ORDER: DR. SHAH KHAN, ACCOUNTANT MEMBER.--(1). The above titled appeal has been filed by the appellant company against the appellate order dated 22.05.2023 passed by the Learned Commissioner Inland Revenue (Appeals), Peshawar, whereby appeal of the appellant company was rejected.
2. Briefly stated facts of the case are that the appellant company 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-IR (DCIR) issued show cause notice on 02.11.2021 to the appellant company asking to explain as to why the principal amount of Rs. 10.669 Billion alongwith 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- IR vide Assessm ent Order No. 01/2023 dated 21.10.2022 vacated demand of Rs. 10.337 Billion and ordered for recovery of sales tax amounting to Rs. 331 million alongwith default surcharge and penalty. The appellant company felt aggrieved with treatment and went into appeal before the L/CIR(A), who vide impugned order, rejected the appeal of the appellant company and confirmed the order of ACIR. Being not satisfied with the above treatment, the appellant company has filed appeal filed the instant appeal before this forum, to contest the findings of L/CIR(A), on the grounds detailed in the memo of appeal.
3. This case was fixed for hearing today on 01.02.2024. On due date, Mr. Hussain Ahmad Sherazi, Mr. Mouzzam Ali Butt, Advocate alongwith Mr. Farooq Azam, ACCA/ARs appeared on behalf of the appellant company and argued their case, while Ms. Fouzia Iqbal, DR appeared to represent the respondent Tax Department and defended the order passed by learned CIR(A), Peshawar.
4. The learned ARs have 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 02.11.2021 while the impugned Assessment order dated 21-10-2022 has been received by the appellant on 25.10.2022: 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. In all these cases, it has been held that date of communication of order is the crucial date to determine the period of limitation.
5. He also contended that the extensions granted by the Commissioner I.R and the FBR are not tenable as per the latest law settled by this Tribunal and the apex court of the country. Reliance in this regard was placed on:-- PTCL 2017 CL. 736 (SC); PTD 147 = PTCL 2020 CL. 159 (SC); 1999 SCMR 1881; PTCL 1983 CL. 46 (Supreme Court of India) and PTCL 2022 CL. 281. In addition, the learned ARs 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. The learned ARs 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.
Lastly, the learned ARs urged that the case of the appellant has been made on the basis of financial statement which is not permissible under the law. Reliance was made on the latest decision dated 04-10-2023 passed by the Peshawar High Court in STR No. 93-P/2022 & 2013 PTD (Trib.) 2130.
6. As regards the merits of the case, the learned ARs 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, M/S Report-3, CP-41 Form and Sales Tax Return.
7. The learned ARs have also relied upon the earlier judgment passed by the ATIR on the subject issue between the same parties reported as 2015 PTD (Trib.) 1112 -- M/s PESCO Vs. C.I.R, R.T.O, wherein the subject issue has been thoroughly examined and decided in favour of the appellant (PESCO).
8. As regards the other issues, 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. 1.282 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/ARs highlighted that the complete documentary proof was provided to the Assessing officer as well as the learned CIR(A), but they vacated only those charges which had nominal amounts. However, the heads which contained material amounts have been confirmed without giving any attention to the explanation and documents provided by the appellant. He stated that Section 2(46)(i) of the Act, 1990 was introduced in the year 2019 vide Finance Act, 2019 and made effective on 01.07.2019. However, in the impugned show cause notice, the liability has been imposed/charged against the appellant since 2018-2019 which was violative to the settled principle of law that the amendments introduced vide fiscal statutes are prospective in nature and charging provisions are to be applied prospectively.
They further drew our attention to the Rule 13(2)(b) of the Sales Tax Special Procedure Rules, 2007 (alive at the relevant time), whereby the value of electricity does not include the amount of COMMISSIONS. They argued that the heads relating :o miscellaneous service revenue, other electric revenue, income from nonutility operations, non-operating revenue and provision of stores & spares are infact services rendered by the appellant on behalf of the Provincial government and these services are not chargeable to tax under section 3 of the Act, 1990. In support thereof, he referred CP-41 Report alongwith sales tax return and commission's collected charts regarding electricity duty and TV fee. He maintained that no tax can be levied on the basis of presumptions and intendment.
9. The L/ARs next pleaded that it is a well settled principle of law that in case 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 and penalty under section 33(5) of the Act as there is no wilful evasion of sales tax. In addition, there cannot be any mens-rea. In the case of a public sector organization where its functionaries have not stake or benefit 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.
10. The L/DR, on the contrary, opposed the appeal on the ground that the learned Commissioner Inland Revenue (Appeals) has passed a speaking order and there is no lacuna or illegality in his order. She therefore, pleaded that the appeal be dismissed.
11. We have perused the impugned Assessment order, the order by the learned CIR (Appeals), the case law referred and the available record of the case. #The Show Cause Notice in the instant case was issued on 02.11.2021 and the Assessment order dated 21.10.2022 has been received by appellant company on 25.10.2022 i.e. hence the passing of the order is after 352 days from the show cause notice.#
12. 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) ......................
(5) ......................
"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 2001 SCMR 838; 2003 SCMR 1505; 2014 SCMR 1015; 2020 CLC 106 (LHC) and 2020 YLR 2297.
13. As far as extensions granted by the Commissioner I.R and FBR till 24-10-2022 are concerned, the appellant has asserted that the extensions given by the Commissioner and the FBR upto 24.10.2022 are 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 riven to the appellant. The appellant, therefore, got 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, year 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)
14. Record shows that the show cause notice was issued on 02.11.2021. The appellant has been given adjournment which could be 60 days at the maximum in terms of second proviso to section 11(5) of the Act. Hence, the 120 days plus 60 days period expired on 02.05.2022, but the assessment order has been passed on 21.10.2022. The L/DR was asked to provide record of extension granted by CIR and FBR alongwith reasons for such extension. The L/DR could not provide such extension orders nor any valid reason for extension.
15. In view of the above, it is now settled principle of law that prior to granting extension, it is the bounden duty of the learned Commissioner-IR and the FBR 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 orders 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. 5) 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 either by the CIR or FBR.
Hence, following these decisions, it is established that the extensions granted by the learned Commissioner I.R and the FBR F are not as per law and the Assessment order is not passed within the stipulated period of the Sales Tax Act, 1990 and thus is time barred.
16. 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 report, Form CP- 41 and the Sales Tax Return are reconciled an transpired that the sales tax has been deposited to the Government G Exchequer.
17. It has been pleaded by the counsel of the appellant that, earlier on the subject issue, a judgment reported as 2015 PTD (Trib.) 1112 has been passed between the parties i.e. MS PESCO VS. C.I.R, R.T.O by the Learned Bench of Appellate Tribunal Inland Revenue vide order dated 02.06.2014, wherein it was held that:-
29. Next issue is the non-payment of sales tax on supplies to associated undertaking (Rs.
12,853,702). This issue relates to nonpayment of sales tax on supply of free electricity to employees. The learned counsel for PESCO has submitted that the relevant record proving payment of the subject sales tax was provided to the Assistant Commissioner Inland Revenue as Annex V of the Rejoinder duly mentioned in Para 3.X on Page 36 of the Assessment Order No. 07/2010 and Annex M of the Rejoinder as mentioned in Para XI on Page 32 of the Order-in-Appeal but the same has not been examined at all by the AC. (IR) or the learned Commissioner Appeals. It has been pleaded that the relevant record has again been enclosed as Annex XV of the Memo of Appeal. On the other side the Department contention is that PESCO has failed to provide any documentary evidence regarding payment of sales tax on supply of free electricity to its employees.
We have given careful consideration to the rival arguments. As pointed out by PESCO, documentary evidence in the form of month wise GST assessed against WAPDA employees along with electricity bills showing payment of sales tax on free supply of electricity to its employees are available as Annex XV of the Memo of Appeal on the pages 255-276 of the paperbook. It appears that these documents have failed to attract attention of the Department and, accordingly, charges relating to non-payment of the subject sales tax are held to be disproved.
18. After considering the submissions and the case laws cited above, we are of the view that the contentions of the appellant company has substantial force. The documentary evidence produced in the shape of Electricity Bills alongwith employees authorization forms transpire deduction of GST and the credit amount (negative balance) showed in the Bills indicate adjustment of GST against employees' free units of electricity. The learned A.R has attached electricity bills showing payment of sales tax on free supply of electricity to its employees. It appears that these documents have failed to attract attention of the Department and, accordingly, charges relating to non-payment of the sales tax relating to subject issue are held to be illegal.
19. Before giving the answer to the other issues, it would be beneficial to first reproduce hereunder the relevant provision of law:-- Rule 13(2)(b) of Chapter III of Sales Tax Special Procedure Rules, 2007, provides:-- CHAPTER III SPECIAL PROCEDURE FOR COLLECTION AND PAYMENT OF SALES TAX ON ELECTRIC POWER "13. Levy and collection of sales tax.--(I) Every person, referred to in the preceding rule, who supplies electric power shall charge and collect sales tax at the rate specified in sub-section (1) of section 3 of the Act.
(2) Subject to sub-rule (3), sales tax on electric power shall be levied and collected at the following stages, namely:-
(a) ... ... ... ... ... ... ... ... ... ... ... ... ...
(b) in case of generation, transmission, distribution and supply of electric power by a public sector project like WAPDA a private sector project including an IPP, a Captive Power Unit or any other person, the responsibility to collect sales tax shall be of the person making the supply, and the value shall be the price of electric power including all charges, surcharges excluding the amount of late payment surcharge, rents, commissions and all duties and taxes whether local.
Provincial or Federal, but excluding, the amount of sales tax, as provided in clause (46) of section 2 of the Act." (Emphasis supplied)
The learned ARs have provided the breakup of the miscellaneous receipts, which is as under:-- Description Rs. Remarks Tax Imposed Commission on Electricity Duty Collected32,248,427 ST Imposed6,449,686 Commission on TV Fee Collected15,883,498 ST Imposed3,176,700 Miscellaneous Service Revenue12,189,060 ST Imposed2,437,812 Rental Income from Property17,616 Vacated Other Electric Revenue 11,185,293 ST Imposed2,237,079 Income From Non-Utility Operations316,377,482 ST Imposed63,275,496 Income From Lease of Other Properties401,111 Vacated Non-Operating Revenue886,370,106 ST Imposed177,274,021 Provision For Stores & Spares7,375,281 ST Imposed1,475,056 Income From PESCO School12,495 Vacated Total 1,282,060,369 254,088,038
20. The first two heads relate to the Commissions on Electricity Duty collected ("ED") (Rs.
32,248,427/-) and TV fee collected (Rs. 15,883,498/-). The L/ARs has explained that these account heads pertaining to the services rendered by the appellant on behalf of the Provincial Government and the Pakistan Television Corporation. It has been argued that the appellant collects "Electricity Duty" and "TV Fee" through electricity bills issued to the consumers on which sales tax is charged.
The bill of 3% (commission invoice) has been separately generated to the Provincial Government by the appellant against the services rendered for collection of ED. Similarly, against TV fee collection, a bill of 1% commission per consumer is billed separately. The other heads mentioned above are relating to miscellaneous service revenue (Rs. 2,437,812); other electric revenue (Rs.
2,237,079); Income from non-utllity operations (Rs. 63,275,496); non-operating revenue (Rs.
177,274,021) and Provision for stores & spares (Rs. 1,475,056). The learned ARs have explained that these account heads are related to different types of services i.e. electricity network plan advisory to new societies, installation fee and overheads charges @ 8% for the distribution equipment like transformer, wires, feeders and other equipment mandatory for electrification new developing private societies as per the Govt. standards, inspections charges deducted @ 0.5% of invoice value on inspections of power sites, material received at tax payer for its Store and Spare and late payment deductions @ 10% of invoice value against the late delivery of item purchased. These includes booked entries that have a credit effect in the accounting standards such as burnt meters adjustment entries, rental recovery from staff for PESCO quarters, other reversal entries and JV entries within accounts heads that has overall credit impact of notional income. In support thereof, the L/ARs has referred to the month-wise detailed schedule of the commission accrued on electricity duty collection, the TV fee collection and produced documents in support of other heads.
On the other side, the L/DR supported the impugned order and verbally rebutted the arguments of the AR of the appellant.
21. We have given careful consideration to the rival arguments and we are inclined to agree with the contention of the L/Alts that sales tax was not payable on the services during the relevant period. In this regard, it is important to note that the Rules, 2007 ibid have been rescinded on 29- 06-2019 vide SRO No. 694 (I)/2019 made effective from 01.07.2019. However, in the present case, the tax period July 2018-June 2019 is involved; hence the above quoted Rules, 2007 is applicable in the present case. As apparent from Rule 13(2)(b) ibid, the value of electricity does not include the amount of COMMISSIONS. In the impugned orders, it has been misinterpreted that commissions against services are taxable under section 3 of the Act, 1990. The learned CIR(A) and the Assessing Officer have made their emphasis on Section 2(46)(i) of the Sales Tax Act, 1990. In this regard, it is not denied that the Section 2(46)(i) ibid was introduced in the year 2019 vide Finance Act, 2019.
However, in the impugned show cause notice, the liability has been imposed/charged against the appellant since 2018-2019 which is violative of the settled principle of law that the amendments introduced vide fiscal statutes are prospective in nature and charging provisions are to be applied prospectively. Even otherwise, it is settled principle of law that the special provisions will prevail over general provisions. It is also well settled exposition of law that a fiscal provision of a statue is to be construed liberally in favour of the taxpayer and in case of any doubt, the same is to be resolved in favour of the taxpayer/registered person. Reliance in this regard may be made on 2007 SCAM 1367--PAKISTAN through Secretary Finance and others versus Messrs LUCKY CEMENT and another (1992) 66 Tax 246 (SC Pak)--Mehran Associates Ltd. Vs. CIT, Karachi.
22. After considering the submissions and the case laws cited above, we are of the view that the contentions of the appellant company has substantial force. It appears that the documentary evidence produced by the appellant and the provisions of law discussed above have failed to attract attention of the Department and, accordingly, charges relating to subject Issues, are held to be illegal.
23. The foregoing narrations, objective analysis of the issues involved in this appeal and the facts obtaining on record clearly demonstrate that the impugned Assessment order is time barred and the show cause notice and the impugned Assessment order as well as Order-in-Appeal are palpably illegal and bad in law. As such, we hereby vacate the impugned show cause notice and consequent orders of both the authorities below being illegal, unlawful and void ab-initio.
Resultantly, instant appeal filed by the registered person is accepted as prayed for.
24. The titled appeal is disposed of in the manner and to the extent as dilated supra.
25. This order consists of (13) pages and each page bears my signature.