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ISLAMABAD: The Appellate Tribunal Inland Revenue (ATIR) has declared that the tax officials cannot conduct sales tax assessment of taxpayers without prior selection of case for audit under section 25 of the Sales Tax Act, 1990.

Moreover, the power distribution companies are under no obligation to charge sales tax on wheeling charges, the tribunal added.

Chartered Accountant Yawar Muhammad from Rafaqat Babar and Co Chartered Accountant told Business Recorder that the tax authorities has set the new norm by monitoring the self-assessed sales tax returns of the registered taxpayer without selecting the taxpayers through neutral and impartial tool of audit under Section 25 and 72B of the Sales Tax Act, 1990 (Act).

This practice has snatched the rights of taxpayer to be scrutinised within the bounds of the Act and illegal sales tax demands are created.

The appellate tribunal in its Order STA No 148/PB/2019 dated 25.06.2021 disregarded the practice of authorities by quoting “we are also inclined to agree to the argument that the tax regulators monitor self-assessment system through neutral and impartial tool of audit under Section 25 and 72B of the Act and there is no mechanism under the Act to lift the veil of self-assessment, protecting the monthly sales tax return filed by the taxpayer.

Reliance is placed in this regards on the judgment reported as 2020 PTD (Trib) 66 – STA No 991/LB/2018 – (M/s Islam Soap Industries (Pvt) Ltd vs The CIR, LTU, Lahore), 2020 PTD (Trib) 585 – STA No 1058/LB/2018 – (M/s Islam Soap Industries (Pvt) vs The CIR, Zone – IV LTU, Lahore), PTCL 2014 CL. 726 – Taj International (Pvt) Ltd vs The Federal Board Of Revenue and many others.

Discrepancies in statutory notices: Pral, IT wing officials summoned by ATIR

He further added that the authorities have also taxed the wheeling charges collected by M/s Peshawar Electric Supply Company (Pvt) Ltd (PESCO) from M/s Tribal Electric Supply Company (Pvt) Ltd (TESCO), and these charges were collected only for provision of transmission lines to TESCO and has not made any taxable supply of goods to TESCO.

As the tax on services is not within the domain of the federal government.

It is also added that the electricity remains the property of the NTDC and its ownership is never transferred to PESCO.

The tribunal in its decision cited as STA No 148/PB/2019 dated 25.06.2021 declared the judgment that it is apparent that sales tax cannot be levied on the services rendered by the registered person.

Now the question arises that the “wheeling charges” fall under the definition of “services” under the Act.

Therefore, it is candidly clear that to charge sales tax on supplies, two conditions of making taxable supplies and taxable activity must exist simultaneously under Section 3(1) of the Sales Tax Act, 1990.

Section 3 of the Act levies sales tax on the taxable supplies made by registered person in the course of furtherance of any taxable activity carried on by him and upon goods imported into Pakistan.

It is obvious that only such taxable activity is liable to sales tax, which is undertaken during the course of taxable supply.

It is also clear that “supply” of goods in the background of facts of this case can only take place, if it is sale or other transfer of the right to dispose of goods as owner.

The NTDC has never sold or allowed sale of such electricity by Pesco.

Rather it is given to PESCO for transportation to TESCO.

Therefore, after appraising the facts obtaining on record and also going through the divergent views expressed by the rival parties, the tribunal has inclined with the contentions raised by the AR of the taxpayer that the PESCO is under no obligation to charge sales tax on wheeling charges.

Copyright Business Recorder, 2021

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