COLLECTOR OF SALES TAX AND FEDERAL EXCISE VS Messrs QASIM INTERNATIONAL CONTAINER, TERMINAL PAKISTAN LTD., 2007 PTD-KARACHI-HIGH-COURT-SINDH 250 (2006)

(a) Sindh Sales Tax Ordinance (VIII of 2000)---

----S.3 (1) & (2)---Sales Tax Act (VII of 1990), Ss.3, 3-A, 3-AA & 47(1)---Reference to High Court---Sales tax, recovery of---Scope---Services rendered to unregistered persons---Stevedoring services---Question involved in the reference was with regard to charging of further sales tax under the provision of Sindh Sales Tax Ordinance, 2000, for providing services to unregistered persons---Customs, Central Excise and Sales Tax Appellate Tribunal found that by virtue of the provisions contained in S.3 (2) and (3) of Sindh Sales Tax Ordinance, 2000, Sales Tax Department of Federal Government was merely empowered to charge, levy and collect the tax leviable under Sindh Sales Tax Ordinance, 2000, and was not empowered to charge levy and collect further tax under S.3 (1A) of the Sales Tax Act, 1990, without any corresponding provision in Sindh Sales Tax Ordinance, 2000--'Validity-Chargeability of sales tax on services was restricted to 15% of the value of taxable services---Levy of further tax to the services rendered to unregistered persons was not envisaged by Sindh Sales Tax Ordinance, 2000---If further tax was chargeable in case of services rendered to unregistered persons the law would have included a. reference to rate of tax under S.3 of Sales Tax Act, 1990---In absence of any such reference, sales tax on services could only be levied at the rate of 15 % of taxable services---Legislature had merely provided an enabling provision to Federal Sales Tax Department to charge, levy and collect the tax on services under Sindh Sales Tax Ordinance, 2000, in the same manner and at the same time as it was leviable under Ss.3, 3-A or 3-AA of Sales Tax Act, 1990, as the case might be---View taken by Customs, Central Excise and Sales Tax Appellate Tribunal was not open to any exception---Reference was dismissed in circumstances.

(b) Interpretation of statutes---

----Fiscal Statute---Charging provision and machinery part of statute---Applicability---Clear distinction existed between charging provisions of statute and machinery part thereof---Mode and manner of recovery does not alter the nature of a tax nor a tax can be introduced or imposed by implication.

Crescent Pak Industries (Pvt.) Ltd. v. Government of Pakistan 1990 PTD 29; Messrs English Biscuit Manufacturers Ltd. v. Assistant Collector, Central Excise and Land Customs, Landhi Division, Karachi 1991 PTD 178; Kohinoor Textile v. Federation of Pakistan 2002 PTD 121; Al-Haj Industrial Corporation (Pvt.) Ltd. Collector of Customs (Appraisement), Karachi, (2004) 89 Tax 371 (H.C. Kar.) and Messrs Hashwani Hotels Ltd. v. Government of Pakistan 2004 PTD 901 rel.

Raja Muhammad Iqbal for Appellant.

Date of hearing: 27th September, 2005.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---This reference application under section 47(1) of the Sales Tax Act, 1990 arises out of order, dated 20-9-2005 passed by the learned Customs, Excise and Sales Tax Appellate Tribunal Karachi Bench-II, in Sales Tax Appeals Nos.K-47 of 2005 and 48 of 2005 (K-2). The Collector of Sales Tax and Federal Excise, Large Tax Payers Unit, Karachi has proposed the following questions of law for our consideration:--

"(i) Whether or not the Tribunal was justified in holding that further tax levied under section 3(1A), subsequently omitted by the Finance Act, 2004, of the Sales Tax Act, 1990, (hereinafter referred to as the `Act') was not chargeable on services specified in the Schedule to the Sindh Sales Tax Ordinance, 2000 (hereinafter referred to as the `Ordinance') notified vide Notification No. S. Legis. 1(8)/2000, dated 15th July, 2000?

(ii) Whether or not the Tribunal was justified in holding that further tax was a tax under the Act and was not covered by the legal fiction, created under subsections (2) and (3) of section 3 of the said Ordinance?

(iii) Whether or not the Tribunal was justified that the chargeability of sales tax on stevedoring services is restricted to loading and unloading of cargo to/from ships and ancillary services related to cargo handing rendered by the respondents were not liable to tax under the Ordinance?"

The questions of law requiring consideration already stand decided by several judgments of this Court with reference to the identical provisions contained in the Customs Act and Sales Tax Act. Mr. Raja Muhammad Iqbal has requested that the questions arise out of the provisions contained in section 3(2)(3) of the Sindh Sales Tax Ordinance, 2000, and are subject-matter of large number of cases, therefore, detailed judgment be passed for bringing the controversy to rest. As already observed the issue of law is in fact decided and we were not inclined to record detailed judgment but at the insistence of Mr. Raja Muhammad Iqbal, we are recording reasons in some detail.

The relevant facts are that a show-cause notice was issued by the Collector Customs, Sales Tax and Central Excise (Adjudication) Karachi-III, to the respondent on 6-4-2004, inter alia on the following grounds : --

"(i) Messrs Qasim International Container Terminal Pakistan Ltd., Port, Muhammad Bin Qasim, Karachi did not pay further tax amounting to Rs.3,292,125.00 involved on rendering services to non-registered person valuing Rs. 210,755,748.00, declared in the sales tax returns of the periods under audit which violates the provisions of section 3(1A) of the Sales Tax Act, 1990. Thus the said amount is recoverable from them along with the additional tax of Rs.1,410,836.60 (worked out upto 15-11-2002) under sections 36(1) and 34 ibid besides penal action under section 33 ibid."

The respondent submitted the following explanation in this behalf:

"As regards the allegation of non-payment of further tax on rendering of services to non-registered persons we would like to draw your attention to the provisions of Sindh Sales Tax Ordinance, 2000 (hereinafter referred to us `the Ordinance'); subsections (1) and (2) of section 3 of the Ordinance stipulate that:

"(1) Subject to the provisions of this Ordinance, there shall be charged, levied and paid a tax known as sales tax at the rate of fifteen per cent of the value of the taxable services rendered or provided in the Province of Sindh.

(2) The tax shall be charged and levied on the services specified in the Schedule to this Ordinance in the same manner and at the same time, as if it were a sales tax leviable under sections 3, 3A or 3AA, as the case may be, of the Sales Tax Act, 1990."

From a plain reading of subsection (1) it is clear that chargeability of sales tax on services is restricted to 15% of the value of taxable services. The Ordinance does not envisage levy of 'further tax to the services rendered to unregistered persons. Further subsection (2) of section 3 of the Ordinance, only discusses the time and manner in which the tax is to be charged and levied. We feel that if further tax was chargeable in case of services, rendered to unregistered persons the law would have included a reference to rate of tax under section 3 of the Act. Accordingly, in the absence, of any such reference, sales tax on services can only be levied @ 15% of taxable services.

It is also pertinent to note that further tax is charged under section 3(1A) of the Act, which states as follows:

"Subject to the provision of subsection (6) of section 8 or any notification issued thereunder where taxable supplies are made to a person other than a registered person there shall be charged, levied and paid a further tax at the rate of three per cent of the value in addition to the rate specified in subsection (1), subsection (2) and subsections (4) and (5)."

This also shows that further tax is to be charged in addition to the rate specified in subsection (1) of section 3 of the Sales Tax Act. As mentioned above services are chargeable to sales tax under subsection (1) of section 3 of the Ordinance and not under subsection (1) of section 3 of the Act. Accordingly, the provision regarding chargeability of further tax is not applicable in the case of services.

In response to a query from various customs clearing agents about whether further tax is chargeable on services. rendered by them, the Board vide letter No.1/16-STB/2000, dated 5 December, 2001 (copy enclosed) has clarified that further tax levied under section 3(1A) of the Act, is not chargeable on services.

Based on the foregoing we submit that further tax is not applicable on services rendered to unregistered persons.

The Collector however, did not accept the contention of the respondent and ordered to recover further tax amounting to Rs.32,92,125 along with additional tax (to be calculated up to the date of actual payment). A penalty at 3% of the amount of tax involved was also imposed under section 33(2)(cc) of the Sales Tax Act, 1990.

Being aggrieved with the above order both the parties preferred appeal before the learned Customs, Excise and Sales Tax Appellate Tribunal Karachi Bench-II.

The learned Tribunal observed that sales Tax on services is a provincial tax levied under a provincial statute i.e. the Sindh Sales Tax Ordinance, 2000 while sales tax on imports and supplies of taxable goods is a federal tax levied under a federal statute i.e. The Sales Tax Act, 1990. Their nature is different. One is on services and the other is on supplies. The rate of tax are prescribed in the respective statutes. The legal fiction created by section 3(2)(3) of the Ordinance is only to the extent of adopting the manner of charging, payment, and collection and not by any stretch of imagination to the extent of converting the tax under the Sales Tax Act, 1990 to the tax under Sindh Sales Tax Ordinance, 2000 or vice versa. It was further observed that there was no provision of charging further tax under the Provincial Ordinance, as the tax was levied under the Federal Act only. It was further observed that unlike the additional tax, penalties, further tax was not chargeable in consequence of any non-payment of tax in time. It was charged as a principal tax. The learned Tribunal further observed that the further tax introduced under section 3(1A) of the Sales Tax Act, 1990 being a tax under the Sales Tax Act, cannot be treated as tax under the Provincial Ordinance merely by resort to the provisions contained in section 3(2)(3) of the Provincial Ordinance. The learned Tribunal further held that even the C.B.R. was of the view that further tax under section 3(1A) of the Sales Tax Act, was not leviable on services.

For the sake of convenience section 3(2)(3) of the Sindh Sales Tax Ordinance, 2000 is reproduced below:

"(2) The tax shall be charged and levied on the services specified in the schedule to this Ordinance, in the same manner and at the same time, as if it were a sales tax leviable under sections 3, 3AA as the case may be, of the Sales Tax Act, 1990.

(3) All the provisions of the Sales Tax Act, 1990, and rules made and notifications, orders and instructions issued thereunder shall, mutais mutandis, apply to the collection and payment of tax under this Ordinance in so far as they relate to---

(a) manner, time and mode of payment;

(b) registration and de-registration;

(c) keeping of records and audit;

(d) enforcement and adjudication;

(e) penalties and prosecution; and

(f) all other allied and ancillary matters."

A perusal of the above provisions shows that the legislature has merely provided an enabling provision to the Federal Sales Tax Department to charge, levy and collect the tax on services under the Sindh Sales Tax Ordinance, 2000 in the same manner and at the same time as it was leviable under sections 3, 3A or 3AA, as the case may be, of the Sales Tax Act, 1990.

Mr. Raja Muhammad Iqbal, contended that the short point sought to be agitated in the reference application is whether the learned Tribunal was justified in holding that Sales Tax on services levied under a Provincial Statute i.e. Sindh Sales Tax Act, 2000 can be merely collected in the manner and time provided in Sales Tax Act, 1990 or by virtue of the provisions contained in section 3(2)(3) of the Sindh Sales Tax Ordinance, 2000, the tax provided in the Sales Tax Act, 1990 can also be charged, levied or collected without any corresponding, charging provisions in the Sindh Sales Tax Ordinance, 2000, or through legal fiction created under subsections (2) and (3) of section 3 of the Provincial Ordinance, the only procedural matters pertaining to the manner of collection of tax provided in the Sales Tax Act is attracted.

As observed earlier this issue has been considered at least in 5 judgments of this Court wherein it has been held that there is clear distinction between charging provisions of statute and the machinery part thereof. It is axiomatic that mode of manner of recovery does not alter the nature of a tax, nor a tax can be introduced or imposed by implication. The earlier judgments of this Court are in the following cases:

(1) Crescent Pak Industries (Pvt.) Ltd. v. Government of Pakistan, 1990 PTD 29.

(2) Messrs English Biscuit Manufacturers Ltd. v. Assistant Collector, Central Excise and Land Customs, Landhi Division, Karachi 1991 PTD 178.

(3) Kohinoor Textile v. Federation of Pakistan 2002 PTD 121.

(4) Al-Haj Industrial Corporation (Pvt.) Ltd. Collector of Customs (Appraisement), Karachi, (2004) 89 Tax 371 (H.C. Kar).

(5) Messrs Hashwani Hotels Ltd. v. Government of Pakistan, 2004 PTD 901.

The last two judgments are authored by one of us (Muhammad Mujeebullah Siddiqui). The view taken by the learned Tribunal that by virtue of the provisions contained in section 3(2) and (3) of the Sindh Sales Tax Ordinance, 2000, the Sales Tax Department of the Federal Government is merely empowered to charge, levy and collect the tax leviable under the Sindh Sales Tax Ordinance, 2000 and is not empowered to charge, levy and collect further tax under section 3(1A) of the Sales Tax Act, 1990, without any corresponding provision in the Sindh Sales Tax Ordinance, 2000, is not open to any exception. The point of law already stands decided in the judgments referred to above, therefore, the reference application is dismissed in limine.

After hearing the learned counsel for applicant on 27-9-2006, the reference application was dismissed by short order. These are the detailed reasons in support thereof.

M.H./C-27/KReference dismissed.