Justice Nadeem Azhar Siddiqi: This appeal has been filed by the Appellant challenging the Order-in-Appeal No.39/2017 dated 29 March, 2017 passed by the Commissioner (Appeals) in Appeal No.159/2016, dismissing the appeal filed by the appellant against the order-in-original No. 285/2016 dated 25.04.2016 passed by the Assistant Commissioner (Ms. Nida Noor), SRB, Karachi.
In short the facts of the case as stated in the order-in-original are that appellant bearing (SNTN-3331212-5), was voluntarily got registration under principal activity of "Software or IT-based System Development Consultant" (Tariff Heading 9815.60000) of Second Schedule to the Sindh Sales Tax on Services Act, 2011 (herein after referred to as the Act) chargeable to Sindh sales tax.
02. The allegations against the appellant are the appellant neither deposited due tax nor submits sales tax returns. It was further alleged that under Note 12 of the Financial Statement ended June, 30, 2014 the total service income is mentioned as Rs.12,616,950/=. It was also stated under Note 1 of the Financial Statement for the same year the principal activities of the appellant includes developing data base through electronic media and wide area communication network, designing and developing systems and application software, setting electronic data processing center's etc. It was also alleged that appellant is liable to deposit sales tax of Rs.2,018,712/=.
03. The appellant was served with a show-cause notice dated 11.11.2015 to explain as to why the sales tax amounting to Rs.2,018,950/= may not be assessed and recovered along with default surcharge and penalties.
04. The appellant filed written response on 03.112015. The appellant in its reply submitted that the appellant is subsidiary of Workstream Automation UK and is only working for its principal with theth exception of just one client, i.e. Silk Bank Limited. It was further submitted that all the proceeds are coming from UK against invoices and claims exemption under Notification No. SRB-3-4/7/2013 dated 13.06.2013.
05. The appellant in the revised return declared revenue amounting to Rs.12,616,950/= out of which Rs.10,506,468/= was declared as exempt services and Rs.2,110,485/= was declared as the services provided or rendered to Silk Bank Limited and deposited a sum of Rs.49,418/= for the tax period August, 2013 and Rs.288,260/= for the tax period March, 2014.
06. From the perusal o Some tax return for the year 2013-2014 it appears that from the total revenue of Rs. 12,616,950/= an amount of Rs.2,110,448/= was declared exempt from tax and Rs.10,506,468/= has been mentioned under the head of "Amount Subject to Normal Tax".
07. The Assessing Officer after hearing passed the assessment order in the sum of Rs.1,681,272/= along with default surcharge (to be calculated at the time of payment) and penalties in the sum of Rs.100,948/= under serial No.3 of the table of section 43 of the Act and Rs.954,165/= under serial No.2 of the table under section 43 of the Act and Rs.1,681,272/= under serial No. 6 of section 43 of the Act.
08.The Appellant challenged the Order-in-Original by way of filing appeal before the Commissioner (Appeals) who dismissed the appeal; hence the appellant has challenged the order-in-appeal before this Tribunal.
09. Mr. Irshad-ur-Rehman the learned advocate for the appellant submits that the appellant earned revenue by export of Software or IT-based System Development and had fulfilled the requirement of Exemption Notification dated 13.06.2013, but the Department has illegally disallowed exemption for the reason that wrong purpose code was mentioned in "Form R App. V 118" prescribed by the State Bank Of Pakistan. He submits that mentioning of wrong purpose code was a mistake on the part of the authorized Bank of the appellant. He then submits that the purpose code in the said form was mentioned as "Export of Computer of Software".
In reply Ms. Nida Noor states that in all "Forms R" different purpose code was mentioned. She then submits that in the Schedule attached with Statement S-1 (Type 1) the purpose code was mentioned as 9534, which is or not the purpose code of "Export of IT. She then submits that in the Form "PRC"
Proceed Realization Certificate different purpose code was mentioned, which also do not relates to the export of I.T. She then submits that in the income tax returns the appellant shown exempt revenue in the sum of Rs.2,110,484/= whereas before SRB exempt income was declared in the sum of Rs.10,586, 468/=. She then submits that exemption from payment of Sindh sales tax was not claimed while filing monthly tax returns.
10. Mr. lrshad-ur-Rehman further submits that the Commissioner (Appeals) in para 6 of his order accepted the contention of the appellant that it has exported computer software but has wrongly disallowed the exemption. He was asked to show from order-in-appeal, but he could not point out and refer to para 5 & 6 of order-in-appeal. Mr. Irshad refers to a statement issued by the Bank to show that all proceeds were received in foreign exchange. He also placed on record invoice of January, 2014 amounting to 5,632 and when ask to show the invoice from the statement of bank, again he could not show the said invoice and submits that may be the amount was not correctly mentioned in the statement and refer to Entry No.6 amounting to 5,670/-.He then submits that mentioning of a wrong purpose code was a procedural lapse on the part of the authorized bank of the appellant and the same should have been ignored as the same has no effect upon the purpose for which the exemption was allowed.
Ms. Nida Noor states that exemption can only be claimed on fulfillment of all the requirement of the exemption notification, which is lacking in this case. She then submits that the Bank issued Proceed Realization Certificate dated 20.11.2015 without accepting any risk and responsibility, which makes the document doubtful. She then submits that all the "Form-R "(App.V-118)" issued by Silk Bank are without date, the month in which the amount was received and without mentioning of purpose code. She then submits that the appellant submits another set of "Form-R (App.V-118)" which shows purpose code "9032. She submits that the appellant again submitted another set of "Form- R (App.V-118)" which shows purpose code "9184".
11. Mr. lrshad Ur Rehman referred to the grounds of appeal and submits that the controversy is whether the conditions mentioned in SRO No.SRB-3-4/7/2013 dated 18.06.2013 against 9805.6000 are mandatory or directory. He submits that non-complaince of conditions if any are mere procedural.
He then submits that 1 condition was mandatory and was fulfilled and the second was directory/procedural. Mr. Irshad also referred to his written arguments and further submits that the controversy may be confined to grounds of appeal only and no factual enquiry is required.
The learned AC in rebuttal relied upon comments filed by the department and submits that both conditions are mandatory and since condition No.2 was not fulfilled the appellant is not entitled to any concession/exemption and tax was rightly levied. She then submits that in J/03 submitted to State Bank the purpose code mentioned therein was in respect of personal remittance. She then refer to Chapter 12 (Exports) clause 12 of Foreign Exchange Manual 2002 and submits that neither appellant got registration as prescribed nor agreements with foreign clients were submitted to State Bank nor monthly returns (Form V-14) were filed with State Bank.
We have heard the learned representative of the parties and perused the record made available before us.
12.The dispute between the parties is in respect of tax exemption claimed by the appellant on the pretext that they have earned revenue from export of Computer Software on IT-based System Development to the tune of Rs.10,506,468/- and claimed exemption under Notification No. SRB 3- 4/7/2013 dated 18.06.2013. The tax periods are from 1St July, 2013 to 30June, 2014. The department refused to grant exemption for the reason that in the income tax return the same amount has been shown taxable which has been shown as exempt with SRB and that the appellant has failed to fulfill the 2 condition of Notification as the proceeds received from abroad has not been reported to State Bank as prescribed by State Bank. Initially in form 'R' purpose code was not mentioned (although purpose was mentioned as Export of Computer Software) thereafter wrong code i.e. 9032 was mentioned and finally corrected forms "R" with proper code 9184 (Export of Computer software) were purportedly filed with State Bank at the appellate stage From "R" is the document prepared by the banker in of the appellant on the instruction of the appellant. The banker of the appellant also prepared "Proceed Realization Certificate". It was the duty of the banker to report to State Bank on from J/03 (type 1) on the basis of "Proceed Realization Certificate".
13. The appellant submitted three sets of "Form-R". None of the "Form-R" contains the date and the month in which the foreign remittance was received. The first set of "Form-R" don not contained any purpose code. The second set of "Form-R" contained purpose code "9032" which is not relevant. The third set of "Form-R" contained purpose code 9184 (Export of Computer Software). The submissions of three sets of "Form-R" made the case of the appellant doubtful. As per the learned AC in "Form J/03" submitted to State Bank the purpose code mentioned therein was in respect of personal remittance, which, again create doubt about the bonafides of the appellant in claiming the exemption. The .appellant has failed to establish that it has got registration as prescribed by the State Bank, submitted the agreements with foreign clients to State Bank and monthly returns (FormV-14) were filed with State Bank.
14. The exemption Notification has two conditions. a) The value of export of the software or IT-based system development consultant's services received in foreign exchange through banking channels in the business bank accounts of the registered person exporting the services; and b) the of export of software or IT-based system development consultants services reported to the State Bank of Pakistan in the manner prescribed by the State Bank of Pakistan. The learned AC in paragraph 27 of the order held as under;st nd "As regards the second condition, the registered person, vide hearing dated 04.03.2016, admitted that the value of export software of IT-based system development consultant has not been reported to State Bank of Pakistan (minutes of the said hearing is duly signed by registered person) in the manner as prescribed by said State Bank of Pakistan. The registered person has failed to comply with the aforesaid conditions as well".
The Assessing officer in paragraph 28 of the order also held that the value against the services provided or rendered has not been received in Pakistan and only certain percentage of the total value is received and major value is withheld by W ork stream Automation Limited, UK, who held 65.76% share of registered person.
15. The learned Commissioner (Appeals) in paragraph 4 of the order held as under: The reporting to the State Bank of Pakistan was a prerequisite for claiming exemption under the notification of Exemption No. SRB-3- 4/7/2013 dated 13.06.2013 in case of export of services of software or IT based system development consultants. As per the established principal of law claiming an exemption the conditions of exemption are required to be fulfilled without any exception. The Honorable Supreme Court given its Judgment in the case of Federation of Pakistan and others versus M/s Delta Innovations Limited reported in 2015 SCMR 1239 in this regard. In this judgment the Honorable Supreme Court held in the concluding para as under: In the circumstances, and having already held that the parts/components being imported by the respondent are chargeable to duty under PCT heading 87.11 and that the concession under S.R.O.436(1)/2001 shall only be applicable to the respondent in case he fully adhere to the terms and conditions thereof...
16. The learned Commissioner (Appeals) in paragraph 5 of the order further held as under: "The condition under which the appellant was required to report the export of services to the State Bank of Pakistan is missing. The same was a mandatory condition and cannot be termed as procedural lapse. It was not a partial work to perform an independent step. I have read the OIO and observed that the findings reached by the Respondent are correct. The 010 is well reasoned and need not to be interfered to this extent".
17. We are in full agreement with Commissioner (Appeals) that exemption can only be granted in case the appellant fully adhere to the terms and conditions of the exemption notification. Admittedly the appellant has failed to adhere to the second condition of the exemption notification and is not entitled to any exemption.
18. In view of above discussion we do not find any justification to interfere with the findings of the two forums below. Resultantly the appeal is dismissed.
19.The appeal is disposed of in the above terms. The copy of the order may be supplied the learned representative of the parties.
(Agha Kafeel Barik) (Justice Nadeem Azhar Siddiqi)
Technical Member Chairman Karachi Dated: 21.09.2017 Copies supplied to:-
1. The Appellant through Authorized Representative.
2. The Assistant Commissioner, SRB, Karachi.
Copy for information to:- 3) The Commissioner (Appeals), SRB, Karachi.
4) Office copy.
5) Guard file.