2016 P T D (Trib.) 2362


[Inland Revenue Appellate Tribunal]


Before Nazir Ahmad, Judicial Member and Masood Akhter Shaheedi, Accountant Member








F.E.A. No.04/LB of 2014, decided on 18th January, 2016.


Abuzar Hussain for Appellant.


Asghar Niazi, D.R. for Respondent.


Date of hearing: 17th November, 2015.




NAZIR AHMAD, (JUDICIAL MEMBER).—The titled Federal Excise Appeal pertaining to tax period 01.07.2008 to 30.06.2011 filed at the instance of the registered person has been directed against the Order-in-Appeal No. 265/2014 recorded by CIR(Appeal) Gujranwala.


The facts in brief leading to the instant appeal are that the registered person/appellant engaged in the business of property development and construction of residential/commercial units during the tax period 01.07.2008 to 30.06.2011 was under legal obligation to file monthly returns in terms of section 4 of the Federal Excise Act, 2005 (hereinafter called the Act) but he failed to do so. Therefore, proceedings were initiated by way of issuance of notice dated 09.12.2013, which culminated in passing of ONO bearing No.254/2014 dated 24.02.2014, wherein the registered person/appellant was directed to pay Federal Excise Duty amounting to Rs.75,676,400/- under section 14 of the Act, penalty @ 5% amounting to Rs.3,783,820 for non-payment of FED, penalty of Rs.5,000 for non-filing of return from July, 2008 to June, 2011 under subsection (1) of section 19 of the Act as well as default surcharge under section 8 of the Act. Feeling aggrieved, the registered person preferred appeal before CIR(Appeals), Gujranwala who vide Order-in-Appeal No.265/2014 dated 27.10.2014 upheld the ONO supra. Still discontented, the registered person has come up in further appeal before this Tribunal on the strength of following grounds taken as per memo of appeal:–


i) That the DCIR, Zone-II, Gujranwala and the CIR(A) Gujranwala, both failed to understand at the very outset the structure of Federal Excise law and rules made there under with respect to nature of transactions and industry practice and therefore have tried to burden to taxpayer with impugned levy without force of law.


ii) That while deciding the appeal the learned Commissioner (Appeals) has failed to adjudicate all the grounds of appeal contested before him with full force at the time hearing of appeal, hence order of the learned CIR(A) is not sustainable in the eyes of law.


iii) That the Federal Excise Duty under section 3 of the Federal Excise Act, 2005 is levied on services rendered, whereas no such services have been rendered to the members during the period July 2008 till June 2011 for which impugned order has been issued.


iv) That the services rendered cannot be ascertained in case of land development till the time of completion of 100% development work and handing over of physical possession of the developed plot to the member, the time when the services are finally considered to be rendered to the owner of plot.


v) That Federal Excise Duty on the development services can only be levied and collected once the services are considered to have been rendered and not before as held in order No.09/IB/2012 decided on 09.10.2012 by the Appellate Tribunal Inland Revenue, Islamabad in case of M/s. Defence Housing Authority, Islamabad v. Commissioner Inland Revenue (Appeals) Islamabad and Assistant Commissioner Inland Revenue, Audit-III, Islamabad.


vi) That the appellant has only got electricity and gas connections and no such other development was made during the questioned period from July 01, 2008 to June 30, 2011 therefore there is no question of service of development rendered till this date.


vii) The impugned order is ab intio void because it is based on whims and conjectures and has no nexus with reality.


viii) That the Commissioner (Appeals) failed to appreciate the fact that the Deputy Commissioner has misconceived the provisions of sections 2(8)d, 3(1)d, 2(19), 3, 4, 8, 13, 14, 17, 18 of the Federal Excise Act, 2005 read with Rules 7, 9, 19, 44, 45 and 47 of the Federal Excise Rules.


ix) That the very assumption of jurisdiction by the DCIR, Zone-II, Gujranwala, to issue show cause notice under section 3(1) of the Federal Excise Act, 2005, was unlawful and the final order passed for demand of FED under section 14 of the Federal Excise Act, 2005, was equally unlawful and nullity in the eye of law. Hence, the CIR(A) was also not justified to uphold the order under section 14 of the Federal Excise Act, 2005.


x) That the impugned order passed by the DCIR, Zone-II, Gujranwala, is hit by time limitation which is beyond the scope of law and contrary to the provisions of section 14 of the Federal Excise Act, 2005.


xi) That the CIR(A) failed to appreciate the legal documents submitted during the hearing proceedings in shape of NOCs regarding start of development work which were collectively approved by the competent authority i.e. on 15.03.2013.


3. Learned counsel of appellant has vehemently assailed impugned show cause notice and both the orders below mainly on two grounds of vital importance firstly, major demand is barred by time limitation of three years and secondly, federal excise duty cannot be levied without establishing factum of provision and rendering of services of land development into residential or commercial entities. Learned counsel, at the very outset without going into the merits of his case, has vehemently contested that demand of federal excise duty for July-2008 to June-2011 is hit by limitation of three years under section 14 of the Act, 2005 and no liability as to federal excise duty can be adjudged unless a notice to show cause to the person in default is given within three years of the relevant date. He has aptly pointed out that the term, ‘three years’ is substituted for ‘five years’ in the Finance Act, 2011 therefore; its being not curative and beneficial in nature is prospective in effect for the years to come and in a situation, where any person has not levied or paid any duty, recovery of such unpaid amount for any period prior to this substitution shall fall within three years of limitation instead of five years. The appellant’s case for July-2008 to June-2011 squarely falls within domain of three years therefore; the period of almost two and half years in impugned show cause notice dated 26-12-2013 is hit by time limitation under section 14 of the Act, 2005.


4. Secondly, regarding levy of federal excise duty, on services of land development said to have been rendered and provided, learned counsel has with vehemence objected that no such services have been rendered or provided during the period in question therefore, no duty is payable under the law. The services rendered in case of land development cannot be ascertained till the time of its completion for transfer of physical possession to the buyer, the time when the services are finally considered to have been rendered and provided to the owner of residential or as the case may be commercial plots against certain money consideration. The federal excise duty on development services can only be levied and collected once the services are established to have been rendered and not before, reliance is placed by the learned AR on ATIR Islamabad in Order-in-Appeal No. FEA No. 09/LB/2012 decided on 09-10-2012, in case of M/s. Defense Housing Authority Islamabad v. Commissioner Inland Revenue (Appeals) Islamabad. He further submitted that “No Objection Certificate” for commencement of development work was given by Gujranwala Development Authority on 15-03-2013 and final sanction of Garden Town Phase-I1 Housing Scheme Situated at Mouza Aroop Sialkot Bypass Road, Gujranwala was granted by the Directorate of Town Planning Gujranwala Development Authority vide its letter No. GDA/D (TP)/955 dated 19-03-2015 and in the same vein its Design and Specification of Utility services was approved through letter C.No. GDA/D (TP)/51 dated 29-08-2015. Learned counsel also submitted that learned CIR (Appeals) has failed to appreciate legal documents submitted during hearing proceedings in shape of NOCs dated 15-03-2013 regarding start of development work as duly issued by competent authority.


5. On the other hand, departmental representative when confronted with the situation cited supra has assailed the case on similar grounds and charges as leveled earlier in impugned show cause notice as well as adjudged in consequent orders and nothing new, except to reiterate earlier set of contentions, has been put forth by him.


6. We have carefully examined the case record and have thoroughly considered arguments of representatives of both the parties and have taken at hand the issue of time limitation first. Undoubtedly, impugned show cause notice is issued on 26-12-2013 for the period July-2008 to June-2011 and the major period of demand is hit by limitation of three years under section 14 of the Act, 2005. Again there is confliction in it that the term three years is substituted for five years in the Finance Act, 2011 and this substitution curtailing the right of registered person and benefiting Revenue Department to wash its hand on a taxpayer’s liability of duty for another protracted period of two years therefore, the same is not to be applied retrospectively and such type of change always have prospective effect until and unless specifically provided by the legislature as held by Apex Court of this country in number of judgments. A statutory bar is created after afflux of time in favour of a registered person and it is a settled law that no demand can be created beyond its time limitation given in fiscal statutes. “It simply means that in a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used [2006 PTD 537]. “Applying above golden principle of interpretation one has to apply limitation of section 14 of the Act, 2005 which provides jurisdiction for show cause notice only for three years prior to the date of its issuance. Going beyond the said limit shall amount defeating the intention of legislature which obviously cannot be allowed. It has also been held by Hon’ble Supreme Court of Pakistan in Federation of Pakistan through Secretary, Finance, Islamabad and others v. Messrs Ibrahim Textile Mills Ltd. and others [1992 SCMR 1898] that if a law prescribes a period of time for recovery of money, after its lapse recovery is not enforceable, The ratio settled by Hon’ble Supreme Court is given as under:–

“Due consideration was given as to whether the respondents should not pay the short-levied duty and whether the State should suffer in public finance. But the cardinal principle of law is that all are equal before law, whether citizen or State. Secondly if a law prescribes period of time for recovery of money, after its lapse recovery is not enforceable through Courts. Thirdly, while construing a financial statute, its terms are strictly to be followed. Keeping in view these principles, for short-levied duties on account “of inadvertence, error or misconstruction”, section 32(3) of the Customs Act, 1969 provides that for recovery notice shall be served “within six months”. If that is not done, like “a suit for recovery of money after lapse of time prescribed by law of limitation, the recovery becomes unenforceable.”


7. Show Cause Notice dated 26-12-2013, in the present case, having been issued belatedly therefore; recovery for the period prior 25-12-2010 is barred by limitation and thus is without any lawful authority and of no legal effect.


8. As far as the second issue is concerned appellant’s contention as put forth by learned counsel is that the FED levied on development services is chargeable at the time when the development is completed and residential or commercial plots are delivered for sale and its physical possession is given to the owner against certain money consideration. The revenue’s point of view is that the FED becomes chargeable at the time of having connection of gas and electricity through demand notices dated 21-03-2007 and 21-07-2007 respectively. We have to thoroughly examine the judgment of learned Appellate Tribunal Inland Revenue, Islamabad in case of M/s. Defense Housing Authority, Islamabad as referred above on the issue of chargeability of Federal Excise Duty for property developers or promoters, wherein it has been held as under:–

“We would like to analyze the issue of chargeability of the FED in this case by reviewing the relevant provision of the Federal Excise Act, 2005 as contained in sections 2(9a), 2(19a), 2(23) and 2(23a) which impinge on the controversy:-

2(9a) .. “duty due” means duty in respect of supplies made or services provided or rendered during a month and shall be paid at the time of filing of return

2(19a) .. “Property developers or promoters” meaning persons engaged in development of purchased or leased land for conversion into residential or commercial plots or construction of residential or commercial units for sale.

2(23) .. “Services” means services, facilities and utilities leviable to excise duty under this Act or as specified in the First Schedule read with Chapter 98 of the Pakistan Customs Tariff, including the services, facilities and utilities originating from Pakistan or it tariff area or terminating in Pakistan or its tariff area;

2(23a) .. “Supply” includes sale, lease or other disposition of goods and shall includes such transaction as the Federal Government may notify in the official Gazette from time to time;

The collective reading of the aforementioned provisions of the Federal Excise Act, 2005 suggests that FED is chargeable on development of land when two elements exists i.e. a service, facility or utility is provided or rendered and secondly such service is provided or rendered during a month. In this particular case no service of providing developed land into the form of plots has been delivered by the developer within the meaning of sections 2(23) and 2(9a) during a specific month. In such long-term development contract, it is hard to quantify development during a month. The construction of roads and provisions of utilities and other civil works cannot be implemented in relation to one plot or more within a month. This view is supported by the interpretation of time of supply in 1999 PTD 4126, 1999 PTD 3907 the interpretation of the phrase is reproduced as under”-

Constitutional petition—Time of supply—Advance payments for supply of goods—Chargeability of sales tax—a manufacturer receiving advance payments against supply of goods was required to pay on payment received in advance against supply in the light of interpretation of section 2 (30) the Sales Tax Act, 1990, C.B.R. Letter No. 1(59) STP-94 dated 14.11.1994 that sales tax was payable as soon as the money was received—Validity—Mere deposit of money in anticipation of future sale could not be made the occasion for demanding the payment of sales tax—Stockists deposit money with manufacturer in routine even though at the time of deposit, there was no contract specifying the price to be paid or the quantity to be purchased—No concluded sale existed at the time of deposit of money and the transaction could be nullified by manufacturer or stockists—No provision Sales Tax Act, 1990 had purported to deem the receipt of money to be a sale—Department’s interpretation had to basis in the text of the Sales Tax Act, 1990 and that it sought to change the nature of the tax from a levy on supply of goods to a tax on the mere bailment of money—None of the provisions of the Sales Tax Act, 1990 provided that bailment of money could be deemed to be a sale or supply of goods—Instructions contained in the C.B.R. letter, therefore, were declared to be without jurisdiction and lawful Authority by the High Court and all orders/actions based upon said letter and instructions were of no legal effect.

Time of Supply—Fiction in respect of time—Interpretation—Provision of section 2(30) of the Sales Tax Act, 1990 had only employed legislature device of deeming so as to crystallize the point in time at which sales tax was payable with respect to a supply that had already occurred and that could not be employed to the extent of conceiving, the payment of money so as to change the scope of word ‘supply’ beyond the provisions of section 2(22) read with section 3 of the Act which was the charging section—Section 2(30) of the Act would not in any way alter the scope and nature of the charging section—Where Legislature could have expressly specified as regards the charging of a tax but had chosen not be specify same, that must not be read into the text of the statute by way of intendment so as to expand or circumvent the scope of the charging provisions.”

Relying on the aforementioned case law, we are of the view that issuance of provisional allotment letters by the promoter or developers i.e. Defence Housing Authority does not constitute a service within the meaning of section 3 of the Federal Excise Act, 2005. The time for chargeability of the FED on plots developed by the appellant shall come when the possession of the developed plots is delivered by it to allotees. Until the time the plots are developed and their physical possession is passed on the allotees, the services within the meaning of section 3 of the Federal Excise Act, 2005 cannot be considered to be rendered or provided. The essential elements of sale transaction i.e. confirm price is also missing in this case. The advance payment deposited by the allotees with the developer is not chargeable to Federal Excise Duty in terms of section 3 of the Federal Excise Act, 2005.”


9. From bare reading of the above ratio settled by this Tribunal, an inference can easily be drawn that it is not the time when any electricity and gas connections are acquired or even any patch of land is procured until and unless it is fully developed in the form of residential or commercial plots after due approval of its map and feasibility from Tehsil Municipal Administration or Development Authority or as the case may be from any other Local Body authorized in this behalf and in its eventuality physical possession of developed plots whether residential or commercial ones are made transferred to ultimate owner against any pecuniary sums, therefore, it does not evolves any question of services of development rendered till this date.


10. The Revenue Department, in the case in hand, has hardly put anything on record to prove issuance of any provisional allotment letter in the name of an allottee or receipt of any part or full payment in advance for any residential or as the case may be, for commercial plots from the prospective or actual owner.


11. Even, essential elements of supply which necessarily include sales as per definition are found missing that any facility and utility on developed plots are serviced to any buyer against certain cash payment or as the case may be, against any deferred payment whether in part or full have been established. Supply vis- -vis sales necessarily entails delivery of goods or receipt of money consideration in its respect and in its conjunction services meaning delivery of any utility or facility or any other ancillary amenities necessary for development of any patch of land into residential or commercial plot has to be established first on the part of land developers or promoters for its sales against certain money consideration to any actual or prospective owner. Since, the Department has miserably failed to establish that any physical possession of developed residential or commercial plots have been given to anybody or even any consideration in money, whether partly or fully is not questionable, is received in its respect therefore, no tax point is created. We do not find ourselves in position to re-endorse any tax liability created in the air without any corroborating evidence of sales and delivery of goods or services with its provisions and rendering thereof, against certain consideration of money. All what created in the air stands unsubstantiated and not be permitted to be allowed merely on surmises and conjectures without any lawful excuse.


12. In view of what has been dilated upon in above paragraphs, impugned snow cause notice dated 26-12-2013 being time barred, without jurisdiction, illegal and unlawful is hereby vacated and both the orders passed by authorities below being devoid of any merits are hereby set aside. We order accordingly.


13. Consequently, the instant appeal is accepted.


HBT/75/Tax(Trib.) Appeal accepted.

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