The Honorable High Court of Sindh in its latest judgment reported as Pakistan International Freight and Forwarders Association versus Province of Sindh and others 2017 PTD 1, in paragraph 58 considers the exception by framing a question "how does the "exception" apply and what is the effect?
While replying the question Mr. Justice Munib Akhtar speaking for the Bench held that "In our view, the "exception" added to entry No. 4.9 is not a true exception. Rather, it is an independent provision in its own right. it has two primary effects. Firstly, and most importantly for present purpose it recognizes expressly on the constitutional plane that a taxing power in respect of the taxing event of rendering or providing services vests in the provinces.The real effect of the "exception" is to "shift" the taxing power in relation to the taxing event of rendering or providing of services from the Federation to the Provinces.
"59. The second effect of the "exception' though not directly relevant for present purpose, may also be adverted to. Entry 49 is concerned with; inter did the sale of goods, The taxing power in relation thereto vests solely in the Federation. The taxing power in relation to the rendering or providing of Services now vests solely in the Province".
14. In the same judgment the Honorable high Court has further held as under:- "6.4. The position that emerges can therefore be stated as follows. The power to levy a tax on the providing or rendering of services vested exclusively in the Federation from the commencement day (14.08,1973) till the coming into force of the 18''' amendment (19.10.2010. Thus (as presently relevant) the 1944 Central Act validly continued as an existing law in the Federal domain and the 2005 Federal Act was validly enacted by the Federation. The- 2000 Provincial Ordinance trenched directly upon the Federal field and was therefore ultra vires the Constitution. With effect from 19.10.2010, the power to levy the tax vested exclusively in the Provinces, but by reason of clause (7) of Article 270 M, the Federation continued (insofar as this province is concerned) to have the competence to collect the excise duty till 30.06.2011. When the 2011 Provincial Act came into force on 01,07.2011, those provisions of the 2005 Federal Act that related to the levy of excise duty on the rendering or providing of services became ultra vires the Constitution. (it could perhaps be said that those provisions became ultra vires on 19.10.2010 and ineffective on 01.07.2011.However, nothing really turns on this distinction).Thereafter (but subject to what is stated below), it was only the Province that could validly levy the tax on services.
15. After the above judgment in which it was held that the "those provisions of the 2005 Federal Act that related to the levy of excise duty on the rendering or providing of services became ultra vires the Constitution. (It could perhaps be said that those provisions became ultra vires on 19.10.2010 and ineffective on 01.07.2011" the authority of the Province to tax the services cannot be questioned. The Federal Excise Act 2005 was enacted to consolidate and amend the law relating to duties of excise, on goods manufactured, produced, imported or consumed and services provided or rendered in Pakistan.
Whereas the Sindh Sales Tax on Services Act, 2011 was enacted to levy tax on services ,provided rendered, initiated, or consumed in the Province of Sindh. In this Regard pare 59 and 64 of the above judgment is relevant and gives Power exclusive to the Provincial Legislatures to tax the services. After enactment of Act of 2011 the Federation has left with no authority to collect tax on services under the Federal Excise Act, 2005 and if any tax was deposited with FBR the same is liable to be returned to the Province of Sindh.
16. As far as the other contentions of the appellant are concerned, the case of the appellant since very inception is that the economic activity of appellant is of "courier service" and not of "freight forwarding agent". It is also the case of the appellant that it is providing service of Inland Carriage of Goods by Air" on which Federal Excise Act, 2005 is applicable. The Assessing Officer has held that the revenue earned under the head of "cargo income" is exclusively covered under the tariff heading 9808.000 (courier services) under the 2nd Schedule of the Act, 2011 and disbelieved the contention of the appellant that it is providing the services of inland carriage of goods by air. None of the parties have claimed that the appellant is providing the services of Freight Forwarding Agent. The Commissioner (Appeals) in para 9 of his order held as under:- "The appellant is engaged in the transportation and logistics solutions between Pakistan and rest of the world. The appellant also provides the traditional international air/ocean freight forwarding and customs brokerage, UNS logistics and the service listed under B. above. The appellant is an agent who books cargo for the carrier , after classifying the goods and receives the consideration against the house airway bill. That cargo reaches on the destination and is received by the consignee.
Further, as per the own web site of the appellant the activity of the appellant (being the UNS Logistics) as freight forwarding agent is not limited to the "air freight" but the appellant also carries out the ocean freight as well (sub-para b. of para 8 and the extract at para 7 refers, wherein both the words air/ocean freight has been used). The study of all the above facts, the extracts reproduced and discussion on the same will explicitly shows that the appellant is a freight forwarding agent within the meaning of description in the definition contained at section 2 (47) and the description at tariff kneading 9805.300 of the 2 Schedule of the Act, 2011".nd
17. From the reading the above passage from the order-in-appeal it is quite Clear that the Commissioner (Appeals) for sufficient cause has held that appellant is providing the services of freight forwarding agent and is liable to Pay Sindh Sales Tax on Services and we do not find any infirmity to interfere with the same.
The learned Commissioner (Appeals) in para 10 of his order further held as under:- As per the rule 42 (rule 39 wrongly mentioned as rule 42) read with the definition contained at-section 2 (47) the description given at the tariff heading 9805.300 of the second schedule of the Act of 2011, the services of appellant are taxable as whole and not only the services as freight forwarding agent. As far as the service of freight forwarding agent, the same is 500 rupees per bill of lading, whereas the rate on other services the relevant times was 15%. In view whereof the issue of leaving over the receipts of "commission income" is also required to be revisited".
19. The Assessing Officer in Para 6.3.of the order excluded the commission income earned by the appellant from the ambit of Sindh Sales Tax. The Commissioner (Appeals) intend to tax the said earnings excluded by the Assessing Officer without serving notice as provided under sub-section (3) of section 59 of the Act of 2011. The Commissioner (Appeals) shall not increase the amount of any tax payable by the appellant unless the appellant has given an opportunity of showing cause against such increase. The order of Commissioner (Appeals) is silent in this regard meaning thereby no notice as provided under sub-section (3) of section 59 of the Act of 2011was given. We therefore hold that the earnings which were excluded by the Assessing Officer cannot be revisited or taxed by the Commissioner (Appeals) without following the procedure provided under sub-section (3) of section 59 of the Act of 2011.
20. Although the learned Commissioner (Appeals) after discussing the merits of case has held that the appellant is providing the services of freight forwarding agent, but has not finally disposed of the appeal and the same is still pending before him and is to be disposed of accordingly after the decision of the Honorable Supreme Court relating to the service of freight forwarders.
21. In view of the above we do not find any justification to interfere with the order of Commissioner (Appeals). However we direct the Commissioner (Appeals) to consider the effect of deposit of FED by the appellant instead of Sindh Sales Tax.
22. The appeal is disposed of. The copy of this order may be supplied to the learned representatives of the parties.
(Agha Kafeel Barik)
TECHINICAL MEMBER (Justice Nadeem Azhar Siddiqi)
CHAIRMAN Karachi Dated: 15.08.2017 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.