2012 PLP (Trib (PTD)

IKRAM ULLAH GHAURI, ACCOUNTANT MEMBER.

The appeal has been filed by the appellant against Sales Tax Order-in-Appeal No.113 of 2011, dated 22-2-2011 passed by the respondent No.1.

2. Brief facts of the case are that during scrutiny of the sales tax returns for the period July, 2007 to June, 2009 by respondent No.2 revealed that special excise duty amounting to Rs. 470,046 during 2007-2008 and Rs.572,377 during 2008-2009 (Total Rs.1,042,423). Accordingly a show cause notice dated 13-5-2010 was issued to the respondent. The charges levelled in the said show cause notice were established and an Order-in-Original No.54 of 2010, dated 23-9-2010 was passed by the respondent No.2. The taxpayer assailed the order dated 23-9-2010 before respondent No.1 which was accepted vide Order-in-Appeal No.113 of 2011, dated 22-2-2011. Aggrieved by the order-in-appeal dated 22-2-2011 the appellant filed the appeal before this Tribunal on the following grounds:--

3. Grounds of appeal: (a) That the Order No.113 of 2011 against the Appeal No.ST/Comm/Appeal-1/25/2011 passed by the Commissioner Inland Revenue (Audit-II) v. Messrs Hotel Margalla (Pvt.) Limited is bad in law and contrary to facts of the case. (b) The CIR(A-1) has erred in law and facts by vacated the Order-in-Original No.5 of 2010 dated 23-3-2010 which does not exist. (c) The clarification of the Ministry of Law and Justice not circulated by the Federal Board of Revenue and CIR(A) has failed to mention the Board's circular number in the impugned order-in-appeal. (d) The Board clarified the issue of chargeability of the Special Excise Duty (SED) @ 1% on the supply of cooked food vide its Letter C.No.1(3)FED/2007 dated 22-4-2009: "I am directed to refer to Directorate General of Intelligence and Investigation, F.B.R. Karachi's letter No.412-DC/FEST/INQ/2008 dated 25-3-2009 on the subject levy of special excise duty levied under section 3A of FED Act, 2005 and to say that issue of levy of SED on hotels and restaurants on the supply of food has been re-examined in the Board. It has been observed that "Provision of services" and "supply of goods" are not mutually exclusive domain. There is very thin line between the two. For example, in economic survey retailers and distributors are considered service providers but at the same time they are supplier of goods to general consumers. Therefore, the contention that restaurants are service providers does not lead to conclusion that special excise duty cannot be imposed on them considering them as manufacturers and suppliers of cooked food. As the supplies of good by restaurants are subject to sales tax as manufacturer and suppliers of cooked food etc. therefore, special excise duty will be leviable on the food supplied by all restaurants whether independent or located inside a hotel. The clarification issued vide Board's Letter No.1(3)FED/07/3433-R dated 4-3-2009 is hereby withdrawn ab-initio." (e) That the appellant craves leave to add, alter or amend any grounds of appeal at the time of hearing of appeal.

4. The date of hearing in the case was fixed on 11-5-2011 and finally heard on 26-8-2011. During the course of proceedings the learned counsel of the appellant reiterated his version as mentioned in Para (3) above and supported the Order-in-Original No.54 of 2010, dated 23-9-2010 passed by the respondent No.2.

5. On the other hand the learned counsel of the taxpayer supported the order-in-appeal dated 22-2-2011 passed by respondent No.2 and argued his case on the following grounds:--

6. Grounds of the learned counsel of the taxpayer. (a) The learned counsel of the taxpayer contended that special excise duty was levied vide S.R.O. No.655(I)/2007 dated 29-6-2007 on those goods which are mentioned in the First schedule to the Customs Act, 1969. Chapter 98 of the Customs Act, 1969 categorized the business of hotels restaurants, marriage halls, clubs, caterers and suppliers of foods and drinks and messes and hostels as "services". Hence the imposition of 1% special excise duty is on "goods" and not "services". (b) That as a result of controversy in the light of argument as mentioned in Para 6(a) the matter was referred to Ministry of Law and Justice Division, Islamabad for legal opinion/advice. The F.B.R. vide circular Letter No.1(3)FED/2007/111143-R, dated 25-7-2009 circulated the advice of the Ministry of Law and Justice Division, Islamabad as follows:-- "As the business of hotel and restaurants is classified as "services" under the aforesaid chapter and SED is required to be levied on "goods produced, manufactured or imported into Pakistan". Hence the service provided by hotels and restaurants do not come in the definition of goods produced or manufactured as such SED is not liable to be levied".

7. Findings: The single question involved in this case is whether the special excise duty levied in respect of "goods" vide S.R.O.655(I)/2007 extends to "services" also, which are clarified under PCT heading 98 of the First Schedule to the Customs Act, 1969. In order to find answer to this question it will be useful to analyze the legal framework of this case comprising the text of S.R.O.No.655(I)/2007 dated 29-6-2007 which levied the 1% special excise duty, the Chapter 98 of the First Schedule to the Customs Act, 1969 and lastly the opinion of the Ministry of Law and Justice Division, Islamabad circulated by F.B.R. as referred in para. 6(b). The S.R.O.655(I)/2007, dated 29-6-2007 and Chapter-98 of the Customs Act, 1969 provides as under:-- S.R.O.655(I)/2007, dated 29-6-2007:.....In exercise of the powers conferred by section 3A and subsection (2) of section 16 of the Federal Excise Act, 2005, the Federal Government is pleased to direct that subject to the conditions, restrictions and exceptions stated hereinafter, special excise duty at the rate of one per cent of the value shall be levied, collected and paid on goods specified in the First Schedule to the Customs Act, 1969 (IV of 1969) except the goods mentioned in the table below." Chapter 98: (Services) PCT Code. Description. F.E.D. 98.01 Services provided and rendered by hotels, restaurants, marriage halls, lawns, clubs and caterers. 15 % of the charges. 9801.1000 9801.2000 9803.3000 9801.4000 9801.5000 9801.6000 9801.7000 9801.9000 Services provided or rendered by hotels. Services provided or rendered by restaurants. Services provided or rendered by marriage halls and lawns. Services provided or rendered by clubs. Services provided or rendered by caterers, suppliers of food and drinks. Ancillary services provided or rendered by hotels, restaurants, marriage halls and caterers. Services provided or rendered by messes and hotels. Others. We have very closely examined the above referred S.R.O. and Chapter 98 of the First Schedule to the Customs Act, 1969 as well as opinion of the Ministry of Law and Justice Division, Islamabad. We find that the letter relied by the department stood infructuous when the F.B.R circulated the Ministry of Law and Justice Division clarification on the subject vide its later Letter No.1(3)FED/2007/111143-R dated 25-7-2009. We agree with the contention of learned counsel of the taxpayer that special excise duty is leviable on "goods" and not "services". We notice a legal lacuna in the aforementioned S.R.O. which does not mention the word "services" after the words "goods". This intentional or unintentional omission provides on opportunity to taxpayer to stand clear of the tax liability arising from the aforesaid S.R.O. Accordingly this appeal fails. The order-in-appeal passed by learned CIR(Appeals-I) on the basis of the clarification of the Ministry of Law and Justice Division, is upheld. This order contains (5) pages each bears my signature and seal. C.M.A./276/Tax(Trib.) Appeal rejected.