AUGERE PAKISTAN (PVT.) LTD. VS PROVINCE OF SINDH through Secretary Ministry of Finance, 2015 PTD-KARACHI-HIGH-COURT-SINDH 1340 (2015)

Sindh Sales Tax on Services Act (XII of 2011)---

----S. 2(97)---Specific Relief Act (I of 1877), Ss. 42 & 54---Civil Procedure Code (V of 1908), O.XXXIX, Rr. 1 & 2---Suit for declaration and injunction---Interim injunction---Telecommunication services---Plaintiff assailed demand of tax raised by Revenue authorities for use of poles, masts and towers claiming such services to be "telecommunication services," as defined under S. 2(97) of Sindh Sales Tax on Services Act, 2011---Validity---Pole, tower or mast that was being used commonly was being 'shared' between plaintiff and (relevant) defendant---Pole, tower and mast could be regarded as having certain 'capacity' even in plaintiff's own case, since it had a physical dimension and there was only so much equipment (booster, transmitter, antenna etc.) that could be fixed on to or hung from it especially when height requirements were also taken into account---Such capacity was not within the meaning of definition and third element in the definition made it clear---Capacity was in relation, or with reference to transmission, emission or reception of signals---License had granted the service provider, the right to use such capacity and if such capacity was shared with another then a 'telecommunication service' was provided within the meaning of S.2(97) of Sindh Sales Tax on Services Act, 2011---Plaintiff made out a prima facie case as proposed levy fell outside the scope of 'telecommunication service' and other ingredients for interim relief also lay in favour of plaintiff---Business of plaintiff would be adversely affected, if it was unable to have access to various towers, poles etc. as per its arrangements with private defendants (companies) and such access might become practically unavailable if the tax was levied and plaintiff would suffer irreparable loss and injury---Balance of convenience also lay in favour of plaintiff, therefore, case for interim relief was made out---High Court suspended notice issued by revenue authorities and restrained them from charging, claiming or collecting any tax under Sindh Sales Tax on Services Act, 2011, in respect of any matter that would come within the scope of sharing passive infrastructure---Application was allowed accordingly.

Ali Almani and Sarmad Hani for Plaintiff.

Sarfaraz Ali Metlo for Defendant No.2.

Salahuddin Ahmed and Nadeem Ahmed for Defendant No.3.

Muhammad Ehsan for Defendant No.4.

Dates of hearing 27th August and 9th September, 2014.

ORDER

MUNIB AKHTAR, J.---By means of the present application, the plaintiff seeks interim injunctive relief in the following circumstances. Learned counsel submitted that the plaintiff was a provider of wireless internet services under the business name Qubee. In order to ensure proper coverage for and access to its internet services, the plaintiff needs to boost its wireless signal at different places in the area of coverage. This requires the use of boosters, which need to be installed at suitable intervals and at a certain minimum height (stated to be around 50 meters). Put simply, this means that the boosters have to be installed on poles or towers of (or at) the requisite height and suitably dispersed throughout the area of coverage. Learned counsel submitted that mobile phone companies (such as the defendants Nos. 3 and 4) and cable operators (such as the defendant No. 5) had extensive networks of infrastructure including poles, masts and towers for providing their own services. These were of the requisite height and placement to suit the plaintiff's purposes. Therefore, rather than establishing and erecting its own network, the plaintiff entered into a series of agreements with these defendants, whereby it, in effect, rented space on the poles. masts and towers such that it could install its own equipment (i.e., boosters, etc.) (and also for the provision of certain ancillary matters such as space at the site, power requirements, etc.). One such agreement, with the defendant No. 5 was placed on the record. Learned counsel emphasized that the plaintiff did not use the transmission and other such telecommunication equipment of these defendants. All that it did was to utilize the towers, poles etc. for its own purposes.

2.Learned counsel submitted that the Pakistan Telecommunication Authority ("PTA"), established by and under the Pakistan Telecommunication (Re-organization) Act, 1996 ("1996 Act"), drew a distinction between "passive" infrastructure and "active" infrastructure, and relied upon a consultation paper that had been issued by the authority in 2007. According to this paper, "sharing of passive infrastructure means sharing of physical sites, buildings, shelters, towers/masts, power supply and battery backup", whereas "the active infrastructure sharing can broadly be defined [as] sharing of the active elements in the network amongst service providers". Learned counsel emphasized that the agreements between the plaintiff and the defendants only amounted to passive infrastructure sharing, since it was limited to the plaintiff being entitled to install its own equipment on the latter's poles, masts, etc. and certain ancillary rights such as access to the sites, meeting of power requirements etc. There was no active infrastructure sharing. This was the key aspect of the plaintiff's case.

3.The plaintiff is of course liable to make periodic payment to the defendants under the rental arrangements. It has made and continues to make such payments, and there is no dispute in this regard. Learned counsel submitted that telecommunication services were liable to federal excise duty under the Federal Excise Act, 2005 and provincial sales tax under the Sindh Sales Tax on Services Act, 2011 ("2011 Act"). (Although a constitutional issue has been raised in the plaint as to whether this federal and provincial duality is valid, the present application was argued on other grounds.) Learned counsel submitted that earlier (on 10-3-2010) the Federal Board of Revenue took the position that the provision of passive infrastructure facilities by the concerned mobile phone companies and cable operators amounted to providing telecommunication services and hence was liable to federal excise duty. Such duty would be charged from the mobile phone companies and cable operators but its incidence would of course be passed on to the companies (such as the plaintiff) using their infrastructure. Since the plaintiff was directly affected by such determination, it wrote to the PTA, seeking a clarification that such an arrangement did not amount to the providing of telecommunication services. Learned counsel submitted that after due consideration the PTA issued its determination on or about 15-11-2012, accepting the plaintiff's position. The plaintiff thereafter approached the FBR and on 28-2-2013, the latter withdrew its earlier determination.

4.Learned counsel submitted that notwithstanding the foregoing, the defendant No. 2 (the Sindh Revenue Board; "SRB") has taken a contrary position as regards the charge of sales tax under the 2011 Act. SRB's position is that an arrangement providing for the sharing of passive infrastructure does constitute telecommunication services and hence is liable to tax under the 2011 Act. Learned counsel explained that the position under the 2011 Act had to be bifurcated into two periods, one starting on and from 1-7-2013 onwards and the other prior to that. The reason for this was that from the aforementioned date, a definition of "telecommunication service" was inserted in the 2011 Act, as section 2(97). Earlier there had been no definition. However, learned counsel contended, on either basis there was no case for the charge of any sales tax. Insofar as the definition was concerned (which is reproduced below) learned counsel submitted that it referred back to the 1996 Act and the PTA had already given its authoritative ruling that the sharing of passive infrastructure (as presently relevant) was not a telecommunication service within the meaning of that statute. This determination, given by the regulator itself and with respect to the specific terms of the 1996 Act that had been incorporated into the definition in the 2011 Act, had to be regarded as conclusive and binding. As regards the last part of the definition, learned counsel submitted that there was no transfer, assignment or sharing of any capacity for the transmission, emission or reception of signals or providing of access to global or local information network. Learned counsel submitted that the arrangements arrived at between the plaintiff and the defendants Nos. 3, 4 and 5 did not amount to any transfer or assignment of any property by the latter to the former. Focusing on "sharing", learned counsel submitted that as used in the definition, this had the sense of co-ownership of the property in question and not a mere right to use the same as a licensee. In terms of the relevant agreements there was a mere license and certainly no co-ownership. Learned counsel submitted that on any view of the matter, the definition did not apply. It was further contended that since the defined term (i.e., telecommunication service) was part of the charging provision, on the basis of well settled principles even if two interpretations were reasonably possible the one favouring the taxpayer would have to be adopted. Insofar as the period prior to 1-7-2013 was concerned, learned counsel submitted that "telecommunication services" as used in the 2011 Act, then being an undefined term, had to have the same meaning or sense as used in the 1996 Act, which was the statute otherwise most relevant for such matters. Since that definition had been incorporated into the definition introduced in 2013, the same analysis and reasoning applied and on that basis the matter did not come within the scope of the 2011 Act.

5.Learned counsel submitted that by notice dated 16-4-2013 issued to the defendant No. 3, the SRB had disagreed with the view that ultimately found favour with FBR and had directed the said defendant to charge sales tax on the services being provided to customers such as the plaintiff in terms of the sharing of infrastructure. (The same position would apply in respect of the other defendants as well.) Since the incidence of the charge would fall on the plaintiff, it was directly affected by the stance adopted by the SRB. Learned counsel contended that the attempt to levy sales tax in terms as stated was unlawful being beyond the scope of the 2011 Act. Hence, any charging of the same from the plaintiff would be equally contrary to law. The plaintiff was therefore entitled to suitable declaratory and injunctive relief, and as presently relevant, interim relief. All the ingredients for such relief were in favour of the plaintiff, which was entitled accordingly. I may note that on 17-6-2013 a learned single Judge had made an ad interim order on the present application, which continues to hold the field.

6.Learned counsel for SRB strongly contested the case. Learned counsel submitted that the suit was not maintainable as the statutory remedies under the 2011 Act had not been availed. The plaintiff had no cause of action to bring the instant suit. As regards the position taken by the FBR, learned counsel submitted that the same was not binding on the SRB. A determination by a federal authority for purposes of a federal statute could not affect the functioning, scope and enforcement of a provincial statute or debar the concerned provincial authority from making its own determination. That was the position at hand, and the SRB strongly disagreed with the conclusion arrived at by the FBR. Learned counsel pointed out that the federal statute did not in fact contain any definition of telecommunication services. Even the determination made by PTA was not binding on the SRB. The entire matter, as presently relevant, was regulated by and in terms of the 2011 Act, which had to be interpreted and applied on its own terms. The definition as contained in section 2(97) was broader than anything contained in the 1996 Act. But, it was contented, even the 1996 Act applied to the "passive" infrastructure and reference in this regard was made to section 2(r) of the latter, which defines "telecommunication equipment". Such equipment expressly included apparatus, poles and structures and thus applied to the towers, masts and poles being used by the plaintiff under its various agreements. This definition was a component of "telecommunication system" as defined in section 2(u) of the 1996 Act, which had been included expressly in the definition given in section 2(97) of the 2011 Act. Thus, the matter was covered and the services being provided by the defendants Nos. 3 to 5 to the plaintiff were telecommunication services within the meaning, and for the purposes, of the 2011 Act. Without prejudice to the foregoing, the plaintiff's case even otherwise came within the last part of the definition as there was a clear sharing of capacity between the plaintiff and the service providers. Therefore on any view of the matter, there was a liability to pay the sales tax. Learned counsel prayed that provincial revenue had been wrongly stuck up and that the plaintiff was not entitled to any injunctive relief. The application ought therefore to be dismissed. Learned counsel for the defendant No.3 agree with learned counsel for the SRB that the matter came within the scope of the definition and that sales tax was chargeable on such basis (and even otherwise) on the matters in respect of which services were being provided by it to the plaintiff. While this meant that the said defendant was liable to sales tax vis-a-vis the SRB, its case was it would be entitled to charge/recover it from the plaintiff.

7.Exercising his right of reply, learned counsel for the plaintiff submitted that the suit was maintainable. Since the SRB had clearly established its position, there was no point in availing the so-called statutory remedies; the result was a foregone conclusion. Learned counsel further submitted that in any case the plaintiff could not directly have recourse to such remedies since that would be the right, if at all any, of the defendants Nos. 3 to 5. Thus, in terms of the 2011 Act, the plaintiff was in fact remediless although it would suffer real and substantial loss and injury since the incidence of the levy would be passed on to it and it would not be in a position to resist making payment of what was an unlawful demand. Therefore, the plaintiff had a cause of action to bring the suit. Learned counsel submitted that section 2(u) of the 1996 Act was only concerned with active infrastructure and not passive infrastructure, a distinction that was clearly established by the PTA circular and applicable to the facts and circumstances at hand. At the conclusion of the hearing, I allowed learned counsel to file written synopses. Learned counsel for the plaintiff and SRB did so, relying therein also on certain case-law.

8.I have heard learned counsel as above, examined the record and seen the case-law. It will be convenient to first set out the statutory provisions, which comprise the relevant definitions from the 2011 and the 1996 Acts. Insofar as the former is concerned, section 2(97) provides as follows:

"telecommunication service" shall have the meaning given in clause (v) of section 2 of the Pakistan Telecommunication (Re-organization) Act, 1996 (Act No. XVII of 1996), and includes the telecommunication system as defined in clause (u) thereof and further includes the wireless communication as defined in clause (1) of section 2 of the Wireless Telegraphy Act, 1933 (Act No. XVII of 1933) and also includes transfer, assignment or sharing of the right to use capacity for transmission, emission or reception of signals and provision of access to global or local information network;

The relevant definitions in the 1996 Act, given in its section 2, provide as follows:--

(r) "telecommunication equipment" means switches, equipment, wires, cables, apparatus, poles, structures, ducts, man-holes and other tangible property, software and data, other than terminal equipment, comprising any telecommunication system or used in connection with any telecommunication service;

(u)"telecommunication system" means any electrical, electromagnetic, electronic, optical or optio-electronic system for the emission, conveyance, switching or reception of any intelligence within, or into, or from, Pakistan, whether or not that intelligence is subjected to rearrangement, computation or any other process in the course of operation of the system, and includes a cable transmission system, a cable television transmission system and terminal equipment;

(v)"telecommunication service" means a service consisting in the emission, conveyance, switching or reception of any intelligence within, or into, or from, Pakistan by any electrical, electro-magnetic, electronic, optical or optio-electronic system, whether or not the intelligence is subjected to rearrangement, computation or any other process in the course of the service;

9.I begin by noting my agreement with learned counsel for SRB that the determination by FBR is irrelevant. The ruling given by PTA is a somewhat different matter, which I will consider presently, but it is clear that, the statutory definitions must, in the end, control and it is ultimately a matter for the Court to determine the correct legal meaning of any provision and its scope and applicability. At the same time, I accept the submission by learned counsel for the plaintiff that I am here concerned with a fiscal statute and a charging provision thereof. If therefore, two meanings of any relevant definition or term are reasonably possible, the one favouring the taxpayer must be adopted. Since it is also the case (which I accept, and explain a littler later) that the incidence of the tax will fall on the plaintiff, it can for such interpretive purpose be regarded to be in the position of the taxpayer. The crucial definition is of course that of "telecommunication service" given in section 2(97) of the 2011 Act. This definition comprises of five parts. Three parts incorporate by reference definitions contained in two other (federal) statutes. Of these one, the definition given in the Wireless Telegraphy Act, 1933 can be ignored for present purposes since none of the learned counsel referred to or relied on it. The last two parts are what is stated in the end of the definition. Therefore, as present relevant, "telecommunication service" means any of the following: (a) 'telecommunication service' as defined in section 2(v) of the 1996 Act; (b) 'telecommunication system' as defined in section 2(u) of the said Act; (c) the "transfer, assignment or sharing of the right to use capacity for transmission, emission or reception of signals; or (d) the "provision of access to global or local information network".

10.Turning first to section 2(v) of the 1996 Act, it is to be noted that the definition therein contained is exhaustive. In my view, the sort of "services" provided by parties such as the defendants Nos. 3 to 5 to the plaintiff, as presently relevant, cannot be regarded as falling within this definition. The service therein contemplated is a service "consisting" in the emission, conveyance, etc. of any "intelligence" by an electrical, electronic, optical, etc. system. "Intelligence" itself is defined section 2(g) of the 1996 Act as meaning "any speech, sound, data, signal, writing, image or video". Since such a service is clearly not being provided to the plaintiff by the defendants, section 2(v), and hence the first part of the definition in section 2(97), does not apply. I turn to the second part. Here, the definition is slightly oddly worded. The definition readily makes sense in the first part, when it speaks of "telecommunication service" as having the same meaning as in section 2(v) of the 1996 Act, since that of course is exactly the same term used there. However, it does sit a bit oddly to speak of "telecommunication service" as including "the telecommunication system as defined in clause (u) [of the 1996 Act]". Ordinarily a system is used to do something, which in the present case would be to provide a service. It is not itself such service. This is clear if section 2(u) of the 1996 Act is read of itself. It simply defines a "telecommunication system" as any electrical, electronic, optical, etc. "system" that is to be used for the emission, conveyance, etc. of "intelligence" regardless of whether that "intelligence" is to be subjected to any process (such as re-arrangement or computation) "in the course of operation of the system". The definition closes by expressly including a cable transmission system, a cable television transmission system, and terminal equipment. (In order to properly understand what is meant by "terminal equipment", it is necessary also to refer to sections 2(s) and 2(k).) In my view, what is important to recognize is that for a "telecommunication system" to be a "telecommunication service" within the meaning of section 2(97), one has to look at the former as a whole. In other words, the "service" here contemplated is the providing by one person to another (in the sense of sections 3 and 4 of the 2011 Act), of a telecommunication "system". Any particular component of it is not the "system" and hence its provision is not within the scope of the second part. (The specific inclusion of "terminal equipment" in the definition requires special consideration, but when this is considered along with sections 2(s) and 2(k), it is clear that it has no relevance for present purposes.) Thus, neither of the definitions in clauses (u) and (v) of section 2 of the 1996 Act, as used in section 2(97), is applicable to the facts and circumstances at hand. Although I have reached this conclusion on an analysis of the aforesaid provisions, I am bolstered by the ruling made by PTA and relied upon by the plaintiff. I am, with respect, unable to agree with learned counsel for the SRB that this ruling is wholly irrelevant. While it cannot override the express language of section 2(97) it can certainly be used as a tool in understanding what the definitions incorporated by reference mean in the context of the 1996 Act itself. If in that context the sharing of passive infrastructure is not a telecommunication service then it certainly becomes more difficult to accept that a straightforward incorporation of the definitions by reference into section 2(97) somehow alters the position. Certainly, there is nothing expressly in section 2(97) as would require such a conclusion.

11.This leaves only the last two parts (the fourth and fifth) of the definition in section 2(97) to consider. Taking up the fourth part first, in my view, this can, for present purposes, be regarded as having three elements. There must be (i) a transfer, assignment or sharing, (ii) of the right to use capacity (iii) "for transmission, emission or reception of signals". Insofar as the first element is concerned, in the present facts and circumstances there is no "transfer" or "assignment" and therefore these words require no detailed consideration. Insofar as "sharing" is concerned, I am, with respect, unable to agree with learned counsel for the plaintiff that this word is used here in the sense of co-ownership of or over the relevant property. Such co-ownership would certainly be "sharing", but the word is not limited to that. It has, and must be given, its ordinary and natural meaning. The second element is that the "sharing" must be in respect of the right to use "capacity". The third element relates the second to the "transmission, emission or reception of signals". When the three elements are examined, it is clear that for present purposes the crucial question is: what is meant by "capacity"? In my view, the pole, tower or mast that is being used commonly is being "shared" between the plaintiff and the relevant defendant. Now, the pole, tower or mast can be regarded as having a certain "capacity" even in terms of the plaintiff's own case, since it has a physical dimension and there is only so much equipment (booster, transmitter, antenna, etc.) that can be fixed on to or hung from it, especially when the height requirements are also taken into account. But, is this the "capacity" that is within the meaning of the definition? In my view the answer must be in the negative. As the third element makes clear the "capacity" is in relation, or with reference, to the transmission, emission or reception of signals. What does this mean? As the, circular issued by PTA (relied upon by learned counsel for the plaintiff) makes clear, different scenarios can arise here. For example, one scenario can be the sharing of spectrums allocated to service providers individually. Each person who obtains a licence from PTA must necessarily be allocated a certain portion of the radio frequency spectrum (within overall allocations made by the Frequency Allocation Board, another authority created by and acting under the 1996 Act). It is this allocation that determines a licence-holder's right to transmit, emit or receive signals. This is clearly the "capacity" of the service provider referred to in the definition in section 2(97). The licence of course grants the service provider the right to use this capacity. If therefore, this capacity is shared with another, then a "telecommunication service" is provided within the meaning of section 2(97). However, the "capacity" as used in the definition is not limited only to the allotted radio frequency spectrum. In my view, the fourth part of the definition essentially relates to different aspects of the active infrastructure, and the sharing of the same. I caution that this observation is of somewhat generalized and may require further consideration and refinement. However, what is relevant for present purposes is that the fourth part does not include or apply to a sharing of the passive infrastructure. It is not this "capacity" (howsoever described, whether in terms of the height or load bearing capacity of the pole or tower, the rating of a power generator used at the site, the area of space available, etc.) that is within the scope of the definition. Turning finally to the last part of the definition ("the provision of access to global or local information network") it is clear that the arrangement between the plaintiff and the defendants for the sharing of passive infrastructure does not come within the scope of the same. Accordingly, I conclude that the definition of "telecommunication service" as given in section 2(97) does not apply in respect of the facts and circumstances at hand.

12.It will be recalled that learned counsel for the plaintiff submitted that prior to 1-7-2013 there was no definition of "telecommunication service" in the 2011 Act. Insofar as any levy of the tax for the period prior to that date is concerned that would, in my view, also be contrary to law. The meaning ascribable to "telecommunication services" then could not have been broader than the definition as inserted in 2013 and may well have been narrower. Recourse could then have been had to the definition contained in section 2(v) of the 1996 Act since that statute would, in such situation, have been the one with the closest connection with such services. As discussed above, this definition does not apply in the present situation. Even the sub-categories given in the two schedules to the 2011 Act in respect of telecommunication services (see tariff heading 98.12 and its sub-headings) do not apply to the sharing of passive infrastructure. Therefore, in my view there would have been no liability to pay the tax even during the period prior to 1-7-2013.

13.As regards the maintainability of the suit, I am, with respect, unable to accept the objection taken by learned counsel for SRB. As correctly submitted by learned counsel for the plaintiff, the position taken by SRB is clear and categorical. The statutory remedies, if any, are therefore hardly of any utility. Although it appears that the Provincial Government has issued a notification on 9-12-2014 (i.e., since the hearing of this application) in exercise of its powers under section 60 of the 2011 Act establishing an appellate tribunal, the members of the said tribunal do not seem to have been appointed. The appellate tribunal does not therefore appear to be functional as of yet. Hence, there are no statutory remedies available to the plaintiff. Since it is accepted that the putative service providers (i.e., the defendants Nos. 3 to 5) who would be legally liable to pay the tax will pass on the incidence to the plaintiff, the latter in my view also has a cause of action to bring the instant suit. This is all the more so since it appears that the said defendants will not (or do not) challenge or question the levy. The fact that the plaintiff may be able to pass on the economic burden of the levy to its own customers, either in whole or in part, is not sufficient to denude it of a legal grievance and sufficient standing to bring the present suit.

14.In my view, the plaintiff has, on the foregoing basis, made out a prima facie case since the proposed levy falls outside the scope of "telecommunication service" in the facts and circumstances at hand. The other ingredients for interim relief also lie in favour of the plaintiff. Since its business will be materially adversely affected if it is unable to have access to the various towers, poles, etc. as per its arrangements with the private defendants, and such access may become practically unavailable if the tax is levied, the plaintiff will suffer irreparable loss and injury. The balance of convenience also lies in favour of the plaintiff. Therefore, a case for interim relief is made out. Needless to say, the observations made hereinabove are tentative in nature and shall not affect the outcome of the suit when it goes to trial, where it will be decided on the merits of the evidence led by the parties.

15.Accordingly, this application is allowed. The notice dated 16-4-2013 is suspended and the SRB is restrained from charging, claiming or collecting any tax under the 2011 Act in respect of any matter that comes within the scope of the sharing of passive infrastructure as, and to the extent, as set out in the respective agreements between the plaintiff and the defendants Nos. 3 to 5, as in force on the date of filing of the suit.

MH/A-13/SindhApplication allowed.