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Petitioner: Messrs ALLIED BANK LTD VS Respondent: ASSISTANT COMMISSIONER SRB
Court Name: Appellate Tribunal Inland Revenue Judge(s): Nadeem Azhar Siddiqui, Agha Kafeel Barik Title: Messrs ALLIED BANK LTD vs ASSISTANT COMMISSIONER SRB Case No.: Appeal No,AT-205 of 2015 Date of Judgment:2017-08-28 Reported As: 2019 PTD (Trib.) 263 Result: Appeal allowed
Judgment ORDER AGHA KAFEEL BARIK, MEMBER TECHNICAL.---This appeal has been filed by the appellant challenging the Order-in-Appeal No, 159/2015 dated 30.06.2015 Passed by the Commissioner (Appeals) in Appeal No, No,46/2015 confirming Order-in-Original No, 43/2015 dated 22.01.2015 passed by the Assistant Commissioner (Ms. Lubna Najmi), SRB, Karachi. 1. This appeal has been filed by a banking company incorporated with SECP registered with SRB under tariff heading 9813.4000. 2. The facts of the case as stated are as under: 2.1. The appellant, a banking company and a registered person under section 24 of Sindh Sales Tax on Services Act, 2011, had filed monthly Sales tax returns and quarterly reconciliation statements for the periods from July, 2011 to June, 2014 (for 36 months) within due dates. 2.2. The AC-II, SRB issued a letter on 12.03.2012 requiring the details and break-up of services claimed exemption by the Bank in its two quarterly returns for September, 2011 and December, 2011. The appellant vide letter dated 30.03.2012 provided the details with relevant provisions of law under which exemption was claimed. 2.3. Again a letter dated 09.04.2012 was written by AC-SRB making further queries about two exempt-claimed services. A detailed reply was sent vide AR's letter dated 27.04.2012. 2.4. On 21.05.2012 the AC-II SRB vide a notice referring to the latest letter of the appellant of 27.04.2012 (inadvertently typed as 11.03.2012), confronted the appellant of the taxability @16% of the two services, namely 'bancassurance' and 'rebate received from foreign banks' under tariff Code 9813.4990 and 9813.8100 respectively, which were claimed exempt. The AC-II, SRB also worked out SST @16% at Rs,9,894,643/- as payable by the appellant on total value of the services of
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Rs,46,139,023/= which she directed to be paid along with default surcharge under section 44 by 25.05.2012, failing which recovery proceeding under the law would be initiated. This notice was issued with reference to two quarterly statements ending 30.09.2011 and 31.12.2011. 2.5. The appellant submitted a reply on 25.05.2012 requesting the AC to keep proceedings in abeyance, as Pakistan Banking Association (PBA) had taken it up as a policy matter with SRB authorities. 2.6. There is no record either of the assessment as the logical consequence of the show-cause notice dated 21.05.2012, or that of withdrawal of the Notices, if any. 2.7. Nothing happened in next 2 1/2 years. 2.3. After 2 1/2 years again a show-cause notice was issued on 24.11.2014 by AC-II, SRB confronting the appellant on the same issues which were subject matter of earlier correspondence in 2012, as per details recorded above, In this notice also taken up of exempt services was called. However, the AR of the Appellant vide his letter dated 28.11.2014 raised legal objection to the requisition stating that all the requisite details were already with the SRB and it was against the provisions of law to call such details. He also took the objection that it was like unsettling the finalized assessment. 2.9. The AC-II SRB on the other hand, after issuing a show-cause notice on 24.11.2014, proceeded to impose SST @16% as under, vide order-in-original dated 20.01.2015. Total Value of Services (In millions) i) Bank assurance 47.648 ii) Rebate received from foreign banks 117.079 iii)Rebate from SBP 113.363 Total receipts 278.090 Sindh Sales Tax @ 16% 45.699 Penalty under section 43(3) 2.285 Penalty under section 43(11) 2.285 Total Sales Tax and penalty recoverable50.269 2.10. The Commissioner (Appeals) on appellant's appeal confirmed order-in-original in toto, hence, this appeal before us. 3. The appellant has taken following grounds of appeal:-- i) The Commissioner (Appeals ) erred in confirming time barred assessment for the period 01.07.2011 to 31.12.2011 (quarters ending September 2011 and December 2011) by not adjudicating ground No, 3 in appeal before him (on the same issue). ii) The Commissioner (Appeals) ignored order of Sindh High Court in the case of CITI BANK NA reported as 2014 PTD 284 iii) Commissioner (Appeals) erred in confirming levy 'commission of SST on bancasspurance (life insurance)'. iv) Commissioner (Appeals) erred in confirming levy of SST on rebate received from foreign banks. v) Commissioner (Appeals) erred in confirming levy of 'rebate from State Bank of Pakistan'. vi) Commissioner (Appeals) erred in confirming penalty of Rs,2,284,952/- under Section 43(3) and Rs,2,284,952/- under section 43(11) of SSToS Act, 2011, and passing observation about default surcharge. 4. Dr. Ikram ul Haque learned Counsel (AR) of the appellant submitted verbal as well as written arguments on the above grounds as under: 4.1. AT the very outset it was argued that the order-in-original for the period 01.07.2011 to 31.12.2011, passed under section 23 on 22.01.2015 was barred by time. It was argued that counting the period
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of 180 days from the date of issuance of first show-cause notice i,e, 21.05.2012, the assessment should have been finalized latest by 20.09.2012, after which it was time-barred. A ground taken in appeal on this issue before Commissioner (Appeals) was not adjudicated by him. Elaborating his point he stated that after returns for the quarters ending 30.09.2011 and 31.12.2011 were filed by the appellant, a show-cause notice was issued on 21.05.2012 confronting the appellant of the recovery of tax under section 23 on receipts from three services claimed as not taxable by the appellant namely Bank insurance (or bancassurance), rebate received from foreign banks and rebate from SBP. This show-cause notice was issued after much deliberation, forming an opinion by the AC-SRB concerned and, as a result of exchange of correspondence between the appellant and the AC-II SRB for 3 months. He submitted copies of correspondence between AC SRB and the tax advisor of the appellant. A brief is recorded here. i) 12.03.2012 A.C. requisitioned break up of claimed exempt services by the Appellant. ii) 30.03.2012 Reply of appellant received. iii) 09.04.2012 AC raised further queries regarding bank assurance charges and correspondent rebate from foreign banks. iv) 18.04.2012 letter asking for adjournment. v) 20.04.2012 AC's letter allowing time vi) 27.04.2012 AR's detailed reply / correspondence queries on utility bills, bank assurance charges, rebate from SBP. vii) 21.05.2012 Show-cause notice confronting the Bank on the issues raised by the AC after inquiry made through earlier letters and information gathered by the AC from the AR. viii) 25.05.2012 Reply to notice dated 21.05.2012. After this there were no proceedings till 24.11.2014. ix) 24.11.2014 a fresh show-cause notice was issued by the AC-II. 4.2. The learned Assistant Commissioner (DR) argued that after a reply was sent on 25.05.2012 to a show-cause notice dated 21.05.2012 the departmental officer just kept quiet for over a period of 2 1/2 years after which a fresh show-cause notice was issued on 24.11.2014 confronting the appellant on the taxability of receipts of Rs,285,618,976/- from 3 different services for a period of 36 months (from July, 2011 to January, 2014). This also covers the period from July, 2011 to December, 2011, the two quarters period which was the subject matter of correspondence and show-cause notice dated 21.05.2012. The learned AR therefore argued that in respect of two quarters July-September, 2011 and October-December, 2011 no assessment order was passed under section 23 after issuance of show-cause notice dated 21.05.2012. Such an assessment order should have been passed latest by 20.09.2011 in terms of Section 23(3), which reads as under:- Section 23(3): "Any order under subsection (1) or (1A) shall be made within 120 days of issuance of the show-cause notice or within such extended time as the officer of the SRS may, for the reasons to be recorded in writing, fix provided that such extended period shall in no case exceed 60 days". 4.3. The officer neither withdrew the notice dated 21.05.2011, nor passed any order not extended the period of assessm ent, hence the assessment order under section 223 stands barred by time on 20.09.2011, it was argued. 5. Mr. Naheed Mirani, AC-SRB on the other hand submitted-in writing that notice dated 21.05.2011 was just an observation notice which should not be taken seriously and that the original show- cause notice was issued on 24.11.2014 which culminated in the order in original dated 22.01.2015. In his written statement he submitted that there are some necessary ingredients of a show-cause notice which must be adhered to qualify it as a show-cause notice. According to him the show- cause notice should be "specific and unambiguous". It should clearly mention whether the person concerned wished to be heard in person, besides giving him time to file written reply, and opportunity to make representation. It also requires list of documents relied upon by the adjudicating authority. According to him there should also be provision of penalty and reasons and
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conclusion for the same. In case a misstatement is alleged the word "wilful" be preceded, he submitted. 6. It is however noted that while there is provision of a show-cause notice in section 23 and also in section 47 to be given prior to assessment/recovery of tax not paid, no format has been prescribed for a show-cause notice nor it is defined in SSToS Act, 2011. It is not known from where the learned AC-SRB has picked the ingredients of a show-cause notice. In tax matters right of hearing is to be provided to the tax payer by the Assessing Officer as a matter of right as provided under section 23(2) of the Act. Still we may scrutinize what the letter/notice dated 21.05.2012 contained and what it lacked. 6.1 Beyond doubt the said letter/notice is not an 'observation' notice, nor there appears any place for such 'observation notice' under the Act. Besides, it was issued after correspondence of 2-3 months and calling for several details and documents from the appellant. 6.2. The said notice dated 21.05.2012 is very specific and unambiguous. It starts with the words "your reply has been examined" and the 2nd paragraph of the contention has been examined". 6.3. Section 23 provides that "Where after an audit, inquiry etc. an officer of SRB is of the opinion that registered person has not paid tax due on taxable services provided by him, or has made short payment of tax the officer shall make an assessment of Sales tax actually payable.," 6.4. In the said notice dated 21.05.2012 the officer, AC-SRB after inquires made from the registered person through correspondence and examination of the quarterly returns for September 2011 and December 2011 (filed in terms of Section 30(7) of the Act) and as a result of that formed an opinion that "thus, the agency service provided by the banks to insurance companies are also covered under the heading 9813.4990 since 01.11.2011 and under heading 9813.8100 prior to the said date". 6.5. This said show-cause notice also concluded in very specific and unambiguous words as under: (emphasis supplied) "In view of the above observations, it is concluded that SST is payable on "bank assurance" and "rebate". Thus the AC-II SRB proceeded to confront the registered person to pay tax with default surcharge under section 44, failing which recovery proceedings as per law would be started. In his words: "Accordingly Sales Tax on such charges received Rs,9,894,643/- (Rs,2,154,400 + Rs,7,382,244) should be deposited with SRB along with default surcharge under Section 44 of Sindh Sales Tax on Services Act, 2011", 7. Thus, we are of the opinion that by all standards and requirement of section 23 the notice dated 21.05.2012 is a valid show-cause notice under section 23, by which the unpaid/less paid sales tax amount was confronted, which as a logical consequence required the assessment order under section 23 to be passed latest by 20.09.2011 (after 120 days from 21.05.2012 the date of first shpw- cause notice or any extended period, failing which it has become time barred as rightly agitated by the appellant before the Commissioner (Appeals) as well as before us. It is unfortunate that the learned Commissioner (Appeals) has not considered ground 3 on this issue and not recorded his findings in the judgment and left it open for us to decide. (Page 16/62 of the order-in-appeal) (Emphasis supplied). 7.1 As regard the ingredients of a show-cause notice as put forth by Mr. Mirani AC, we have noticed by his parameters most of the show-cause notices issued by, the departmental officers would be rendered invalid causing loss to the exchequer. 8. Proceeding forward we found that another show-cause notice dated 24.11.2014 has been issued for the period from 01.07.2011 to 30.06.2014 (36 months or 3 financial years) on the basis of information provided by the registered person in respect of receipts from three services as reproduced at page 1 of this order. Since we have held in the above paragraphs that any assessm ent under section 23 in respect of receipts declared for the period from 01.07.2011 to
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31.12.2011 has become time barred, we shall now decide the issues in respect of receipts declared for the period from 01.01.2012 to 30.06.2014 (emphasis supplied). 9. A legal issue taken by the appellant is that since the order-in-original comprises of a period of 3 years (covering from quarter ending September, 2011 to quarter ending June, 2014) it is not tenable in law and is void. We find that monthly returns are to be filed on monthly basis under section 30(1), rule 30(7) provides for quarterly reconciliation statements, whereas there is also provision to file annual return under section 30(3). However, there is no restriction or limitation in respect of the period which may be assessed under section 23. It is because of this lacuna in the Act, 2011 that we have some assessm ent orders covering only 6. months period and some others stretching over several years in a single assessment order (emphasis supplied). In the Income Tax Law the tax year comprises of 12 months and an assessment year also comprises of 12 months, save in certain special cases. However, since there is no such provision for the assessment period which could be different from tax period (as defined in Section 2(95) of the Act) any case law in respect of Income Tax would not come to the rescue of the appellant. Hence we hold that the assessm ent under section 23 is not illegal only because it covers more than one tax periods. However, at this stage we wish to note that assessment period may also be specified in Sales Tax law to avoid any such controversy. 10. The main issue revolves around the taxability of the three services rendered by ABL, namely bancassurance, rebate from foreign banks and rebate from State Bank of Pakistan. It is not the issue of exemption of any of these service, as rightly pointed out by the learned AR, as the question of exemption arises in respect of any service which is otherwise taxable and by some provision of law, Notification, SRO or amnesty scheme etc. same has been declared exempt by the government. The appellant does not claim such exemption; rather it claims that these are not taxable services. Here are the arguments of both sides. 11. On the issue of taxability of three services, the appellant has taken a ground that the Commissioner (Appeals) has ignored the judgment of Honorable High Court of Sindh in the case of CITI Bank NA reported as 2014 PTD 284. Apparently it was taken up / argued before the Commissioner (Appeals) but he did not follow it, as the appellant has agitated. The basic plea of the learned AR was that the three services under dispute namely (a) bancassurance (b) rebate / commission on remittance from foreign banks and (c) rebate from State Bank of Pakistan do not fall in the 2nd Schedule of the Act and as provided in Section 3 of the Act a service is not taxable unless it falls under a specific tariff code of 2nd Schedule. It clearly lays down that "a taxable service is a service listed in the Second Schedule". 12. The learned AR argued that the appellant did not claim exemption on these services as exemption is claimed or allowed on a service which is otherwise taxable. In this case the claim is that these services are not taxable at all as these are not listed in the Second Schedule (emphasis supplied). The AC-SRB has for his convenience taxed these under tariff sub-heading 9813.4000 which read as under: 9813.4000 Services provided or rendered by banking companies in relation to: (From Tariff Heading 9813.4100 to 9813.4990 are the sub-subheadings under sub-heading 9813.4000). 13. In fact 9813.4000 is a sub-heading of main general heading 98.13 and as there is colon: at the end, it shows that it is to be followed by a specific sub- sub-heading which is not mentioned by the officer of SRB, who has left it to any body's guess in the following words. "Therefore in the light of foregoing discussion it is held that the services amounting to Rs,285,618,976/- are liable to Sindh Sales Tax at the rate of 16% with tariff heading 9813.4000 and its sub-headings" (emphasis supplied.) 14. The sub-heading 9813.4000 has further 11 sub-sub-headings which are mostly totally different
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from the disputed services (such as "safe deposit lockers"). So unless a service is specified as falling in 2nd Schedule it cannot be taxed merely on the wishes of an officer of SRB. 15. Sub-sub-heading 9813.4990 which is much discussed in the body of the order-in-original is an omnibus clause (emphasis supplied) and it would not be justified to tax any service under it, in utter disregard to the provision of section 3 which is clear about it: "a service listed in Second Schedule". (Emphasis supplied). 16.During the proceedings under section 23 before the AC-SRB and then during hearing of appeal before Commissioner (Appeals) the learned AR elaborately explained the nature of three services which is summed up as under: 16.1. Bancassurance is the commission which a bank gets, from insurance companies to secure business with reference of the bank. It is claimed that neither it is a service of banking origin, nor earned as a commission agent of insurance companies for giving its reference. 16.2. The rebate from SBP is with regard to remittance by parties abroad through appellant bank and such other banks which are otherwise directed not to collect any commission from non- resident (N.R.) remittance. As a reward SBP gives the commercial bank a certain amount from its own account. 16.3. It was also argued that while the appellant bank was earning commission under agency agreement the services of agent of insurance were not brought into tax net as same was not mentioned under any of the said sub-heading. Moreover the tax would be payable by the insurance companies and not by the bank. 16.4. Likewise, about correspondent rebate from foreign banks it was explained that by issuing Letter of Credit (L.C.) or remitting foreign exchange to foreign banks for a local customer the Bank collects its commission / service charges along with Sindh Sales Tax from local customers and same is promptly paid to SRB. On the other hand the correspondent foreign bank (not under jurisdiction of SST/SRB) also charges the beneficiaries of these transactions and shares certain portion of these charges with the appellant Bank as rebate. In fact the appellant Bank neither renders any service in Pakistan to foreign Bank nor earns any income in Pakistan/Sindh which could fall under the scope of SST Act. 16.5. The learned AR argued that none of these three services was enumerated in Second Schedule and the AC-SRB has applied wrong subheading in his impugned order-in-original, which reads as under:-- "in the light of foregoing discussion it is held that the services amounting to Rs,285,618,976/- are liable to Sindh Sales Tax at the rate of 16% under the provisions of Section 8 read with tariff heading 9813.4000 and its sub-headings (not specified)" (emphasis supplied). 16.6. The learned AR argued that under tariff heading 98.13 various sub-headings are listed and then there are sub-sub-headings as the scheme of things is in the international HS Code adopted for Custom, FED and now for Sindh Sales Tax. The sub-headings are specific whereas sub-sub- headings are more specific and as the principle of interpretation is that general is not adopted where a specific is available. 16.7. The learned AR relied on a judgment of the Division Bench of the Honorable High Court of Sindh in the case of CIT Bank NA reported as 2014 PTD 284, and argued that all receipts of a bank are not taxable under heading 98.13 as any such interpretation would amount to rendering the listing of specific service in its various sub-headings as redundant and redundancy cannot be attributed in the words of legislature. 17. On the taxation of the three services he submitted his argument separately as under:-- i) The basis taken by learned Assistant Commissioner for taxation of impugned services of "bancassurance", "rebate received from foreign bank" and "rebate from State Bank of Pakistan" is that all services rendered by the appellant are subject to charge of tax, except those specifically
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exempt under sub-rules. (2) and (4) of rule 30 of Sindh Sales Tax on Services Rules, 2011. The observation was endorsed by learned Commissioner (Appeals) in his appellate order. ii) The learned Assistant Commissioner and learned Commissioner (Appeals) failed to appreciate that: a All receipts of the banks are not taxable under Heading No,98.13 as any such interpretation would amount to rendering the listing of specific services in its various sub-headings as redundant. This contention runs counter to the structure of the Pakistan Customs Tariff which is adopted under the Act. As is well known, this is based on (and is almost entirely identical with) the Harmonized Commodity Description and Coding System ("HS system"), which has been agreed upon under an international convention and which is regulated by. the World Customs Organization. The HS System is of course concerned with goods, and it comprises of 97 chapters (with one chapter, 77, being left "blank" for possible future use) wherein all manner of goods are listed and categorized. b The Pakistan Customs Tariff faithfully reproduces and gives effect to this system and the same is adopted by the Sindh Assembly in respect of the Act as far as classification or services is concerned in respect of which the HS System allows two final chapters (i,e, 98 and 99) to be used for national purposes and Pakistan has utilized Chapter 98 for "services". Even a quick glance shows that Chapter 98 replicates the system of classification adopted for goods under the HS System. Now the chapters of the HS System are preceded by certain "General Rules for the interpretation of the Harmonized System" ("General Rules"). These rules are incorporated in the Pakistan Customs Tariff and therefore have the force of law. The same position will apply for the Sindh Sales Tax on Services Act, 2011. Although the rules are concerned with goods, they may, subject to suitable adaptation, also be used for the purposes of Chapter 98. This is so because of the close correspondence between the classification system under the HS System and that used in Chapter 98. c Rule 6 of the General Rules has been understood to mean inter alia, that in those heading under which sub-headings are to be found, the classification" is to be on the basis and in terms of the sub-headings (Emphasis supplied). Applying this rule to Heading No,98.13 of the Act leads the conclusion that it is the sub-headings thereof that are to be applied: This would be in conformity with the HS System, as is, therefore, represent the correct approach to applying Chapter 98 vis-a- vis various subheadings of Heading No,98.13. The department had to apply a specific sub- heading to bring a service under the ambit of chargeability. iii) The above services are not chargeable to tax under the Act, therefore, question of claiming exemption does not arise. "Exempt service" means a taxable service which is exempt from tax under section 10 of the Act. Exemption relates to a chargeable service and not in respect of a non- chargeable service. Non-chargeability means that no obligation to collect and pay arose. We draw attention towards section 8(1) of the Act which reads as under: 8. Scope of tax: (1) Subject to the provisions of this. Act/ there shall be charged/ levied and collect a tax known as…
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