2022 PLP 1180 (PTD)

SHAHID JAMIL KHAN, J.

This Reference Application under Section 47 of the Sales Tax Act, 1990 ("Act of 1990") is against order dated 11.09.2018 passed by Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("Appellate Tribunal").

2. At the outset, learned counsel for the respondent/taxpayer has apprised that the issue involved in this case has already been settled through judgment by learned Division Bench of this Court in Messrs Pak Gen Power Ltd. through Senior Manager Finance v. Commissioner Inland Revenue and 4 others (2017 PTD 495), operative part of which is reproduced hereunder:- "

8. It is also important to examine Chapter-IV of the Sales Tax Rules, 2006 ("Rules, 2006") which deals with APPORTIONMENT OF INPUT TAX envisaged under section 8(2) of the Act. Rule 24 of the Rules, 2006 provides that the provisions of this Chapter shall apply to the registered persons who make taxable and exempt supplies simultaneously. In the present case, there is only ONE SUPPLY and, therefore, the question of two simultaneous supplies does not arise, besides there is no supply being made against CPP, hence there is no existence of an "exempt supply" as per Rule 24, under the Agreement.

9. While section 8(2) of the Act does not apply to the present case, the petitioner is free to reclaim or deduct input tax under the provisions of sections 7 and 8 (1) of the Act.

10. For the above reasons section 8(2) of the Act has no applicability to the supply of electricity made by the petitioner to WAPDA under the Agreement. The questions of law raised in this reference, as well as, references mentioned in Schedule-A of this judgment, are answered in the above terms."

3. Learned counsel for the applicant, confronted with the judgment, submits that in this case a different treatment was given by the Taxation Officer. He explains that under the agreement between respondent/taxpayer and WAPDA, supplies under Energy Purchase Price ("EPP") are actual supplies; whereas payments made by WAPDA against Capacity Purchase Price ("CPP") are charges made to the respondent/taxpayer for maintaining a specified capacity for production of electricity. The dispute arose when input tax was adjusted on the payments made against CPP, which were refused by department, applying provisions of Section 8(2) of the Act of 1990.

4. Learned counsel for the respondent/taxpayer opposed the submissions and submitted that the issue has already been settled through judgment in Pak Gen Power's Case (supra). In response, learned counsel for the applicant submits that leave has been granted against the judgment.

5. Heard, record perused. The Section 8(2) of the Act of 1990 is reproduced:- "8(2) If a registered person deals in taxable and non-taxable supplies, he can reclaim only such proportion of the input tax as is attributable to taxable supplies in such manner as may be specified by the Board." Under the subsection, ibid, input tax adjustment is not allowed to the extent of non-taxable supply, which need to be examined with Rule 13(3) of the Sales Tax Special Procedure Rules, 2007 ("Rules of 2007"), therefore, is reproduced:- "13(3) In case of an IPP, HUBCO, KAPCO or WAPDA Hydroelectric Power, the value of supply shall be the amount received by such IPP or, as the case may be, HUBCO or KAPCO, on account of Energy Purchase Price only and any amount in excess of Energy Purchase Price received on account of Capacity Purchase Price. Energy Price Premium, Excess Bonus, Supplemental Charges, etc., shall not be deemed as a component of the value of supply:" (emphasis supplied) The interpretation of Rule 13(3) is very simple that value of supply is the amount recovered, by the Independent Power Producer ("IPP"), against supply of EPP. It is reiterated, in latter part of the Rule 13(3) that any amount in excess of EPP supply i.e., on account of CPP shall not be a component of the value of supply. Meaning thereby that the Rule 13(3), being a special provision, is defining "value of supply" for the purpose of taxing the supply of EPP. Nothing is mentioned in this Rule about non-taxable or exempt supply. It needs to be clarified that non-taxability of a supply and exemption are two independent and different concepts under the Act of 1990. Sales tax is computed and levied on the value of a taxable supply at the applicable rate. Correct interpretation is that the amount, received by the IPP, on account of CPP is not part of taxable supply of EPP.

6. Since learned counsel for the respondent submits that a different treatment was given by Taxation Officer, therefore, we restrict ourselves from giving any final opinion on the issue, except holding that amount received on account of CPP would not be part of supply under Rule 13(3) and that Section 8(2) deals with a situation where taxable and non-taxable supplies are clearly identifiable and input tax attributable to non-taxable supply is not adjustable.

7. In light of the interpretation/opinion, ibid, we set aside the judgment by Appellate Tribunal and remand the case with direction to determine whether payments made against CPP, constitute a taxable or non-taxable supply and treat the input adjustment accordingly. Reference Application is disposed of accordingly.

8. Office shall send a copy of this order under seal of the Court to the Appellate Tribunal Inland Revenue as per Section 47(5) of the Sales Tax Act, 1990. MH/C-11/L Case remanded.