JUSTICE (R) NADEEM AZHAR SIDDIQI, CHAIRMAN.--- By this common order we intend to decid e appeals eight in number having similar facts and law involved, filed by various appellants (Indenters) against the Order of their Compulsory Registration under section 24B of the Sindh Sales Tax on Services Act, 2011 (hereinafter referred to as the Act). For the purpose of this order the facts mentioned in the leading Appeal No. AT-83/2018 has been taken.
01. This appeal has been filed by the appellant challenging the Order-in-Appeal No.186/2018 dated 01.10.2018 passed by the Commissioner (Appeals) in Appeal No. 147/2018 filed by the Appellant against the Order-in-Original No. 550/2018 dated 24.05.2018 passed by the Assistant Commissioner (Ms. Shumaila Yar Muhammad) SRB , Karachi.
2. The facts of the case as mentioned in the Order-in-Original are that the appe llant is engaged in providing or rendering taxable services of Indenters falling under Tariff Heading 9819.1200 of the 2nd schedule of the Act and chargeable to Sindh Sales Tax on Services effective from 01.07.2015 14%. It was also stated that the appellant vide SRB letter dated 22.10.2015 was required to get itself registered with SRB and to deposit Sindh Sales Tax.
3. It was alleged in the Order-in-Original that the appellant despite providing or rendering taxable service of indenting failed to get e-enrollee-registered with SRB under section 24 of the Act nor paid the amount of sales tax on the services.
4. A show-cause notice dated 26.11.2015 was served upon the appellant to explain as to why it should not be compulsorily registered under section 24B of the Act and why the penalty under serial No. 1 of the Table of section 43 of the Act may not be imposed.
5. The appellant filed its written reply dated 02.10.2017 through Messrs Yousuf Law Associate. In the reply it was stated that the appellant is engaged in indenting business, contribute richly towards the exchequer of Pakistan by earning precious foreign exchange and paying direct taxes in the shape of direct taxes. Some other pleas were also taken mentioned in sub-paras of para 4 of the order-in-original. It was also stated that services rendered by indenters outside Pakistan does not come under the ambit of Sindh sales tax on services.
6. The Assessing Officer after hearing passed Order of Compulsory Registration of the appellant under section 24B of the Act for the service falling under Tariff Heading 9819.1200 (Indenters) and also imposed penalty of Rs.100,000/=.
7. The appellant challenged the said order by way of filing appeal before the Commissioner (Appeals), who maintained the order-in-original in toto and waived the penalties on the condition that appellant will pay tax and file returns within seven days, hence this appeal.
8. On 03.01.2019 Mr. Mohammad Yousuf Advocate for the appellant submitted that Tariff Heading 9819.1200 (Indenters), subsection (51A) of section 2 of the Act was effective from 10.07.2015 and rule 41B of the Sindh Sales Tax on Services Rules, 2011 was effective from 4th August, 2015. He then referred section 2 (51A) of the Act and submitted that all principals of the appellants are foreign entities having no office or place of business in Sindh and are not subject to laws of Sindh or Pakistan and the Appellant is not performing any act as provided in the Section 2(51A) of the Act, 201 1. His further contentions are as under .
09.1. He then referred to Item 27 of Part I of the Fourth Schedule (Federal Legislative List) to the Constitution of 1973 and submitted that Import and export, trade and commerce are under domain of Federal Government and Provincial Governments cannot legislate in this regard and even if it is assumed that the appellant is providing services same is export of service and tax can be levied by Federal Legislature. He also submitted that the tariff heading 9819.1200 is an encroachment upon the right of federation to legislate under entry No.27.
09.2. He then referred Item No. 49 of Part I of the Fourth Schedule (Federal Legislative List) to the Constitution of 1973 and submitted that this entry deal with goods and by an exception (except Sales Tax on Services) the sales tax on services was given under the domain of the Provinces and that it is an independent entry as held by the Sindh High Court in the case of Pakistan Freight and Forwarder Association. Under exception the Provinces can only tax the services which do not relates to entry No.27. Alternatively he submitte d that the tax can only be levied if the service is provided with in Sindh. No services have been provided in Sindh. For argument sake if the indenting is treated as a service it was provided from Sindh but not in Sindh as the service recipient is stationed abroad.
09.3. He then referred to the Preamble of Sindh Sales Tax on Services Act, 2011 and submitted that as per preamble the service is to be received or consumed in Sindh. Whereas since the service recipients are stationed abroad and neither the services provided in Sindh nor same is consumed in Sindh no tax is payable as the person who is to be taxed should come within the definition as provided in section 2(63) and should be present in Sindh.
09.4. He then submitted that Sindh Sales Tax has been levied in VAT mode and the burden of tax has to be passed on to the recipient of service or to the end consumer . Under law the service provider is not liable to take upon itself the burden of payment of tax and is only liable to charge tax and on receipt of tax from the recipient to deposit the same with SRB. In this case since the service recipient is stationed abroad and is not subject to Pakistani laws the burden of tax cannot be passed on.
09.5. He also submitted that indenters are neither a broker nor a commission agent. The Job of indenters is to represent its principal in promotion of goods. Alternatively submitted that even if it is treated as a service it is export of service which is a subject falling within the domain of federation and province cannot legislate.
09.6. He further submitted that earlier the indenters were not subject Federal Excise Duty and were also not subject to tax under the Sindh Sales Tax Ordinance, 2000.
09.7. He also Referred to Para 5.1 of Order-in-Original and submitted that the contents are not correct as appellant does not act on behalf of foreign principal.
09.8. He then referred to Para 5.1, page 29 of OIA and submitted that the Comm issioner (Appeals) has wrongly held that appellant connects the foreign principal to local consumers/customers.
09.9. He also submitted that the appellant received all remittance in foreign currency through State Bank/banking channel and in case government of Sindh insist upon levying service tax on export of service the indenters will stop bringing the foreign exchange in the Country and that this tax is hurting the Pakistan foreign exchange earnings by the indenters 09.10. He then submitted that the Tribunal has to see whether a taxing event has been made out or not. Simply putting an entry in the Second Schedule does not bring the entry within ambit of charging section and Referred to Para 71 and others of the reported judgment of Sindh High Court, 2017 PTD 1, Pakistan Freight Forwarders Association v. SRB on the point that provinces cannot legislate in respect of matters falling under federal legislative list. -He also referred to reported case of Civil Aviation Authority of the Sindh High Court (CAA v. SRB 2013 PTD 2048 ) and the Supreme Court of Pakistan (SRB v. CAA 2017 SCMR 1344 ) on the point that the matters falling under federal legislation list canno t be taxed by provinces. He also referred to the reported judgment of Sindh High Court in the matter of tax on rental of properties case.
10. On 08.01.2019 Ms. Shumaila Yar Muhammad the learned AC submitted that the Indenting Service has been initiated in Sindh as the service provider is located in Sindh and the liability is upon the service provider to deposit tax under section 3 read with section 9 of the Act.
10.1. She then submitted that Entry No.27 deals with the Import and Export of Goods and not services and this entry is not relevant to the present case, the SST Act is dealing with the services only and only service of indenting has been taxed as the appellant is providing service within Sindh. After 18th amendment the provinces were authorized to tax services. The indenting service is part of 1st Schedule since inception of SST Act, 2011 and was part of second Schedule since 2015 and under an exception to Entry No.49 power of taxing service came within domain of provinces and was rightly taxed.
10.2. She then submitted that irrespective of where the service recipient resides since the service is originated in Sindh and provided in Sindh by the regist ered person from its place of business in Sindh within meaning of section 3 of the Act read with subsection (64) of section 2 of the Act and section 4 of the Act is applicable as the economic activity is originated in Sindh.
10.3. She also submitted that if the Sindh sales tax was levied in VAT mode it does not mean that if the service provider is unable to pass the burden of tax to end user or service recipient the tax cannot be charged or payable.
The appellant may pass on the tax to its principal stationed abroad and under law there is no restriction. The appellant cannot pass on tax to principal for the reason that according to Agreement the appellant is responsible to pay all government taxes. There is no binding in law for appellant to always pass on the burden of tax upon end user/service recipient.
10.4. She then submitted that it is not correct that appellant is exporting service. The Federation levied 5% Income Tax upon Indenters on their intending commission under section 164(2) of Income Tax Ordinance, 2001, whereas on exports the Federation charges 1% Income tax under section 154 of Income Tax Ordinance, 2001. The appellant is getting commission after deduction of 5% income tax. From this fact alone it is clear that the indenting service is not treated as export of service and by no stretch of imagination it can be said that appellant is exporting service.
10.5. She further submitted that if earlier the tax was not charged upon indenters this will not affect the levy of service tax under 2011 Act. The legislature has the power to tax or not to tax a service. Indenting service is part of 1st Schedule since inception and Second Schedule since July , 2015.
10.6. She then submitted that and "Agent" means a person who represent or acts for another and Commissioner (Appeals) has used the word "Agent" under this context and in Agreement words principal and agent were used.
10.7. She also submitted that tax has been rightly levied under proper authority and that some other indenters are paying Sindh sales tax on service without any objection and hesitation and some are not paying on flimsy grounds.
She then submitted that the rate was reduced from 13% to 3% effective from 1st July, 2017, subject to limitations and conditions prescribed in the said notification, which is available in the publication of the Act by (9th Edition page No. 428, Notification dated 05.06.2017 ef fective from 1st July 2017).
10.8. She then submitted that this service is also part of all other provincial statutes. The province has not encroached upon the Federal legislative power . Tax on service is no more under the domain of Federation. The legislation was made under exception of Entry No.49 read with Articles 141 and 142(i) of the Constitution.
11. In rebuttal Mr . Mohammad Yousuf, Advocate for the appellant submitted as under: 11.1. He referred to item No.27 of the Federal Legislative List, Fourth Schedule of the Constitution and submitted that Entry No.27 gives powers to Federal legislature to legislate in respect of import and export and this also includes export of service. In Article 27 the words Import and Export were mentioned without mentioning goods or service therefore service can be read after Import and Export.
11.2. He submitted that there is no dispute that appellant received consideration as Indenter in foreign currency through banking channel. In some cases /transactions consideration was received with or without providing any service.
11.3. He then submitted that the Indenter's job is to introduce the products / goods of its principal and to act within entire Pakistan. The transaction is betwee n foreign person and a local person and the fees includes all the cost of maintaining office, advertising, and all other allied expenses which the Indenter is required to incur under agreement (introduction, promotion and sale of products) and the proposed tax to be charged without providing any allowance/deductions in this regard.
11.4. He referred Article 32 and submitted that levying of proposed tax on indenting service is against and in violation of various International treaties, conventions and agreements and is in violation of Article 32 and amounts to double taxation.
11.5. He referred to Definition under section 2(51A) of the Act effective from 10th July, 2015 and submitted that the service provided by appellant to its Principal stationed abroad does not come with in ambit of indenter . He then submitted that S-3 and S-8 are not applicable as no service has been provided.
11.6. He then submitted that the nature of this tax is in VAT mode and is to be passed on to the consumer . The service provider/indenter is not liable to pay tax in VAT mode from its own pocket. The Indenter being a tax collector on behalf of department is required to collect tax from recipient of servic e and to deposit the same with SRB. Consumer can be an importer or exporter . The importers were withholding agents but they were never asked about their obligation to act as withholding, agent. Since the Indenter if assumed to be a service provider and cannot pass on the tax to end consumer the recipient being alien the tax cannot be levied on a service provider .
11.7. He further submitted that historicall y there was no tax on Indenters and this is first time the tax was levied under Sindh Sales Tax on Services. He also submitted that no excise duty was levied on service of indenter in 1969-1970 when it was first levied. He also submitted that even no tax was levied on indenter through Sindh Sales Tax on Services Ordinance, 2000 and no tax was also levied on indenter till June, 2015 through Sindh Sales Tax on Services Act, 201 1.
11.8. He then referred Article 49 of the Constitution and submitted that the indenter received its commission in foreign exchange and to tax the foreign exchange is within domain of Federation.
11.
9. He then submitted that in the agreements the clauses relating to Agent oblig ation provides that, the Indenter will get the commission without putting in any efforts. The rule is first sale and then commission. Invoices are between importer and exporter and the Indenter does not figure in those invoices.
11.10. He also submitted that if some other Indenters are paying Sindh sales tax this will not bind other Indenters to pay tax. There is no estoppel against law and the appellants cannot be pressed or forced to pay a levy which the appellants are not liable to pay .
12. W e have heard the learned representatives of the parties and perused the record made available before us.
13. The main contention of the learned advocate for the appellant is that the taxing services provided or rendered by intenders are not within the domain of the Province and that the services provided or rendered by the indenters are not covered by the provisions of the Act, 2011. The departmental representative submitted that after 18th amendment in the Constitution of Pakistan, 1973 the power to tax services is within domain of the provinces and service of an intender is a taxable service under the Act, 2011. To resolve this controversy it appears necessary to examine the definitions of the "intender", "taxable service" and "service or services" provided under section 2 of the Act, 201 1.
"(51A) Indenter means a person who is representative for a non-resident person or a non-resident company or a foreign product or service and who gets a consideration in the shape of commission, fee, remuneration or royalty on transaction, irrespective of whether the transaction has taken place out of his effort, consent or otherwise".
14. The "taxable service" has been defined in subsection (96) of section 2 of the Act of 201 1 as under .
"(96) taxable service: shall have the meaning given under section 3;
15. The "service or services" has also been defined in subsection (79) of section 2 of the Act, 201 1 as under:
(79) service or services means anything which is not goods or providing of which is not a supply of goods and shall include but not limited to the services listed in First Schedule of the Act".
An explanation is attached to subsection (79) of section 2 of the Act which provides that "Explanation--A service shall and continue to be treated as servic e regardless whether or not providing thereof involves any use, supply or consumption of any goods either as an essential aspect of such providing of service ". The purpose of explanation is to facilitate proper understanding of a provision of law and to serve as guide line and not to enlarge the meaning of provision of law .
16. According to Section 3 of the Act the taxable service is a service listed in the Second Schedule of the Act, which is provided by a registered person from his registered of fice or place of business in Sindh.
17. Economic activity is also defined in Section 4 of the Act and provides that "an economic activity means an activity carried on by a person that involves or is intended to involve the provision of service to another person and includes":
18. Tariff, Heading 9819.1200 (Indenters) is the part of Second Schedule of the Act, 2011. 98.19 provide "services provided or rendered by specified persons or business".
19. After 18th amendment of the Constitution of Pakistan, 1973 Entry No. 49 has been amended and right to tax services has been vested in the Provinces. Mr. Yousuf submitted that under exception the Provinces can only tax the services which do not relates to entry No.27 of Fourth Schedule. He also subm itted that in Article 27 the words Import and Export were mentioned without mentioning goods or service therefore service can be read after Import and Export. Alternatively he submitted that the tax can only be levied if the service is provided with in Sindh. Entry No. 27 deals with import and export. Despite the fact that word goods is not mentioned in the Entry No. 27 the word service or services cannot be read in the Entry on the plane rule of interpretation that courts cannot add any word in the law as the courts have the jurisdiction to interpret the law as it exists.
20. In the reported judgment of Sindh High Court in the case of Pakistan International Freight and Forwarders Association 2017 PTD 1, in relation to Entry No. 49, has held that "58. In our view, the "exception added to entry No, 49 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 taxing event of rendering or providing of services vests in the Provinces. From this passage it is clear that the provinces are vested with power to tax providing or rendering of services.
21. From reading the above definition of an "indenter" it appears that indenter is the representative for the non- resident person or company or a foreign product. The job of the indenter is to represent its clients and products within the territory in which he functions. The definition is exhaustive to cover the services provided or rendered by indenters. It is not disputed that the appellant is working and representing its non-resident clients and foreign products and is providing service of indenter in Sindh. It is also not disputed that the appellant received consideration in the shape of commission , fee, remuneration or royalty on transaction, irrespective of whether the transaction has taken place out of his ef fort, consent or otherwise.
22. The learned A.R. has referred to Entry No. 27 of Fourth Schedule with the argument that Import and Export across Customs frontiers, including that of goods as well as services fall solely in the domain of the Federation; thus outside preview of provincial tax. Entry 27 reads as under . However , Entry 27 is not to be lead in isolation. It is one of the 77 entries of fourth Schedule which lays down the Federal legislative powers under Article 70(4) of the constitution.
There is Entry 49 which empowers the Federation to levy taxes on- sales and purchases of goods imported, exported, produced, manufactured or consumed, with the exception of "Sales Tax on Services ".
It is pertinent to note that while Entry 27 is part of Fourth Schedule since inceptions i.e. 1973, Entry 49 was substituted in 1976 and an exception clause was inserted on 20th April, 2010 with the 18th Amendment. Thus Entry 27 is to be read with Entry 49 with its exceptions clause and the simple interpretation will be that while the Federation has regulatory power over import and export business across Custom frontiers and can also impose tax on sales and purchases of imported and exported goods. Its powers have been circumcised in respect of imposition of Sales Tax on services. So if there is a situation where services are imported (as in the case of franchising) or exported (as in the case of an indenter) these will fall outside the domain of the federation, and in the ambit of the provinces.
Even otherwise as a principle of interpretation of statutes an amendment or a provision of law promulgated later in time then an existing provision of law would prevail over the previous provision of law on the same subject. Since Entry 49 is dated 13th September , 1976 whereas its exception clause was inserted on 20th April, 2010 it over rides Entry 27 which dates back to 1973.
23. The learned counsel has also taken the argument that under entry No.9 read with entry No. 32 tax on foreign exchange earning falls within the domain of the Federation and since the appellant, an indenter receives its Commission in foreign exchange it cann ot be taxed by the provinces. Here the argument of the learned A.R is misplaced. What he is submitting about are foreign exchange receipts which are the income of an intender and there is no doubt that it is subject of Fede ral Income Tax. What the Provinces are authorized to tax is the value of the consideration for the services provid ed or rendered by the indenter . Since these are quantified in terms of foreign exchange and are synonymous with the receipts or income the argument that it is income falling within the domain of federation is incorrect.
24. The learned Assessing Officer has dealt with the contentions raised by the learned advocate for the appellant in the order-in-original and rightly concluded that the appellant is providing the service of indenter .
25. The learned Commissioner (Appeals) also dealt with the contentions raised by the learned advocate for the appellant in order in appeal. In our view the findings of Commissioner (Appeals) do not suffer from any illegality and infirmity and the conclusion has been rightly drawn.
26. Reading the above quoted provisions (Section 2 (51A), (96), (79), sections 3 and 4 of Act, 2011 read with Tariff Heading 9819.1200 ) together make it clear that services provided or rendered by the indenter are taxable services according to Act of 201 1.
27. The appellant was compulsorily registered under section 24B. Section 24 of the Act provides that registration will be required for all persons who are resident and provide services listed in the second schedule from their registered office or place of business in Sindh. Section 24B provides that if a person is required to be registered under the Act, 2011 and that person has not applied for registration, the officer of the SRB shall, after such enquiry as he may deemed lit, register the person through an order to be issued in writing and such person shall be deemed to have been registered from the date he became liable to registration. The appellant is a resident person and is providing and rendering service of indenter with in Sindh and since the appellant failed to get registration it was rightly compulsory registered under section 24B of the Act of 201 1.
28. The Assessing officer has imposed penalty of Rs.100,000/= under Serial No.1 of Table of Section 43 of the Act for non-registration. The provision provides that penalty can be imposed if any person who is required to apply for registration under this Act fails to make an application for registration before providing or rendering taxable services, such person is liable to pay penalty of Rs.10,000/- or five percent of the amount of Sales Tax. It was further provided that in case of non-compliance of compulsory registration the minimum penalty should be Rs.
10,000/-. It has not been discussed in the order-in-original as to what is the compliance (requirement) of compulsory registration, which the appellant failed to comply . It was also not discussed in the order-in-original why maximum/higher penalty of Rs.100,000/= was imposed instead of minimum/lessor penalty of Rs.10,000/=. When two types of penalties are provided under law the Assessing Officer is duty bound to justify the imposition of maximum penalty . The two types of penalties are provided to cater different situations. It has not been discussed under which situation lessor penalty can be imposed and under what situation the maximum penalty can be imposed.
29. In view of the above we are satisfied that both order-in-original and order-in-appeal to the extent of imposing maximum/higher penalty of Rs.100,000/= suffer from legal infirmities and are not tenable under law, consequently the imposition of penalty of Rs.100,000/= is set-a-side. The appellant is liable to pay penalty of Rs.10,000/= only .
30. In view of the above discussion the order-in-original and order-in-appeal are upheld to the extent of compulsory registration of appellant under section 24B of the Act and set aside imposition of penalty of Rs.100,000/- imposed by the Assessing Of ficer.
31. The appeal is disposed of in above terms. The copy of this order may be provided to the authorized representative of the parties.