AVERY SCALES (PRIVATE) LTD., KARACHI VS ADDITIONAL COLLECTOR (ADJUDICATION III) KARACHI, 2006 PTD-KARACHI-HIGH-COURT-SINDH 2150 (2006)

(a) Sales Tax Act (VII of 1990)---

----Ss. 2(33)(41), 3 & 13---Sales Tax on taxable activity and taxable supply---Scope---Taxable activity would be read in conjunction with taxable supply---No taxable activity could attract imposition of tax, unless there was taxable supply and such activity was in the course of or in furtherance of any taxable supply---Principles.

(b) Sales Tax Act (VII of 1990)---

---Ss. 2(33) & 3---Spare parts consumed and repair charges earned by assessee while performing repair services---Levy of sales tax on such parts, charges and services---Validity---Such services rendered by assessee could not be subjected to tax for not falling in any category of taxable supplies mentioned in S.2(33) of Sales Tax Act, 1990---No additional tax, thus, could be levied for non-payment of tax on repair charges---Levy of additional tax would be justified for non-payment of sales tax on account of consumption of such parts.

Collector of Sales Tax and Central Excise Large Taxpayers Unit, Karachi v. Messrs Allied Engineering and Services Ltd., Karachi 2005 PTD 2582 rel.

Ijaz Ahmed for Appellant.

Raja Muhammad Iqbal for Respondents.

Date of hearing: 12th May, 2006.

JUDGMENT

SAJJAD ALI SHAH, J.---This Special Sales Tax Appeal has - been filed against the order of Customs Excise and Sales Tax Appellate Tribunal Karachi, dated 25-3-2003. The Appellant has proposed the following questions of law stated to have been arising out of the order of the Tribunal:---

"(i) Whether the spare parts consumed by the Appellant in performing repair services are subject to levy of sales tax under the Sales Tax Act, 1990?

(ii) Whether the repair charges earned by the Appellant are subject to the levy of sales tax under the Sales Tax Act, 1990?

(iii) Whether the imposition of Additional Tax is justified in the circumstances of the case?

The facts giving rise to the present controversy are that Assistant Collector Sales Tax and Central Excise Audit Division charged the Appellant with four discrepancies vide show-cause notice, dated 8-5-2002 on account of audit observations for the year, 1999-2000. Out of the said four discrepancies two were resolved as the Appellant deposited the sales tax amount as demanded. Consequently, the controversy was reduced to the following two discrepancies:

(i) It was asserted that the total value of the supplies made by the Appellant for the period April, 1999 March, 2000 were of Rs.3783586 whereas they have declared it to be Rs.25967109 as such have suppressed their supplies worth Rs.12016477. Consequently, evaded sales tax to the extent of Rs.2162961. Likewise the total value of supplies declared for the period from April, 1998 March, 1999 were of Rs.28428730 whereas it was actually Rs.33564315 as such suppressed their supplies to the tune of Rs.535885 and thereby evaded sales tax to the extent of Rs.821741: Consequently, the total tax allegedly evaded for the said period in the sum of Rs.2984706 was demanded along with additional tax worked out to Rs.2156398 in addition to the penal action for contravening the relevant provisions.

(ii) The appellant during the period April, 2000 to March, 2001 supplied parts of weighing scales valuing Rs.2670755 but did not pay the sales tax of Rs.480682 leviable thereon in terms of section 3(I) of the Sales Tax Act along with additional tax worked out to be Rs.46,467 (revisable in addition to the penal action for contravening the provisions of section 3(I) of the Sales Tax Act).

During the adjudication proceedings the Department was directed to produce reconciliation statement and in accordance with the said statement a sum of Rs.584,847 for the period 1998-99, Rs.410,671 for the period 1999-2000 and Rs.467,716 for the period 2000-2001 totalling Rs.14,63,234 were found due.

The Adjudicating Authority, after bearing the parties, directed the appellant to pay the said sum of Rs. 1463224 on account of sales tax along with additional tax under sections 34 and 36 of Sales Tax Act, 1990. Penalty under section 33(2) of the Sales Tax Act, 1990 equal to 3% of the Tax involved was also imposed. Being aggrieved with the order of the Adjudicating Authority, the Assessee filed an appeal before the Central Excise and Sales Tax Tribunal. It was contended before the Tribunal on behalf of the Assessee that the amount demanded on account of Sales Tax pertains to repair jobs executed by them whereas the departmental representative rebutted the stand and stated that the word "repair sale" indicate that these are not repair charges but on account of sales of parts and components supplied for replacement consequently, the CESAT after hearing the parties came to the following conclusion:--

Even otherwise the term "service" has not placed in Sales Tax Act. Probably, by not having the term "service" directly in the Act, appellant has tried to take benefit of the same that the services rendered by them as repair are not chargeable but here the term taxable activity as defined in clause (35) of section 2 of Sales Tax Act cannot be overlooked because the very term taxable activity means all possible form of activities which can be performed by a person in the fold of this definition. The very term further clarifies that taxable activity means any activity whether for any consideration or otherwise and includes an activity carried on in the form of business, trade or manufacture and as the activity carried out by appellant of repair admittedly is not without any consideration. The appellant had charged the cost of parts and components used by him during that repair services and thus. has passed on the sale tax paid by him to his customers. As such both the services provided by him as well as sale made by him in the form of replacement of spare parts too are chargeable to sales tax because by the term activity the purposes of legislature is to enlarge the scope of business and non business activity."

The learned counsel for the appellant, at the very outset of his arguments, submitted that he would not pies issue No.1, the answer whereof of course would be in affirmative. As to issue No.2, the learned counsel for the appellant has contended that there is no provision in the entire Sales Tax Act which can charge the services rendered by way of repairs to the Sales Tax. Consequently, the order of the Tribunal cannot sustain. On the other hand, Mr. Raja Muhammad Iqbal has contended that the taxable activity, as defined in subsection (35) of section 2 of the Sales Tax Act covers and includes any activity carried on in the form of a business trade or manufacture and therefore the order of the Tribunal is just and legal.

We have heard the learned counsel for the respective parties and have gone through the record, placed before us.

So far as the issue No.2 is concerned, in our view, the Tribunal misled itself by interpreting the term `taxable activity' in isolation by holding that taxable activity means all possible forms of activities which can be performed by a person and therefore held the repair charges in the form of services provided by the assessee chargeable to sale tax. We are unable to persuade ourselves to subscribe to the view taken by the Tribunal as the taxable activity is to be read in conjunction with taxable supplies as no taxable activity can attract the imposition of sales tax unless there is taxable supply and such taxable activity is in the course of or in furtherance of any taxable supplies.

Taxable supplies as defined in subsection (41) of section 2 of the Sales Tax Act, 1990 attract charge of sales tax on supply of taxable goods other than the supply of goods which are exempt under section 13 of the said Act. Whereas the term `supply' as defined in subsection (33) of section 2 of the said Act categorizes the supply as (i) sale, (ii) lease, (iii) other disposition of goods in or furtherance of business carried out for consideration, (iv) putting to private business or non-business use of goods acquired, produced or manufactured iii the course of business, (v) auction or disposal of goods to satisfy a debt owed by a person (vi) possession of taxable goods held immediately before a person ceases to be a registered person (vii) such other transaction as the Federal Government may, by Notification in the Official Gazette, specify.

The services rendered by the Assessee by way of repairs can, by no stretch of imagination, be placed in either of the categories of supply/ taxable supplies narrated above, as such can not be subjected to the charge of sales tax. Similar view was taken by this Court in the case of Collector of Sales Tax and Central Excise Large Taxpayers Unit, Karachi v. Messrs Allied Engineering and Services Ltd., Karachi (2005 PTD 2582) by observing:-

"The short point involved is whether the charges received for installation of the generators sold by the respondent are to be included in the value of supply and the incidental question is, "whether the rendering of such services is included in taxable activity?"

The Tribunal has held that receiving of installation charges is not to be included in the value of supply. Mr. Raja Muhammad Iqbal has taken us through the definitions contained in section 2(33), (35) and (46) of the Sales Tax Act, 1990. He is not able to show that the receiving of installation charges could be included in the value of supply by any stretch of imagination in the value of supply in accordance with the law as prevailing in the year, 2000."

The issue consequently, is answered in negative.

In view of our finding on issue No.2, the issue No.3 is answered in the term that no additional tax is to be levied for non-payment of sales tax on repair charges, while it is justified on account of non-payment of sales tax on account of consumption of spare parts.

S.A.K./A-75/K??????????????????????????????????????????????????????????????????????? Answered accordingly.