A.   BACKGROUND

This refers to the following TLQCs (in trail, blue, italic and after double line):

(a)   2355 of 8.6.2023 about Extra Tax per SRO 896 dated 4.10.13 is intra vires - SHC

(b)   2168 of 24.1.2023 about AML modus operandi against Tax Evaders, etc is OK per LHC.

(c)   1878 of 19.5.2022 about ATIR order wherein the ATIR held that there was no Extra Tax on Exempt Items.

B.   UPDATED COMMENTARY - EXECUTIVE SUMMARY

Further to above TLQCs & KQU 2379, being an Important matter, we would inform you that SHC vide order (Attachment 2495.1) in CP 7493/2021 & 41 others in case of AUS Food VS FoP, etc & 41 others gave verdict on the matter of Extra Sales Tax on Electricity bills held valid.

C.   DETAILS

1.   Brief Facts

1.1   Through all these Petitions the Petitioners have impugned SRO 1222 dated 17.9.2021 issued under Section 3(5) of the ST Act (superseding an earlier SRO 509 dated 12.6.2013) whereby, an extra tax has been levied on the billed amount (excluding Federal taxes), in addition to the tax payable under Section 3(1) of ST Act, on supplies of electric power and natural gas to persons having industrial and commercial connection, but who have either not obtained ST Registration or are not on the Active Tax-payers List maintained by FBR on rates as provided in the table annexed to such SRO. The Petitioners before us are either running some Charitable Institutions; Hospitals; Schools or some kind of business. It further appears that it is not in dispute that they are having either an industrial or commercial connection of electricity or gas as the case may be. However, their case is that since they are not engaged in any taxable supplies or are otherwise, engaged in making exempt supplies, nor are required to be registered under the Act as they are not engaged in any taxable activity; hence not liable to pay any further tax or extra tax, pursuant to the impugned Notification; hence, K-Electric (for the present purposes) be restrained from charging any such extra tax through electricity bills.

1.2   It is a matter of admitted position, that primarily ad-interim orders in these petitions were passed following the judgment in the case reported as Al-Zarina Glass Industries wherein the predecessor SRO 509 dated 12.6.2013 was impugned; and the controversy was decided in favor of the taxpayers; however, the Appeal filed by the department against the said judgment has been allowed by the SCP vide its order dated 15.9.2022 in Civil Appeal 920 of 2018 dated 15.9.22 and other connected matters as the Chief Commissioner (IR) Region (CIR) v M/s Al Zarina Glass Industries reported as 2018 PTD 1600. Pursuant to SCP judgment in some of the Petitions vide order dated 16.2.2023 the SHC had recalled the ad-interim orders.

1.3   Some of Petitioners Counsel have made their best efforts to argue that notwithstanding the judgment of the SCP in CIR v M/s Al Zarina Glass Industries (supra), they still have an arguable case on various other grounds. However, SHC do not see any reason to entertain any such further grounds as primarily their case was dependent on and filed on the basis of Judgment of the SCP in Al Zarina Glass Industries which now stands set aside by the SCP. For this there appears to be no justification to entertain such grounds as the Apex Court has now finally decided the issue.

1.4   The question before the SHC in Al Zarina Glass Industries was in respect of SRO 509 dated 12.6.13 which stands superseded through impugned SRO 1221 dated 17.9.21. However, the issue was identical i.e. as to the validity of levy of extra tax on persons who are not liable to be registered. The only difference appears to be in the rate of tax being notified depending upon the Billed amount of Electricity. The relevant findings of SCP in its order dated 15.9.22 is as under: -

4. Civil Appeals No.920 to 927 of 2018. In these Appeals, in additional to the above issue, the vires of SRO No.509(I) of 2013 dated 12.06.2013 was challenged before the High Court even before any show cause notice was issued to the Respondents. The High Court ultimately came to the conclusion that the SRO in question was not applicable to the Respondents who enjoyed exemption. This question has also been dealt with by this Court in a judgment reported as Zak Re-Rolling Mills (Pvt) Ltd. v. Appellate Tribunal Inland Revenue (2020 SCMR 131) in which the scope and interpretation of Section 3(1A) of the Sales Tax Act, 1990 has been elaborated. As such, SHC find that the judgments of the Sindh High Court which have been impugned before us through these appeals do not proceed on the correct principles of law as interpreted by this Court and consequently suffer from an error insofar as they have proceeded to strike down an SRO without taking note of the interpretation of the said SRO given by various pronouncements by this Court. Further, SHC are of the view that by pre-empting even the issuing of a show cause notice, the Respondents had short-circuited the system which had deprived the department of its right to interpret the SRO and apply the same to all parties which were found to be liable to pay tax in question.

2.   SHC Decision

2.1   The SHC held that it did not see any further room to entertain and respond to any additional or further arguments of the Petitioners Counsel. At this juncture, some of the Counsel have also argued that subsequently, in the case of Hajvairy Steel the SCP vide order dated 30.1.23  has arrived at a somewhat contrary view, and therefore, the judgment in the case of CIR v M/s Al Zarina Glass Industries would not be applicable.

2.2   To that, firstly, SHC may observe that this cannot be their case as in most of the Petitions they have annexed copy of the judgment passed by this Court in the case of Al Zarina Glass Industries, whereas, the ad-interim orders so obtained are also based on such judgment of this Court. Secondly, though the SCP in the case of CIR v M/s Al Zarina Glass Industries while setting aside the Judgment of this Court has made reference to the case of ZAK Re-Rolling Mills which has been distinguished in Hajvairy Steel by the SCP subsequently; however, there is no dispute that the facts; issue as well as the SRO under consideration in the case of Hajvairy Steel (Supra) were not akin to the present Petitioners case. Here their argument is that since they are not liable to be registered; or are engaged in making exempt supplies; hence, no extra tax can be levied on them through electricity bills, whereas, in Hajvairy Steel the issue before the SCP was in respect of overriding effect of Rule 58H of the Sales Tax Special Procedure Rules, 2007 notified under Section 71 of the Act, having a non-obstante clause prevailing over the general charging section of the Act, including Section 3(1A) ibid. In that background it was held by the SCP that payment of tax under the Special Procedure Rules was the final liability of such persons and no extra tax is to be paid by them under Section 3(1A) of the Act. Therefore, on facts, the ratio of Hajvairy Steel’s case appears to be distinguishable; hence of no avail.

2.3   Lastly, it is pertinent to note that this Extra tax under Section 3(5) has been levied on supply of electric power and natural gas. It is in addition to the tax levied under section 3(1). It is not on the activity or business of the Petitioners from which any exemption can be claimed on the ground that they are not engaged in any taxable activity. It is just like a tax on the consumer who avails any service or buys any goods and has to pay such tax. At times, the said tax is neither refundable nor adjustable; but this in and of itself is not a ground to declare it as illegal. 

2.4   In view of hereinabove facts and circumstances of these cases, since the issue stands decided against the Petitioners by the SCP, SHC are left with no choice; but to dismiss all these Petitions with pending applications. Ordered accordingly.

D.   Further Details & Services

Should you require any clarification or explanations in respect of the above or otherwise, or require Income Tax, Federal & Provincial Sales Tax or Withholding Tax Statement, Advisory, Return Filing or Review services, please feel free to email Mr Amsal at amsal@786tax.com with CC to info.kasbati@professional-excellence.com, asif.s.kasbati@professional-excellence.com. We have expertise in second opinion Advisory and corporate return in-depth review, without affecting your current tax advisors consistent services.