COMMISSIONER INLAND REVENUE, ZONE-I, LTO, KARACHI vs PAKISTAN STATE OIL COMPANY LIMITED, KARACHI Ss

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COMMISSIONER INLAND REVENUE, ZONE-I, LTO, KARACHI VS PAKISTAN STATE OIL COMPANY LIMITED, KARACHI Ss. 2(46), sub-clause (i), Explanation & 11(2) ---FBR letter No.1(17) STR/2000---Supply of oil products by Oil Marketing Company (Pakistan State Oil Company Limited /PSO)---Price Differential Claims ('PDCs') receipts---Legal character---PDCs and Tariff Differential Subsidies (TDS)---Value of supply---Scope---"Consideration" and 'Subsidy'---Scope---Grant / exclusion of subsidy---Scope---Department issued Show Cause Notices against Registered Person for non-payment of sales tax on Price Differential Claim ('PDC') receipts having been received from the Government of Pakistan---Assessment order was passed against (Registered Person /PSO) raising sales tax demand along with a penalty equal to the principal amount and default surcharge---Department approached the Appellate Tribunal Inland Revenue ('Tribunal') as the Commissioner Inland Revenue (Appeals) ['CIR (Appeals)'] deleted the entire demanded amount (the sales tax as well as penalty and default surcharge) on the ground of limitation prescribed under S. 11(5) of the Sales Tax Act, 1990---Plea of the Department was that PDCs were made on behalf of end-consumers and fell within the scope of value of supply whose legal character equated with Tariff Differential Subsidies (TDS)---Whether the Price Differential Claims (PDCs) received by the Respondent from the Government of Pakistan constituted "value of supply" within the meaning of S. 2(46) of the Sales Tax Act, 1990---Held: A significant statutory development reinforcing the exclusion of subsidies from the value of supply was the insertion of an Explanation to sub-clause (i) of clause (46) of S. 2 of the Sales Tax Act, 1990, which expressly affirmed that such subsidies were not, and never were, chargeable to sales tax---Said amendment reflected the legislative intent that government provided subsidies such as Tariff Differential Subsidies (TDS) paid to the DISCOS (Distribution Companies) in Power Sector were excluded from the value of supply---With the enactment of said Explanation, the issue of non-levy of sales tax on TDS payments stood conclusively settled, leaving no scope for contrary interpretation under the Sales Tax Act, 1990---By necessary implication, this also applied to analogous mechanisms such as PDCs---Akin to TDS, PDC payments were unilateral fiscal support measures intended to shield consumers from market fluctuations; they were disbursed by the State to regulated intermediaries (such as OMCs or DISCOs) to compensate for losses incurred due to adherence to state-imposed price controls---Said subsidies were not paid under any bilateral contract with the Government, which acted neither as the purchaser nor the recipient of the supply---The absence of a reciprocal legal arrangement or direct quid pro quo precludes PDCs from qualifying as "consideration" as envisaged under S. 2(46) of Sales Tax Act, 1990---Though the Sales Tax Act, 1990, did not define "subsidy," authoritative legal lexicons, such as P. Ramanatha Atyar's Advanced Law Lexicon", define it as: "money granted by the State or a public body to keep down the prices of commodities"---Said description aptly captures the nature of PDCs, which are compensatory payments by the Government to OMCs for selling fuel at State-regulated prices below the OGRA-determined ex-refinery or import parity rates and not for any supply made to the Government---Thus, treating PDCs as taxable consideration would result in multiple anomalies; taxing entities on amounts not derived from taxable supplies; violating tariff notifications that cap prices; and retrospectively burdening regulated entities with tax liability despite no supply being made to the Government, which would also exacerbate circular debt--- Hence, the taxability of Price Differential Claims (PDCs) must be determined with reference to Section 2(46) of the Sales Tax Act, 1990, which defines "value of supply" as the consideration in money received by the supplier from the recipient for that supply---Said definition requires that the value of supply must be tied to consideration received from the recipient of the supply and a direct transactional nexus between the supplier and the recipient involving mutual obligations should exist---However, the PDCs are unilateral disbursements by the Government, not consideration for any supply made to it, nor payments made on behalf of a recipient in the statutory sense---Value of supply must involve a direct transactional relationship between the supplier and the recipient---Accordingly, PDCs, being unilateral payments without such a relationship, fall outside the purview of "value of supply"---Even, assuming arguendo, without conceding that sales tax was hypothetically applicable, liability could only attach to the Government of Pakistan as payer, not to the Respondent OMC, since there was no supply made to the Government nor any consideration received from it as a recipient of supply---Hence, the Price Differential Claims (PDCs) received by the Respondent did not fall within the ambit of "value of supply" under S. 2(46) of the Sales Tax Act, 1990, and were not chargeable to sales tax---Tribunal upheld the order of the Commissioner Inland Revenue (Appeals), whereby the levy of sales tax on PDCs was deleted, which warranted no interference---Appeal, filed by the Department, was dismissed, in circumstances.

COMMISSIONER INLAND REVENUE, ZONE-I, LTO, KARACHI vs PAKISTAN STATE OIL COMPANY LIMITED, KARACHI Ss — 2025 PTD 1803 INLAND REVENUE APPELLATE TRIBUNAL OF PAKISTAN

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