2021 PLP 703 (PTD)

This appeal under section 66 of the PSTSA, 2012 (The Act) was filed against the order dated 06.05.2019, passed by the Commissioner (Appeals) PRA Lahore.

2. For convenience the facts leading to the filing of this appeal are that, on 14.02.2018 Commissioner (HQ's) issued show-cause notice (SCN) to the appellant alleging therein that the appellant had failed to pay any output tax against amounts received/revenue earned on international incoming calls, being taxable activity under entry No.06 of the 2nd Schedule to The Act. It was further alleged that during the period from December 14 to December 15 the appellant received amounts against the said taxable services and committed default in making due payment of sales tax on said services as per law. The detail was given in the table, below. Tax Period Revenue from International traffic Rs. Punjab Sales Tax Payable Rs. 2014 9,867,086,000/- 1,924,081,770/. 2015 6,054,686,000/- 1,180,663,770/- Grand Total 15,921,772,000/- 3,104,745,540/- The SCN further stated that why the appellant should not be proceeded against for violation of sections 3, 10, 11, 18 and 35 of The Act read with (Filing of Returns) Rules, 2012 and that why the assessment of tax Rs.3,104,745,540/- (19.5%) of (Rs.15,921,772,000/-) should not be made against the appellant under section 24 read with section 60 of The Act and should not be recovered under section 70 of The Act along with default surcharge and penalty.

3. The SCN was contested by the appellant by way of filing replies and appearing through AR. However, vide order dated 05.09.2018 the assessment was made against the appellant as per contents of the SCN. Feeling dissatisfied the appellant preferred appeal before the Commissioner (Appeals) PRA Lahore but vide order dated 06-05-2019 it was also decided against the appellant hence, this appeal.

4. Learned counsel for the appellant has argued that the appellant is a LDI Company which deals in the international incoming/outgoing calls through lease line services i.e., the apparatus for the said purpose and that the appellant have no switches in Punjab rather it installed the same in Sindh and Islamabad. That the case in hand is of international interconnect and does not fall under Telecommunication services;- That the international incoming calls services are no taxable;- That the recipient of services, in this case, is non-resident:- That the adjudicating officers failed to mention, in specific terms, that which service, listed in entry No.06 of the 2nd Schedule to The Act, is applicable in the case of the appellant;- That the issuance of SCN under section 24 of The Act is illegal, because the case in hand was required to be dealt with by issuance of SCN under section 52 of The Act;- that the respondents have grossly erred in applying PST on the whole amount of revenue without considering the fact that the said financial statements were prepare under the Companies Ordinance, 1984;- That under Rules 26(3) of Chapter VI of (specific provisions) Rules, 2012 of The Act, the adjudicating officer was required to calculate the amount by applying Tax Fraction Formula;- That there are glaring errors and omissions in the calculation of figures as the amounts on which the sales tax at Rs.954,425,000 stood already paid has not been excluded from the total value while calculating the sales tax liability:- That without prejudice to the legality of the SCN, the amount of sales tax on non-taxable revenue could not go beyond Rs.541.973 Million;- That the order impugned is passed on assumptions, false interpretations and understanding of law:- That the order is non-speaking order passed beyond jurisdiction:- That Rule 12 of (Adjustment of Tax) Rules, 2012 is more than clear to resolve the dispute in hand as it lays down the basic conditions for declaring the service as "Exports":- That the order passed by the Commissioner (HQ's) was beyond time therefore a nullity in the eye of law. Lastly learned counsel has argued that the Commissioner (Appeals) PRA Lahore failed to appreciate the stance / case of the appellant hence, passed an order liable to be set aside. Learned counsel has relied upon Civil Appeal No. 1029/19 title "Messrs Mujahid Soap and Chemical Industries (Pvt.) Ltd. v. Customs Appellate Tribunal, Bench-1, Islamabad and others" applying PST on the whole amount of revenue without considering the fact that the said financial statements were prepared under the companies Ordinance, 1984 to provide results of the business activity carried out in the whole of Pakistan:- That the order impugned is passed on assumptions, false interpretations and understanding of law:- That the order is non-speaking and was passed beyond jurisdiction:- That Rule 12 of (Adjustment of Tax) Rules, 2012 is more than clear to resolve the dispute in hand as it lays down the basic conditions for declaring the service as "Exports":-- That the order passed by the Commissioner (HQ's) was beyond time therefore a nullity in the eye of law. Lastly learned counsel has argued that the Commissioner (Appeals) PRA, Lahore failed to appreciate the stance/case of the appellant hence passed an order liable to be set aside.

5. On the other hand learned DR has opposed this appeal by arguing that the appellant has taken self-contradictory stance before the lower appellate forum and even before this tribunal;- That on one, hand, the appellant states that the imposition of tax is based on wrong calculation, and on the other hand the appellant states that no taxable service is provided;- That the appellant further contradicts his own case by stating that if the services are taxable then these are export services hence, exempted from the levy of tax:- That all these stances of the appellant show that the appellant is in a state of confusion;- That the services provided by the appellant fall under the definition of "Telecommunication" as it is a telephone call for all intents and purposes;- That the activity of appellant squarely falls under the definition of the telecommunication as defined in Rule 106 of PSTS (Definition) Rules, 2012:-- That Rules 25 and 26 of PSTS (Specific Provision) Rules, 2012 clarify the activity of the appellant to the hilt and that no ambiguity or cloud is present regarding appellants activity. Lastly contends that the appeal may kindly be dismissed.

6. Arguments heard. Record perused.

7. In order to appreciate the arguments of the learned counsel for the appellant regarding non taxability of the revenue earned on international incoming calls, it would be expedient to first peruse in detail all the relevant provisions/rules available under The Act in juxtaposition to the arguments put forth by both the parties to settle as to whether the particular activity falls under Telecommunication Services or not. Since both the parties to the dispute has agitated/relied upon mainly on Sr. No 06 of the 2nd Schedule to The Act, Rule 106 of PSTS (Definition) Rules, 2012, Rules 25 and 26 of PSTS (Specific Provision) Rules, 2012, it would be wise to compare the arguments advanced by both the parties in the light of aforementioned provisions of law. For ease of reference each one is being reproduced as under: 1-Serial No 6 of Second Schedule to The Act- Telecommunication Services Telecommunication services- (a) telephone services; (b) fixed line voice telephone service; (c) winless telephone; (d) cellular telephone; (e) wireless local loop telephone; (f) video telephone; (g) payphone cards; (h) pre-paid calling cards; (i) voice mail service; (j) messaging service; (k) short message service (SMS); (l) multimedia message service (MMS); (m) bandwidth services used for voice end video telecommunication services- (i) copper line based; (ii) fiber-optic based; (iii) co-axial cable based; (iv) microwave based; (v) satellite based; (n) telegraph; (o) telex; (p) telefax; (q) store and forward fax services: (r) audio-text services: (s) tele-text services: (t) trunk radio services: (u) paging services; (v) voice paging serivices; (w) radio paging services: (x) vehicle [101] (and other) tracking services; and (y) burglar [102] (and security) alarm services; [103][(z) (i) Internet services, whether dialup or broadband, including email service, data communication network services (DCNS) and value added data services; (ii) such charges payable on the international leased lines or bandwidth services used by: (a) software exporting firms registered with Pakistan Software Export Board; and (b) data and internet service provide licensed by the Pakistan Telecommunication Authority; and (iii) such charges payable on the international leased lines used by the software exporting firms registered with Pakistan Software Export Board for software exports] EXCLUDING: [104] [Internet services, whether dialup or broadband including email services, data communication network services (DCNS) and value added dated services when the charges do not exceed Rs.1500/- per month per student.] [105] [(c) * * * * * * * *] 98.12 106[9857.0000, 9858.0000] Ninteen and a half pere 2- Rule 106 of PSTS (Definition) Rules, 2012- Definition of Telecommunication Services; "

106. Telecommunication services.

Telecommunication services mean the services involving a transmission, emission, or reception of signals, writing, images, sounds or information of any kind or nature by wire, radio, optical, or other electromagnetic systems, including related transfer or assignment of the right to use capacity for such transmission, emission or reception and a provision or access to a global or local information network, but does not include the supply of the underlying writing, images, sounds, or information. Telecom services take place where the effective use and enjoyment of the services occur" 3- Rules 25 and 26 of PSTS (Specific Provision) Rules, 2012 TELECOMMUNICATION

25. Scope of services.-- "All telecommunication services falling under four digit classification No.98.12 shall be liable to tax regardless whether or not any description of any sub-classification has been mentioned in column (2) of serial number 6 of the Second Schedule to the Act unless specifically excluded in the said Second Schedule.

26. Tax coverage.- (1) The tax shall be charged and paid by a registered person engaged in providing telecommunication on all such services as: (i) are rendered in the Punjab; (ii) originate from the Punjab; (iii) terminate in the Punjab; (iv) are effectively enjoyed and used in the Punjab; (v) where sim is activated in the Punjab; or (vi) recipient of the service; (a) is present in the Punjab; (b) is resident in the Punjab; (c) has permanent establishment in the Punjab: or (d) has Primary residence in the Punjab. (2) Where a service crosses Provincial or national borders and its charges are divisible either contractually or otherwise between different territories, tax shall be paid only to the extent of charges attributable to the territory of the Punjab. (3) Where a registered person is providing telecom services is respect of international incoming calls and is sharing charges with persons operating in foreign jurisdictions, the charges received by the registered person shall be treated as tax-inclusive value person on the basis of tax fraction formula, that is, the tax shall be calculated by multiplying the amount of charges with tax rate and dividing the resultant by tax rate plus hundred."

8. A bare perusal of the aforementioned provisions/Rules makes it abundantly clear that the said activity of long distance international calls falls under Telecommunication services being an integral part of the same. Moreover the said inference stands augmented from the appellant's reply dated 27-03-2018 available in the body of order of the Additional Commissioner in the said reply the appellant company has itself admitted to be engaged into various Telecommunication Services Agreement-TSAs with Foreign LDI Companies, Pakistan Telecommunication Authority-PTA and M/S ACME TEL FZE, UAE. In all such agreements, the appellant company has been using the word Telecommunication service VIZ. in the title of the agreement with Messrs ACME TEL FZE, UAE mentioning the same as Telecommunication Service Agreement and even under a license issued by Pakistan Telecommunication Authority-PTA, the appellant company is found to be engaged in providing long distance and international (LDI) calls and allied telecommunication services. Moreover as per International Clearing House Agreement (ICA Agreement) between PTCL and LDI operators, international incoming calls through the PTCL has been notified by PTA on agreed settlement rate (ASR) and this service constitutes value of taxable service and the Punjab is entitled to collect tax to the extent of international incoming calls terminating in Punjab. In view of foregoing this stands established beyond doubt that the activity of the company being Telecommunication service, squarely falls under serial No. 06 of the second schedule to the Act, hence taxable.

9. As regards the argument of the learned counsel for the appellant that the said activity being export of service is exempt, we need to have recourse to the Rule 12 of (Adjustment of Tax) Rules, 2012 relied upon by the learned counsel for the appellant, which for ready reference is shared as under; Export of Taxable Service 12- Export of Service; providing of taxable service by a registered person shall be treated as export of service when the following conditions are satisfied:- I. Such service is delivered and used outside Pakistan; II. Payment for such service is received by the registered person in convertible foreign exchange through declared baking channels; and III. Use, supply or consumption of any goods taxable under the Sales Tax Act, 1990, (VII of 1990) in the rendering of such service is treated as zero rated supply and entitled to the tax refund under that Act. A keen reading of the aforementioned Rule determines that it's a conjunctive provision which has to satisfy all the conditions mentioned therein, since the said services have been used in Pakistan too, therefore, cannot be pleaded for any relief under the same, hence rejected.

10. As far the arguments of the learned counsel for the appellant that the amounts on which the sales tax at Rs.954,425,000 stood already paid has not been excluded from the total value while calculating the sales tax liability, this tribunal agrees with this contention. The officer exercising jurisdiction over this case is directed to seek the proofs of sales tax paid by the appellant company and accordingly excluded the corresponding revenue from the taxable value of service. Likewise regarding the tax fraction argument that under Rules 26(3) of Chapter VI of (Specific Provisions) Rues, 2012 of The Act, the adjudicating officer was required to calculated the amount by applying Tax Fraction Formula, we therefore, are inclined to pass the same directions to the concerned officer for allowing the same to the appellant company strictly in accordance with the spirit of the said rule. Furthermore, while appreciating a similar ground of applying PST on the whole amount of revenue on the business activity carried out in the whole of Pakistan, the officer is further directed to afford reasonable opportunity to the appellant in furnishing the proof of tax paid to tax authorities other than Punjab in the form original CPRs/copies of returns/ledgers/invoices etc all the relevant documents/supporting evidence with a view to ascertaining the actual quantum of tax liability payable to Punjab Revenue Authority.

11. For what has been observed above, Appeal is partly allowed to the extent of observations made in para 10 ibid, however rest of the appeal being devoid of merit is dismissed. The Registrar of the Tribunal is directed to communicate this judgment to all concerned immediately. File of appeal be consigned to record room. SA/76/Tax (Trib) Order accordingly.