RAZA MUNA WAR, ACCOUNT ANT MEM BER.---- These cross appeals pertaining to Tax Periods 2008, 2009 and 2010 have been filed by the Registered Person/Appellant-bank as well as department against Order-In-Appeals Nos. 23, 24 and 25 dated 29.05.2013 respectively passed under section 33 of the Federal Excise Act, 2005.
2. Brief facts of the case as transpired from impugned order are that the appella nt is a scheduled bank, formed under the Bank of Punjab Act of 1989, and is engaged in banking business as defined in Section 5 of the Banking Companies Ordinance, of 1962. Learned Deputy Commissioner Inland Revenue [" the DCIR"] examined the accounts of the appellant-bank for the calendar years 2008, 2009 and 2010 and found that the appellant-bank paid lesser amount of Federal Excise Duty [FED] on income declared in the accounts as "fee, commission and brokerage, income from dealing in foreign currencies and other income". The department confronted the appellant- bank with the short-paid amount. The appellant bank replied that some of its activities did not fall under the definition of "service" and some activities though fell within the definition of "service" yet are not taxable. The reply and reconciliations furnished by the appellant-bank did not satisfy the DCIR. He finalize and the assessment vide assessment orders dated 30.01.2013 by charging FED @ 16% on the strength of S. No.8 of Table-II of the First Schedule to the Federal Excise Act, 2005 on receipts from following activities: i. Dealing in foreign currency [2Q08, 2009 and 2010] ii. Home remittances [2008, 2009 and 2010] iii. Bills purchased etc. [2008] iv. Rebate from international business [2008, 2009 and 2010] v. Rebate on investment in Mutual Fund [2008] vi. Loan processing charges [2008 and 2010]- vii. Godown charges [2008] viii. Wheat finance for Government of Punjab [2010] These orders were assailed before CIR(A). The primary argument of the appellant-bank before CIR(A) was that these activities did not fall within the ambit of chargeability under the Federal Excis e Act, 2005. The learned CIR(A) by relying on Pakistan Machine Tool Factory (Pvt.) Ltd. v. Commissioner of Sales Tax Central Zone B Karachi (2006 SCMR 1577 = 2006 PTD 2331 ), Army Welfare Sugar Mills Ltd v. Federation of Pakistan 1992 SCMR 1652 and Hashwani Hotels Ltd. v. Government of Pakistan (2007 SCMR 1131 = 2007 PTD 1454 ) observed that exemption provisions are to be construed strictly against the claimant and in favour of the revenue.
According to CIR(A), all activities, except income from foreign currency revaluation (a component of 'dealing in foreign currency'), rebate on investment in Mutual Fund and reimbursement of godown expenses, fell under the ambit of 'services' and since appellant-bank failed to establish exemption from levy of FED, he confirmed the levy on these receipts vide Order-in-Appeals Nos.23, 24 and 25 dated 29.05.2013.
3. Learned AR of the appellant-bank argued that C1R(A) erred in applying rule of interpretation of other tax laws on interpretation of Federal Excise Act, 2005. According to him, Income Tax Ordinance, 2001, Sales Tax Act, 1990 and Customs Act, 1969 have their respective charging sections. All these statutes also have provisions / schedules which exempt a taxpayer from the payment of whole or part of the leviable tax. According to him, general rule of grant of tax exemptions are given a rigid interpretation against the assertion of the taxpayer and in favour of the taxing power may be valid for income tax, sales tax and custom duty laws but the scheme of Federal Excise Act is different. In support of his argument, he referred section 16(1) of the Federal Excise Act which provides that "All goods imported, produced or manufactured in Pakistan and services provided or rendered except such goods and services as are specified in the First Schedule shall be exempt from whole of excise duties levied under section 3".
According to him, all services provided in Pakistan are exempt from FED unless specified in the First Schedule to the Federal Excise Act, 2005. Even an activity within the definition of "services" under section 2(23) of the Federal Excise Act is exempt from FED unless specified in the First Schedule. He also referred to the explanation added to section 3 of the Federal Excise Act, 2005 and the definition of "services" in section 2(23) which make it clear that for an activity to be service leviable to FED, it must be specified in Table-II to the First Schedule to the Federal Excise Act, 2005 read with Chapter 98 of the Pakistan Custom's Tariff [PCT]. In support of his arguments he referred latest judgment of Honourable Supreme Court of Pakistan in Messrs Pakistan Television Corporation Ltd. v. Commissioner Inland Revenue (2019 SCMR 282 = 2019 PTD 484). According to the learned AR, Item 8 of Table-II has to be read with Chapter 98 of the PCT as required by section 2(23) of the Federal Excise Act and the Explanation to Section 3 thereof. Item 8 of this Table [at the relevant time] lists PCT Heading 98.13: "Services provided by banking companies or non-banking financial companies" and states the rate of duty as 16% of the charges. The learned AR also contende d that PCT Heading 98.13 of Chapter 98 of the First Schedule to the Customs Act is a broad general category . Under it are 9 sub-headings (9813.1000 to 981'3.9000). Under general heading 9813, there is one sub-heading 9813.4000 which specifically relates to Banking companies. Under sub- heading 9813.4000, there are 9 sub-headings (9813.4100 to 9813.4900) and of course one sub-heading (9813.4910). He pointed out that the learned DCIR did not specify the PCT headings under which the activities on which FED has been charged are covered. He also submitted that learned CIR(A) mentioned only following PCT heading for taxation of foreign currency Heading Description 9813.8100 Other 9813.9000 Service provided or rendered by a foreign exchange dealer or exchange company or money changer .
He argued that Heading 9813.8100 is a sub-heading of 9813.8000 which relates to "Service provided as banker to an issue". The sub-heading [9813.8100] "other" cannot be read to include everyth ing as it would render all other sub-headings redundant. According to him, it is a well-established principle of interpretation that redundancy cannot be assigned to the words of Legislature in this manner . So far as heading 9813.9000 is concerned, he contended that it relates to services provided or rendered by a foreign exchange dealer , foreig n exchange company or money changer and not a bank. He finally argued that activities on which FED has been charged do not fall in any of the PCT Headings. Hence FED is not chargeable on these activities.
4. On merits, he explained that almost all these issues have been decided in favour of the taxpayer by the courts.
He also pointed out that even on the issue of "home remittances", the depa rtment did not charge FED in subsequent year by specifically holding that this activities do not fall within the definition of "service".
5. The learned DR, on the other hand, strongly rebutted arguments and submissions of the learned AR. He argued that exemption provisions are to be construed strictly against the taxpayer and in favour of the department. He also submitted that exemption from FED has been provided in rule 40A(2) of Federal Exercise Rules, 2005 and the activities on which FED has been charged are not covered by the exemptions provided in the said rule. lie also submitted that the DCIR has lawfully charged FED on these activities. In departmental appeal, he submitted that even 'rebate on investment in Mutual Fund' also falls within the definition of taxable services and learned CIR(A) unlawfully allowed relief.
6. We have given due consideration to the rival arguments of both the parties and perused the case law. Before proceeding further , we would like to reproduce some provisions of Federal Excise Act, 2005 as under: Section 2(23) "services" means services, facilities and utilities leviable to excise duty under this Act or as specified in the First Schedule read with Chapter 98 of the Pakistan Customs Tariff, including the services, facilities and utilities originating from Pakistan or its tariff area or terminating in Pakistan or its tariff area.
Section 3(1)
3. Duties specified in the First Schedule to be levied .-- (I) Subject to the provisions of this Act and rules made thereunder , there shall be levied and collected in such manner as may be prescribed duties of excise on, --
(a) goods produced or manufactured in Pakistan;
(b) goods imported into Pakistan , irrespective of their final destination in territories of Pakistan;
(c) such goods as the Federal Government may, by notification in the official Gazette, specify , as are produced or manufactured in the non-tarif f areas and are brought to the tarif f areas for sale or consumption therein; and
(d) services provided in Pakistan including the services originated outside, but rendered in Pakistan;. at the rate of fifteen per cent ad valorem except the goods and services specified in the First Schedule, which shall be charged to Federal excise duly as, and at the rates, set-forth therein.
Section 16(1)
16. Exemptions.-- (1) All goods imported, produced or manufactured in Pakistan and services provided or rendered except such goods and services as are specified in the First Schedule shall be exempt from whole of excise duties levied under section 3: Provided that goods and services speci fied in the Third Schedule shall be exempt from duty subject to such conditions and restrictions, if any, specifie d therein and no adjustment in terms of section 6 shall be admissible in respect of goods exempt from duty of excise whether conditionally or otherwise...
Entry 8 of T able-II of First Schedule [at the relevant time ]
8. Service provided by 98.13 sixteen per cent of the banking companies or non- charge. banking financial Pakistan Customs Heading 98.13 Headings Description 98.13 Services provided or rendered by banking companies, insurance companies, cooperative financing societies, modarabas, musharikas, leasing companies foreign exchange dealers, non-banking financial institutions and other persons dealing in any such services.
9813.1000 Service provided or rendered in respect of insurance to a policy holder by an insurer , including a reinsurer .
9813.1 100 Goods insurance 9813.1200 Fire insurance 9813.1300 Theft insurance 9813,1400 Marine insurance 9813.1500 Life insurance 9813.1600 Other insurance 9813.2000 Services provided or rendered in respec t of advances and loans 9813.3000 Services provided or rendered in respect of leasing.
9813.3010Financial leasing 98 3.3020 Commodity or equipment leasing 9813.3030 Hire-purchase leasing 9813.3090 Other 9813.3900 Services provided or rendered in respect of musharika financing 9813.4000 Services provided or rendered by banking companies in relation to: 9813.4100Guarantee 9813.4200 Brokerage 9813.4300 Letter of credit 9813.4400 Issuance of pay order and demand draft 9813.4500 Bill of exchange 9813.4600 Transfer of money including telegraphic transfer , mail transfer and electronic transfer 9813.4700 Bank guarantee 9813.4800 Bill discounting commission 9813.4900 Safe deposit lockers 9813.4910 Safe vaults 9813.5000 Issuance, processing and operation of credit and debit cards 9813.6000Commission and brokerage of foreign exchange dealings.
9813.7000 Automated Teller Machine operations, maintenance and management, 9813.8000 Service provided as banker to an issue 9813.8100 Other 9813.9000 Service provided or rendered by a foreign exchange dealer or exchange company or money changer
7. The precise controversy in hand is whether under the Federal Excise Act, 2015 it is the responsibility of the taxpayer to establish exemption from FED or the department is under obligation to specify the PCT heading under which an activity is liable to be taxed. This controversy has been resolved by honourable Supreme Court of Pakistan in its judgment Messrs Pakistan Television Corporatio n Ltd. v. Commissioner Inland Revenue (2019 SCMR 282 = 2019 PTD 484). This judgment relates to "TV license fee" which was charged to FED on the strength of Item 6 of Table II of the First Schedu le to the Federal Excise Act read with Chapter 98 of the PCT (98.12) whereas in the case of instant appeal, FED has been charged on some activities of the bank on the strength of Item 8 of Table II of the First Schedule to the Federal Excise Act read with Chapter 98 of the PCT [98.13]. In our view it is the most relevant judgment on the issue in hand. We would like to reproduce some paras of said judgment: "The Customs Act, the Sales Tax Act, 1990 (Sales Tax Act) and the Income Tax Ordinance, 2001 (Income Tax Ordinance) have their respective charging sections. Tax is levied on a subject covered by the charging section. All these statutes also have provisions which exempt an assessee from the payment of the whole or a part of the leviable tax. An exemption does not take the assessee out of the scope of the charging section. The assessee remains within the tax net and the tax remains leviable. The assessee is, however , exempt from paying the whole or a part of the tax. If the exemption is withdrawn the leviable tax becomes payable. The scheme of the Federal Excise Act is different. Section 3 of the Federal Excise Act provides that services provided in Pakistan are liable to FED at the rate of 15% ad valorem "except the... services specified in the First Schedule, which shall be changed to Federal excise duty as, and at the rates, set forth therein ." Section 16(1) of the Federal Excise Act provides that "All Roods imported produced or manufactured in Pakistan and services provided or 'rendered except such Roods and services as are specified in the First Schedule shall be exempt from whole of excise duties levied under section 3", In other words all services provided in Pakistan are exempt from FED unless specified in the First Schedule to the Federal Excise Act. Even an activity within the definition of "services" under Section 2123) of the Federal Excise Act is exempt from FED unless specified in the First Schedule. An assessee, thereforel does not have to apply under Section 16 of the Federal Excise Act for exemption. The service s provided by the assessee are exempt if not specified in the First Schedule to the Federal Excise Act.
8. Both the Explanation to Section 3 of the Federal Excise Act and the definition of "services" in Section 2(23) thereof make it clear that for an activity to be a service leviable to FED it must be specified in the Federal Excise Act or Table II to the First Schedule thereto read with Chapter 98 of the PCT. The First Schedule to the Federal Excise Act is not to be read in isolation, rather has to be read with Chapter 98 of the PCT .
[emphasis is ours] "... it is clear that telecasts, TV sets and TV license fee are not covered by the definition of services in Section 2(23) of the Federal Excise Act and Item 6 of Table II of the First Schedule to the Federal Excise Act read with Chapter 98 of the PCT. At the risk of repetition, TV license fee, telecasts and TV sets not being covered by any of the sub- headings of PCT Heading 98.12 are not subject to FED on a reasonable interpretation of the law. Being plainly outside the ambit of the charging provision they cannot be brought in by a strain ed construction of the law. The issue may be examined in another manner . As stated above that telecasts, TV sets and TV license fee are not within Table II of the First Schedule to the Federal Excise Act, read with Chapter 98 of the First Schedule to the Customs Act. These are not covered by any of the sub- headings of PCT 98.12. These, are, therefore, exempt from FED under Section 16 of the Federal Excise Act. The appellant is, therefore, exem pt from payment of FED on TV license fee. A reasonable interpretation of the law plainly entitles it to such an exemption. It cannot be denied to it by a strained, forced or convoluted interpretation of the law. The conclusion, therefore, remains unchanged. In any case, the demand of FED on TV license fee received by the appellant is, therefore, not legal.
[emphasis is ours] "Another argument advanced by the learned counsel for the respondent and which found favour with the learned High Court was that even if TV license fee was not covered by any of the specifi c sub-headings of PCT Heading 98.12 it would be covered by PCT 9812.9090: "Others". This argument ignores the scheme of division of specific services under the various sub-headings of PCT Heading 98.12. The various types of telecommunication services are bunched together in separate groups. At the end of each bunch one finds the entry "Others". The services under the sub-headings of PCT Heading 98.12 are in 8 groups. And the sub-heading "Others", therefore, appears eight times under PCT Heading 98.12. For instance, the first group consists of various kinds of telephone services.
These are listed from PCT 9812.1000 to 9812.1970. At the end is PCT 9812.1990:- "Others". The last group is of sub-headings PCT 9812.9000: 'Audio text services', PCT 9812.9100: 'Teletext services', 9812.9200: 'Trunk radio services', PCT 9812.9300: 'Paging services', PCT 9812.9400: 'Voice paging services', PCT 9812.9410 'Radio paging services', PCT 9812.9490: 'Vehicle tracking services' and 9812.9500: 'Burglar alarm services', followed by PCT 9812.9090: "Others". The sub-heading "Others" is, therefore, to be read ejusdem generis with the preceding entries in the group. It will apply to and cover only such services which are similar to the ones specifically described before it. It cannot include every conceivable telecommunication service. Readi ng the sub-heading "Others" to include all kinds of telecommunication services would render all the specific sub-headings otiose. Such an interpretation being clearly flawed cannot be sustained.
[emphasis is ours]
8. After reading relevant provisions and judgment of the Honurable Supreme Court of Pakistan we are of the view that all services provided in Pakistan are exempt from FED unless specified in the First Schedule to that Federal Excise Act, 2005. For an activity to be a service leviable to FED, it must be speci fied in the Federal Excise Act or Table II to the First Schedule thereto read with Chapter 98 of the PCT. The First Schedule to the Federal Excise Act is not to be read In Isolation, rather has to be read with Chapter 98 of the PCT. Table II of the First Schedule to the Federal Excise Act broadly identifies the services and mentioned the PCT Headings. Item 8 of this Table lists PCT Heading 98.13: Services provided by banking companies or non- banking financial companies and states the rate of duty as 16%. PCT-Heading 98.13 of Chapter 98 of the First Schedule to the Customs Act is a broad general, category . Under it are 9 sub-headings (9913.1000 to 9813.9000). Under general heading 98.13, there is one sub- heading 9813.4000 which specifically relates to Banking companies. Under sub-heading 9813.4000, there are 9 sub-headings (9813 4100 to 9813.4900) and of course one sub-heading (9813.4910). In the orders of the DCIR and CIR(A) there is no discussion about sub-headings which cover the activities on which FED has been charged.
The CIR(A), in a place, has specified PCT 9813.8100: "Others". This aspect has also been elaborately discussed by the Hon'able Supreme Court ibid by holding that sub-heading "Others" is to be read with the preceding entries in the group. It will apply to and cover only such services which are similar to the ones specifically described before it.
Heading 9813.8100 is subordinate to sub-heading of 9813.8000 which relates to "Service provided as banker to an issue" The sub-heading (9813.8100] "other" cannot be read to include everything as it would render all other sub- headings redundant. It cannot include every conceivable banking service. Reading the sub-heading "Others" to include all kinds of banking services would render all the specific sub- headings otiose. Such an interpretation being clearly flawed cannot be sustained. In the orders of the DCIR, there is no discussion regarding headings and sub-headings to cover the activities on which FED has been charged.
9. In view of the foregoing discussion and the circumstances of the case enumerated supra, we consider it appropriate to vacate orders of both the authorities below and remand the case to the assessing authority with direction to re-adjudicate the issue under instant case, in light of judgement of Honourable Supreme Court of Pakistan in the case of Messrs Pakistan Television Corporation Ltd. v. Commissioner Inland Revenue reported as (2019 SCMR 282 = 2019 PTD 484). In case any specific service is liable to be taxed, respective heading of the PCT which cover these services, be specified.
9. The instant cross appeals filed by the taxpayer as well as Department, stand disposed of, in the manner and to the extent as discussed above.