Central Excises Act (I of 1944)‑‑‑

‑‑‑‑Ss. 12‑A & 3‑‑‑Diplomatic and Consular Privileges Act (IX of 1972), First Sched., Art. 34(a)‑‑‑S.R.O. 455(I)/96, dated 13‑6‑1996‑‑‑Central Excise Rules, 1944, Rr.10 & 96‑ZZJ ‑‑‑Ministry of Foreign Affairs (Protocol Division) Letter No. P(3)‑II/8/99, dated 12‑10‑1999‑‑ Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000), S.9‑‑‑Expressions "realizing of duty and not depositing" and "not realizing at all"‑‑‑Distinction‑‑‑Failure of complainant/assessee to realize Central Excise Duty on telecommunication service billed to Diplomatic Missions, U.N. Agencies and other International Organizations‑‑‑Demand‑‑‑Validity‑‑‑Department had not categorically stated that the complainant had realized the duty and not deposited‑‑‑Lot of difference existed in realizing the duty and not depositing and not realizing at all‑‑‑In the first situation duty if realized whether legal or not must be deposited with the Government Treasury irrespective of the period of limitation provided under R. 10 of the Central Excise Rules, 1944‑‑‑Where the duty had not been realized the limitation as provided under R. 10, of the Central Excise Rules,, 1944 would be attracted‑‑‑Notice was not clear about realization and deposit and there was no allegation in the notice to attract any provision of R. 10 of the Central Excise Rules, 1944‑‑‑Federal Tax Ombudsman recommended that Collector (Adj.) to determine whether the complainant had realized Central Excise Duty, if so, to what amount; if answer to the first question was in the affirmative then the amount found realized be deposited by the complainant and if the duty had not been realized then the Collector (Adj.) to decide the case on question of limitation after affording hearing to the complainant before giving decision on merits.

Ayaz Shaukat for the Complainant.

Khan Sarwar, Additional Director, Customs Audit for Respondent.

DECISION/FINDINGS

Both these complaints are disposed of by this decision as questions of fact and law are identical.

2. In Complaint No.256 the complainant is a cellular mobile telephone company providing telecommunication services. On 1‑3‑2002, it received a notice from the Directorate General of Inspection and Internal Audit, Customs, Sales Tax and Central Excise, Islamabad stating that the complainant had failed to realize Central Excise Duty amounting to Rs.39,37,238 on telecommunication service billed to the diplomats from March, 1998 to August, 1999. Such duty was leviable under S.R.O. 455(I)/96, dated 13‑6‑1996 read with rule 96‑ZZJ of the Central Excise Rules, 1944. It was also alleged in the said letter that perusal of record provided by the complainant revealed that it had failed to deposit Central Excise Duty leviable in respect of telecommunication services charges billed to diplomats. The complainant explained its position but the department is pressing for recovery of the said amount. According to the complainant in terms of Article 34(a) of the First Schedule to the Diplomatic Consular and Privileges Act, 1972 the services rendered by the, complainant is exempted from duty. It has also been pleaded that on 2‑11‑1999 a letter from the Assistant Collector, Central Excise Division, Islamabad, dated 28‑10‑1999 was received stating that the Central Excise Duty exemption available under section 34(a) of Diplomatic and Consular Privileges Act, 1972 to all Diplomatic Missions, U. N. Agencies and other International Organizations based in Pakistan regarding telephone services provided by Messrs PTCL and other cellular companies has been withdrawn by Ministry of Foreign Affairs (Protocol Division) letter No. P(3)‑II/8/99, dated 12‑10‑1999. A direction was given to bill Central Excise Duty to all Diplomatic Missions. It has been pleaded that Central Excise Duty was exempted for Diplomatic and Consular from 13‑5‑1992, which was withdrawn on 28‑10‑1999. It has been pleaded that under Article 34(a) all indirect taxes are exempt which are normally incorporated in the price of goods or services. It was further stated that the demand of the department is barred by time and it was prayed that notice be directed to be withdrawn.

3. In Complaint No.257 of 2002 the facts are identical except that notice was served on 12‑3‑2002 demanding Rs.39,37,238. However, after reply and documents submitted by the complainant demand wits raised to Rs.42,23,329 with additional duty.

4. The department submitted reply raising objection to the jurisdiction. It was pleaded that the impugned notice was issued after examining record and documents which were called from the complainant which resulted in detection that an amount of Rs.39,37,238 as Central Excise Duty has not been paid by the complainant. On the finalization of the audit a notice was issued. The complainants are liable to deposit the due amount of tax on the excisable telecommunication service rendered by them to Diplomatic Missions and diplomats. It has been submitted that legally there was no exemption ever granted' to the cellular/mobiles companies by the Ministry of Foreign Affairs, Government of Pakistan. Neither the said Ministry was allowed to grant exemption under the Diplomatic and Consular Privileges Act, 1972 nor there is any other notification issued by the Federal Government under section 12‑A of the Central Excises Act, 1944. It was further stated that the said Act of 1972 does not automatically grant exemption on the telecommunication services rendered by the cellular/mobiles companies to the Diplomats. Under Article 34 indirect taxes of a kind which are normally incorporated in the price of goods, or services are not exempt. The Central Excise Duty is in the nature of an indirect tax which is included in the package offered by mobile company for any given number of calls and duration distance thereof. It has been denied that the demand is barred by time: Identical reply has been filed in Complaint No.257 of 2002.

5. From the facts stated above the controversy is whether the service rendered by the complainant to Diplomats was exempted from Central Excise Duty. The representative for the complainant has relied on the provisions of Diplomatic and Consular Privileges Act, 1972 particularly Article 34(a) of the First Schedule to the Act and the letter of the department, dated 28‑10‑1999 whereby it was stated that the exemption has been withdrawn. It may be made clear that the Diplomatic Consular and Privileges Act, 1972 hereinafter called the Act confers privileges and exemptions on the Diplomats, Consular and Diplomatic Missions including U.N. Agencies and other International Organizations based in Pakistan. It is not an exemption granted under section 12A of the Central Excise Duty Act. However, reliance is pleaded on S.R.O. 455. The letter, dated 28‑10‑1999 is being pressed in service by the complainant copy of which was endorsed to the complainant by which the Assistant Collector had informed the General Manager Finance Paktel Ltd. that the Ministry of Foreign Affairs by letter, dated 12‑10‑1999 has withdrawn the exemption. The Central Excise Duty exemption available under Article 34(a) of the Schedule to the said Act was thus withdrawn w.e.f. 28‑10‑1999. But, the question is whether the complainant was entitled to this privilege. Under rule 96‑ZZJ the person providing telecommunication services is liable to pay Duty on service provided or rendered by it. The complainant could claim exemption only if notification under section 12A of the Central Excise Duty Act would have been issued exempting it from payment of duty. Admittedly there is no such notification nor it was ever issued. Furthermore, as stated by Mr. Khan Sarwar under Article 34(a) a Diplomatic Agents shall be exempt from all dues and taxes except indirect tax of a kind, which are normally incorporated in the price of goods or services. According to the department Central Excise Duty is: included in the package offered by the mobile companies for any given number of class and duration. If it is so, then even under the said Act a Diplomat will not be entitled to exemption. 'The department has relied on cases of similar nature in respect of other companies in which the Tribunal has upheld the proceedings taken by the department.

6. As regards period of limitation it seems clear that the department has demanded Central Excise Duty billed to the Diplomats from March 1998 to August 1999. The notice, dated 1‑3‑2002 refers to rule 96 ZZJ which provides special procedure for collection of Central Excise Duty on telecommunication services. It provides that company to pay the duty due for a month by 15th day of following second month and furnishes the proof of payment. The department alleges that the company has failed to deposit Central Excise Duty by prescribed period leviable under section 3 of the Central Excise Act and rule 96‑ZZJ read with S.R.O. 453(I)/96, dated 13‑6‑1996. The complainant has stated that they did not charge Excise Duty from the diplomats. The Department has not categorically stated that the complainant has realized and not deposited. There is a lot of difference in realizing and not depositing and not realizing at all. In the first situation duty if realized whether legal or not must be deposited with the Government irrespective of the period of limitation provided under rule 10. The decision of the Tribunal in Pakistan Mobile Communication (Pvt.) Ltd. related to a situation where Duty had been realized and was not deposited. However, where the Duty has not been realized the limitation as provided under rule 10 will be attracted. The notice, dated 1‑3‑2002 is not clear about realization and deposit. Further it does not allege any fact to attract any provision of rule 10.

7. It is, therefore, recommended that:‑‑‑

(i) The Collector (Adj) to determine whether the complainant had realized Central Excise Duty. If so to what amount.

(ii) If answer to the first question is in the affirmative then the amount found realized be deposited by the complainant.

(iii) If the Duty has not been realized then the Collector (Adj.) decide the case on question of limitation after affording hearing to the complainant before giving decision on merits.

(iv) Compliance be reported within 30 days of the receipt of the order.

C.M.A./584/FTOOrder accordingly.