Sindh Revenue Board (SRB) has expressed serious concern over Federal Board of Revenue (FBR) proposed amendments in Chapter 98 (services) of the First Schedule to the Customs Act, 1969 without consulting provinces for collecting federal sales tax on services provided/rendered by restaurants.
In this regard, the FBR has received a letter from the SRB on the issue of imposition of federal sales tax on services provided/rendered by restaurants.
In its letter, the SRB has categorically declared that the opinion given by the Law Division does not alter the provisions of the Constitution or the laws made by the Provincial Legislatures in terms of the Constitution, SRB feels that such opinions are to be treated merely as "opinions" or "advice" and these are not binding on provinces.
Referring to the Constitution, SRB has specified that the FBR has attempted to encroach upon the provincial domain specified as per the exclusion provided in Entry No. 49 of Part-I of the Fourth Schedule to the Constitution, read with Article 141 and 142(c) thereof. The provisions of the Sales Tax Act, 1990, have to be read, interpreted and understood in accordance with the aforesaid provisions of the Constitution.
The SRB has requested FBR to review and withdraw its letter in question and advise its Chief (IR-Policy) to convene the meeting of the Committee constituted to discuss the issue of jurisdiction on restaurants and caterers and to submit its consensus report for joint consideration of the Heads of FBR and four Provincial Sales Tax Administrations.
According to the detailed letter of the SRB received here at the FBR House by the concerned FBR Wing, refer to FBR's letter dated 27th September, 2019, addressed, on the above subject, to the Chairperson, PRA, and endorsed to SRB, KPRA and BRA and to say that ever since central excise duty was levied in 1969 on the services provided or rendered by restaurants, sales tax on food items (as "goods") has not been levied or collected by CBR/FBR on the restaurant services.
Besides the fact that the provision of food and drinks served in restaurants has always been treated as "service" in Pakistan for the purpose of levy of sales tax and central excise/federal excise both, it is pertinent that it is also treated as "service" in all VAT-practicing countries including European Union. In its judgment dated May 2, 1996 in the Case C-231/94, the ECoJ concluded as follows:-
"Restaurant transactions are to be regarded as supplies of services within the meaning of Article 6 (1) of the Sixth Directive which, under Article 9 (1) of the directive, are deemed to be carried out at the place where the supplier has established his business".
Besides the aforesaid judgment of the ECoJ, the ISIC Rev 4 of the Unified Nations classifies the "Restaurant and mobile food service activities" as "service activities" under Section I, Division 56, Group 561, Class 5610 of the ISIC.
The SRB has highlighted that the contention of the FBR letter that restaurants are making supplies of food items and accordingly chargeable to sales tax under Sales Tax Act is not tenable. The contention of the FBR letter under reference is, in fact, an attempt to encroach upon the Provincial domain specified as per the exclusion provided in Entry No. 49 of Part-I of the Fourth Schedule to the Constitution, read with Article 141 and 142(c) thereof. The provisions of the Sales Tax Act, 1990, have to be read, interpreted and understood in accordance with the aforesaid provisions of the Constitution.
The SRB has further specified that attention is invited to another advice of the same Law & Justice Division, Islamabad, as conveyed by it to the FBR under its U O No. 530/2009-Law-I dated 27.06.2009 which, in turn, has been circulated under FBR's letter C. No (3) FED/2007 dated 25th July, 2009 which classified the provision of service in restaurant as "services" and not as "goods".
Besides the fact that opinion given by the Law Division does not alter the provisions of the Constitution or the laws made by the Provincial Legislatures in terms of the Constitution, SRB feels that such opinions are to be treated merely as "opinions" or "advice" and these are not binding. The attention is invited to the Law Division, Islamabad's O.M. No. F.7(26)/SoL.I. dated 20th July, 1976 stating that "all communications made and opinions tendered by this Division are confidential and are meant only for interdepartmental guidance. It may sometimes well be that the advice of this Division may not be correct and if such advice is placed before a court, the same may be acted upon to the detriment of the Government. Even otherwise, an opinion of this Division is formally expressed view of an integral part of the Federal Government and cannot, therefore, be quoted to another Government or outside agency except under formula giving it as the opinion of the Federal Government. ". Law & Justice Division, Islamabad's opinion as contained in its letter No. 530/2009-LawI dated 27.07.2012(as cited in FBR letter) has, therefore, to be read in terms of the aforesaid 2 communications of the same Law & Justice Division. It is pertinent that the said opinion of July, 2012, was not acted upon or practiced even by the FBR upto June, 2019, and also that Province of Sindh/SRB do not agree or accept the propriety or the vires of the said opinion.
Referring to the judgement of the Peshawar High Court, it is reliably learnt that this case relates to the year 2009-10, i.e. an era prior to the 18th Constitutional Amendment of 2010 and the 7th NFC Award of 2010 and also prior to the enactment of the Sindh Sales Tax on Services Act, 2011, SRB maintained.
Moreover, the Provinces (including Sindh) were not cited as respondents. The said judgment may be seen in this context accordingly. It is pertinent to add that vide the interim orders dated 27.07.2015 and 04.05.2016 in C.P. Nos. D-4374 of 2015 and D-2527 of 2016, respectively, the Sindh High Court has restrained the respondent (FBR and its field formations) from taking any coercive action against the petitioner restaurants.
As regards FBR contention in letter under reference, it is pertinent to add that in addition to the fact that Chapter 98 in the First Schedule to the Customs Act, 1969, is not a part of WCO's H.S. Nomenclature, as ratified by Pakistan, it has no validity for the purposes of Sindh Sales Tax on Services Act, 2011, which does not contain any reference or relevance to Chapter 98 of the Customs Act, 1969, in the definition of the terminology "services" as provided under section 2(79) of the said 2011-Act. In any case, mere omission of the entries relating to "restaurants" and "caterers" from Chapter-98 of the Customs Act,1969, does not alter the character of the restaurant services and the caterers' services. It is pertinent to add that tariff heading 9801.6000(Ancillary services provided or rendered by hotels, restaurants, marriage halls, lawns, caterers) still exists under Chapter 98 of the First Schedule to the Customs Act,1969, and similarly the words "caterers" and tariff heading "9801.5000" and "9801.6000" still exist in columns (2) and (3) of the Schedule to the ICT (Tax on Services) Ordinance, 2001. Notwithstanding the aforesaid facts, SRB expresses its deep concern on FBR proposing amendments in Chapter 98 (services) of the First Schedule to the Customs Act, 1969, without consulting the Provinces, an aspect which is always emphasized for proper cooperation and coordination between FBR and the 4 Provincial Sales Tax Administrations, SRB explained.
It is further stated that (a) in the meeting held in FBR on 15.01.2019, it was decided that a Committee headed by Chief (IR-Policy) and a nominee from each Provincial Authority shall be constituted to report on the issue of jurisdiction over restaurants. The SRB communicated the name of its nominee on the Committee, but neither anything has been heard from FBR as yet nor the Chief (1R-Policy) convened any meeting of the Committee.
During the meeting held on July11, 2019 (which was attended by the Finance Minister of KP, besides the heads of SRB, PRA, KPRA and BRA), the Chairman FBR had very kindly stated that FBR shall discuss the matter of sales tax on restaurants with Provincial Sales Tax Administrations and, in the meanwhile, FBR shall not press the restaurants and caterers in any manner to cause double taxation. However, neither the final minutes of that meeting has yet been issued by FBR nor any consultative meeting has been convened by FBR as yet, SRB stated.
For the reasons stated in the foregoing, FBR is requested to review and withdraw its letter C. No. 1(23)/STB/2010(Pt)-23115-R dated 27.09.2019 and advise its Chief (IR-Policy) to convene the meeting of the Committee constituted in the minutes of the meeting held on January 15, 2019 to discuss and deliberate the issue of jurisdiction on restaurants and caterers and to submit its consensus report for joint consideration of the Heads of FBR and the 4 Provincial Sales Tax Administrations. An early action is requested by the SRB, the letter of the SRB added.
Copyright Business Recorder, 2019