Description of Services
Services provided or rendered in respect of travel by air of passengers within territorial limits of Pakistan.
Carriage of goods by air.
Services provided or rendered by banking companies and non-banking financial companies.
Services provided by insurance companies.
Services provided or rendered by stock brokers.
Services provided or rendered by port and terminal operators.]
4. Learned counsel for the petitioner during course of arguments took the following grounds:–
(I) After the promulgation of the 18th Amendment the Federal Government has no jurisdiction in relation to levying of taxation on services.
(II) Under Section 3(1) (d) read with Entry, No. 6, in Table II of Schedule I of the Federal Excise Act, 2005 (the “FE Act”), excise duty is charged and levied on “telecommunication services” as specified in Chapter 98.12 of the First Schedule to the Customs Act, 1969, at the rate of 19.5% of the charges. Section 12(2) of the FE Act provides that FED, shall be paid on “the total amount of charges of services including ancillary facilities or utilities, if any…”. In the case of “telecommunication services”, FED is required to be levied and collected “as if it were sales tax and all the provisions of that Act (i.e. the Sales Tax Act, 1990) and Rules, notifications, orders, etc.” This follows on the language of section 7 of the FE Act read with S.R.O. 550(I)/2006. In other words it is deemed to be a sales tax and while determining its liability an operator such as a petitioner is entitled to deduct any input tax. Even otherwise, it is submitted that FED on services is in pith and substance a sales tax.
(III) That the whole amount of the FED @ 19.5% which has been recovered by the call initiator’s network on the full amount charged for the entire cross-network call (i.e. its call charges and ‘interconnection charges’) from its subscriber has admittedly been deposited with the FBR. Thus full payment of excise duty has been made on the first part of the call (i.e. within the network of the calling party) as well as the second part of the call (i.e. within the network of the receiving party, which is referred to as interconnection charges). This is being done under orders of PTA as per the rules. It needs to be highlighted that the Calling Party regime which has been strictly, followed in the present case by the petitioners has been in force for the last ten years and no objections have been raised, by the FBR during that time, and this demand for double duty has been raised for the first time for extraneous reasons. The impugned demand is that FED Will be levied twice (i.e. double taxation) on the second Part of the call (i.e. the interconnection charges). It is proposed by the respondents that they will recover excise duty on the second part of the call both from the calling party’s and the receiving party’s telecom operators. It is submitted that this grossly illegal and unconstitutional.
(IV) That the decisions and actions of the respondents demonstrate their wrongly held view that ‘interconnection services’ are liable to be taxed twice as not only is the cellular network of the calling party required to pay FED on the ‘interconnection charges’ under the FE Act but also the receiving party network is liable to pay additional FED on the same `interconnection charges’ also under the same provisions of the FE Act. This is despite the fact that such an eventuality would lead to double taxation as the incidence of tax is the same in both circumstances i.e. the rendering of ‘interconnection services’ for the same phone call.
5. On the other hand respondents Nos.1 and 2 filed their reply and parawise comments whereas respondents Nos.3 and 4 also filed their reply/para wise comments separately and prayed for dismissal of writ petition raising preliminary objections, that issues raised through instant petition have already been decided by the superior courts and the object of the filing of instant petition is to delay the recovery of charges and Federal Excise Duty on telecommunication services. That in an identical case of Messrs Pakistan Mobile Communications Ltd. the issue of taxability of interconnect charges have already been settled up by this Court in Federal Excise Reference No.1/2012. The clarification C.No.3(16)ST-L&P/2010/6618-R, dated 9-5-2012 issued, by the Federal Board of Revenue was withdrawn in view of the judgment of learned Appellate Tribunal, Inland Revenue in S.T.A. No.30/IB/2012, dated 21-5-2012 in the case of Messrs Pakistan Mobile Communications Ltd. Learned Appellate Tribunal disapproved the clarification as the matter has already been adjudicated by the appellate forum; therefore, FBR was not justified to issue the same and this judgment has already been upheld by a learned Division Bench of this Court, hence, the issue cannot be agitated by the petitioners in writ jurisdiction. It is contended that the issue of the competence of the Federal Legislature to levy Excise Duty on services in terms of item 44 of the Federal Legislative List have also been set at rest by the Hon’ble Supreme Court of Pakistan. Learned counsel for respondent Nos.1 and 2 contended that admittedly, petitioner are paying Federal Excise Duty (under Federal Excise Act, 2005) on, inter-connect charges and in this way admitted their liability to excise duty. It is also an admitted fact that petitioners have approached FBR for exemption under section 65 of the Sales Tax Act, 1990, in respect of previous years, thus admitted liability to pay FED on interconnect charges. That the petitioners are approbating and reprobating in same breath, as on the one hand they state that they had paid FED on interconnect charges and on the other hand claim that they are paying sales tax on the same to Sindh Revenue Board and therefore the petitioners have not come to the court with clean hands. It is further argued that Federal Excise Act, 2005, provides adequate remedy by way of appeals and revisions before the Commissioner (Appeals), the Appellate Tribunal and then a Reference on questions of law before the High Court. The petitioners cannot have a choice of forum at their own wish and desire and must approach the forum provided by law. That the question of taxability of interconnects charges is primarily a question of fact i.e. whether particular service falls within the definition given in the relevant law; such factual controversies cannot be determined in writ proceedings, and are to be determined by competent forum provided by the law.
6. On facts it was contended by the respondents that the amendment made in the legislative list contained in the Fourth Schedule to the Constitution, through 18th Amendment, particularly Entry 49 is not relevant and has no nexus with the powers of the Federal Government to levy Excise Duty under Entry 44 of the said list. Petitioners have tried to confuse the matter. That, the, history of the Federal Excise duty and its scope and the changes in the indirect taxes made from time to time as well as the taxation powers of the Federal and Provincial Governments are a matter of record. That the Sindh Government’s web-site and any assertions therein have neither any legal force nor are binding on the Federal Government and the Federal Government’s taxation powers under entry 44 of the Federal Legislative List contained in Fourth Schedule of the constitution remains unaffected, by any amendment in entry 49 of the list which relates to Sales Tax only. The reliance placed on Sindh Government’s letter is misconceived apart from the fact that the said letter is not binding on the Federal Government, it has no relevance to the question of liability of petitioners to pay FED on interconnect charges and the letter does not relate to FED on interconnect charges. Petition is not maintainable under the law and is bad for misjoinder of parties because petitioners have neither any cause of action nor are they aggrieved, persons with the meaning of Article 199 of the constitution and at present there is no order against the petitioner of which they are aggrieved. It is also contended that petitioners applied to FBR for consideration of their case under section 65 of the Sales Tax Act, 1990 which was examined by the FBR and after thorough deliberation and discussions on the issue, it was decided on 2-7-2012 by the FBR that the case under section 65 of the Sales Tax Act, 1990 needs further scrutiny, therefore, the notification under section 65 ibid shall not be issued. The reference to advance of Rs.6.7 billion is not relevant to the material facts of the case. The application was considered by FBR with a view to settle the issue but ultimately the notification was not issued and the matter had to be left to the litigating/adjudicating forums for decision. The case of petitioner for exemption under Section 65 of the Sales Tax Act, 1990 was forwarded by the Large Taxpayers Unit, Islamabad to the Federal Board of Revenue for decision and the FBR after examining the case under section 65 of Sales Tax Act, 1990, ultimately decided not to issue the notification under section 65 of the Sales Tax Act, 1990, therefore, a notification is only considered to be issued once it is published in the official gazette of Pakistan. The photocopy of signed notification furnished by the petitioner has no legal value, as it is not a notification till issued and notified in the official Gazette, hence a draft, which was not issued or notified, is not a legal document.
7. I have carefully heard, the learned counsel of the parties and perused the relevant record. The following four pivotal questions have surfaced from the pleadings and contentions put forth:–
(1) Whether the FED levied and deducted initially from the calling party is the same for the telecommunication network who connects the network from which call is made, i.e. receiving party ?
(2) Whether services for interconnection require re-imposition and demand of FED?
(3) Whether the entire amount of FED @ 19.5% includes the amount of FED levied on behalf of both networks, i.e. the calling party and receiving party, and if so, what is the justification to demand independently from the telecommunication network which connects the call to the other network?
(4) Whether the demand of FED from both networks is to complicate the process and burden the ultimate ‘subscriber?
The Parties have neither pressed nor emphasized on the other remaining issues contended in the Petition and left those to be agitated on a subsequent stage.
8. However, before embarking on an examination of the aforementioned questions, I find it essential to reproduce herein below the relevant provisions contended and relating to this Writ Petition:–
(i) Section 5(2)(h) of the Pakistan Telecommunication (Re-organization) Act, 1996?
(5) Powers of the Authority.—(1) The authority shall exercise all powers as shall enable it to effectively perform its functions specified in section 4.
(2) In particular, and without prejudice to the generality of the foregoing power, the authority shall-
(a) grant and renew licenses for any telecommunication system and any telecommunication service on payment of such fees as it may, from time to time, specify;
(b) monitor and enforce licenses;
(c) receive applications for the use of radio frequency spectrum, and subject, where applicable, to grant of licenses under clause (a), refer such applications to the Board of assignment of spectrum within a period of thirty days;
(d) modify licences or conditions thereof in accordance with section 21 or section 22;
(e) establish or modify accounting procedure for licences and regulate tariffs for telecommunication service in accordance with sections 25 and 26;
(f) regulate the transfer of licences;
(g) prescribe standards for telecommunication equipment and terminal equipment, certify compliance of such equipment with prescribed standards, and issue approvals of terminal equipment and of approved installers under section 29;
(h) provide guidelines for, and determine, the terms of inter-connection arrangements between licensees where the parties to those arrangements are unable to agree upon such terms;
(ii) Section 2(21a) of the Federal Excise Act, 2005
“Sales Tax Mode” means the manner of collection and payment under the Sales Tax Act, 1990 and rules made thereunder, of the duties of excise chargeable under this Act specified to be collected and paid as if such duties were tax chargeable under section 3 of the said Act and all provisions of that Act and rules, notifications, orders and instructions made or issued thereunder shall mutates mutandis, apply to the excise duty so chargeable;
(iii) Section 3(1)(d) of the Federal Excise Act, 2005
3. Duties specified in the First Schedule to be levied:
(1) Subject to the provisions of this Act and rules made thereunder, there shall be levied and collected in such manner as may be prescribed duties of excise on,–
(a) goods produced or manufactured in Pakistan;
(b) goods imported into Pakistan;
(c) such goods as the Federal Government may, by notification in the official Gazette, specify, as are produced or manufactured in the non-tariff areas and are brought to the tariff areas for sale or consumption therein; and
(d) services provided in Pakistan including the services originated outside but rendered in Pakistan;
at the rate of [fifteen] per cent ad valorem except the goods and services specified in the First Schedule, which shall be charged to Federal excise duty as, and at the rates, set-forth therein.
(iv) Section 7 of the Federal Excise Act, 2005
7. Application of the provisions of the Sales Tax Act, 1990.—[(1)] In case of goods specified in the Second Schedule or such services as may be specified by the Board through a notification in the official Gazette [the duty shall be payable in sales tax mode, whereby]:–
(a) a registered person manufacturing or producing such goods or providing or rendering such services shall be entitled to deduct input tax paid during the tax period from the amount of duty of excise due from him on such goods or services in respect of that tax period;
(b) a registered personal shall be entitled to deduct the amount of duty of excise paid or payable by him on such goods or services as are acquired by him during a tax period from the output tax due from him in respect of that tax period;
(c) a registered person supplying such goods or providing or rendered such services shall be entitled to deduct duty of excise paid or payable on such goods or services as are acquired by him during the tax period from the amount of duty of excise due from him on such goods manufactured or produced or services as are provided or rendered by him during that period; and
(d) a person shall be entitled to deduct duty of excise paid or payable, on such goods or services as are acquired by him during a month, from the amount of duty of excise due from him on such goods manufactured or produced or such services as are provided or rendered by him, during that month.
Explanation.—For the purposes of this section, the expressions “input tax”, “output tax” and tax period” shall have the same meaning as are assigned to them in the Sales Tax Act, 1990.
(v) Section 12(2) of the Federal Excise Act, 2005
12. Determination of value for the purposes of duty;
(1) Where any goods are liable to duty under this Act at a rate dependent on their value, duty shall be assessed and paid on the basis of value as determined in accordance with subsection (46) of section 2 of the Sales Tax Act, 1990, excluding the amount of duty payable therein.
(2) Where any services are liable to duty under this Act at a rate dependent on the charge therefore, the duty shall be paid on total amount of charges for the services including the ancillary facilities or utilities, if any, irrespective whether such services have been rendered or provided on payment of charge or free of charge or on any concessional basis.
(vi) Rule 43 of the Federal Excise Rules, 2005
43. Special procedure for collection of Federal Excise duty on telecommunication services:
(1) Every person, firm or company, hereinafter referred to as the person, engaged in providing or rendering telecommunication services as mentioned in the First Schedule to the Act, if not already registered, shall obtain Federal Excise registration from the [Collector of Federal Excise] in whose jurisdiction the said person, or as the case may be, his head office is located;
Provided that where the person is already registered under the Sales Tax Act, 1990 he shall not be required to take separate registration for excise purposes and his Sales Tax registration shall be deemed to be a registration for the purpose of the Act.
(2) The person shall pay duty in the following mode and manner, namely:–
(a) in case of post paid telephone services, duty shall be paid by the 21st day of the following second month;
(b) in case of pre-paid telephone services, duty shall be paid by the 21st day of the following month; and
(c) in case of other telecommunication services, duty shall be paid by the 21st day of the following month.
(3) While determining his liability, the person shall be entitled to deduct input tax paid on procurement of any equipment or the duty paid on acquiring services in connection with the provision of telecommunication services.
(4) The person, or as the case may be, the head office of the person shall along with the proof of payment of duty, submit statement by the date specified in sub-rule (2), in the following [Form] namely:–
(5) Failure to pay the duty by the due date, as specified in sub-rule (2), shall render the person, or as the case may be, the head office of the person, liable to a penalty under the Act in addition to payment of duty and default surcharge payable thereon under section 8 of the Act.
(6) In addition to the statement specified under sub-rule (4), the person, or as the case may be, the head office of the person shall also maintain such other records and submit such other statements, as may be specified, with prior approval of the Board, to the [Collector of Federal Excise] having jurisdiction.
(7) [An officer or offices of Federal Excise] as are deputed by the [Collector of Federal Excise] having jurisdiction, shall have access to any of the records maintained by the said person, or as the case may be, the head office of the said person.]
9. The aforementioned four questions shall be examined collectively in the light of legal provisions provided hereinabove along with the issue of legality of the taxability on ‘interconnect charges’ from both the calling party as well as receiving party. While answering questions 1 and 2 jointly, it is important to note at the very outset that pursuant to section 2(21a) and section 7 of the FE Act read with Rule 43 of the Federal Excise Rules, 2005 in the case of “telecommunication services”, FED is required to be levied and collected as if it were ‘sales tax’ hence initially the whole amount of FED at the rate of 19.5% was recovered from the call initiator’s network on the full amount charged for the entire cross network call, that is, the call charges and the interconnect charges. In due course, the respondents by way of the present impugned demand have sought to levy FED twice on the second part of the call, i.e. the ‘interconnect charges’ from both the calling party’s telecom operator as well as the receiving party’s telecom operator which seems entirely unreasonable and unjustified. I am of the view that when FED is already charged and deducted on ‘interconnect charges’ under the name of `telecommunication services’ from the subscriber of the calling party’s telecom operator, then the added demand of charging FED on interconnect charges from the receiving party’s telecom operators also under the same classification and, marque of ‘telecommunication services’ is utterly unfounded and yielding double liability amounting to double taxation. Hence, answering question No 3, there is no legal justification for the respondents to demand FED independently from the telecommunication networks which connects the call to the other network. If the receiving party is also suppose to pay the FED by describing the same as ‘services’ then there is no jurisdiction to receive FED of 19.5% from the calling party’s telecom operator against the share of other party. Therefore, the respondents have wrongly and unreasonably held the view that ‘interconnect services’ are liable to be taxes twice as not only is the cellular network of the calling party required to pay FED on the ‘interconnect charges’ under the FE Act but also the receiving party network is liable to pay additional FED on the same ‘interconnect charges’ also under the same provisions of the FE Act. Accordingly, such an eventuality would lead to double taxation as the incidence of tax is the same in both circumstances i.e. the rendering of ‘interconnect services’ for the same phone call.
10. It is a paramount principle of law established and settled by the mandate of the dictum of the Superior Courts that the ‘rule of avoidance of double taxation is merely a rule of construction; therefore, it ceases to have application when the legislature expressly enacts a law, which results in double taxation of the same income, however in the absence of clear provisions stipulating double or Multiple levies, the Courts must lean in favour of avoiding double taxation’ (Re: PLD 2011 Lahore 402). In view of the aforesaid is not disputed that there can be double taxation if the legislature has distinctly and expressly enacted it however in the absence of such enactment where there are general words of taxation then the Court has to interpret the provisions in a manner where they cannot be so interpreted as to tax, the subject twice over to the same (Re: Channell, J, in Stevens v. The Durban-Poddepoort Gold Mining Co. Ltd. (1909) 5 Tax Cas 402). Accordingly, in the absence of any impediment specifically created in the Constitution of a country or the legislative enactment itself, there is a desirability or need otherwise to avoid such double liability therefore Courts, unless there is clear and specific mandate, of law in favouar of such multiple levies more than once, in construing general statutory provisions must lean in favour of an interpretation to avoid double taxation, (Re: Sri Krishna Das v. Town Area Committee (1991 AIR 2096), Chirgaon and Radhakishan Rathi v. Additional Collector, Durg and others (AIR 1995 SC 1540, JT 1995 (6) SC 166)). In the present case the intention of the legislature to tax telecommunication operators twice on interconnection, is not visible from the legislation, in fact it is otherwise, and, therefore, this Court strongly dispels interpretation put forth by the respondents which warrants imposition of double taxation.
11. It is eminent that technological developments have undoubtedly increased business development and investment activity. This is particularly true in the case of telecommunications activities, which both enable and benefit from the activities of cross-network calls to other subscribers of various telecommunication networks. Cross-network calls invariably implicate the tax rules of more than one mobile network. Traditional tax methods for alleviating double taxation developed in the context of a global economy based where primarily based on the manufacture and trade of tangible goods where location of production facilities, employees, and pales were easily traceable. More often than not, these rules are poorly suited to internet and wireless technologies where services and information are provided in intangible forms. When multiple networks are imposed with separate and sometimes conflicting tax rules, cross-network call activities can be subjected to evils of double taxation as per the case in hand. This double liability can impede cross-network economic activity and capital flows. Governments of different countries have generally mitigated the risks of such double taxation. For example in 2000 the U.S Congress to overcome the dilemma of double taxation enacted the Mobile Telecommunications Sourcing Act of 2000′ by providing a `uniform source rule’ formula whereby only one initiating call network is taxed. Hence, answering the last question, in my estimation, it is regretful to observe that the FBR has disregarded such uniform sourcing formula practices and rules to avoid the jeopardy of double taxation and indeed complicated and convoluted a simple process of taxability and in course burdened the ultimate subscriber.
12. In view of what has been discussed above, no double taxation of excise duty is permissible on the basis of law and hence impugned demand of levying and demanding 19.5% FED on interconnect charges from the receiving party’s telecom operator is hereby declared illegal, without lawful authority and offensive to constitutional guarantees. Consequently Item No.5 of S.R.O. 550(I)/2006 can not be extended for recovery of FED from receiving party in the name of “Telecommuni-cation Services”, therefore show-cause notices and Recovery Notices are held to be of no significance and are hereby set aside. Hence, the instant Writ Petition is hereby accepted in the above terms with no orders as to costs.
KMZ/3/Isl Petition allowed.