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(37) &11(5)---Supply of oil products by Oil Marketing Company (Pakistan State Oil Company Limited /PSO)---Price Differential Claim ('PDC') receipts---Non-payment of sales tax, allegation of---Tax fraud, claim of---Scope---Issuance of Show-Cause Notice against the Registered Person---Limitation---Scope---After elapse of five years from relevant tax periods of the Registered Person/PSO, the Department issued two 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---Claim of the Appellant / Department, while relying on decision passed in WP 163/2010 dated 21-04-2010 passed by Lahore High Court, was that the case was not time-barred as the Respondent (Registered Person /PSO) was manifestly in default by committing tax fraud and failing to charge sales tax on PDC receipts---Whether the limitation prescribed under S.11(5) of the Sales Tax Act, 1990, was inapplicable in view of the Department's claim of tax fraud?---Held: Though the Appellant /Department asserted that limitation did not apply in case(s) of tax fraud, however, the Original Assessment Order contained no evidence establishing fraudulent intent under S. 2(37) of the Sales Tax Act, 1990; the CIR (Appeals) concluded that the limitation plea was valid and that the tax demand for periods prior to 30.06.2012 was time-barred---Claim /argument of the Appellant / Department did not stand on tenuous legal footing as issuance of show-cause notices beyond the statutory period prescribed under S. 11(5) of the Sales Tax Act, 1990, could not be justified on the basis of alleged "tax fraud" under S. 2(37) of the Sales Tax Act, 1990---Even, in the present case, the Show-Cause Notice did not seem to be a case of tax fraud per se as in the same the only allegation was that sales tax had not been charged on Price Differential Claims received from the Government of Pakistan against supplies of oil products; such transaction could not be a case of tax fraud---Thus, delayed show cause notices for sales tax on Price Differential Claims could not be salvaged from the bar of limitation on the basis of alleged tax fraud---Appellate Tribunal Inland Revenue affirmed the findings of the CIR (Appeals) that the tax periods prior to 30.06.2012 were time-barred under S. 11(5) of the Sales Tax Act, 1990, which findings did not warrant interference---Appeal, filed by the Department, was dismissed, in circumstances. Ss. 2(46)& 11(2)---Sales Tax Notification S.R.O. 911(I)/2007 dated 10.09.2007---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---Scope---Value of supply---Scope--- Sales tax, non-levy of---Department issued Show-Cause Notices to 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---Validity---In the present case the respondent (Registered person /PSO) found support for non-levy of sales tax on PDCs from the Sales Tax Notification S.R.O. 911(I)/2007 dated 10.09.2007, issued by the Revenue Division( 'the Notification 2007'), which expressly excluded PDCs,as notified by the Federal Government from the import value and value of supply of High-Speed Diesel (HSD) for the purposes of sales tax on both imports and local supply---Notably, HSD also forms part of the subject matter of the impugned assessment order---No subsequent legal instrument repealing or modifying the Notification 2007 had been placed on record by the Department---Thus, issuance, validity or applicability of the Notification 2007 was undisputed and the Department's reliance on outdated/withdrawn administrative interpretations on FBR Letter No.1(17) STR/2000, stood legally refuted---Appeal filed by the Department was dismissed, in circumstances. Ss. 2(46) & 11(5)---Supply of oil products by Oil Marketing Company (Pakistan State Oil Company Limited /PSO)---Price Differential Claims ('PDCs') receipts---Legal character---Sales tax, non-payment of---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 based on interpretation of the Tribunal's decision in case titled Multan Electric Power Company (MEPCO) v. CIR reported as 2016 PTD 1829 ('the MEPCO case')---Validity---Appellant / Department had relied on the MEPCO case which was set aside by the Lahore High Court, hence, the same was not in field---Plea of the Appellant /Department, being wrong, had no force---Appeal filed by the Department was dismissed, in circumstances. Ss. 2(37), 11(2), 11(5), 33(13) & 34---Supply of oil products by Oil Marketing Company (Pakistan State Oil Company Limited /PSO)---Price Differential Claim ('PDC') receipts received from the Government of Pakistan to PSO (Registered Person)---Non-payment of sales tax, allegation of---Tax fraud, claim of---Scope---Imposed tax demand, deletion of---Default surcharge and penalty, imposition of---Scope---After elapse of five years from relevant tax periods of the Registered Person/PSO, the Department issued two 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---Whether the imposition of default surcharge under S. 34 and penalty under S. 33(13) of the Sales Tax Act, 1990, was legally sustainable, in view of the Department's stance that the Respondent committed tax fraud by not charging sales tax on Price Differential Claims (PDCs) on petroleum products?---Held: Since (this) Tribunal, in the light of the findings recorded under relevant issue ( i.e. whether the limitation prescribed under S. 11(5) of the Sales Tax Act, 1990, was inapplicable in view of the Department's claim of tax fraud?) affirmed the order of the Commissioner Inland Revenue (Appeals) deleting the principal demand, thus, as the principal demand did not survive, the consequential penalty and default surcharge also ceased to have any legal basis---No justification was found to interfere with the impugned order passed by the Commissioner Inland Revenue (Appeals) and the same was accordingly upheld---Appeal, filed by the Department, was dismissed, in circumstances. Ss. 2(46) & 11(5)---FBR letter No. 1(17) STR/2000 and FBR Circular C.No.1(30)STR/99 (Vol-II)---Supply of oil products by Oil Marketing Company (Pakistan State Oil Company Limited/PSO)---Price Differential Claims ('PDCs')---Legal character---Value of supply---Scope---Department issued two Show-Cause Notices to 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, principally basing on FBR letter No. 1(17) STR/2000, was that PDCs fell within the scope of value of supply---Validity---Federal Board of Revenue Letter No. 1(17) STR/2000, was explicitly withdrawn through FBR Circular C.No.1(30)STR/99 (Vol-II) having been issued by the Revenue Division, Central Board of Revenue (Sales Tax Wing) ['later FBR Circular'], thereby extinguishing any interpretative value it may, if any, once held---The very classification of PDCs, as consideration under S. 2(46) of the Sales Tax Act, 1990, was expressly reconsidered and reversed by the later FBR circular---Said later FBR Circular clearly delineated / clarified the scope of "value of supply" and expressly excluded governmental subsidies, in the form of PDCs, from that definition in the case of oil refineries ('Clarification')---Said Clarification-in-question aligned with the statutory definition of "value of supply" in S. 2(46) of the Sales Tax Act, 1990, which provides that the value of supply in respect of a taxable supply is the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply---Appeal filed by the Department was dismissed, in circumstances. S.11(5)---Tax evasion, allegation of---Show-Cause Notice, issuance of---Limitation---The limitation period prescribed under S. 11(5) of the Sales Tax Act, 1990, is mandatory and not merely directory in nature. 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. Material judicial precedent, concealment of---Scope and effect---Concealment of material facts or legal authority, particularly precedent directly binding upon a party, is antithetical to the duty of candour incumbent upon a public authority---Such conduct not only undermines the integrity of the adversarial process but may also invite judicial censure---In the present case the tax department, being an arm of the State, was under an elevated obligation to assist the Tribunal with full disclosure, especially where judicial authority squarely covered the legal issue in question.

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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