M/s Al-Hamd Bulk Storage (Pvt) Ltd, Karachi Sindh Vs Khyber Pakhtunkhwa Revenue Authority, Peshawar and others.

PESHAUIAR HIGH COURT. PESHAWAR

(JUDICIAL DEPARTMENT)

WP No. 2364-P12023

M/s A!-Hamd Bulk Storage (Pvt) Ltd, Karachi Sindh .. Petitioner.

Versus

Khyber Pakhtunkhwa Revenue Authority, Through its Director General, Peshawar and others.

Respondent.

For the Petitioner: Mr. Hamza Hussain Bangash, Advocate.

For the Respondents: Mr. Muhammad Ayub Shinwari, Advocatse.

Date of Hearino: 17.01.2024

JUDGMENT

SYED ARSHAD ALI. J.- IM/s Al-Hamd Bulk Storage (Pvt) Ltd (the petitioner-company) has approached this Court, through the instant petition, praying that: " It is, therefore, most humbly prayed that on acceptance of this Writ Petition this honorable Court may graciously be pleaded to;

I. Declare that sales tax on service withheld by Respondent No.03 and subsequently deposited with Respondent No.Ol amounting to Rupees 4,308,765/- in respect of the storage facility rendered to Respondent No. 03 by the petitioner for the period startingfrom July, 2017 & terminating at December 2019, as violative of KP Sales Tax on Service Act 2013, specifically Section l9 and 22 of the ibid Act il. Direct Respondent No. I & 2 to refund the said amount to the Petitioner as being levied and c oll e c t e d il I e gally, ar b itr ar ily and unl awful ly.

III. Grant any other relief as deemed appropriate in the facts and circumstances of the cose".

) Arguments heard and record perused.

3.It is evident from record that the petitioner; a Karachi based company had inked an agreement with respondent No.3;

a Peshawar based company for provision of storage facility of Methanol in excise bonded tanks located in Kemari Karachi on the terms and conditions provided in the agreement. The period of the said agreement was for one year, however, the

contractual relation between the parties continued till the end of year, 2019.

4.After 18th amendment in the Constitution of Islamic Republic of Pakistan, 1973 ("Constitution") collection of sales tax on services is a Provincial subject and each Province had made legislation for levy; assessment and collection of sales tax on services. The pioneer in the field was in the Province of Sindh which has passed the Act known as Sindh Sales Tax on Services Act,20I1 whereas a similar law was promulgated in the Province of Khyber Pakhtunkhwa through Finance Act, 2013. The petitioner for the purpose of payment of sales tax is registered with the revenue authority/board established under the Sindh Sales Tax on Services Act,20ll whereas respondent No.3 is registered for the said purpose with the revenue authority of the Province of Khyber Pakhtunkhwa in terms of Finance Act, 2013.

5.The payment received by the petitioner-company from respondent No. 3 was subjected to deduction of withholding tax which the respondent No.3 would deposit with respondent No.l. This fact has not been denied by respondent No.3 in the comments.

6.It was in the year, 2019 that the Sindh Revenue Board established under the Sindh Sales Tax on Services Act, 2011 had selected the petitioner for audit in terms of section 28 of the ibid Act and in the said proceedings, the petitioner was held responsible for the payment of sales tax against the services provided to respondent No.3 at Karachi, therefore, the petitioner had approached this Court for the refund of the sales tax.

7.Respondents No. | & 2 have filed their comments. It is the precise contention of the respondents that in view of the clear verbiage of sections 19(2) and 20 read with sections 27 and 30 of the Finance Act, 2013, respondent No.3 had validly withheld and deposited the said tax with respondent No.l therefore, the case of the petitioner is not regaily tenable.

8.From the pleading of the parties, the following two questions are to be answered by this Court.

1.Wether the amount of sales tax which was withheld by respondent No.3 from the invoices of the petitioner against the services rendered by the petitioner at Karachi is refundable?

2.Whether the said refund if permissible can be entertained by this Court while exercising c ons tituti onal j uris di ct i on?

9.First, we shall address question No.l. It is not in dispute that services provided by the petitioner-company were taxable services. It is again not in dispute that these very services were provided by the petitioner in Karachi. The Khyber Pakhtunkhwa Sales Tax on Services Act, 2013 provides the foundation for taxing events. Section L9 of the Act is a charging section defines taxable service to be a service listed in the Second Schedule, which reads as under:

19.Taxable Service.--(1) A taxable service is a service listed in the Second Schedule to this Act, which is provided:

(a)by a registered person from his registered office or place of business in the Khyber Pakhtunkhwa;

(b)in the course of an economic activity, including its commencement or termination of the activity.

Explanation: This sub-section deals with services provided by registered persons, regardless of whether those services are provided to resident persons or non-resident persons.

(2)A service that is not provided by a registered person shall be treated as a taxable service, if the service is listed in the Second Schedule to this Act and-

(a)is provided to a resident person;

(b)by a non-resident person in the course of an economic activitY, including its commencement or termination of the activity.

4 Explanation: This sub-section deals with services provided by non-resident persons to resident persons.

Section 22 of the Act defines the economic activity as under:

22.Economic activity. ---

(t)An economic activity means any activity carried on whether continuously, regularly or otherwise by a

person that involves or is intended to involve the provision ofservices to another person and includes- v (a) an activity carried on in the form of a business, including a profession, calling, trade, or undertaking of any kind, whether or not the activity ls undertaken for any consideration or profit;

(b)the supply of movable property by way of lease, license or such similar arrongement; and

(c)a one-time transaction or concern in the nature of a business or trade.

(2)Anything done or undertaken during the commencement or termination of an economic activity shall be construed as part of the economic activity.

10.The agreement inked between the parties is of paramount consideration in this case. The contents of the agreement would show that the petitioner-company was essentially involved in providing storage facility to respondent No.3. The relevant extracts from the agreement are reproduced as under:

"And whereas ABS has agreed to provide Storage Facility to PBB worked out on the basis of Product Density for Storage of 1200 M.Tons Methanol, to Excise Bonded Tanks located at Plot No.53, Oil Installation Area, Kemari, Karachi, on the following terms and conditions:

l. The tanlcs (ABS-02 &amp; ABS-|?) are mild steel vertical storage Excise Bonded Tanles with provision of moisture absorbents on vents of the tank to avoid deterioration of product quality. " In the present case, admitted facts ate that the petitioner is dealing with methanol business which is a flammable liquid and require special arrangements for its storage. The same is stored in clean containers made from either mild steel, stainless-steel, high-density polyethylene or vulcanized natural rubber. The storage and warehousing service provider normally makes arangement for space to keep the goods, < loading, unloading and stacking of goods in the storage area.

11.Petitioner's argument that the Khyber Pakhtunkhwa Revenue Authority was not empowered to collect sales tax on services merits consideration. The petitioner is a non-resident providing taxable service to a resident of Khyber

Pakhtunkhwa. However, the economic activity which is basis for levy of service tax commences, continues and culminates in Karachi. The agreement further clarifies that the other auxiliary acts connected with supply of methanol were to be performed by respondent No. 3, which has obtained the benefit of the services in Karachi.

12.Since no taxing event in terms of Finance Act, 2013 has taken place in the Province of Khyber Pakhtunkhwa, therefore, the petitioner was not subject to the impost of tax on services under the ibid law. Needless to mention that similar tax under the Sindh Sales Tax on Services Act,2011 has been paid by the petitioner, therefore, the tax collected from the petitioner was beyond the jurisdiction of the taxing authority of the Province of Khyber Pakhtunkhwa. We have considered various provisions of Finance Act, 2013 which does not provide any mechanism for the refund of the said amount which was deposited with respondent No.3 under misconception of law, therefore, in terms of section 72r of the Contract Act, 1872, the respondent No.3 is bound to refund the amount to the petitioner.

13.Moving on to question No. 2. The law relating to the exercise of constitutional jurisdiction in the matter relating to the contractual dispute, recovery of amount is settled that normally this Court would not interfere in the contractual obligation between the two parties even if the other party is a Government. However, in the case of Messrs Airport Services2, the Apex Court has observed that:- "Contractual dispute between the private parties < and public functionaries are not open to scrutiny under the constitutional iurisdiction, breaches of contracts, which do not entail inquiry into or examination of minute or controversial question of | 72. Liability of person to whom money is paid, or thing delivered, by mistake or under coercion.- A person to whome money has been paid or anything delivered by mistake or under coercion, must repay or return it.

2 Messrs Airport Services vs. The Airport Manager International Airport Karachi and others (1998 SCMR 2268)

fact, tf committed by Government, Semi- Government or Local Authorities or like controversies if involving dereliction qf obligotions, ./lowing .from a statute rules or instructions can adequatebt be addressed .for reliqf under that iurisdiction".

L4. Similarly, we have also the privilege to refer to MC Bhandari in Law of Contracts at page 496 which quotes that "It is equally settled law that an application under Article 226 of the Constitution would lie for enforcing the obligation of the State to refund and/or return the money collected towards an illegal tax or drty".

15.In our own jurisdiction, the matter relating to the refund of the sales tax which was illegally recovered by the Federal Board of Revenue (FBR) came up for hearing before the Apex Court in the case of Messrs Pfizer Laboratories Limited. The Apex Court while referring to the various provisions of law, judgment laid down by the Indian as well as our own Supreme Court and section 72 of the Contract Act, 1872 has finally settled this issue in the following manner:- "The above resume of the case-law of Indian, English and Pakistani jurisdictions indicates that the latest judicial trend is to deprecate and to discourage withholding of o citizen's money by a public functionary on the plea of limitation or on any other technical plea if it was not legally payable by him. It is also evident that claims for the refund of the amount paid as a tax or other levy on account of mistake as to want of constitutional/legal backing or because of exemption are at par. It is also apparent that such payments are held to be not covered by Rule I I of the Central Excises Rules, 1944, or section 27(1) of the Indian Customs Act 1951, or section 3j of the Act etc. The refunds of such amounts are allowed by the superior Courts inter alia in India on the basis of section 72 of the Contract Act which provides that "a person to whom money has been paid or anything delivered < by mistake or under coercion must repay or return it". Such refunds can be claimed either by filing a suit for the recovery of the amount for which the period of limitation applicable would be three years under Article 96 of the First Schedule to the Limitation Act (which provides period of three years form the date mistake becomes lorcwn to the plaintffi or the same can be recovered through a 3 Messrs Pfizer Laboratories Limited vs. Federation of Pakistan and others (PLD

1998 SC 64)

Constitutional petition ,f no disputed foct is involved. The Indian Supreme Court and the various Indian High Courts referred to in the cited case-lqw hereinabove had ordered the refund ofthe amounts involved in exercise of their Constitutional jurisdiction under Article 226 of the Indiqn Constitution. In Pakistan, Sindh and Lahore High Courts have also allowed the refund of such amounts under Article 199 of the Constitution in exercise of their constitutional jurisdiction in the cases of Ghulam Abbas v. Member (Judicial), Central Board of Revenue (supra) and Kohinoor Industries Ltd., Faisalabad v. Ministry of Finance (supra), r espectiv ely.

However, we may clarifu that the object of providing limitation inter alia, in sections 32 and 33 of the Act is to finalise the transactions within the period specified therein so that there may not be any adverse financial implication after the expiry of the period mentioned herein, for which provisions for contingency are made in a yearly budged. Though we have held that the instant case is not covered by section 33 of the Act by approving the view talren by a Division Bench of the High Court of Sindh in the above cose of Ghulam Abbas v. Member (Judicial), Central Board of Revenue referred to hereinabove, but rt may not be understood that we are laying down that a party is free to claim refund ofa tax or any other levy paid under a mistake of fact or law at his sweet will at any time even after the expiry of 20 years. IF a suit is to be filed for the refund, it should be within the statutory period provides under the relevant Article of the First Schedule to the Limitation Act, or if the refund of the same is to be claimed by invoking in aid the Constitutional jurisdiction of a High Court, the petitioner should approach the Court promptly. The petition should not suffir from laches which may defeat the claim. We cannot opprove the view that a party can claim the refund of an amount paid to a Government functionary under a mistake without any constraint of limitation as it would adversely affect the good governance in financial motters ".

16.The judgment passed by the Apex Court in case of Messrs Pfizer Laboratories Limited was slightly distinguished by the Apex Court in the subsequent judgment rendered in the case of Shahtaj Sugar Mills Ltd relating to the limitation for 5< filing a claim for refund of the excise duty/sales tax. It was held in the latter judgment that by depositing the regulatory duty and not claiming the refund claim within a year, the Shahtaj Sugar Mills Ltd through Chief Executive vs. Addl. Secretary Government of Pakistan, Ministry of Finance, Karachi and others (2009 SCMR l42l)

petitioner was estopped to agitate the claim of six years and the principle of laches and waiver would also come into play against the petitioner. However, the ratio of Shahtaj Sugar Mills is not applicable to the present case as neither the claim of the petitioner is barred under any law of limitation nor any mechanism or limitation has been provided by the Finance Ac! 2013 for recovery of the sales tax which was incorrectly and under wrong impression deposited by respondent No.3 with respondent No.l.

17.In view of what has been stated above, we are constrained to allow this petition and direct respondent No.l to refund the sales tax which the respondent No.3 had withheld form the petitioner against the services which it had provided to respondent No.3 mentioned above after due verification of the said claim within a period of three months from the judgment of this Court.

JUDGE

7JUDGE

Date of hearing & announcement Ofjudgment ..............17 .01.2024

Date of preparation & sigfng Ofjudgment ....17.04.2024

Nawab Shah CS (DB) Justice S.M. Attique Shah & Justice Syed Arshad Ali