An issue has been raised whether Punjab Revenue Authority (PRA) is legally empowered to collect "Franchise Fee" from Sindh-based manufacturers of motor vehicles, who have already paid such fee to Sindh Revenue Board (SRB).
Sources told Business Recorder here on Friday that the Punjab Revenue Authority(PRA) has added "Franchise Service" in the Second Schedule to the Punjab Sales Tax on Services Act, 2012 through a notification dated October 06 2012; thereafter PRA issued Circular No 02 of 2013 wherein the "Assessment and Payment of Punjab Sales Tax on "Franchise Services" has been explained.
The PRA has issued notice to manufacturers of motor vehicles based in the Province of Sindh to pay the "Franchise Fee" to PRA on the basis of Sales of motor vehicles made in the Province of Punjab or else they would recover the same on the proportionate basis (population base of 58 percent).
Sources said that the manufacturers of the cars explained to PRA that the "Franchise Fee" was being paid to Sindh Revenue Board as the manufacturing activity was being done in the Province of Sindh and as such the Franchise fee is being paid on account of manufacturing activity being undertaken in the Sindh; therefore, the same cannot be paid in Punjab on the basis of Population. The PRA issued recovery notices which were challenged by the manufactures before the Lahore High Court in Constitutional Jurisdiction.
The matter was listed for hearing before Justice Syed Mansoor Ali Shah and after hearing the parties the operation of the notices were suspended. It was argued by the Counsel for the manufacturers that they have entered into Technical Assistance Agreement with principles in Japan. It is submitted that the said Agreement was entered between the parties in Sindh and the manufacturing of the cars also takes place in Sindh.
It was further argued that the grievance against PRA arises out of Circular No 02/2013 dated March 8, 2013 and the Show Cause Notice dated June 14, 2013 issued by the tax department.
It was submitted that the "Franchise Services" of the petitioners arising out of the Technical Assistance Agreement have been subjected to tax under the Punjab Sales Tax on Services Act, 2012 on the ground that the cars manufactured by the petitioners are also sold in Punjab and as the petitioners receives payments against the sale of these cars from Punjab the said amount can be taxed as franchise service under the Act. It is contented that the sale of the cars through independent dealership in Punjab has no co-relationship with the alleged Franchise Agreement entered into between the car manufacturers and their Principles in Japan.
It was further argued that if at all for the sake of arguments the Technical Assistance Agreement amounts to Franchise Agreement, the services are being rendered in Sindh and not in Punjab, hence, PRA has no jurisdiction to issue the impugned Circular and the Show Cause Notice, sources added.