ISLAMABAD: The Appellate Tribunal Inland Revenue (ATIR) has directed a leading fertiliser company to promptly deposit the amount of “Gas Infrastructure Development Cess (GIDC) into the government treasury, along with applicable default surcharge.
According to a judgement of the ATIR Islamabad in the matter of M/s Fauji Fertilizer Company Limited; the controversy between the parties hinges upon the interpretation of Section 5 of the GIDC Act, 2015, and Section 34 of the Income Tax Ordinance, 2001.
The appellant taxpayer has filed the titled appeal challenging the Order-in-Appeal No 304/2023, dated January 20, 2023, issued by the Commissioner of Inland Revenue (Appeals-I), Large Taxpayers Office (LTO), Islamabad. This appeal pertains to the tax year 2018 and was filed under Section 131(1) of the Income Tax Ordinance, 2001.
Subsequently, the appellant and other fertiliser companies filed suits in the SHC, resulting in stay orders restraining the Federal government and relevant authorities from taking coercive action for the recovery of unpaid GIDC arrears. The SHC issued these stay orders on multiple dates, including September 10, 2020, and January 14, 2021.
The case was heard numerous times and finally on December 18, 2024.
During the proceedings, the learned Authorized Representative (AR) for the appellant focused exclusively on the addition/disallowance made under the head “Gas Infrastructure Development Cess (GIDC).”
Regarding the other additions confirmed or remanded by the learned Commissioner of Inland Revenue (Appeals), it was mutually agreed by the parties that these matters would be referred back to the assessing officer for reconsideration.
Consequently, the primary issue in this case concerns the addition/disallowance of the GIDC amounting to Rs18,891,676,000.
From a legal and ethical perspective, when the appellant company had collected the cess from its customers on behalf of the government, it assumes a fiduciary and legal obligation to remit the collected amount to the federal government forthwith. The company is not entitled to withhold payment and uses it for its own purpose.
The tribunal stated that the revenue department’s decision to disallow the expense under Section 5 of the GIDC Act, 2015 is based on an incorrect interpretation.
At the same time, the appellant has also incorrectly justified their claim under the Section 5.
However, the appellant (gas consumer) has otherwise the right to claim this expense under Section 20 of the Income Tax Ordinance, 2001 as it is incurred exclusively for business purposes.
The provision for the cess in the appellant’s books is appropriate as it meets the criteria for accrual accounting by recognizing the liability when it is payable (upon billing) and determining the amount with reasonable accuracy. Thus, the appellant has correctly created a provision for the cess in their books of account, as it meets the criteria set out by IAS 37.
It is evident from the record that the appellant collected the cess from its clients/customers and passed the incidence of the cess onto them. Therefore, in light of the judgment of the Supreme Court, the appellant is directed to promptly deposit the amount of cess into the government treasury, along with the applicable default surcharge.
Regarding the other additions confirmed or remanded by the Commissioner of Inland Revenue (Appeals), it was mutually agreed by the parties that these matters would be referred back to the assessing officer for reconsideration. However, being an old matter, theassessing officer is directed to pass the order preferably within two months from the date of receipt of this order after giving proper opportunity to the appellant, the tribunal’s order added.
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