This is an appeal filed under Section 66 of the Punjab Sales Tax on Services Act, 2012 "The Act", by the appellant being aggrieved of order dated 31.05.18 , of the Commissioner (Appeals) Punjab Revenue Authority Lahore.
2. The kernel of the case is that on 16.10.17 Additional Commissioner , PRA, Rawalpindi issued a show-cause notice (SCN ) to the appellant, under Section 24(2) of The Act. In the said SCN it was stated that since the business of property development was taxable as per serial number 15 of the second schedule to The Act therefore being property developer , the appellant was required to pay Rs.153,544,000/ - in lieu of developing Mumtaz Housing Society , measuring 3328 kanal. The table of the SCN is reproduced as kinder: - Sales Tax on development of land (60500 per kanal) (3328*60500 =Rs.201,344,00/- Penalty for non-submission of Returns Sales TaxTo be calculated Default surcharge To be calculated at the time of payment.
PST paid Rs.47,800,000/- Total Amount of Payable PST :- Rs.153,544,00/- It was further alleged in the SCN that the appellant had contravened the provisions of sections 3, 10, 11, 18, 35 of The Act read with PSTS (Return Rules) with an attempt to commit tax fraud as defined under section 2(43) of The Act.
3. The appellant contested the SCN by filing reply however it did not find favour in full, and resultantly the Additional Commissioner/Assessing Officer passed the order dated 22.01.18 whereby the appellant was held liable to pay tax in the following manner:- Sales Tax on development of land (60500 per kanal) (3328*60500 =Rs.201,344,000/- Penalty for non-submission of 38 ReturnsRs.190,000/- PST paid Rs.52,800,000/- Default surcharge To be calculated at the time of payment.
Total Amount of Payable PST :- Rs.148,734,000/- Feeling aggrieved of the assessment order, the appellant filed an appeal before the Commissioner (Appeals) which resulted into modification of the assessment order . The amount of penalty was ordered to be deleted however the remaining assessment along with default surcharge was upheld vide order dated 31.05.18 . Feeling dissatisfied, the appellant has preferred the instant appeal.
4. Learned Counsel for the appellant has argued that both the officers below have erred in law and facts by ignoring the fact that the appellant had surrendered a big chunk of land to the NHA , for the construction of fly over leading to the airport, and to the Rawalpindi Development Authority for development purposes and that the appellant received nothing in lieu of the said land but even then it was assessed as against the appellant;- that surrendering of the above mentioned land cannot be considered as an economic activity and that levy of tax on total land is illegal, that the formula for assessing tax was different prior to 12.02.14 , from the formula applied to the appellant which was introduced in the statute after 12.02.14 ;- that the assessing officer and the Commissioner (Appeals) have committed illegality by not distinguishing between saleable and non-saleable area;- that Serial No.15 to the second schedule gives an exclusion but it was ignored by the Assessing Officer;- that the appellant has suffered badly in result of the impugned orders therefore, both the order below may be set aside and that this appeal may be accepted. Learned counsel has relied upon the following case law;
(i) 2002 PTD 877
(ii) 2008 PTD 838 = 98 T AX 57
(iii) 2006 PTD 2726 = 95 T AX 223
(iv) 2005 PTD 2525 = 93 T AX 188
(v) 2018 PM 1487
5. On the other hand Learned DR has opposed this appeal by arguing that the law does not favour bifurcation in saleable or non-saleable area and that the tax is leviable on all the land develope d by the appellant therefore, no illegality was committed by the officers of the authority and that the land surrende red to NHA and RDA is also for the purposes of development of the housing society of the appellant and that by way of construction of fly over etc., the value of the land of society was enhanced and this value determines the sale price of the land/plots of the appellant society . Lastly he contends that appeal may kindly be dismissed.
6. Arguments heard record perused.
7. Main thrust of the arguments of the appellant is that a huge chunk of land out of the total land of the society , was surrendered to the NHA and RDA therefore, no tax was supposed to be levied on this land because it was not a business activity and that the appellant did not gain or receive any financial benefit out of it. This argument is misconceived because, surrendering of the land to NHA and to RDA was made for the purpose to enhance the value of the housing society , developed by the appellant. It is a simple proposition that everyone prefers to live in house/area, where all the essential amenities of life are available. Such amenities include the means of swift transportation connecting housing/residential area to the highways/main roads etc. It also includes the provision of graveyards, schools, colleges, hospitals, cinema, market(s), play areas and roads etc. The land surrendered to the above named two authorities was for the purpose of the development of these amenities. The society which has all these amenities is always preferred by the citizens, for their abode and due to this reason the value/price of the land/houses is always higher in such societies than the societies lacking these facilities.
A photocopy of letter number 7144/2016 dated 21.07.16 is available on page number 86 of the file. It would be convenient for understanding to reproduce its first paragraph, as under; Ref: TC-1/Desp/7144/2016 July 21, 2016 To: The Land Acquisition Collector (NIIA), National Highway Authority (NHA), H # 61, Street-100, 6-13/1, Islamabad.
Subject: Construction of New Islamabad International Airport Connecting Road Netw ork-T ransfer of land measuring 135 kanals free of cost in favour of NHA.
Reference to your letter No. LAC(NIIA)/NHA/16/522 dated June 13, 2016 refers;- We, Messrs Top City and Mumtaz City are thankful to the NHA for obtaining the approval of the interchange at Km 8-940 for T op City/Mumtaz City from the Honorable Prime Minister of the Pakistan.
As per understanding with NHA, the Top City and Mumtaz City are ready to transfe r measuring 135 kanals of land in favor of NHA in Mouza Nasralla and Bajnial as per the detail below;"
Bare perusal of this letter is enough to prove that the request for construction of interchange was initiated by the appellant itself and that after approval of the same, the appellant, by way of this letter expressed its jubilation. It is reiterated even at the cost of repetition that construction of the interchange connecting the housing society of the appellant, with Islamabad International Airport and the other road networks, had in fact enhanced the price/value of the land/society which ultimately benefited the appellant in financial terms.
8. Adverting to the contention of the learned counsel that there must be bifurcation between saleable and non- saleable area, the law does not provide such distinction between saleable and non-saleable area and that is why there is no mention of it; in the statute. The construction of a housing society and its development as residences/of fices etc. with the intention of selling it out and then selling the same is enough to treat the business activity of the appellant as falling under serial number 15 of second schedule to The Act. Both the forums below had rightly ordered the levy of tax on developed land and land surrendered to NHA and RDA for development purposes.
9. Coming to the argument of the learned counsel for the appellant that the order passed by the Assessing Officer is against the clarification issued by the PRA vide its letter number PRA/25488 dated 09.07.14. Photocopy of this letter is available at page 88 of the file. This letter is in fact a reply to the letter of LDA Authorities whereby they had raised certain queries and by way of this letter , relied upon by the appellant, the Additional Commissioner Enforcement-I PRA, Lahore answered/replied those queries. The contents of this letter , in no way extend anx benefit to the appellant. This letter contains and reiterates different modes of sale/disposition of land/houses, by the land developers and builders.
10. Learned counsel for the appellant has also assailed the order of the Additional Commissioner-PRA on its non- application of obligatory understanding of law in relation to Amendments in Sr. No. 15 of the second Schedule to The Act vide Finance Act, 2016. Through this ground he has asserted that vide said Amendment the words "excluding actual purchase value or documented cost of land" were omitted vide said Act (assented on 2.06.2016) and that since the assessment period included tax period from June 2013 to October 2017, hence for the purposes of calculating demand, the said entries omitted through Finance Act, 2016 were not applied for the respective period from June 2013 till said Amendment.
The contention of the learned counsel of the appellant has been perused and found correct to the extent that the services under aforementioned serial number were made taxable vide Notification No. SO (tax) 1-1/2013-14 dated 22-05-2013 whereby the services provided by Property Developers and Builders were made taxable at standard rates of 16% excluding actual purchase value or documented cost of land. The same was however substituted vide Notification No. SO(tax) 1-1/2013-14 dated 12-02-2014 and a specific rate of tax based on area, that is, Rs. 100 per square yard and Rs.50 per square feet was introduced for Property Developers and Builders respectively .
Since the basis of charge was changed from value of service to Area , accordingly the words excluding actual purchase value or documented cost of land were omitted vide Finance Act, 2016 too. It goes without saying that the words "excluding actual purchase value or documented cost of land" were relevant to standard rate of taxation which was to be applied at Value of Service after deducting the actual purchase value or documented cost of land but after introduction of Area based chargeability , this exclusion of actual purchase value or documented cost of land is not attracted under the facts and circumstances of this case.
As regards the applicability of these rates during the respective period from June 2013 to Feb 2014 (when standard rate of 16% plus exclusion of actual purchase value of land was available) is concerned, the said argument is devoid of merit as the assessing officer rightly invoked those rates which were available during the material time, that is, time of assessment. The appellant could have claimed some adjustment from the earlier rates, had he discharged his liability of tax to the exten t of services provided during that period. It would not be out of place to mention that the earlier rates involving omitted entries were replaced being harsh and excessive to affording relief to taxpayers yet claiming the application of the omitted entries besides being illegal would have surely subjected the appellants to higher rates resulting in enhanced demand. Hence in view of foregoing the same is rejected.
11. As far as the imposition of default surcharge is concerned, this tribunal has noted it with concern that neither the Additional Commissioner nor the Commissioner (Appeals) have given any reason at all, for imposition of default surcharge. Both the forums below have dealt with the imposition of default surcharge in a run of mill manner . Both the forums have discussed nothing and were not even bothered to dilate upon this issue. In a judgment cited as 2017 PTD 2456 , the Sindh High Court, in a reference filed by the SRB held while dismissing the reference that default surcharge and penalty can only be imposed if the non-payment of tax is mala fide and wilful. In another judgment i.e. 2004 SCMR 456 titled D. G. Khan Cement Ltd. v. Federation of Pakistan , Apex Court of the country has held as under; "Each and every case has to be decided on its own merits as to whether the evasion or payment of tax was willful or mala fide, decision on which would depend upon the question of additional tax. In the facts and circumstances of this case we find that non-payment of the sale tax within tax period was neither wilful nor it could be construed to be mala fide evasion or payment of duty, therefore, the recovery of additional tax as penalty or otherwise was not justified in law ."
In paragraph No. 18 of the order of Commissioner (Appeals), it is categorically observed that the tax default (as alleged in the SCN) was committed in this case due to wrong interpretation of statute and that it does not establish a willful default on part of the appellan t. As per judgement quoted above, it is a condition precedent for the imposition of default surcharge. In addition to this, imposition of default surcharge without discussing the facts and law is not only illegal but also cruel hence, the imposition of default surcharge is hereby set aside.
12. As a result of the discussion made above, this Tribunal modifies the impugned order to the extent of the imposition of default surcharge as is discussed in paragraph number 11 of this judgment. The appeal is partially allowed. File be consigned to the record room after compilation.
The Registrar of the Tribunal is directed to communicate this order to all concerned immediately .