Taxable Supply

Subject matter was specified 'excisable goods' and 'excisable services' as provided in First Schedule to Federal Excise Act, 2005

Taxing event was when 'excisable goods' were produced or manufactured or when 'excisable services' were provided or rendered; the person liable to pay tax was who produced or manufactured 'excisable goods' or the one who provided or rendered 'excisable services'

Extent of liability that was the rate of excise duty was specified in First Schedule to Federal Excise Act, 2005

It was only when the first two essential conditions were fulfilled that the excise duty at the rate specified under Federal Excise Act, 2005 would be chargeable to the person who manufactured 'excisable goods' or the person who provided 'excisable services'

Two different rates of duties were provided under law relating to payment of excise duty on sale of concentrate vis-a-vis aerated water containing added sugar or other sweetening matters of flavoreds in First Schedule to Federal Excise Act, 2005

Keeping in view the two different rates, Federal Board of Revenue in its own wisdom had allowed bottling factories to pay excise duties as per the rates applicable to concentrate or avail the second option

There was no inconsistency in the scheme procedure and mechanism of levying duties on concentrated vis-a-vis aerated water

Provisions of notification CEGO No. 4 of 2002 dated 15-06-2002 were alive under the mandate of S. 24 of Khyber Pakhtunkhwa General Clauses Act, 1956 and were enforceable on repeal of Central Excise Act, 1944, through re-enacted Federal Excise Act, 2005 and would continue so unless it was rescinded or recalled by appropriate and competent forum under the scheme of re-enacted Federal Excise Act, 2005

Reference was answered in affirmative, in circumstances.

Appellate Tribunal Inland Revenue concluded/ concurred with the version of the Department that 'condensate' was not part of the same family of petroleum oils as 'crude oil'

Case of the Applicants (companies engaged in the business of exploration /production/sale of petroleum and natural gas) was that condensate was to be meted out the same treatment of zero-rating because it was also crude oil for the purposes of the PCT heading 2709.0000

Claim of the Department was that the PCT heading was only for identification and, even though PCT 27.09 includes gas condensate and even though SRO 549 identified the zero rated good in question with reference to PCT 27.09, the condensate should nonetheless be excluded

Whether condensate and crude were distinct or the same products?

Held, that the Federal Government could have mentioned petroleum crude oil only while issuing SRO 549(I)/2008 dated 11-06-2008 ('the SRO 549'), but it chose to identify the goods with reference to the PCT heading 2709.0000

Mentioning of the PCT heading necessitated its proper consideration while construing serial No. 4(xvii) in SRO 549 and the preceding expression 'petroleum crude oil' neither could nor ought to be read in isolation without reference to the PCT heading

The department's stance that the PCT heading was only for identification was not persuasive; in identification laid the delineation of what was being identified

If the description in the PCT heading was meant to be ignored, then the reference to the PCT heading in serial No. 4(xvii) would be rendered a surplusage, running counter to the principle that redundancy was not to be ascribed to any provisions in a statutory instrument

The PCT headings are the HS Code (Harmonized System Codes) or PCT Codes (Pakistan Customs Tariff Codes) for the classification of goods ; their very purpose is to identify any given goods under consideration , enabling a globally accepted classification and identification system of goods

The Finance Act, 1994, amended the Customs Act, 1969, to add the 'General Rules for Interpretation' in the First Schedule of PCT headings to the Customs Act, which, under the sub-heading 'Pakistan Rules', read as "For the purposes of "Explanatory Notes to the Harmonized Commodity Description and Coding System" published by World Customs Organization, Brussels, as amended from time to time , shall be considered authentic source of interpretation"

When the Explanatory Notes - being authentic source of interpretation - categorised all crude oils under PCT 27.09, including gas condensate, the Sales Tax Department could not exclude condensate

This claim/argument might have held water if PCT 27.09 was not mentioned in SRO 549, but it was indeed mentioned, that it became an indivisible part of serial No. 4 (xvii), and that PCT 27.09 expressly regarded condensate a "crude oil"

It is common wisdom to interpret and construe technical expressions according to the meaning carried by such expressions in a given trade or industry, and in such case the general principle of giving the words their ordinary dictionary meaning is displaced

The expression "import and supplies thereof" was to be interpreted with reference to the definition of "taxable supply" in S.2(41) of the Sales Tax Act and was to be interpreted disjunctively

Thus, the proposed questions were answered in the affirmative, i.e. in favour of the taxpayers and against the Department

Sales tax reference applications, filed by taxpayer, were allowed.

Taxpayer was aggrieved of charging sales tax by authorities with regard to replacement of auto parts under warranty free of charge

Validity

Warranty assured customers of replacement of defective parts within the agreed period or mileage, free of charge

Such fact could not be rejected in the orders of all the forums

Contract of such sale related to composite supply of vehicle and service for replacement of defective parts, both bundled in one contract

Auto parts were supplied free of charge to customers by taxpayer under warranty and at the time of such replacement no separate consideration was charged for the reason that consideration of such parts formed an integral part of price of the contract which was received at the time of sale

Sales tax charged and paid on contractual consideration at the time of supply of motor vehicle included such tax on auto parts to be replaced under warranty

Cost of warranty replacements was incorporated in price of motor vehicle on which sales tax had already been paid

Absent consideration in such transaction, it did not fall under the definition of 'supply' as contained in Sales Tax Act, 1990, at relevant time

High Court answered all questions in affirmative and set aside orders / judgments of Tribunal and forums below, as replacement of auto parts covered by a manufacturer's warranty were not taxable at the relevant time

Reference was allowed, in circumstances.

Taxpayer was aggrieved of charging sales tax by authorities with regard to replacement of auto parts under warranty free of charge

Validity

Warranty assured customers of replacement of defective parts within the agreed period or mileage, free of charge

Such fact could not be rejected in the orders of all the forums

Contract of such sale related to composite supply of vehicle and service for replacement of defective parts, both bundled in one contract

Auto parts were supplied free of charge to customers by taxpayer under warranty and at the time of such replacement no separate consideration was charged for the reason that consideration of such parts formed an integral part of price of the contract which was received at the time of sale

Sales tax charged and paid on contractual consideration at the time of supply of motor vehicle included such tax on auto parts to be replaced under warranty

Cost of warranty replacements was incorporated in price of motor vehicle on which sales tax had already been paid

Absent consideration in such transaction, it did not fall under the definition of 'supply' as contained in Sales Tax Act, 1990, at relevant time

High Court answered all questions in affirmative and set aside orders / judgments of Tribunal and forums below, as replacement of auto parts covered by a manufacturer's warranty were not taxable at the relevant time

Reference was allowed, in circumstances.

Section 2(41) of the Sales Tax Act, 1990 specifies the persons to which the supply of taxable goods is to be considered as taxable supply

Such persons are importers, manufacturers, wholesalers (including dealers), distributors or retailers.

Building material consumed in the construction of immovable property is neither taxable supply nor in furtherance of taxable activity, hence, beyond the scope of sales tax under the Sales Tax Act, 1990

Construction of immovable property is not taxable activity, which is essential ingredient to charge tax

Consumption of material in an activity, which is not taxable under the Sales Tax Act, 1990, therefore, is not chargeable to sales tax

No construction of immovable property is possible without building material

Consumption of building material by a person, being non-taxable activity, falls out of the supply chain under S. 3.

Taxpayer was imposed upon a liability to pay sales tax on account of acquisition of taxable goods for construction of immovable property

Expression "taxable supply" and "taxable activity" both operate in their own respective fields

Quantum of tax liability is determined on the basis of the value of taxable supply, but the liability to pay tax under the charging section arises only when such supply is made in furtherance of taxable activity

Taxable activity defined in the Act means any activity involving in whole or in part, the supply of goods to any other person

Definition of "goods" in subsection (12) of S. 2, construction of immovable property cannot be treated as "goods" by any stretch of imagination

Supply of material consumed in the course of execution of construction is not made in furtherance of a taxable activity, therefore, taxpayer cannot be held liable to pay sales tax

Reference application was decided against the department.

Absence of either of the ingredients excludes the other from purview of charging provision.

Question before Appellate Tribunal was whether the "wheeling charges" fell under the definition of "services" as explicated in Sales Tax Act, 1990

Validity

Appellant had only provided services of transmission lines to another Electric Supply Company and had not made any taxable supply of goods

Tax on services was not within the domain of the Federal Government

Goods i.e. the electricity remained the property of the National Transmission and Dispatch Company (NTDC) and its ownership was never transferred to appellant

Sales tax could not be levied on the services rendered by the registered person

"Supply" of goods in the background of facts of the case could only have taken place if it was sale or other transfer of the right to dispose of goods as owner

NTDC had never sold or allowed sale of such electricity by appellant, rather it was given to appellant for transportation to Electric Supply Company

Appellant was under no obligation to charge sales tax on wheeling charges

Impugned orders were set aside

Appeal was disposed of accordingly.

Person who enjoys exemption in terms of S. 13 read with Sixth Schedule of Sales Tax Act, 1990 and does not make any taxable supply in terms of S. 2(41), Sales Tax Act, 1990 is not required to be charged further tax and extra sales tax in terms of S. 3(1A) and S.R.O. No. 509(I)/2013 dated 12-06-2013

Purpose of levying extra tax, in addition to the tax under subsection (1) of S. 3 of Sales Tax Act, 1990 is to charge the said tax from those persons who are liable to be registered under Sales Tax Act, 1990 but have chosen not to get themselves registered to avoid payment of sales tax in accordance with law

Legislature in its wisdom has chosen to exempt the supplies from payment of sales tax

Manufacturer cannot be made liable to pay any further tax or extra tax only on account of his non-registration under Sales Tax Act, 1990

Words used in S. 13(2)(a) of Sales Tax Act, 1990 are very specific and provide for exemption of any taxable import or supply of any goods from the whole or any part of the sales tax chargeable under the Sales Tax Act, 1990 and not merely under S. 3(1) of Sales Tax Act, 1990

Section 13 of Sales Tax Act, 1990 has an overriding effect on the chargeability of sales tax in terms of S. 3(1) as well as S. 3(1)(a) of Sales Tax Act, 1990

Section 3 of Sales Tax Act, 1990 can only be invoked in respect of goods which are being charged sales tax.

Applicant companies were engaged in purchase of Liquefied Petroleum Gas (LPG) from oil exploration and production companies and then sell the Gas in cylinders of various capacities to distributors

Cylinders were supplied to distributors against refundable security deposit

Assessing officer issued notice claiming input tax relating to purchase of cylinders for depositing sales tax in exchequer

Validity

Cylinders used for transportation of supply of LPG were returned by distributors to applicant companies

No transfer in any mode whatsoever of any right to dispose of the cylinders as owner existed nor consideration was involved for such purpose

'Refundable security deposit' did not fall within the express 'consideration'

Use of cylinders was not a disposition for consideration, nor it involved transfer of a right to dispose of as owner

LPG supplied by applicant companies attracted levy and charge of sales tax under S.3 of Sales Tax Act, 1990, while transaction relating to cylinders was of a nature which was excluded from the scope thereof

Applicant companies were not entitled to claim, adjust or deduct input tax from output tax in the relevant tax period

Use of cylinders for supply of LPG by applicant companies did not attract levy of charge of sales tax under Sales Tax Act, 1990 and were not entitled to claim and adjust input tax from output tax in respect of cylinders

Such inadmissible input tax was recoverable along with default surcharge in accordance with S.34 of Sales Tax Act, 1990

Reference was disposed of accordingly.

Question before the High Court was whether sales tax could be charged on sale of old vehicles and machinery which were not admissible for input tax deduction in terms of S. 8(1) of the Sales Tax Act, 1990

Validity

No legal provision existed which excluded sale of old plant machinery, vehicles or scarp from purview of taxable supply and the same were chargeable to sales tax and supply thereof, was taxable supply

Reference was answered, accordingly.

Question before the High Court was whether placement of certain appliances at retail outlets by taxpayer for sale of its goods, constituted supply in terms of S.2(33) of the Sales Tax Act, 1990

Held, concept of supply postulated furnishing or providing something on a demand by someone and as such, supply was connected with demand

Production of something or providing something without a demand or a counter purchase, therefore, was not supply

Supply involved a kind of continuity of relationship in which one person sold some items to other on an agreed rate on demand and it involved a kind of continuity or relationship in deal, i.e. purchase and sale

Most important factor in supply was that the product was provided on demand and most of the time it was furnished at the place earmarked by the buyer

Expression other disposition used in S. 2(33) of the Sales Tax Act, 1990, from the context, referred to a bilateral or multilateral act and did not refer to a unilateral act and said expression occurred after the words sale and lease and as such, it should be construed in a manner that it should have the same attribute of transfer of right as the words sale and lease had

In the present case, appliances were placed at the retail outlets by way of bailment under an express covenant that no interest whatsoever therein shall pass to the retailers and therefore, such placement could not be reckoned as a supply within the meaning of S. 2(33) of the Sales Tax Act, 1990 and inasmuch as the transaction did not qualify to be a supply, the same did not come within the ambit of taxable supply and was not liable to the levy of sales tax

Reference was answered, accordingly.

Department should have established the quantum of value of taxable and non-taxable supplies made by the taxpayer which they had not

Department failed to place on record any evidence that the entire value of supply shown in the income tax returns was a "taxable supply"

Taxpayer claimed that he turned in bifurcation of taxable and non taxable supplies at both the adjudicatory forums but this fact was not reflected in the order-in-original and order-in-appeal

Side stepping the taxpayer's contention was tantamounts to mis-carriage of justice

Reduction in sales tax liability was surely the result of some reconciliation exercise conducted by sales tax functionaries in association with the taxpayer

Attributing the non production of record to the taxpayer was not fair

Department did not offer any plausible justification for ignoring the bifurcation

Bifurcation of sales declared within precincts of restaurant and sales through their outlet tuck shops duly supported with the excisable record maintained by the taxpayer was found to be credible

No sales tax could be charged on mere assumption of taxable supply

Contention of the taxpayer was accepted by the Appellate Tribunal being substantiated with documentary evidence.

Taxpayer contended that Article 117 of the Qanun-e-Shahadat, 1984 explicitly provided that the onus to prove that such amount of gross sales declared in the income tax returns represented taxable supplies, was on the Revenue which remained un-discharged

Revenue contended that onus to prove that the declared gross sales were not taxable supplies was on the taxpayer

Validity

Order passed by the adjudicating officer was not indicative of the fact finding inquiry from sellers and the demand had been created whimsically without any supporting evidence

Amount of sales tax was modified by the First Appellate Authority but order of reduction in sales tax did not explain on what basis the sales tax was reduced

Both the forums below failed to confront the taxpayer with any credible evidence of taxable supplies or apply any intelligible criteria

No tax could be charged or reduced merely on an assumption

Taxable and non-taxable supplies were not quantified by the revenue, on the basis of any undisputable evidence

Even the reduction of sales tax by the First Appellate Authority was without any understandable basis.

In absence of correct determination of the amount of taxable and non-taxable supplies in the gross sales declared in income tax returns it was very difficult to quantify correct amount of "taxable supply" within the meaning of S.2 (41) of the Sales Tax Act, 1990 subject to chargeability of sales tax under S.3 of the Sales Tax Act, 1990.

Taxable supply has not been confined or limited to the one which is the product or the goods manufactured but also includes those goods which involve in some way with the progress, promotion, advancement of business/activity/taxable activity.

Burden of proving that the taxable supply has been made by a registered person in the course or furtherance of any taxable activity carried on by him is on the department

Where, however, admittedly the goods, subject matter of reference were entered in stock register of the assessee and the case of assessee was that the goods were destroyed, for being unfit for further consumption, the burden to prove that the goods were destroyed, would be on the assessee

Finding of the Appellate Tribunal that the assessee had failed to prove the facts of destruction being a finding of fact, could not be interfered with in a reference by the High Court.

Plea that once assessees were registered for making taxable supply as a hotel, they were not required to be registered for second time as retailers of liquor, was repelled.