ORDER: DR. SHAH KHAN, ACCOUNTANT MEMBER.--(1). Through these cross-appeals, the Tax Department as well as the registered person have assailed the order dated 22.05.2023 passed by Learned Commissioner Inland Revenue (Appeals), Peshawar, whereby appeal of the registered person was partially accepted. Since similar questions/provisions of law and facts are involved in these cross- appeals, therefore, the same are decided through this single judgment.
2. Briefly stated facts of the appeals are that the registered person is engaged in the business of purchase, transmission and distribution of electrical energy in the Districts of Khyber Pakhtunkhwa.
In the instant case, Deputy Commissioner I.R (DCIR) issued Show Cause Notice on 18.03.2022 to the registered person asking to explain as to why the principal amount of Rs. 28.50 Billion along with default surcharge & penalty should not be recovered under Section 11(2) of the Sales Tax Act, 1990.
In response, the appellant filed reply to the above mentioned show cause notice, wherein charges leveled in the show cause notice were denied. After the proceedings, the Assistant Commissioner I.R (ACIR) vide Assessm ent Order No. 03/2023 dated 31.10.2022 vacated the charge amounting to Rs.
12.40 Billion and ordered for recovery of sales tax of Rs. 16.01 Billion along with default surcharge and penalty. Being aggrieved, the appellate Company went into appeal before L/CIR(A), who vide impugned order, partially rejected the appeal of the appellate company and confirmed the order of ACIR to the extent of Rs. 6 Billion. Still not satisfied, both the Tax Department as well as registered person has filed these cross-appeals before this forum to contest the findings of L/CIR(A), on the grounds mentioned in the memo of appeals.
3. By this order, the titled two appeals are disposed of as both the appeals have been filed against the common appellate order dated 22.05.2023 passed by the Learned Commissioner Inland Revenue (Appeals), Peshawar. The appeal STA No. 154/PB/2023 has been filed by the registered person (PESCO), whereby the appeal of the registered person was rejected partially. However, the appeal STA No. 138/PB/2023 has been filed by the department against the sole issue of inadmissible input tax adjustment against Transmission & Distribution Losses.
4. These cross appeals were fixed for hearing on 30.04.2024. On due date, Mr. Imad Alam, DR for Tax Department and Mr. Hussain Ahmad Sherazi, Mr. Mouzzam Ali Butt, Advocate were attended the court and argued their respective positions.
5. The learned A.R has raised the preliminary objection as to the impugned Assessment order being time barred under section 11(5) of the Sales Tax Act, 1990. He submitted that the Show Cause Notice has been issued on 18.03.2022 while the impugned Assessment order dated 31-10-2022 been received by the appellant company/PESCO on 30.11.2022 i.e., that is 256 days after the issuance of the show cause notice on 18.03.2022. He highlighted that the date of receipt of order is the crucial date to determine the period of limitation. In this respect, he placed reliance on the decisions reported as: 2022 PTD 809; PTCL 2019 CL. 555 and 2007 PTD 430. The learned AR stated that in all these cases, it has been held that date of communication of order is the crucial date to determine the period of limitation.
6. The L/AR also contended that the extension granted by the Learned Commissioner I.R is not tenable as per the latest law settled by this Tribunal and the apex court of the country. He stressed that the so called extension order provided by the department is not in accordance with law.
Reliance in this regard was placed on:- PTCL 2017 CL. 736 (SC); 2020 PTD 147 = PTCL 2020 CL 159 (SC); 1999 SCMR 1881; PTCL 1983 CL.46 (Supreme Court of India), PTCL 2022 CL. 281 & Orders dated 01.02.2024 passed in STA No. 151/PB/2023 & STA No. 152/PB/2023, In addition, the learned A.R submitted that it is well settled principle of law that the period prescribed by Section 11(5) of the Act, 1990 ibid for completion of adjudication proceedings is mandatory and not directory. Reliance was placed on: 2015 PTD 1068; 2014 PTD (Trib.) 448, 2017 PTD 1756; 2020 PTD 568; PTCL 2019 CL 555 and 2016 PTD 358. He stressed that a thing required by law to be done in a certain manner must be done in the same manner as prescribed by law or not at all. The learned A.R also pleaded that where an order is hit by limitation, its merits need not be discussed and in support thereof he relied on: 2009 PTD 1247 (SC); 2011 SCMR 676 and 2020 CLC Note 12. Lastly, the learned A.R contended that the issuance of show cause notice without any audit proceedings makes Section 25(5) of the Act, 1990 redundant. In this regard, his reliance was placed on 2017 PTD 1372; 2005 PTD 1537 & 2013 PTD 372.
6. As regards the merits of the case, the learned AR contended that the PESCO supplies free electricity to its employees and charges the leviable amount of sales tax thereon in terms of Section 3 of the Act, 1990. However, as per applicable procedure decided in the WAPDA meeting held on December 27, 1999, the amount of GST is not collected from employees, rather the same is paid by the taxpayer himself that is reflected as a negative (credit) balance on the employee electricity bills. He next contended that the GST charges in bills are declared in Sale Tax Return along with other domestic consumers in normal manner and paid/adjusted by the taxpayer. In this support, he referred to the Employees' Electricity bills, Employee authorization forms, MIS Report-3, CP-41 Form and Sales Tax Return.
7. The learned AR has also relied upon the earlier three judgments passed by the ATIR on the subject issue between the same parties:-- (1) 2015 PTD (Trib.) 1112--M/s PESCO Vs. C.I.R--;(2) STA No. 152/PB/2023--PESCO vs. CIR--Order dated 01-02-2024 & (3) STA No. 155/PB/2023--PESCO vs. CIR--Order dated 01-02-2024, wherein these issues have been thoroughly examined and decided in favour of the appellant company (PESCO).
8. As regards the issue relating to non-realization of sales tax on sale of miscellaneous receipts, the learned A.R asserted that in the show cause notice, it was alleged that the PESCO has received miscellaneous receipts to the tune of Rs. 1.042 billion and the same are liable to tax under Section 3 of the Act, 1990. He elaborated that the miscellaneous receipts include different heads, for instance, Commission on Electricity Duty Collected, Commission on TV Fee Collected, Miscellaneous Service Revenue etc. The L/AR highlighted that the complete documentary proof was provided to the Assessing officer as well as the learned CIR(A), but they failed to discuss the same. He further drew our attention to the heads relating to miscellaneous service revenue, other electric revenue, income from non-utility operations, non-operating revenue and cable operating revenue and contended that these receipts are in fact services rendered by the appellant on behalf of the Government and these services are not chargeable to tax under section 3 of the Act, 1990. In support thereof, he referred to CP-41 Report along with sales tax return and charts of commission charged on collection of the electricity duty and TV fee and copies of these documents have been placed on record.
9. With regards to the issue of non-levy of sales tax on meter rent, connection fee and public lighting, the learned A.R has submitted that the Assessing Officer and the learned CIR(A) have inadvertently relied upon Section 2(46)(i) of the Act, 1990. He argued that the connection fee is related to service charges of new connection installation for the consumers and services are outside the ambit of the Federal law. He emphasized that in the impugned order, it was misinterpreted that meter rents are taxable under section 3 of the Act, 1990. In fact electricity meter, in essence, is a property of M/s PESCO, the consumer is bound to return the electricity meter to M/s PESCO at the time of disconnection. The learned A.R has further stated that the Public Lighting supply relates to the illumination of public lamps used in public playgrounds and public parks and proper sales tax has been charged on public lighting and paid into treasury through monthly sales tax return. In support thereof, he referred to CP-41 Report along with sales tax returns and copies of these documents have been placed on record.
10. To the extent of issue relating to inadmissible input tax adjustment on domestic purchases, the learned A.R has pleaded that the Assessing Officer and the learned CIR(A) have failed to peruse the evidence provided by the appellant company in the form of purchase invoices. To counter this allegation, the appellant company has again submitted all the purchase invoices as Annex-V with the rejoinder before this Tribunal.
11. As regards the issue relating to non-levy of sales tax against zero rated supplies to un-registered consumers, the learned A.R has argued that the CIR(A) and the Assessing Officer erred by denying the zero rating facility to supplies of Azad Jammu Kashmir in the light of CPPA credit memos, Minutes of Meeting held by Ministry of Energy, Agreement for raising Mangla Dam and AJK supply subsidy chain. He elaborated that through explanation added in the Act through Finance Act 2022 it was clarified that subsidy has never been chargeable to tax, yet despite the provision of law, the department grossly erred by subjecting the same to chargeability of sales tax. Reliance was placed on Assessm ent Order No. 03/2024 dated 11-09-2023 and all the relevant documents were again submitted before this Tribunal which are available as Annexures 14/A to 14/D with the written arguments.
12. With regards to the other issues i.e., Non-apportionment of input tax adjustment against exempt supplies, short payment/non-payment of extra tax and further tax, the learned A.R has stated that denying rightful input tax claimed along with non-apportionment of input tax against exempt supplies displays mala fide intention of the department. He maintained that the department has grossly erred in establishing liability with regards to short payment of extra tax and further tax in multiple observations through its own whims and vagaries. He asserted that the Department was provided with multiple records and documents in the shape of MIS report III, MIS Assessment Slab and sales tax returns whereby it could be ascertained that the appellant company has properly discharged these liabilities in respect of further tax and extra tax. He argued that M/S PESCO has categorically declared extra tax and further tax in separate columns due to limitations in sales tax returns. The same limitations were communicated to the RTO, Peshawar, hence the appellant should not be burdened with undue liability due to lacuna and shortcomings in sales tax returns.
The learned A.R further avowed that no tax can be levied on the basis of presumptions and intendment.
13. The L/AR next pleaded that it is a well settled principle of law that incase of dispute as to the exact connotations of a provision of a fiscal statute, interpretation favourable to the taxpayer is to be adopted. Reliance was placed on 2007 SCMR 1367 &2023 PTD 1492. While concluding his arguments, the learned A.R stated that the appellant is not liable to default surcharge u/s 34 and penalty under section 33(5) of the Act as there is no willful evasion of sales tax. In addition, there cannot be any mens-rea in the case of a public sector organization where its functionaries have no stakes or benefits in short payment of taxes. In this respect he placed reliance on the judgments reported as: 2004 PTD 1179 = PTCL 2004 CL. 224 & 2006 PTD 1132. On the basis of above arguments, the learned AR has requested to allow the appeal.
14. On the contrary, the learned D.R submitted that the Assessment order was passed well within stipulated period of time which was extended by Commissioner-IR for 60 days vide approval dated 15-07-2022. In support thereof, he has placed reliance on section 56 of the Sales Tax Act, 1990 and the judgment reported as 2010 PTD 660. Furthermore, to the extent of issue relating to free electricity to employees, the Learned DR has contended that the appellant has failed to provide any proof of payment of sales tax/declaration in Annex-C of their monthly sales tax returns. He maintained that the Electricity Bills produced by the taxpayer show the value of supply in credit (negative payments) without charging sales tax payable under section 2(46), 3(1)(a) of the Sales Tax Act, 1990. Therefore, the same are chargeable to Sales Tax under section 3(1) of the Act. In addition, the L/DR asserted that the judgments already decided in favour of PESCO pertaining to this issue have not attained finality and are being challenged before the Peshawar High Court. As regards the other issues i.e., non-realization of sales tax on sale of miscellaneous receipts, meter rent, connections fee and public lightening, the learned D.R has placed reliance on Section 2(46) of the Sales Tax Act, 1990 and argued that all Federal and Provincial duties & taxes come under the ambit of S.2(46) ibid for the purpose of charging of sales tax, hence the same are chargeable to sales tax. As regards the other issue relating to non-levy of sales tax against zero rated supplies to unregistered consumers, the learned D.R submitted that the appellant company has failed to provide any breakup/details of electricity units billed to ASK, hence the same are validly upheld by the CIR(A). With regard to the remaining issues i.e., inadmissible input tax adjustment on domestic purchases, non-apportionment of input tax adjustment against exempt supplies and short payment/non-payment of extra tax & further tax, the learned D.R asserted that the appellant has not provided any documentary evidences in support of these charges. Hence, the learned CIR (Appeals) has validly upheld the order against the appellant Company on these issue. Based on the above, the L/DR pleaded that the appeal filed by the appellant Company be dismissed.
15. Besides, in support of Appeal STA No. 138/PB/2023, the learned D.R argued that the learned CIR(A) while deciding the issue relating to input tax adjustment against transmission & distribution losses has ignored to consider the applicability of section 8(2) of the Sales Tax Act, 1990. Hence, the order of the learned CIR(A) is not sustainable in this regard. On the contrary, the learned counsel representing M/S PESCO invited our attention towards the decision reported as PTCL 2024 CL 243 wherein this issue has been thoroughly discussed and decided in favour the appellant Company by the Peshawar High Court.
16. We have perused the impugned Assessment order, the order passed by the learned CIR (Appeals), the case laws referred and the available record of the case. The Show Cause Notice in the instant case was issued on 18.03.2022 and the Assessment order dated 31-10-2022 has been received by appellant company on 30-11-2022 i.e. after 256 days from the show cause notice.
17. To resolve the controversy, it is important to reproduce the relevant provision of the Sales Tax Act, 1990 for ease of reference:-- Section 11 (5) proviso:- "Section 11. Assessment of Tax and recovery of tax not levied or short-levied or erroneously refunded:-
(1) ..............................................
(2) ..............................................
(3) ..............................................
(4) ..............................................
"Provided that order under this section shall be made within one hundred and twenty days of issuance of show cause notice or within such extended period as the Commissioner may, for reasons to be recorded in writing, fix provided that such extended period shall in no case exceed ninety days:"
"Provided further that any period during which the proceedings are adjourned on account of a stay order or Alternative Dispute Resolution proceedings or the time taken through adjournment by the petitioner not exceeding sixty days shall be excluded from the computation of the period specified in the first proviso". (Emphasis added)
From the above, it transpires that the Assessment Order shall be passed within stipulated period of 120 days from the date of issuance of the show cause notice. Reliance in this regard is placed on 2015 PTD 1068; 2014 PTD (Trib.) 448; 2017 PTD 1756; 2020 PTD 568; PTCL 2019 CL 555 and 2016 PTD
358. In all these cases, it has been held that the first proviso to the current section 11(5) of the Act is mandatory in nature, and the natural corollary of non-compliance with their terms would be that any order passed beyond the stipulated time period would be invalid. It is a trite law that a thing required by law to be done in a certain manner must be done in the same manner as prescribed by law or not at all. Reliance is placed on 2007 SCMR 838; 2003 SCMR 1505; 2014 SCMR 1015; 2020 CLC 106(LHC) and 2020 YLR 2297.
18. As far as extension granted by the Commissioner I.R dated 15.07.2022 is concerned, the appellant has asserted that the extension given by the Commissioner is illegal and in support thereof, the judgments of the Honourable Supreme Court reported as 1999 SCMR 1881 & PTCL 1983 CL. 46 have been referred. In these cases, it has been held that an opportunity of being heard ought to have been given to the aggrieved party before orders for extension were made. In addition, the issue relating to extension granted by the Commissioner has now been thoroughly discussed by the Appellate Tribunal Inland Revenue, Islamabad in a recent decision reported as PTCL 2022 CL. 281, wherein the following dictum has been laid down:-- "The aforesaid application was accepted by the CIR on the same date without giving any justifiable reasons and without any opportunity of being heard having been given to the appellant. The appellant, therefore, lot no chance to resist the application for extension and to show that no sufficient cause had been shown and that therefore, no order of extension was Justified or should be granted.
"In our opinion under such circumstances, a determination requires a Judicial approach, and cannot be done ex-parte. After insertion of Article 10-A in the Constitution of Pakistan, 1973, "fair trial" and "due process" are fundamental rights of every citizen for determination of his civil rights and obligations. Before passing the order reason should be confronted and be given an opportunity of being heard-- Therefore, we are of the considered opinion that before passing the order for extension in time under the proviso of sub section (2) of Section 14 of the Act, the affected parties must be given an opportunity of being heard and thereafter pass a speaking order. Therefore, the answer to question No. (iii) Is in the negative against the department. (Emphasis Supplied)
19. Record shows that the show cause notice was issued on 18-03-2022. The 120 days plus 60 days maximum period for adjournment expired on 13-09-2022.But the assessment order has been passed on 31-10-2022. The L/DR was asked to provide record of extension of 60 days granted by L/CIR along with reasons for such extension. In response, the L/DR provided copy of the order sheet dated 15.07.2022 whereby the extension in time for 60 days seems to have apparently been granted by the learned Commissioner IR.
20. With reference to the above, to us it is now settled principle of law that prior to granting extension, it is the obligation of the learned Commissioner-IR to provide an opportunity of hearing to the affected parties. However, in the instant case, no such opportunity has been granted which renders the extension order illegal & void. The impugned Assessment order is thus time barred and there are plethora of judgments wherein it has been settled that if the order is on the face of it is time barred then there is no need to touch the merits of the case. Reference in this regard may be made to 2009 PTD 1247; 2011 SCMR 676 = 2011 PLC (C.S) 856 and 2020 CLC Note 12. It is also important to note that the appellant has specifically raised this ground at serial No. 3 of the grounds of appeal before the Commissioner (Appeals). However, no finding has been given in this regard which also comes under the ambit of a non-speaking order. Reliance in this regard may be placed on 2021 PTD 871 & 2022 PTD 1356. We have found that in the instant case, no valid reasons have been mentioned in the order nor have such reasons been made known to this forum for extension of time limitation by the CIR. It is evident that while granting extension of time in terms of section 11(5), the learned Commissioner IR has not applied his mind and has dealt with the issue of extension in a perfunctory manner and has not cited any reason for such extension and disregarded the requirement of proviso to section 11(5) of the Act. Hence, following above referred decisions, it is established that the extension granted by the learned Commissioner I.R is not as per law and the Assessm ent order is not passed within the stipulated period of the Sales Tax Act, 1990 and thus is time barred.
21. On the other side, the learned DR has relied upon the judgment reported as 2010 PTD 660 & Section 56 of the Act, 1990. We have found that this judgment is not applicable to the facts of this case where section 11 of the Sales Tax Act, 1990 clearly requires that order shall be made within the stipulated period. Similarly, the department has made emphasis on section 56 of the Sales Tax Act, 1990, which is also not relevant. We understand that section 56 has not much relevancy with the time barred Assessm ent Order. It is important to note that these assertions made by the learned DR have already been decided by this Tribunal in the judgment reported as 2015 PTD (Trib.) 1112.
Para 20 of the judgment refers.
22. As regards the merits of the case, the first charge levelled in the show cause notice and decided by the Assessing Officer and CIR(A) is that the PESCO did not charge sales tax on free electricity provided to employees. It has been argued on behalf of appellant/PESCO that the Assessing Officer as well as the CIR(A) have ignored documentary evidence produced in the shape of sample electricity bills, employee authorization for free provision of electricity, MIS reports, WAPDA Minutes of Meeting, Form CP-41 and sales tax returns. He explained that the sales tax was included in the electricity bills issued to the consumer however the negative balance indicates adjustment against the employees' free units. He has contended that the figures mentioned in the MIS