The Supreme Court held Friday that internet services/facilities are wholly exempted from Federal Excise Duty (FED) and nothing extraneous can be read into the relevant entry of Federal Excise Act, 2005 to qualify or restrict such exemption.
A three-judge-bench headed by Justice Maqbool Baqar delivered the judgment on the appeal of Commissioner Inland Revenue, against the Islamabad High Court.
The question before the bench was whether despite clear exemption from payment of FED, on internet services, as granted by the Act in terms of section 3 thereof, through item No.2 of Table-II in the 3rd Schedule of the Act, transmission of voice contents through internet would attract levy of FED, as is chargeable on telecommunication services.
The department had issued show cause notice to the respondent (M/s Wi-Tribe Pakistan Limited) for non-payment of FED from January 2011 to December 2012. It passed an order against M/s Wi-Tribe on 25-02-2014.
The company then approached Appellate Tribunal Inland Revenue, which held that since internet services are exempted from FED, the 'voice content' transmitted through internet also enjoys such exemption. The Commissioner Inland Revenue therefore filed an appeal in the Islamabad High Court. However, the IHC upheld the Tribunal's decision.
The court noted that under Section 3 of the Act, telecommunication services are listed at S.No.6 of Table-II, bearing heading 98.12, in the First Schedule of the Act. However, internet service has been exempted from whole of excise duties. Internet service has thus been specified at S.No.2 of the Table-II of the Third Schedule of the Act, which table enumerates the services which are exempted from duty.
The judgment said that Table-II signifies two important aspects; Firstly that not all the communication services attract levy of FED, secondly, (a) internet service, in the context of the Act, falls within the category of communication services, and (b) the same do not attract levy of FED.
It noted that while granting exemption, no exception has been created and no categorization effected, as to the nature, usage, character or application of the internet facility. "Thus it can safely be said that all telecommunication facilities availed through internet are exempted from FED irrespective of their nature."
The court said that the respondent is internet service provider (ISP), and charges for such service only. Though a customer may utilize internet facility for various different purposes, such as browsing, downloading and/or availing various applications like "WhatsApp", "Skype", "Facetime", "Imo", for audio, (voice content) and/or visual transmission. However, ISP has neither concern with such applications/facilities, nor does he provides or controls the same or charge any fee/amount for them.
The fee/amount that ISP charges from its customer is for the internet connectivity only. Since there is a zero charge in respect of internet service, as neither any amount is paid nor is any prescribed, no duty can therefore be charged.
The judgment said that the fee charged by an ISP is either by way of a package (fix charges) or on the actual usage of the internet data which is measured in bytes. There is, however, neither any mechanism, device nor a formula to decipher or segregate such consumption in terms the various utilities the same is put to separately. There are no lawful means to determine or charge FED as being sought by the petitioner.
The respondent cannot be allowed to be deprived of the statutory benefit through misinterpretation and misreading, as attempted by the department. "Even in case of any ambiguity regarding any exemption or concession, the same is to be resolved in a manner beneficial to the taxpayer and not in the manner that would lead to obliteration of his rights and liabilities."
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