Services Sales Tax on Safe Deposit Lockers Services

Services Sales Tax on Safe Deposit Lockers Services Case Laws Civil Law Constitutional Law Knowledge - Civil Law Knowledge - Constitutional Law Litigation & Arbitration Sales Tax - Service Solutions - Civil Law Solutions - Constitutional Law Supreme Court Tax Mr. Justice Qazi Faez Isa in his judgment has decided the issue regarding services sales tax on safe deposit lockers services in Civil Appeal No. 911 of 2015.

1. Habib Safe Deposit Vault (Private) Limited was granted leave to appeal the judgment dated 22nd May 2015 of the Hon’ble High Court of Sindh at Karachi vide order dated 18th September 2015, which is reproduced here under:

“a. Learned ASC appearing on behalf of the petitioner contended that if sub-heading 9813.4000 is read carefully only the services provided or rendered by banking companies, in relation to subheadings 9813.4100, 9813.4200, 9813.4300, 9813.4400, 9813.4500, 9813.4600, 9813.4700, 9813.4800, 9813.4900, 9813.4910 and 9813.4990 are taxable, therefore, the services provided or rendered by the petitioner which is not a banking company cannot be made taxable under the aforesaid subheading by any means.

b. Learned ASC appearing on behalf of the respondents No. 2 and 3 contended that though a taxing statute has to be construed strictly but it does not mean that its provisions be construed in isolation with utter disregard to its overall scheme; that if the words used by the legislature in the main headings are read as such not only the services provided or rendered by banking companies, insurance companies, cooperative financing societies, modarabas, musharikas, leasing companies, foreign exchange dealers, non-banking financial institutions are taxable but also those of other person dealing therewith. In any case, he added, the Courts of law are required to place harmonious construction on the statute so that none of its parts be rendered nugatory or redundant.

c. Points urged having some substance, merit a consideration. We, therefore, convert this petition into appeal. Since the matter relates to tax it be listed for hearing within two months. Interim order passed in the case shall continue till then. The appeal shall be prepared on the available record with the liberty to the parties to add thereto.”

2. The impugned judgment reproduces a partial extract of the tariff heading 98.13 and its subheadings from the Second Schedule of the Sindh Sales Tax on Services Act, 2011 (“the Act”). Mr. Agha Faisal, the learned counsel for the appellant, stated that the appellant runs the business of providing safe deposit lockers to its customers, but as it is not a banking company the provision of such service is not liable to sales tax. In this regard he referred to the Second Schedule of the Act and the entries therein in respect of “safe deposit lockers” (tariff subheading 9813.4900) and “safe vaults” (tariff subheading 9813.4910) which, according to the learned counsel, would only attract sales tax if such services are provided by banking companies. He also referred to tariff subheading 9813.4000 which lists the, “Services provided or rendered by banking companies in relation to:”, where under are mentioned “safe deposit lockers” (tariff subheading 9813.4900) and “safe vaults” (tariff heading 9813.4910) and stressed that the words – “in relation to” – which are followed by a colon do not leave room for any other interpretation. The learned counsel stated that to such extent the Hon’ble High Court had agreed with the appellant’s contention (in paragraph 6 of the judgment), but that it regretfully erred by concluding, “that the petitioner being part of a banking company Habib Bank Limited is liable to pay sales tax”. He assailed the finding of the learned Division Bench of the High Court, with regard to the appellant being a part of a banking company, as it was contrary to the facts, fully borne out by the incontrovertible documents that had been placed on record. The learned counsel also relied upon the judgment in the case of Citi Bank NA v. Commissioner Inland Revenue, (2015) 111 Tax 82, which is an order of a learned Single Judge of the High Court of Sindh at Karachi.

3. Syed Ahmad Hassan Shah, the learned counsel for the Sindh Revenue Board (respondent No.2) and the Assistant Commissioner of the Sindh Revenue Board (respondent No.3) however stated that the High Court had disregarded an important aspect of the case. According to the learned counsel, the appellant is liable to pay sales tax pursuant to tariff heading 98.13 which imposes sales tax at the rate of 15% on “other persons dealing in any such services” and the appellant comes within the term “other persons” and provides “such services”; and this contention of the Sindh Revenue Board was not considered by the learned Bench of the High Court, despite it being specifically pleaded as is also confirmed by paragraph 4 of the impugned judgment, reproduced here under:

“On the other hand, Mr. Khalid Zamir, Dy. Commissioner, Legal, Sindh Revenue Board argued that Tariff Heading 98.13 describes various service-providers which not only include banking companies but by virtue of the phrase “other persons dealing in any such service” include anyone whose services are covered by Tariff Heading 98.13 and the petitioner renders services covered under Headings 9813.4900 and 9813.4910, it is liable to pay sales tax under Sindh Sales Tax on Services Act, 2011.”

He also stated that though the learned judges had found the appellant to be a part of Habib Bank Limited (a banking company) the liability of the appellant is not based on such determination alone. The “rate of tax” against all the entries reproduced in the impugned judgment is shown to be “16%” however vide Sindh Finance Act, 2014 (which came into effect on 7th July 2014) the rate of tax was brought down to 15%.

4. The learned counsel for the appellant is correct in stating that tariff subheading 9813.4900 (safe deposit lockers) and tariff subheading 9813.4910 (safe vaults) are in respect of services provided or rendered by banking companies, since these two tariff subheadings are listed under tariff subheading 9813.4000 and are, “in relation to:” services which are provided or rendered by banking companies. The learned counsel for the appellant meticulously took us through the documents on record to show that the appellant was neither a banking company nor was a part of Habib Bank Limited, which is a banking company. The learned counsel for the Sindh Revenue Board however does not seriously dispute that the appellant is not a banking company, but states that the appellant is liable to pay sales tax under tariff heading 98.13 as it cannot be excluded from “other persons” who deal in “any such service”, whether or not such persons are a banking company. We therefore proceed to consider this proposition.

5. We have gone through the Second Schedule and against a number of tariff headings no rate of tax is mentioned, such as tariff headings: 98.01, 98.02, 98.15, 98.18, 98.19, 98.20, 98.21, 98.22, however, tariff heading 98.13 mentions a rate of tax of 15%. Incidentally, each of the tariff subheadings (9813.1000 through to 9813.9000), which are listed under tariff heading 98.13, also prescribe the same rate of tax, i.e. 15%. The learned counsel for the appellant contended that as each subheading prescribes a rate of tax therefore, the rate of tax stipulated in heading 98.13 will be of no consequence. He further stated that confusion would result if the rates in the tariff heading and tariff subheadings were different.

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