TELECARD LTD. Through Deputy General Manager Finance, Karachi VS COLLECTOR SALES TAX AND CENTRAL EXCISE (ENFORCEMENT), KARACHI, 2010 PTD-KARACHI-HIGH-COURT-SINDH 967 (2010)

(a) Taxation---

----Direct and indirect taxes---Distinction stated.

The federal taxes including customs, excise duty and sales tax are indirect taxes, the burden of which is always borne by the end, consumers and not by the seller/registered person or importer/assessee. Whereas in direct taxes such as income tax and wealth tax, burden is borne by the person upon whom the tax is levied. In 'other words, in indirect taxes the assessee, importer or the registered person is only an intermediary or a tax collecting agent. In case of indirect taxes due to an inbuilt mechanism, the duty or taxes are inclusive in the cost/value of the goods sold, therefore, the same passes on to the end consumer at the time of such transaction.

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

----Ss.3(B) & 66---Central Excise Act (I of 1944), S.3(D)---Sale of pay-phone cards by Pakistan Telecommunication Company Limited through its sale agent, a tele-card company----Collection of sales tax and excise duty on gross amount of such cards---Refund claim by tele-card company (applicant)---Validity---In sale of air time service, role of applicant was nothing more than merely of sale agent of PTCL and not provider of such service---Amount of duty and taxes charged on such cards was included in their cost, which had been paid by end customers while purchasing such cards---Applicant being a intermediary and not provided of such service could not claim refund of such taxes/duty---Refund claim was rejected in circumstances.

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

----S.47---Reference to High Court---Questions proposed in reference involving factual controversy---Effect---Such questions could not be allowed to be converted into legal issues only by dint of draftsmanship or employment of legal language in framing thereof.

Fecto Belarous Tractor Ltd. v. Government of Pakistan PLD 2005 SC 605 rel.

Ayyaz Shoukat for Applicant. Respondent in person.

Siddiq Mirza and Mian Khan Malik, D.A.-G. for Respondent No.1.

Date of hearing: 19th November, 2009.

JUDGMENT

AQEEL AHMED ABBASI, J.---Through this Sales Tax Reference Application under section 47 of the Sales Tax Act, 1990, the applicant has impugned the Order No.K-255 of 2007 dated 26-12-2008 passed by the learned Customs, Central Excise and Sales Tax Appellate Tribunal Karachi Bench-I, Karachi, wherein the following questions of law are said to arise out of the order of the Tribunal.

(i) Whether section 3-B of the Sales Tax Act, 1990 would attract in appellant's case in the absence of collection or charge of tax from the consumer or not.

(ii) Whether the appellant could claim refund of tax under section 66 of the Sales Tax Act 1990, which has been paid excess by the appellant on the wrong, illegal and delayed clarification of the C.B.R., which was subsequently withdrawn by the C.B.R. itself or not.

(iii) Whether the appellant could be the refund claimant or not of the excess paid tax on the invoices of the PTCL, which was acting as collecting agent of Government of Pakistan, that excess paid tax subsequently deposited in Government treasury by PTCL.

(iv) Whether clarification of the C.B.R. would be applicable prospectively or retrospectively.

2. Brief facts as recorded in the impugned order of the learned Tribunal are that Messrs Telecard Limited, Karachi applied for refund under section 66 of the Sales Tax Act, 1990 for an amount claimed to be arising out of Board's clarification C.No. 1(17)CFB/96 dated 24-12-2004, against the trade discount on pay phone cards. The refund application dated 27-3-2006 was filed by the company's consultants namely Tax Forum, Islamabad. The basis of claim was that the company paid Central Excise duty collected under sales tax mode on gross amount of the charges of PTCL, while the actual amount billed by PTCL was after allowing trade discount as defined in clause (b) of subsection (46) of section 2 of the Sales Tax Act, 1990. Thus differential amount @ Re.0.08 per unit for all the units consumed/sold by the company for the period from January, 2001 to January, 2005 was stated to have created a refund of amount neither specified nor calculated anywhere in available record yet claimed under section 66 of the Sales Tax Act, 1990. The Collector (Enforcement), Large Taxpayers Unit (LTU), Karachi had rejected the claim of the appellant, after the quasi-judicial' proceedings vide his order D.No.30 of 2007 dated 20-4-2007.

3. The applicant being dissatisfied with the order passed by the Collector, filed an appeal before the learned Customs, Central Excise and Sales Tax Appellate Tribunal, Karachi Bench-I Karachi, which after hearing both the parties dismissed the appeal of the applicant by observing that "all the core relevant points of law and facts were fully examined and considered at the original level, no new issue has been raised to merit change in the impugned order which does not suffer from any legal infirmity or factual impropriety, appeal lacks merit, hence rejected. "

4. It has been argued by the learned counsel for the applicant that there is conflict in the order-in-original and the impugned order because in the order-in-original it was specifically stated as under:

"2(1) During the period from January, 2001 to January, 2005 for which the refund was claimed no Central Excise Duty or Sales Tax was levied on payphone cards service therefore the company was neither required to be registered nor any duty or tax was to be charged or collected at the company's stage.

Whereas in the impugned order it was mentioned that no evidence was available to determine that the component of Sales Tax/Central Excise Duty charged through the sale of telecards was not ultimately realized from the end users through the sale agent/company by PTCL. Therefore, according to the Tribunal the case falls within the provisions of section 3(B) read with section (D) of the Sales Tax Act and refund cannot be allowed."

5. The instant controversy relates to a belated claim of refund in respect of duty/taxes for the period from January, 2001 to January, 2005 filed on 8-12-2005 before the concerned Deputy Collector. The applicant claims to have moved such belated application for the refund after the clarification issued by C.B.R./CEB/96 dated 24-12-2004, wherein it was clarified that CED was to be charged on "Discounted Amount" and not on "Gross Bills". It would be advantageous to reproduce the said clarification as under:

"C. No.1(17)/CEB/96 Islamabad, the 24th December, 2004

Messrs A.F. Ferguson & Co.

Chartered Accountants,

State Life Building No.1-C,

I.I. Chundrigar Road,

Karachi.

Subject:Chargeability of Central Excise Duty on Wireless Local Loop

I am directed to refer to your letter No. DSTA-025, dated 26-11-2004 on the subject cited above and to clarify that in respect of excisable goods and services which chargeable to central excise duty (in VAT mode), all the provisions of the Sales Tax Act, 1990 and the rules, notifications, orders and instructions made or issued hereunder shall apply.

Accordingly, in case of trade discounts, central excise duty is to be calculated on discounted price, in terms of clause (b) of subsection (46) of section 2 of Sales Tax Act, 1990, provided the tax invoice shows the discounted price as well as related tax and the discount allowed is in conformity with the normal business services.

In view of above, the Board's clarification issued under C.No.1(17)/CEB/96 dated 30th July 2003, is hereby with-drawn.

(Sd.)

(Dr. Muhammad Zubair)

Secretary (ST & CE-Budget)"

6. On perusal of this letter, it appears that through this clarification letter addressed to A.F. Ferguson and Co., Chartered Accountants earlier clarification letter C.No.1(17)/CEB/91, dated 30th July, 2003 was withdrawn. The present applicant appears to have become conscious of the legal position relating to transactions during the above mentioned period, filed the claim of refund, after the lapse of statutory period. To resolve the instant controversy, it is to be examined whether the applicant in fact and law was entitled to any refund for the period under consideration and further the said claim was filed within the prescribed limit and if not whether the applicant has made out any case for the condonation of delay for such claim. It is pertinent to note that the Federal Taxes including customs, excise duty and sales tax are indirect taxes, the burden of which is always borne by the end consumers and not by the seller/registered person or importer/assessee. Whereas in direct taxes such as income tax and wealth tax burden is borne by the person upon whom the tax is levied. In other words, in indirect taxes the assessee, importer or the registered person is only an intermediary or a tax collecting agent. In case of indirect taxes due to an inbuilt mechanism, the duty or taxes are inclusive in the cost/value of the goods sold, therefore, the same passes on to the end consumer at the time of such transaction. In a reported judgment this aspect has thoroughly been examined in the case of Fecto Belarous Tractor Ltd. v. Government of Pakistan PLD 2005 SC 605 in the following manner:

"30. It is to be noted that Sales Tax is an indirect tax, burden whereof is to be borne by the purchaser and the vendor is bound to reimburse the amount to the Federal Government in terms of section 3-B of the Sales Tax Act, 1990. For convenience same is reproduced herein below;

3-B. Collection of excess sales tax etc.---

(1) any person who has collected or collects any tax or charge, whether under misapprehension of any provision of this Act or otherwise, which was not payable as tax or charge or which is in excess of the tax or charge actually payable and the incidence of which has been passed on to the consumers, shall pay the amount of tax or charge so collected to the Federal Government.

(2) Any amount payable to the Federal Government under subsection (1) shall be deemed to be an arrears of tax or charged payable under this Act shall be recoverable accordingly and no claim for refund in respect of such amount shall be admissible.

(3) The burden of proof that the incidence of tax or charge referred to in subsection (1) has been or has not been passed to the consumer shall be on the person collecting the tax or charge.

31. Likewise, the Customs Duty is an indirect tax, burden of which has to be borne by the purchaser, according to mandate of section 64-A of the Sales of Goods Act, 1930. Reference in this behalf may be made on the case of Army Welfare Sugar Mills Ltd. v. Federation of Pakistan (1992 SCMR 1652). Relevant para therefrom is reproduced hereinbelow for convenience:-

"(54) It may also be observed that section 64-A of the Sale of Goods Act, 1930, entitles a vendor to recover from a purchaser any duty or custom or excise or tax on any goods being imposed or increased after the conclusion of any contract for sale of such goods, if the contract does not contain any provision contrary to it."

(32) In view above provisions of law, it may also be noted that the petitioner had no right to claim refund of Customs Duty and Sales Tax, which it had recovered from the end user as an agent of the Government, if its burden had been passed on by it, being the property owning purchasers, otherwise it will remain with the Government, who would spend it on the welfare of general public. Reference in this behalf may be made to the case of Orient Paper Mills v. State of Orissa (AIR 1961 SC 1438). Rele vant para therefrom is reproduced hereinbelow for convenience:-

"(7) Article 19(1)(f) of the Constitution of India prescribes the right of freedom of citizens to acquire, hold and dispose of property; but the right is by Cl.(5) subject the operation of any law, existing or prospective insofar as it imposes reasonable restrictions on the exercise of that right in the interest of the general public. Assuming that by enacting that refund of tax shall only be made to the purchasers from whom the tax has been collected by the dealers and not to the dealers who have paid the tax the fundamental right under- Act. 19(1)(f) is restricted, we are unable to hold that the restriction imposed by section 14-A of the Act is not in the interest of the general public. The Legislature by section 9-B(1) of the Act authorized registered dealers to collect tax from the purchasers which they may have to pay on their turnover. The amounts collected by the assesses therefore, primarily belongs not to the assesses but to the purchasers. On an erroneous assumption that tax was payable, tax was collected by the assessees and was paid over to the State. Under section 9-B Cl.(3) of the Act as it stood at the material time, the amounts realized by any person as tax on sale of any goods shall notwithstanding anything contained in any other provision of the Act, be deposited by him in a Government treasury within such period as may be prescribed if the amount so realized exceeded the amount payable as tax in respect of that sale or if no tax is payable in respect thereof. As the tax collected by the assesses was not exigible in respect of the sales from the purchaser, a statutory obligation arose to deposit it with the State and by paying the tax under the assessment, the assesses must be deemed to have complied with this requirements. But the amount of tax remained under S.9B of the Act with the Government of Orissa as a deposit. It with a review to prevent the assessees who had no beneficial interest in those amounts from making profit out of tax collected, the Legislature enacted that the amount so deposited shall be claimable only by the persons who had paid the amounts to the dealer and not by the dealer, it must be held that the restriction on the right of the assessees to obtain refund was lawfully circumscribed in the interest of the general public."

7. On scrutiny of the facts of the instant case it appears that PTCL was registered as the Tele-communication Service Provider with the Sales Tax Department and is paying the Sales Tax/Central Excise Duty on the tele-cards sold by them through the Sale Agents i.e. Tele-cards Companies. It was actually the sale of air time, the service provided in this case, and in such transaction the role of the tele-cards companies is nothing more than merely of the Sale Agent of PTCL and not of the provider of air time service. It is also pertinent to point out that the product was sold to the end users through sale of the tele-cards. The tele cards company/applicant was not actually the subject Service Provider in terms of Sales Tax/Central Excise Laws. As a matter of fact, PTCL has been charging Sales Tax/Central Excise Duty on the gross amount from tele-cards company/applicant, which was ultimately paid by the customers on the purchase of such cards.

8. The learned Tribunal while examining the facts of the case and refusing the claim of refund of the applicant has given finding of facts to the following effect:

(a) No evidence was available to determine that the component of Sales Tax/Central Excise Duty charged through the sale of tele cards was not ultimately realized from the end users through the Sale Agent/Company by PTCL.

(b) No evidence, invoice, documents or any material has been produced to substantiate veracity of the appellant's case.

(c) No amount of refund would be admissible without solid and strong proof of payment and depositing of the excess amount in the public treasury by the registered person.

(d) Appellants have failed to appreciate their real role nor recognized their position of being merely as the unregistered Sale-Agents or middle men than considering themselves at par with the actual Service Provider Messrs PTCL.

(e) Appellants were admittedly working outside the realm, domain and the provisions of Sales Tax and Central Excise Law. They had absolutely private business relationship with PTCL. If any excess amount was involved it was paid to PTCL.

(f) In terms of section 3(B) of the Sales Tax Act and 3(D) of the Central Excise Act neither the appellants nor PTCL could claim refund as the incident of tax had already been passed on to the consumers at the retail stage.

9. If we examine the facts of the instant case on the basis of parameters laid down in the above referred reported judgment of the Hon'ble Supreme Court in the case of Facto Belarous Tractor Ltd. v. Government of Pakistan PLD 2005 SC 605, the irresistible conclusion which emerges from the facts of this case that the applicants have not been able to show their locus standi for the purposes of claiming any refund in respect of Sales Tax/Central Excise Duty in their capacity as registered service providers. The applicant has also failed to establish that the amount of duty and taxes which was included in the cost of the tele-cards by virtue of inbuilt mechanism has not been passed on the end consumers, who according to the law appears to have borne the actual burden of such taxes, and not the applicant, who is merely an intermediary.

10. Without commenting on other legal grounds on which the claim of the refund was non-suited by the authorities below (i.e. time-barred claim in terms of section 66 of Sales Tax Act, 1990, effect of purported clarification by the C.B.R.), we are inclined to give our finding on the basic legal ground relating to the locus standi of the applicant for the purposes of claiming such refund. since there is a clear cut concurrent finding of fact by the authorities below that the incidence of tax/duty has duly been passed on to the end consumer, the applicant, otherwise being a intermediary and not the service provider, could not lawfully claim the refund of such taxes/duty in terms of section 3(B) of Sales Tax Act, 1990 and Section 3(D) of the Central Excise Act, 1944. Respectfully following the ratio of the judgment of the Hon'ble Supreme Court in the case of Fecto Belarous Tractor Ltd. v. Government of Pakistan PLD 2005 SC 605, we hold that the applicant has failed to make out any case either on the facts or in law for the claim of refund of Sales Tax/Central Excise Duty and the learned Tribunal has rightly rejected such claim after having thoroughly examined the facts and the legal provisions in this regard. The questions proposed in the instant reference involved the factual controversy which could not be allowed to be converted into legal issues only by dint of draftsmanship or employment of legal language in a style which is usual to the framing of such questions. Reliance in this regard is placed to a Division Bench judgment of this Court in the case of Messrs Japan Storage Battery Ltd. v. Commissioner of Income Tax, Karachi, 2003 PTD 2849.

11. Under the facts and circumstances of the case, the impugned order passed by the learned Tribunal does not suffer from any illegality hence requires no interference by this Court in its reference jurisdiction. The instant reference application, which otherwise is based on concurrent finding of facts, is misconceived and the same is accordingly dismissed in limine, with no order as to costs along with the listed application.

12. Let a copy of this judgment be sent to the Registrar of Tribunal.

S.A.K./T-2/KReference dismissed.