FAUJI KABIRWALA POWER COMPANY VS COLLECTOR OF CUSTOMS AND SALES TAX, 2009 PTD-LAHORE-HIGH-COURT-LAHORE 316 (2008)

Sales Tax Act (VII of 1990)---

----S. 2(41)---Special Procedure for Collection and Payment of Sales Tax (Electric Power) Rules, 2000, Rr.2(1)(h) & 4---Electricity produced by the generation company, supplied for self-consumption and utilized in non-business use, will be taxable activity and its supply for self-consumption will be subject to levy of Sales Tax.

Haji Sultan Ahmed v. Chairman, C.B.R. Islamabad and 5 others 2008 PTD 103; Sheikhoo Sugar Mills Ltd. v. Government of Pakistan and others 2001 SCMR 1376 = 2001 PTD 2097 and Karachi Development Authority v. Central Board of Revenue and another 2005 PTD 2131 ref.

Hafiz Muhammad Idrees for Petitioner.

Khawaja Noor Mustafa for Respondent.

Date of hearing: 9th April, 2008.

JUDGMENT

SYED HAMID ALI SHAH, J.---This single judgment shall deal with and decide S.T.R. Nos. 20 of 2007 and 2 of 2008 involving common questions of law.

2. Sales tax record of the petitioner was audited for the period 2001-2002 and 2002-2003. Various irregularities were pointed out and the controversy was resolved in appeal before the Customs, Central Excise and Sales Tax Appellate Tribunal, in favour of the registered person. Learned Tribunal upheld the decision of Collector (Appeals) and held that demand of sales tax on electricity consumed in the housing colony etc., amounting to Rs.4,33,741 falls within the definition of taxable supply, as envisaged in section 2(41) of the Sales Tax Act and chargeable to Sales Tax.

3. Petitioner raised following questions of law, in this tax reference, statedly arising out of the judgment of learned Tribunal:-

(i) Whether under the law arid circumstances of the case, the Honourable Appellate Tribunal was justified in confirming the Order-in-Appeal No.245 of 2006, dated 4-4-2006 passed by the Collector (Appeals) to the extent of self-consumption of electricity by the Applicant in the house colony at applicant's plant-site?

(ii) Whether under the law and circumstances of the case, the Honourable Appellate Tribunal was justified in holding that self-consumption of electricity in housing colony etc. at Applicant's plant-site falls within the definition of "taxable supply" given in clause (41) of section 2 of the Sales Tax Act, 1990 read with the definition of term "Generation" given in clause (h) of Rule 2(1) of the Special Procedure for Collection and Payment of Sales Tax (Electric Power) Rule, 2000 notified vide S.R.O. 124(I)/2000, dated 15th March, 2000?

(iii) Whether under the law and circumstance of the case, the Honourable Appellate Tribunal was justified in holding that self-consumption of electricity in housing colony etc. at Applicant's plant-site within the definition of the term "taxable supply" given in clause (41) of section 2 of the Sales Tax Act, 1990 when in accordance with the provisions of sub-rule (3) of Rule 4 of the Special Procedure for Collection and Payment of Sales Tax (Electric Power) Rule, 2000 notified vide S.R.O. 124(I)/2000, dated 15th March, 2000 no amount was received by the applicant in respect of said self-consumption of electricity in housing colony etc?

(iv) Whether under the law and circumstance of the case, the Honourable Appellate Tribunal was justified in holding that supply of a taxable goods to itself falls within the definition of taxable supply?

(v) Whether the Honourable Appellate Tribunal having held that self-consumption of electricity in housing colony etc. at Applicant's plant-site falls within the definition of the term taxable supply given in clause (41) of section 2 of the Sales Tax Act, 1990, was justified in not giving any decision in respect of adjustment of related output tax as input tax against the output tax of the relevant tax period in accordance with the provisions of section 7 of the Sales Tax Act, 1990?"

4. Learned counsel for the petitioner has contended that "generation" as defined in Special Procedure of Collection and Payment of Sales Tax (Electric Power) Rules, 2000, is generation facility for delivery and sale of electric power and not solely for consumption by the person owning and controlling the facilities. Learned counsel then referred to Rule 4(3) of the Rules (ibid) and submitted that value of supply in case of IPP, is the amount received by IPP and other amounts like amount received, in excess of energy purchase price, received on account of capacity price, premier, excess bonus, supplemental purchase etc., have been excluded from the purview of the value of supply. Learned counsel went on to argue that no amount has been received by the applicant, regarding the generation and supply of the electricity to the residential colony of the applicant, therefore, question of levy of the Sales Tax, does not arise. Case of "Haji Sultan Ahmed v. Chairman, C.B.R., Islamabad and 5 others" 2008 PTD 103 was referred to contend that to create the charge of sales tax, both the factors namely transaction of sale must constitute a taxable activity and it should be a taxable supply, must co-exist. It is further contended that company is owning, operating and managing it's power generation plant, therefore, self-consumption does not fall within the definition of term "generation". Learned counsel has emphasized that accounts books of petitioner do not reflect the debit entries, qua the value of supply, with regard to self-consumption of the electricity. The accounts show a "Nil" entry in this regard, hence Sales Tax is not legally leviable.

5. Heard learned counsel for the petitioner and record perused.

6. The applicant has mainly relied upon Rule 4(3) of Special Procedure of Collection and payment of Sales Tax (Electric Power) Rules, 2000, wherein the value of the supply has been defined as the amount, which is actually received by an IPP. Sub-Rule (3) contains non obstante clause. The enactment provides that the definition of the value of supply as given in Sub-Rule (3) is subservient to the definition of value of supply as contained in clause 46 of section 2 of the Act. The definition of the value of supply, as given as Sub-Rule (3) ibid, will not override or effect the definition of "value of supply as provided in section 2 (46) of the Act of 1990. It has been provided in sub-clause (ii) of Clause 46 of section 2 that in case the supplier and recipient are associated person and fixation of the value is not possible for the reason that taxable supply was made for no consideration, the determination of the value of supply, in such 'cases shall mean the open market value of the supply, excluding the amount of tax. Term "Taxation Goods" according to it's definition in the Act of 1990 includes the goods, which have been supplied by a person to itself. Taxation Activity as defined in section 2(35) is an activity carried on by a person, whether or not for a pecuniary profit and involves the element of supply of goods either whole or in part. Term "supply" within the meanings of sub-clause 33 of section 2, includes disposition of goods (besides sale or lease) and putting to or provide non-business, use of goods acquired or manufactured in the course of business.

7. A similar issue came up for consideration before the august Supreme Court of Pakistan. The apex Court in the case of `Sheikhoo Sugar Mills Ltd. v. Government of Pakistan and others" 2001 SCMR 1376 = 2001 PTD 2097 has held that:--

" ..As it has been observed hereinabove that Bagasse as per its definition is an identifiable/marketable goods on which tax can be levied, therefore, concluding so we feel no hesitation that once a taxable goods has been supplied by a person to itself it would fall within the definition of taxable supply. Thus notwithstanding the fact whether the sale has taken place or not between two persons but fact remains that by supplying Bagasse the appellants will be doing a taxable supply during, the process of taxable activity. As such it is liable to sales tax under the Act unless otherwise it is exempted by the Federal Government to provide incentive to the traders dealing in the sugar manufacture so they may reduce the price of the sugar by saving the price incurred by them on the fuel by burning Bagasse because if they have to consume other energy i.e. electricity, gas etc., they have to pay its price independently."

8. Karachi Development Authority (K.D.A.) challenged the levy of Sales Tax on the manufacture of Pre-Stressed Cement Pipes for it's own use and claimed exemption from Sales Tax on the authority of Article 165 of the Constitution of Islamic Republic of Pakistan. The apex Court in the case of "Karachi Development Authority v. Central Board of Revenue and another" 2005 PTD 2131 has observed that goods manufactured by KDA for it's own use, would not be exempted from Sales Tax, on authority of Article 165 of the Constitution of Islamic Republic of Pakistan. The leviability of Sales Tax was kept intact on goods manufactured for own use.

9. Viewing the definitions of value of supply, taxable supply and taxable activity, as given in the Statute book and examining the case of the petitioner on the basis of dictum laid down by the Honourable Supreme Court in the above referred cases, we have no hesitation to conclude that electricity produced by the petitioner, supplied for self-consumption and utilized in non-business use, will be taxable activity and it's supply for self-consumption will be subject to levy of Sales Tax.

10. The upshot of the above discussion is that the questions proposed in these tax references are answered in affirmative with the result that these reference applications, being without any merit, are rejected.

M.B.A./F-42/LReference answered.