ROUSCH (PAKISTAN) POWER LTD. VS DEPUTY COLLECTOR REFUND GROUP-III, 2013 PTD-KARACHI-HIGH-COURT-SINDH 799 (2013)

Sales Tax Act (VII of 1990)---

----Ss.2(33)(35)(41), 4 & 13---S.R.O. No.124(I)/2000, dated 15-3-2000---Electricity produced by applicant and supplied to residential colony of its employees---Chargeability of tax on such supply---Scope---Definition of term "supply" under S. 2(33) of Sales Tax Act, 1990 would include sale or other transfer of right to dispose of goods as owner by putting to private, business or non-business use of goods produced or manufactured in course of taxable activity for purposes other than those making a taxable supply---Term of taxable supply under S. 2(41) of Sales Tax Act, 1990 would mean a supply of taxable goods by an importer, manufacturer, wholesaler, distributor or retailer other than a supply of goods being exempt under S. 13 thereof---Supply of goods chargeable to tax @ zero per cent under S. 4 of Sales Tax Act, 1990 would constitute taxable supply---Term "taxable supply" under S. 2(35) of the Act would mean any economic activity carried on by a person whether or not for profit---Sales tax being in nature of general tax, thus, its levy could not be excluded from purview of chargeability without showing same to be exempt under the Act---Such supply was not exempt under S.13 of Act, 1990---S.R.O.124(I)/2000 dated 15-3-2000 neither excluded chargeability of sales tax on such taxable supply nor provided for any exemption from its levy---Applicant being engaged in taxable activity had made taxable supplies by providing electricity to its employees, thus, same would be chargeable to sales tax in absence of exemption under S.13 of Sales Tax Act, 1990.

Qazi Anwar Kamal for Applicant.

Muhammad Altaf Mun for Respondent.

Date of hearing: 5th December, 2012.

JUDGMENT

AQEEL AHMED ABBASI, J.---Being aggrieved and dissatisfied with the order passed by the Customs, Excise and Sales Tax Appellate Tribunal Bench-III, Karachi in Sales Tax Appeal No.K-139/2006/16109 dated 2-5-2007, the applicant has filed instant reference application under section 47 of the Sales Tax Act, 1990 by raising six questions as questions of law arising from the impugned order. However, when the matter was taken-up for hearing on 5-12-2012, learned counsel for the applicant has pressed only following two questions, which according to learned counsel for the applicant arise from the impugned order passed by the Appellate Tribunal:--

(1)Whether in the facts and circumstances of the case, the Tribunal was right to hold that electricity consumed in the staff residential colony, situated within the plant premises of the applicant is subject to levy of sales tax in view of the chargeability provisions of the Sales Tax Act, 1990 read with Sales Tax Special Procedure Rules (i.e. S.R.O. 124(I)/2000, dated 15 March, 2000) as were/are applicable for persons registered as Independent Power Producers [IPPs]/companies licensed by Government of Pakistan for generation, transmission and distribution of electricity?

(2)Whether in the facts and circumstances of the case, the Tribunal was right to hold that the supply of electricity to the residential colony situated within plant premises by the applicant falls under the ambit of definition of supply as defined under section 2(33) of the Sales Tax Act, 1990 and such supply was subject to levy of sales tax irrespective of sales tax special procedure rules applicable under S.R.O. 124(I)/2000 dated 15 March, 2000, for IPPs/power companies, as enacted under the provisions of section 71 of the Sales Tax Act, 1990, having over-riding effect to other substantive provisions of the Sales Tax Act, 1990?

By consent of both the learned counsel, the matter was taken up for hearing on the said date for final disposal at Katcha Peshi stage.

2.Learned counsel for the applicant has argued that the impugned order passed by the Appellate Tribunal, whereby the learned tribunal has approved the orders of Adjudicating Authority and the Collector of Sales Tax (Appeals), whereby it was held that electricity consumed in the staff residential colony, situated within the plant, premises of the applicant is subject to levy of sales tax, is illegal and without lawful authority. Per learned counsel, the electricity supplied by the applicant to its staff and employees, situated within the plant premises does not fall within the ambit of definition of supply as defined under section 2(33) of the Sales Tax Act, 1990, hence such supply was not subject to levy of sales tax.It has been further contended that the applicant is an Independent Power Producer (IPP) and its main activity is to generate and supply electricity to WAPDA from its Tharmal Power Plant located near Khanewal, who during the relevant period has supplied electricity, free of charge to its employees in their premises situated within the plant premise, whereas it was not a commercial activity, hence such supplies were not liable to sales tax.

3.Conversely, on the other hand, learned counsel for the respondent has opposed the maintainability of instant reference application and submits that no question of law arises from the impugned order, as according to learned counsel, the applicant made taxable supplies to the consumers, whereas there is no exemption whatsoever, whereby the sales tax could not be charged on such supplies made by the applicant. It has been further contended that concurrent finding of fact has been recorded by both the appellate forums, whereas no error whatsoever has been pointed out by the applicant in the impugned finding. It has been further contended by the learned counsel that no reliance or reference was made by the applicant to S.R.O. No.124(I)/2000 dated 15-3-2000, whereby it was for the first time before this Court when reference to provision of above S.R.O. has been made, hence the same cannot be taken into consideration at this stage. Moreover, per learned counsel, in terms of section 2(33) of the Sales Tax Act, 1990, inclusive definition of the terms supply has been defined. It has been contended by the learned counsel that instant reference application having no merits, which is liable to be dismissed in limine.

4.We have heard both the learned counsel and perused the record. The brief facts as recorded by the Appellate Tribunal in the instant case are that Messrs Rousch Pakistan (Power), Ltd., Sales Tax Registration No.12-00-2716-004-91 Karachi, (the appellant) applied for refund on22-8-2002 of Rs.102,166,536 under section 19(1) of Sales Tax Act, 1990. The said claim of refund was audited in pursuance of the Board's letter C.No.1(33) STR/99(Pt-1) dated 3-12-2001, and following discrepancies were observed:--

(a)That the registered person had adjusted inadmissible input tax amounting to Rs.3,390,818 on the purchase of diesel during the month of March-2001, April, 2001 and June, 2001, which was inadmissible in terms of section 8 read with S.R.O. No.578(I)/1998 dated 12-6-1998 of Sales Tax Act, 1990.

(b)That during the period up to June, 2001 the registered person did not pay sales tax amounting to Rs.2,007,566 on the consumption of electricity in the residential colony.

(c)That the registered person deducted/adjusted credit note amounting to Rs.10,768,340 in the month of March, 2001, which did not fulfil the condition of time limit as required under section 9 read with S.R.O. 696(I)/1996 dated 12-8-1996 of Sales Tax Act, 1990.

Messrs Rousch Pakistan (Power) Limited Ltd., Karachi were, therefore, served with a Show-Cause Notice No.13(720701)ST/CE/REF/ 2001/5/8438 dated 29-1-2003 asking them as to why an amount of Rs.16166724 along with leviable additional tax Rs.6927279 (calculated up to December, 2002) should not be rejected/recovered from their refund claim under Rule 8 of Refund Rules, 2002 issued under S.R.O. No.417(I)/2000 dated 20-6-2000, and as to why they should not be penalized under the provisions of section 33 of the Sales Tax Act, 1990 for above irregularities. The hearing was conducted by Deputy Collector Refund Group-III who passed the Order-in-Original No.41 of 2005 dated 30-7-2005. The applicant filed an appeal under section 45B of the Sales Tax Act, 1990 which was dismissed vide Order-in-Appeal No.141 of 2006, dated 26-5-2006 passed by Collector of Customs, Sales Tax and Federal Excise (Appeal-II), Karachi. Being aggrieved by the order passed by Collector (Appeals), the applicant filed an appeal before the Customs, Sales Tax and Federal Excise Tribunal, Karachi, who vide impugned order dated 2-5-2007 dismissed the appeal of the applicant, which has been assailed through instant reference application, whereas it has been stated that the question as referred in para 1 hereinabove are questions of law which arise from the impugned order.

5.From perusal of the record, it is noted that during the pendency of refund claim filed by the applicant on the report by the Senior Auditor, Audit Division, East Karachi, whereby, besides other queries, the respondent company was confronted to explain as to why during the period upto June, 2001 amount of sales tax amounting to Rs.2007566 was not paid on the in-house consumption of electricity used in the residential colony, whereafter the respondent company furnished its explanation, which did not find favour with the Deputy Collector, Refund Group-III, Collectorate of Sales Tax (Enforcement) Karachi, who has held as under:--

"The contention of the claimant that they did not make any taxable supplies is not tenable on the grounds that electricity falls under the categories of taxable goods and chargeability of tax and procedure in this regard is to be followed under section 71 of the Sales Tax Act read with S.R.O. 124(I)/2000, dated 15-March, 2000. It is pertinent to reproduce section 71 of the Sales Tax Act, 1990:

"Special Procedure.---(1) Notwithstanding anything contained in this Act, the Federal Government may, by notification in the official Gazette, prescribe a special procedure for scope and payment of tax, registration, book keeping and invoicing requirements and returns, etc in respect of such supplies as may be specified therein." In the light of section 71 of the Sales Tax Act read with S.R.O. 124(I)/2000, Messrs Rousch Pakistan (Power) Limited were required to pay sales tax which they failed to do so."

6.The above finding and the order passed by the Deputy Collector was assailed by the respondent through an appeal before the Collector of Customs, Sales Tax and Federal Excise (Appeal-II), Karachi, who vide Order-in-Appeal No.141 of 2006 dated 26-5-2006, has held as follows:--

"Secondly, non payment of Sales Tax on in-house consumption of electricity. It has been reported at the registered person in question did not charge and pay output tax on in house consumption of electricity amounting to Rs.2,007,566. As per Rule 8(2) of Special Procedure for Collection and Payment of Sales Tax (Electric Power) Rules, 2000 issued vide S.R.O. 124(I)/2000 dated 15 March, 2000. Every person who supplies or distributes Electric Power shall print in his bill or invoice as the case may be, registration No. of the consumer and rate an amount of sales tax required to be charged by him under subsection (1) of section 3 of the Sales Tax Act, 1990."

The contention of the claimant that they did not make any taxable supplies is not tenable on the grounds that electricity falls under the categories of taxable goods and chargeability of tax and procedure in this regard is to be followed under section 71 of the Sales Tax Act, read with S.R.O. 124(I)/2000, dated 15 March, 2000. It is pertinent to reproduce section 71 of the Sales Tax Act, 1990.

"Special Procedure.---(1) Notwithstanding anything contained in this Act, the Federal Government may, by notification in the official Gazette, prescribe a special procedure for scope and payment of tax, registration, book keeping and invoicing requirements and returns, etc. in respect of such supplies as may be specified therein." In the light of section 71 of the Sales Tax Act read with S.R.O. 124(I)/2000, Messrs Rousch Pakistan (Power) Limited were required to pay sales tax which they failed to do so."

7.Similarly, when the respondent filed an appeal before the Appellate Tribunal against the above mentioned impugned order passed by the Collector (Appeals), the Customs, Excise and Sales Tax Appellate Tribunal Bench-III, Karachi, vide impugned order dated 2-5-2007 has decided the issue involved in the instant case in the following terms:--

"6. The case record and arguments of rival parties have been considered anxiously. The only dispute before us is as to whether the supply of electricity by the appellant to residential colony is subject to sales tax. The appellant are of the view that the value of electricity supplied to the residential colony is included in the EPP value of electricity supplied to WAPDA and is therefore not chargeable to sales tax. It has also been contended that supply of electricity to residential colony is a small part of their business without any charge being perk and pay of the officers and staff of the appellant and is therefore not covered under the definition of supply under sections 2(33) and 2(4) of the Sales Tax Act, 1990. The appellant have also produced copies of judgments by the Appellate Tribunal Peshawar/Islamabad in support of their contention that the supply of electricity to residential colony is not subject to sales tax. The respondents have on the contrary stated that electricity is the finished and final product of the appellant and its supply to WAPDA as well as to the residential colony is subject to sales tax, as the value of electricity supplied to residential colony is not included in the EPP price, which is charged on the basis of total number of electricity units supplied to WAPDA in terms of IPP Agreement read with Sales Tax Special Procedure Rules, 2005. The respondents have also produced a copy of CBR's ruling vide letter C.No 2(77)STP/95 (Vol-III) dated 3-9-2003, wherein it has been explicitly stated that supply of electricity to residential colony is not exempt from the levy sales tax. We find it imperative to reproduce below the definition of supply as given under section 2(33) of the Sales Tax Act, 1990 in order to appreciate and analyze the divergent views:--

Section 2(33) of the Sales Tax Act, 1990

"Supply" includes sale, lease excluding financial or operating lease or other disposition of goods in furtherance of business carried out for consideration and also includes:

(a)putting to private business or non-business use of goods acquired, produced or manufactured in the course of business;

(b)auction or disposal of goods to satisfy a debt owed by a person;

(c)possession of taxable goods held immediately before a person ceases to be a registered person; and

(d)such other transaction as the Federal Government may, by notification in the official Gazette, specify;"

It is evident from the above reproduced clause (a) that supply of or putting to electricity produced by the appellant to business or non business use i.e. to the residential colony falls under the ambit of definition of supply as defined under section 2(33) of the Sales Tax Act, 1990. It is also an accepted fact that supply of electricity to residential colony is also not exempt under section 13 of the Sales Tax Act, 1990. We are therefore of the firm opinion that supply of electricity to residential colony is subject to sales tax as already held by this Tribunal in case of Messrs Karachi Electric Supply Corporation Ltd., versus Collector of Customs, Sales Tax and Central Excise, Adjudication-III Karachi while disposing of Appeal No.K-140 of 2001, vide order dated 14-9-2005. The reference by appellant to decision of our brothers in Peshawar/Islamabad Benches is pertinent but we do not agree with our brothers that the goods including electricity supplied to residential colony of officers/ staff is a perk, which motivates or enables them to produce more and therefore the same should be exempt from the levy of sales tax. We are afraid that if this reasoning is accepted then a pendora box will open as the supplies of Sugar, Vegetable ghee and many other items by the manufacturers to their staff will become exempt as the use of the same also contributes in the welfare of the staff/labour and can motivate them to work more."

8.The points for determination in the instant case are that as to whether the electricity produced by the applicant and supplied to the houses of their in-house employees falls within the ambit of taxable supply or not? Further as to whether there is any exemption from payment of sales tax available to such supplies made by the applicant free of cost to its employees? From perusal of the record and the relevant provisions of the Sales Tax Act, 1990, it is seen that the learned Appellate Tribunal while concurring with the finding of the Collector (Appeals) has held that the supply of or putting to electricity produced by the applicant to business or non-business use i.e. to the residential colony, falls under the ambit of definition of supply as defined under section 2(33) of the Sales Tax Act, 1990. It is also an admitted fact that the supply of electricity to its residential colony is also not exempt under section 13 of the Sales Tax Act, 1990. Since the applicant has not been able to show, either before tax authorities or even before this Court, that the electricity produced by the applicant and supplied to the houses of its employees is not amenable to charge of sales tax, which otherwise, is in nature of general tax and its levy cannot be excluded from the purview of chargeabilityunlessitfallswithintheexemptclausesasprovidedunder the Sales Tax Act, 1990. Reference to S.R.O. 124(I)/2000 dated 15-3-2000 by the counsel for the applicant is of no assistance as neither it excludes the chargeability of the sales tax on the taxable supplies made by the applicant to its employees nor it provides for any exemption from the levy of sales tax. Moreover, from perusal of the definition of the term supply as provided under section 2(33) it includes sale or other transfer of the right to dispose of goods as owner by putting to private, business or non-business use of goods produced or manufactured in the course of taxable activity for purposes other than those of making a taxable supply. Similarly, from perusal of the definition of the term taxable supply as defined under section 2(41) of the Sales Tax Act, 1990, it means that a supply of taxable goods by an importer, manufacturer, wholesaler (including dealer), distributor or retailer other than a supply of goods, which is exempt under section 13 of the Sales Tax Act, 1990. Even a supply of goods chargeable to tax at therateofzeropercentundersection4 oftheSalesTaxAct,1990 also constitutes taxable supply. Itwillnotbeoutofplacetoreferto the definition of taxable activityasdefinedin section 2(35) of the Sales Tax Act, 1990, which means any economic activity carried on a person whether or not for profit. The contention of the counsel for the applicant that the supplies made to its employees freeofcostisanincentiveanddoesnot constitutethetaxableactivityof the applicant, is therefore, of no substance. Admittedly, the applicant is engaged in the taxable activity who has made taxable suppliesbyprovidingelectricitytoitsemployees,which,inourhumbleopinion,ischargeabletosalestaxparticularlywhenthereisno exemption provided in terms of section 13 of the Sales Tax Act, 1990.

9.We are of the opinion that in the instant case concurrent finding on facts has been recorded by the Collector (Appeals) and the Customs, Excise and Sales Tax Appellate Tribunal, which otherwise depicts correct legal position, hence, does not give rise to any substantial question of law. Accordingly, instant reference application is hereby dismissed, and the questions proposed are answered in affirmative, against the applicant.

SAK/R-1/KOrder accordingly.