2012 P T D (Trib.) 954
[Inland Revenue Appellate Tribunal of Pakistan]
Before Syed Nadeem Saqlain, Judicial Member and Muhammad Saeed, Accountant Member
Messrs HABIB METROPOLITAN BANK, KARACHI
COLLECTOR OF SALES TAX, FEDERAL EXCISE (APPEAL), KARACHI
C.E. No.177/KB of 2009, decided on 28th May, 2010.
Ghulam Abbas Karjatwala, C.A. for Appellant.
None for Respondent.
Date of hearing: 28th May, 2010.
Through the present appeal regarding levy of Federal Excise Duty for the period from July to September, 2006, the appellant/taxpayer has assailed the impugned Order-in-Appeal No.282 of 2009, dated 4-5-2009, passed by the learned Collector of Customs, Sales Tax and Federal Excise (Appeals), Karachi.
2. Briefly stated the facts of the case are that the appellant is a banking company. On 3-10-2007, an audit observation was served upon the appellant that during the course of audit for the period July to September, 2006, following discrepancies have been observed:–
(i) Non-payment of Federal Excise Duty @ 5% amounting to Rs.1,241,128 on Misc. Income Service Charges/Service and Handling Charges import amounting to Rs.24,822,595.
(ii) Non-payment of Federal Excise Duty @ 5% amounting to Rs.1,962,650 on Income Tax from dealing in foreign currencies amounting to Rs.39,253 million.
(iii) Besides above alleged defaults the Additional Collector (Adjudication), LTU, Karachi also proposed to levy default surcharge amounting to Rs.1,633,927 upto 15-4-2009 and further to calculate at the time of final payment.
3. The Additional Collector (Adjudication), LTU Karachi, being not satisfied with the reply of A.R, passed the Order-in-Original No.52 of 2008, dated 20-12-2008, whereby it was concluded that the first and second charges mentioned in the show-cause notice were established, and the appellant was directed to pay federal excise duty under Federal Excise Act, 2005 (hereinafter called “the Act”) along with default surcharge under section 8 of the same. Besides, taking penal action under section 19 for the violation of sections 3 and 4 of the Act read with Rule 40-A of the Federal Excise Rules, 2005.
4. Being aggrieved, appellant filed appeal before the Collector (Appeals) against the afore-mentioned Order-in-Original No. 52 of 2008, dated 20-12-2008. The learned Collector (Appeals) passed the impugned Order-in-Appeal, while rejecting the appeal of the appellant and made no interference with the order-in-original of Additional Collector (Adjudication), LTU, Karachi. Hence the instant appeal by the taxpayer.
5. The learned A.R of the appellant contended that the learned Collector (Appeals) erred to hold that FED was imposed in 2006 by amending Sr.8 of the Table-II to Federal Excise Act, 2005 and all services provided by the appellant are in relation to letters of credit. Whereas, Rule 40A(2) clearly provides that “for the purpose of levy of excise duty under these rules, the services provided by the banking companies, financial institutions and non-banking finance companies shall represent:—
(a) L/C commission;
(b) Guarantee Commission;
(c) Brokerage Commission;
(d) Issuance of pay order and demand drafts;
(e) Bill of exchange charges;
(f) Transfer of money including telegraphic transfer, mail transfer and electronic transfer;
(g) Providing bank guarantees;
(h) Bill discounting commissions;
(i) Safe deposit lockers fee;
(j) Safe vaults;
(k) Credit and debit card issuance, processing, operation charges; and
(l) Commission and brokerage on foreign exchange dealings.
6. The A.R. further argued that, in fact, the learned Collector (Appeals) erred in upholding the auditor’s point of view who erroneously extended the scope of the charging provision of law without any legal support that L/C Commission includes all services pertaining to processing of L/C handling, renewal of L/C on account of import or export and therefore liable to FED.
7. While continuing with the arguments the AR invited our attention that the principle of “Ejusdem generis” is a well-settled doctrine of interpretation of law whereby it has been established that where general words follow an enumeration, of person or things, by words of particular and specific meaning, such general words are not to be construed in their widest extent, but are to be held as applying only on persons or things of the same general kind or class as those specifically mentioned. Hence, by any stretch of imagination services pertaining to processing of L/C handling, renewal of L/C on account of import or export are not liable to FED as the same does not come under the L/C Commission, in view of the ratio of judgment of Hon’ble Sindh High Court reported as 2007 PTD 115 (H.C).
8. The AR brought to the notice of the bench that in the instant case, the learned, Additional Commissioner-C Audit-I, LTU, Karachi, in the Order-in-Original No. 1 of 2010, dated 24-3-2010, for the period from January, 2007 to December, 2007, has accepted the AR’s arguments that the following non-funded services do not come under the ambit of excisable service as envisaged in Rule 40-A the Federal Excise Rules, 2005, till 30-6-2007:—
Services Charges – Imports
Services Charges – Exports
Services Charges – Miscellaneous
Handling. Charges – Duty Draw Back
Export Development Surcharge.
Commission From Consumer Finance and Cash Management.
Participation Fee – TFCs
Metro Sovereign Fund.
Financial Lease Processing Charges
9. We have heard the arguments of the learned counsel for both the parties and have also gone through the impugned order passed by the authorities below and found that the contention of the AR is correct as both the Additional Collector (Adjudication), LTU, Karachi and the learned Collector (Appeals) ignored the fact that the departmental official has incorrectly extended the scope of the charging provision of law without any legal support that L/C Commission includes all services pertaining to processing of L/C handling, renewal of L/C on account of import or export which were not liable to FED. It seems that Additional Commissioner also realized departmental mistake and therefore while passing order for the subsequent period, i.e. as pointed out by the A.R. for the period from January, 2007 to December, 2007 discussed all the issues and accepted the A.R.’s contention. It is important to note that legal position during both the periods remained the same. Hence, we do hereby delete the FED levied @ 5% amounting to Rs.1,241,128 on Miscellaneous Income Service Charges/Services and Handling Charges Import being unlawful.
10. As regards the second issue the learned A.R argued that the Rule 40A of the Federal Excise Rules, 2005 lays down the procedures for collection and payment of FED on financial services provided or rendered by the banking companies and Rule 40A(2)(1) clearly explains that “for the purpose of levy of excise duty under these rules, the services provided by the banking companies, financial institutions and non-funding finance companies shall represent:–
“(1) Commission and brokerage on foreign dealings”
Whereas, income termed as “dealing in foreign currencies” by the auditor is, in fact, an income generated during the course of trading due to difference in the rate prevailing on the date of buying and selling (or on closing date of accounts) of foreign currency i.e. “exchange gain. Hence, there is no service rendered to any customer or any commission or brokerage is earned for the generation of such income. Therefore, the learned Collector (Appeals) grossly erred to uphold the Order-in-Appeal No. 282 of 2009, dated 4-5-2009 on this issue whereby the Additional Collector (Adjudication), LTU, Karachi, vide his Order-in-Original No.52 of 2008, dated 20-12-2009, had wrongly confirmed the treatment meted out by the auditor by treating the “exchange gain” on dealing in foreign currency as “Commission and brokerage on foreign exchange dealings”.
11. It is also worth noting that the Additional Commissioner-C Inland Revenue, Audit Division 1, LTU Karachi while making adjudication for the following period from January, 2007 to December, 2007 vide Order-in-Original No. 1 of 2010, dated 24-3-2010, once again, realised his mistake and while acceding to the stance of the taxpayer, did not raise this issue for discussion and thus conceded to the contention of the appellant.
12. Having considered the arguments of the learned AR of the appellant and also after perusing the Order-in-Original and Order-in-Appeal, we find that the assertions made by the learned AR of the appellant carry weight. The Auditor has wrongly treated the “exchange gain” on trading in foreign currency as Commission and brokerage on foreign exchange dealings”. Hence, we hereby delete the FED levied @ 5% amounting to Rs.1,962,650 on income from dealing in foreign currencies.
13. Since, we have ordered to delete levy of FED as discussed in the preceding paragraphs, as a result thereof, levy of default surcharge is not applicable, hence entails deletion.
14. Ordered accordingly.
C.M.A./51/Tax(Trib.) Order accordingly.