MR. MUHAMMAD WASEEM CH. JUDICIAL MEMBER:---

This Full Bench has been constituted by the Honourable Chairman in the titled appeals to resolve the issue regarding audited accounts of the registered person for the tax years 2014 and 2015 (two periods) for the three years under appeal principal amount of Rs. 6412.912 million, Rs. 5501,758,636/- and Rs. 4862.28 million, respectively. Charges related to non-payment of sales tax on subsidy received from the Federal Government and on disposal of scrap.

2. Succinctly facts of the case are lie in narrow compass emanating from the orders passed by both the authorities below that the adjudicating officer passed order in originals wherein aforesaid liabilities alongwith default surcharges and penalties were created. In appeal, the learned CIR(Appeals) upheld the treatment meted out by the adjudicating officer for the reasons and factors as embodied in the impugned order.

3. The learned AR of the registered person has vehemently argued that the learned CIR (Appeals) has ignored the judgments of the Superior fora and the submission made in respect of the issue that prescribed procedure for audit has not been followed by the department. Hence the show cause notice being coram non judice and without lawful authority, superstructure built on an unlawful audit falls flat as under Article 4 of the 1973 Constitution, it is our right to be dealt with in accordance with law. It is settled law that a thing required by law to be done in a particular manner must be done in that manner or not at all, Reliance is placed on PTCL 2008 CL.337 (SC), 2016 PTD 589 (LHC), PTCL 2012 CL 250 and PTCL 2012 CL 347. He therefore, prays that the exemption of tax on the-subsidies and on-scrap was rightly claimed in the relevant Tax periods. He strongly agitated that the action taken for recovery of disputed tax demand is unwarranted, unlawful and without any legal authority. He further added that the registered person has no other option except to apply for relief from to the Hon'ble Appellate Tribunal Inland Revenue, Lahore Bench, Lahore.

4. None Present on behalf of the revenue, while the AR present on behalf of the registered person. We, therefore, decided to dispose off appeals exparte by resorting to Rule 22(1) of the A.T.I.R Rules, 2010.

5. We have given due consideration to the arguments of the learned AR and also gone through the relevant record available on file. We found that the cost/price of electricity is determined by the National Electric Power Regulatory Authority (the NEPRA) established under the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 which according to its preamble is "An Act to provide for the regulation of generation, transmission and distribution of electric power". The NEPRA rates of electricity are different for different power distribution companies for the same consumer's categories. However as per policy of the Government, uniform rates of electricity are to be applied across the country and NEPRA decides these rates. Subsidy is the amount which is paid by the government of Pakistan in this process of determination of uniform rates to be charged. Section 31(2) of the Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 provides that:

"31. Tariff. (1)-

(2) The Authority while determining the standards referred to in subsection (1) shall-

(a) protect consumers against monopolistic and oligopolistic prices;
(b) .......................................
(c) .......................................
(d) .......................................

(e) keep in view the economic and social policy objectives of the Federal Government: and

(f) determine tariffs so as to eliminate exploitation and minimize economic distortions."

6. Sales tax is chargeable on taxable supplies as per Section 3 of the Sales Tax Act, 1990. Section 3 explains the scope of Sales Tax in Pakistan and relevant part thereof is explained below:--

Section 3. Scope of Tax.-(1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of seventeen percent of the value of-

(a) taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him; and

(b) goods imported into Pakistan.

[Emphasis Supplied]

Sales tax is payable with reference to value of supply defined in Section 2 (46) of the Act. It is submitted that Section 2(46) specifically provides that the value of supply shall mean the consideration in money which supplier received from the recipient of the supply. Relevant portion of Section 2(46) is reproduced below;

(46) "Value of supply" means.-

in respect of a taxable supply, the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax:

Provided that-

(i) in case the consideration for a supply is in kind or is partly in kind and partly in money, the value of the supply shall mean the open market price of supply excluding the amount of tax:

(ii) in case the supplier and recipient are associated persons and the supply is made for no consideration or for a consideration which is lower than the open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax; [and]

(iii) in case a taxable supply is made to a consumer from general public on installment basis on a price inclusive of mark up or surcharge rendering it higher than open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax.
[Emphasis supplied]

It is contended that the concept of open market price is not applicable to the circumstances of sale of electricity by PESCO. Open market price is only applicable under Section 2(46) if the consideration of supply is in kind or is partly in kind and Partly in money. OR if the supplier and recipient are Associated Persons. OR supplies are made to the consumer from general public on instalment basis OR where it is difficult to ascertain the value of a supply. It is evident that none of these conditions apply to the supply of electricity by the different power distribution companies in Pakistan including PESCO where a statutory body NEPRA determines the rate of electricity to be charged from different categories of domestic, commercial and industrial consumers. Again within the same category of domestic consumers, the rates are different for different consumers keeping in view the number of units consumed in a month. And thus, this concept is not applicable to the facts of the case.

7. The term subsidy has not been defined in the Sales Tax Act, 1990. The Advance Law Lexicon 3rd Edition Book 4 page 4524 defines subsidy:-

"Subsidy generally means money granted by the State or a public body to keep down the prices of commodities. Subsidy may be in the nature of direct or indirect Government grants on production or exportation of goods including any special subsidy on transportation of any particular product."

The Black's Law Dictionary (Annex 11) defines subsidy as:

"A grant, usually made by the government, to any enterprise whose promotion is considered to be in the public interest. Although governments sometimes make direct payments (such as cash grants), subsidies are usually indirect. They may take the form of research-and- development support, tax breaks, provision of raw materials at below market prices, or low-interest loans or low-interest export credits guaranteed by a government agency."

The term payment in kind is defined in Law Lexicon 3rd Edition, (Book 3 page 3508) as follows:

"A payment, generally of wages, made in goods or services rather than money."
[Emphasis Supplied]

It is evident that payment in kind is linked with delivery of goods or rendering of services. The amount of subsidy is not paid to PESCO in kind rather the actual amount in rupees is given to PESCO.

8. It. is evident that subsidy is universally considered to be a welfare measure taken by the State to keep down the prices and to ameliorate the hardship faced by the society and as pointed out by the Black's Law Dictionary, it may even take the form of tax breaks. Thus such payments which also relate to keeping the prices of electricity uniform all over Pakistan, cannot be taxed. Sales Tax in Pakistan was collected as single stage levy under the Sales Tax Act, 1951. This philosophy was changed in 1990 when the Sales Tax Act, 1990 was introduced whereby sales tax is levied, charged and collected in Value Added Tax mode wherein the final burden of taxation is borne by the ultimate consumer. A State appointed statutory body i.e. NEPRA determines the value of taxable supply of electricity to be charged from the consumers of electricity and Sales Tax is paid on such value as also provided by Rule 14(1) of the Sales Tax Special Procedure Rules, 2007. Subsidy granted by the government and any tax relating thereto cannot be collected from the consumers and thus the contention of subsidy being taxable is not tenable in view of basic philosophy of V.A.T. It is submitted that NEPRA fixes the price of electricity under a law and PESCO is bound to bill the consumers in accordance with that price. The sales tax is not payable on the amount of tariff subsidy received from the government as Social Welfare measure to keep the price of electricity at a lower level and uniform all over the country. It is also found that as per accepted principles of economics-price of a commodity depends on demand and supply and price is exclusively related to the consideration actually received for the sale of goods from the buyer. It is well known that the governments do provide facilities relating to infrastructure and utilities at either no price or at a price which has no relevance with the expenses incurred in providing those utilities or services. A few examples, in this context may be quoted as tolls imposed for roads utilization, water charges, hospitals, educational institutions, sewerage expenses etc. The State owned power distribution companies sell this commodity and the price charged is the same for all power distribution companies operating in the public sector and even to K.E.S.C (now K-Electric) which operates in the private sector. It is evident that the tax invoice i.e. electricity bill shows the discounted price and the related tax while the discount allowed is not only in conformity with the normal sale of electricity business practices but also approved by the government of Pakistan which is the ultimate repository of the authority of the people of Pakistan. It is settled law that no one should be prejudiced by an act of State functionaries. Reliance is placed on:

(i) PLD 2007 Supreme Court 472-Jawad Mir Muhammadi and others vs. Haroon Mina-No party should be made to suffer on account of the act of public functionaries or of a Court.

(ii) PLD 2007 Supreme Court 582- Zulifqar and others vs. Shahdat Khan-Ad of court or public functionary, on the actions of whom a citizen has no control, should not be allowed to prejudice anyone.

(iii) 2002 SCMR 134 (SC)-Sdjawal Khan vs. Wali Muhammad - Party- should not be made to suffer on account of act/omission on the part of the Court or other State functionaries.

Rates of subsidy are different for various DISCOs- If subsidy is taxes same consumers of different DISCOs shall be liable to pay different amount of sales tax on subsidy per unit of electricity. It is obvious that it will be unconstitutional and unlawful for the Government to charge different amount of sales tax per unit of electricity from similarly placed consumers in different parts of the country.

Rule 14(1) of the Sales Tax Special Procedure Rules, 2007 notified vide SRO 480(I)/2007 dated 09-06-2007 provides that:-

"14. Filing of returns and deposit of sales tax.- (1) In case of WAPDA and KESC, sales tax levied and collected under rule 13 during a tax period shall be deposited on 'accrual basis' i.e. the amount of sales tax actually BILLED to the consumers or purchasers for the tax period."

It is wrongly observed by the CIR(Appeals), Peshawar that Section 2(46) of the Sales Tax Act, 1990 and Rule 13(2)(b) of the Sales Tax Special Procedure Rules, 2007 are equally applicable to the amount of subsidy received by the registered person. Rule 13(2)(b) provides:-

"13. Levy and collection of sales tax.-
(1) ................................
(2) ................................

(a) ................................

(b) in case of generation, transmission, distribution and supply of electric power by a public sector project like WAP DA a private sector project including IPP. a captive Power Unit or any other person, the responsibility to collect sales tax shall be of the person making the supply, and the value shall be the price of electric power including all charges, surcharges excluding the amount of late payment surcharge, rents, commissions and all duties and taxes whether local, Provincial or Federal, but excluding the amount of sales tax, as provided in clause (46) of section 2 of the Act."

The PESCO has validly collected the due amount of sales tax which was ACTUALLY billed to the consumers/purchasers of electricity. Rule 14 ibid being specific excludes the general provisions of Rule 13(2)(b) which even otherwise is not applicable to subsidy. Under Rule 13(2)(b), the value is the price of electric power including all charges, surcharges, rents, commissions and all duties and taxes but excluding the amount of Sales Tax Act, 1990 as provided under Section 2(46) of the Act. It is emphasized that subsidy does not fall in the category of charge, surcharge, rent, commission, duty or taxes and hence not part of value of supply. It is settled law that special law/procedure excludes the general law/ procedure. Reliance is placed on:-

i. 1999 MLD 236-Akbar Ali v. Chairman A.K. M.I.DC.-Where a specific provision of law would govern a situation, general provision of law would stand excluded.

ii. 1999 CLC 1198-- Muhammad Akbar v. WAP DA and 3 others-Special law excludes the general law.

iii. 1999 P.Cr.L.J. 728-- Buner Gul v. The State-When in an enactment a special procedure has been laid down and a special provision has been made in a particular subject then a general provision does not apply to that subject.

Resultantly, the Rule 14 ibid shall be applicable with full force which provides that sales tax collected by WAPDA shall be deposited on accrual basis i.e. the amount of sales tax actually BILLED to the consumers or purchasers for the tax period. In addition, the reliance on other SROs and clarification in conflict with the Sales Tax Special Procedure Rules, 2007 is invalid.

10. In the impugned Order-in-Appeal, reference has been made to the judgment of this Tribunal (Multan Bench) as follows:

".................................... As far as the judgment reported vide 2016 PTD 1829 and 111 Tax 397 (MEPCO vs. CIR) the Lahore High Court (as quoted in the impugned assessment order) the impugned order were referred back to quarter concerned on account of divergent views of the different authorities with certain directions and identical issues were discussed in favor of the revenue"

It is observed that this judgment reported as 2016 PTD 1829 & 111 Tax 397 (PEPCO vs. CIR) has been already set aside by the Lahore High Court vide order dated 25.03.2015 in STR No. 3-2015 and hence had no legal validity. It has been incorrectly mentioned in the Assessment Order that judgment of CIR(Appeals), Multan has attained finality and being higher fora in judicial hierarchy it can be relied in legal discourse. It is submitted that legally the appeals are continuation of the original initial proceedings and the orders given at earlier stages merge in the final order. Thus the assessment order issued by the RTO, Multan and Appellate Order passed by the CIR(Appeals), Multan merged in the judgment of the ATIR, Multan Bench. Resultantly, when this ATIR order was set aside by the High Court, the order of the CIR(Appeals), Multan automatically lost its applicability and hence the impugned order by the ACIR, Peshawar based on it, is unlawful.

11. Again the learned CIR(Appeals) has unlawfully held:~

"As regard the Judgment of the ATIR Lahore Bench Lahore in a case of M/s FESCO vs. CIR, Zone-I, RTO, Faisalabad has treated the amount of subsidy as exempt portion of supply whereas in the instant case, the appellant itself has recorded the subsidy as part of its revenue receipts from operational income. Thus the case laws as referred above have no match with the instant case and the subsidy was received as revenue by the appellant being a taxable activity under the law and the action taken by the department was therefore correct and justified."

It is emphatically pleaded that the FESCO case reported as 2014 PTD (Trib.) 1629 specifically deals with adjustment of input tax relating to subsidy while our case before the CIR(Appeals) also related to subsidy. Thus there are no distinguishing features in these two cases. It is settled law that decision given by a superior judicial forum is binding on the lower hierarchy. Reliance is placed on:

(i) [(1996) 73 Tax 132 (Trib)]-The law as laid down and the principles pronounced by the Hon'able Supreme Court of Pakistan leave no room for any doubt that the view held by this Tribunal is binding on the C.I. T(As)/A.A.C.s and the instructions issued to the contrary by CBR to the C.I.T.(As)/A.A.C.s are (sic) ultra vires and in excess of jurisdiction, being violative of the law.

In an appeal filed by RTO, Peshawar, the Appellate Tribunal Inland Revenue (the ATIR) vide its judgment reported as PTCL 2014 CL 782 (PESCO vs. CIR) has upheld the decision of the CIR(Appeals), Peshawar that the recovery of sales tax on the amount of subsidy is not as per law and this decision of the tribunal has neither been reversed nor staved and is operative as quoted below:-

"23. The next issue in these cross appeals is the declaration of less sales in sales tax returns as compared with annual accounts-short payment of sales tax (Rs. 4,031,662,444 subsidy paid by the Government. This issue relates to levy of sales tax on the subsidy paid by the government to the power distribution companies. The learned LA for the Department has argued that this amount has been paid with reference to cost of electricity and is hence taxable. However Counsel for PESCO has explained that subsidy falls outside the scope of value of taxable supply under section 2(46) and hence sales tax cannot be levied on such welfare payment by the government to keep the prices of electricity as a lower level. Taxability of amount received as subsidy by a power distribution company has been thoroughly examined and decided in favour of taxpayer by this Tribunal, Lahore Bench vide STA No. 874/LB/2013 and STA No. 950/LB/20I3 between RTO, Faisalabad and Faisalabad Electric Supply Company. Following the judgment given in exactly similar and comparable circumstances, it is held that sates tax is not payable on the subsidy received by PESCO from the Government of Pakistan.
[Emphasis Supplied]

It has also been decided by the Appellate Tribunal Inland Revenue, Lahore Bench in case of M/s Faisalabud Electric Comp any vs. C.I.R. Zone-I, R.T.O., Faisalabad[2014 PTD (Trib.) 1629]

2014 PTD (Trib.) 1629-M/s Faisalabad Electric Company vs. C.I.R. Zone-I, R.T.O. Faisalabad - Tax was imposed on amount which the taxpayer received from Government of Pakistan in the form of subsidy- Taxpayer a power supply company contended that sales tax was chargeable under R 14 of the Sales Tax Special Procedure Rules, 2007 on the amount of sales tax actually billed to the consumers; that subsidy was not billed to the consumers and was not covered in the charge of sales tax under charging provisions; that under S. 3 of the Sales Tax Act, 1990 existence of two ingredients, taxable supply in the furtherance of taxable activity, were must to attract the charge of sales tax; that subsidy was neither a supply to the Federal Government nor it was allowed in the furtherance of taxable activity; and that subsidy was provided by the Federal Government as welfare activity which was not taxable - Revenue contended that subsidy came under the "value of supply" in terms of S. 2(46) of the Sales Tax Act, 1990 read with R. 13 (2) of Chapter-Ill of the Sates Tax Special Procedure Rules, 2007 which was received by the registered person against the supply of electricity (goods) and was actually the part of price fixed by NEPRA and was properly booked under the head of "sales in audited financial statements of the taxpayer"-Validity--Disallowance of proportionate input tax to subsidy was misplaced-Concessional charge of Sales Tax did not mean that supplies were exempt from sales tax-Provision of S.2(11) of the Sales Tax Act, 1990- Under S.2(11) of the Sales Tax Act, 1990, even zero rated supplies were taxable supplies-Mere concession in the charge did not make supply as exempt supply-Section 8(2) of the Sales Tax Act, 1990 was not attracted to disallow purported proportionate input tax-Revenue was reading imaginary things in the legal provisions which were contrar to their plain and explicit meanings-Input tax was allowed with reference to the purpose of the supply and the revenue was inserting their view in S. 7 of the Sales Tax Act, 1990 that input tax should correspond to the actual supply instead of the purpose of supply-Revenue had erred in law in subjecting to tax the subsidy received from the Government which was not consideration for supply of electricity and not chareeable to tax-Orders of the authorities below, on this point, were vacated by the Appellate Tribunal being unlawful.
[Emphasis Supplied]

(Para 72 to 75 on Panes
1672-1674)

In particular the Tribunal has held:

"(i). The specification of exemption in law is necessary where the amount is otherwise chargeable to tax under the law. If the amount is not chargeable to tax there is no point in providing for exemption in the statute (Para 72 on Page 1673 at FF)

(ii). In our opinion the Federal Government granted subsidy to the consumers and not to the taxpayer. The differential tariff subsidy' is directly passed on to the consumers as it is not made part of Bill (invoice in term of Section 23 of the Act) and charge of Sales Tax is curtailed to the "Sales Tax actually billed to the consumer or purchasers" under Rule 14 of the Sales Tax Special Procedure Rules, 2007. (Para 72 on Page 1673 at GG)

(iii). The direct concession to the consumers such as social policy of the Federal Government in terms of section 31(1) of the Regulation of Generation Transmission and Distribution of Electric Power Act, 1997 [copy of section 31 is enclosed as Annex 9A ibid], means concessional charge of Sales tax to the consumers and concessional charge including zero rated charge is not tantamount to exemptions under section 13 of the Act.

(iv). Under section 23 of the Act, a registered person is required to issue invoice in the name of the recipient (buyer). In the present case, such invoice is issued in the form of the electricity bills and under rule-14 of the Sales Tax Special Procedure Rules, 2007, tax is "to be deposited on accrual basis i.e. the amount of Sales tax actually billed to the consumer or purchasers for that tax period". Thus the charge of Sales Tax is confined to the amount of price of electricity bill to the consumer. Subsidy is not part of that price billed to the consumer so, in our considered opinion, it falls out of the Purview of the charge of Sale Tax. (Para 73 on Page 1673 at II)

(v). The provisions of section 2(11) of the Act defines "exempt supply" as supply which is exempt from tax under section 13". But the supplies in the taxpayer's case are not exempt under section 13 of the Act. Under section 2(11) of the Act, even zero rated supplies are taxable supplies. Thus, mere concession in the charge does not make supply as exempt supply. Section 8(2) of the Act is thus, not attracted to disallow purported proportionate input tax. We are constrained to observe that the revenue is reading imaginary things in the legal provisions which are contrary to their plain and explicit meanings. Besides, input tax is allowed with reference to the purpose of the supply and the revenue is inserting their view in Section 7 that input tax should correspond to the actual supply instead of the "purpose of supply".

(vi). The upshot of the above discussion is that we hold that the revenue, in this case, erred in law in subjecting to lax the subsidy received from the Government which was not consideration for supply of electricity and thus not chargeable to tax The orders of the authorities below, on this point, are vacated being unlawful".

Looking at subsidy issue from another angle, assuming without conceding, if the subsidy amount paid by the government is taxable, then the sales tax relating thereto should also be paid by the Government and the Federal Board of Revenue should sort out this issue with the relevant Ministry. It is evident that subsidy paid by the Government of Pakistan is not the consideration received from the recipient of the supply. As the subsidy provided by the Government is sort of compensation rather than revenue in nature, therefore, the same cannot be brought under the ambit of taxable supplies, under Section 2(46) of the Sales Tax Act, 1990. Hence, the question of levy of sale tax on amount of subsidy received from Government does not arise.

12. As regards subsidy charged to industrial consumers, it is categorically found that sales tax is not effectively charged on the subsidy amount granted to industrial consumers under the P.M. Relief Package. Even otherwise this package was announced in 2016 and was non-existent during the Financial year 2013-2014, 2014-2015. It is now well-settled principle of law that acts of inadvertence on the pan of a registered person due to any procedural mistake would not create demand of sales tax. The judgments of Honorable Supreme Court of Pakistan are on all fours to the case of the registered person.

13. In view of above discussion we are inclined to agree with the assertions made by the learned AR and accept the appeals of the registered person, obviously the sales tax on subsidy and on scrap is therefore, deleted. We order so.

14. The appeals of the registered person succeed to the extent indicated above.