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IN THE HIGH COURT OF SINDH AT KARACHI

Present:
Mr. Justice Muhammad Shafi Siddiqui
Mr. Justice Mahmood A. Khan

Special Sales Tax Reference Application No.02 of 2017

IMS Health Pakistan (Private) Limited

Versus
Commissioner-II

ALONG WITH

CP Nos.D-1869 of 2019 & D-4061 of 2021

IQVIA Solution Pakistan (Pvt.) Ltd.

Versus
Sindh and Others

Date of Hearing: 11.11.2021

Petitioner/Applicant: Through Mr. Hyder Ali Khan along with M/s

Sami-ur-Rehman Khan and Hamza Waheed
Advocates.

Respondent/Province Through Mr. Saifullah, Assistant Advocate

of Sindh: General.

Respondent Sindh Through Mr. Shamshad Ahmed Advocate

Revenue Board: along with Syed Zain-ul-Abdin Shah, Deputy
Commissioner SRB.

JUDGMENT

Muhammad Shafi Siddiqui, J.- Through this common judgment we

intend to dispose of Special Sales Tax Reference Application and the two

connected petitions as the same involve common questions and for the

sake of convenience the Reference Application is being treated as

leading matter and the answers to the questions proposed therein will

decide the fate of the petitions as well.

2) Applicant has invoked the Reference jurisdiction of this Court by

proposing following three questions of law:-

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A) Whether the learned Appellate Tribunal erred in holding that

the appellant (applicant) is engaged in the provision of
“Business support services” under the Tariff Heading
9805.9200 of the Second Schedule of the Act?
B) Whether the learned Appellate Tribunal was justified in taxing
the entire value of the appellant’s (applicant’s) invoices even
though only one component of such invoice related to fee for
provision of services?
C) Whether the learned Appellate Tribunal gravely erred in
deciding that the appellant (applicant) would be liable to pay
default surcharge and penalty if the principal amount was not
paid expeditiously despite having held that the key element of
mens rea was missing and that there was a contest between
the parties in respect of classification of services?

3. Impugned in this Reference is an order of Appellate Tribunal Sindh

Revenue Board dated 07.11.2016, which approved department’s version

as well as of the first appellate Court by applying Tariff Heading

9805.9200 to the Second Schedule of Sindh Sales Tax on Services Act,

2011.

4. Brief facts leading to the present controversy under Reference are

that a show-cause notice was issued by an officer of Sindh Revenue

Board (SRB) to the applicant on 25.04.2016 for the tax period July 2013

to December 2014. Applicant responded to the said show-cause notice by

replying in detail on 10.05.2016 which ended up in passing Order-in-

Original dated 01.06.2016 under section 44 and 47 of Sindh Sales Tax on

Services Act, 2011 in terms whereof the applicant was liable to pay the

assessed amount with penalty. The remedy of appeal was then

exhausted before the Commissioner Appeals under section 57 of Sindh

Sales Tax on Services Act, 2011 which appeal was decided on 12.08.2016

against the applicant. Second statutory appeal was then filed under

section 61 of Sindh Sales Tax on Services Act, 2011 before the Tribunal

which too passed order under section 62 of the ibid Act on 07.11.2016

against the applicant. Consequently and ultimately this Reference was

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filed impugning the order of the Tribunal under reference jurisdiction of

this Court.

5. The crux of the dispute, which is specifically in relation to tax

period July 2013 to December 2014, is whether or not the applicant is

liable to pay sales tax on services under the referred Tariff Heading

9805.9200 (Business Support Service) as provided in the Second Schedule

to the Act as against the more appropriate and specific entry (as

alleged) in the first schedule to the Act being Tariff Heading 9824.0000

(Data processing and provision of information).

6. We have heard the learned counsel and perused material

available on record.

7. Subsection 79 of Section 2 of Sindh Sales Tax on Services Act,

2011 defines what service or services means. It means anything which is

not goods and shall include but not limited to the services listed in the

First Schedule of this Act whereas taxable services are defined in Second

Schedule of section 3 and 8 of the ibid Act. The first Schedule provides

under section 2(72) of the ibid Act is more general and information

specified services and more importantly described what services could

be whereas second Schedule to the ibid Act is list of services whereon

tax is levied.

8. Principal argument of applicant is that when more specific and

exclusive entry in the shape 9824.0000 as Data Processing and Provision

of Information Services is available the recourse to a Tariff Heading

(9805.9200) to the Second Schedule is not warranted. We are unable to

reconcile such contention of Mr. Hyder Ali Khan as the Tariff Heading

9824.0000 emerges out of First Schedule deals with the subject of data

processing and provision of information, services of engineering,

handling and storage of goods, which entry on account of prefix is an

alien to the subject of services being rendered by the applicant. The

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applicant is providing and rendering services more appropriately in terms

of Tariff Heading 98.05, which is available in Second Schedule as

9805.9200 as being taxable service. Tariff Heading 98.05 is as under:-

“98.05 Services provided or rendered by persons

authorized to transact business on behalf of others.”

9. For the purposes of aforesaid conclusion the admitted facts are

that the applicant was incorporated in Pakistan on 22.07.2002 and is

engaged in collection and coding of data relating to the pharmaceutical

industry and its transmission to overseas IMS offices and coordination

between IMS-AG Switzerland and its customers in Pakistan. The activities

of such services is governed and undertaken by the applicant through an

agreement attached with the pleadings and relied upon before lower

fora. The applicant company claims to be wholly owned subsidiary of

IMS-AG Switzerland. The agreement, which is not disputed, provides that

principal (IMS-AG) is engaged in collection of data, statistics and

information of all kinds for preparing publications and selling market

research reports and the primary object, in connection therewith of the

applicant, was not only to collect data, rather marketing research

reports and its publication. Such exercise was undertaken under the

agreement which relationship is more appropriately governed by Tariff

Heading 98.05 with its suffix as 9200 i.e. 9805.9200 to the two Schedules

and in doing so the activity undertaken to support such business

transactions and activities has been provided in the Second Schedule as

taxable activity of service under Tariff Heading 9805.9200. Thus, we

would not upset the findings as far as applicability of Tariff Heading is

concerned.

10. The important issue however is that if activities are covered

under Tariff Heading 9805.9200 (Business Support Services) to the

Second Schedule, the revenue component that constitute value of

service provided or rendered has to be clear and other component,

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which does not constitute value of service should be disintegrated under

Sindh Sales Tax on Services Act, 2011.

11. The department as well as statutory appellate forums held that

reimbursed expenses involved to its services is liable to Sindh Sales Tax

on the basis of above stated Tariff. This perhaps is to be seen within the

scheme of the Sindh Sales Tax on Services Act, 2011 as the Act provides

the taxability of adjusted value services provided or rendered rather

than any other amount for which invoice issued and expenses were

incurred which are admittedly reimbursed by the principal recipient.

12. Section 5 and 8 of Sindh Sales Tax on Services Act, 2011 deals

with the value of taxable services. For the sake of convenience, the

same are reproduced as under:-

“5. Value of a Taxable Service.--(1) The value of a

taxable service is:--
(a) the consideration in money including all Federal
and Provincial duties and taxes, if any, which the
person providing a service receives from the
recipient of the service but excluding the amount of
sales tax under this Act: Provided that—
(i) in case the consideration for a service is in
kind or is partly in kind and partly in money,
the value of the service shall mean the open
market price of the service as determined
under section 6 excluding the amount of sales
tax under this Act;
(ii) in case the person provides the service
and the recipient of the service are
associated persons and the service is supplied
for no consideration or for a consideration
which is lower than the price at which the
person provides the service to other persons
who are not associated persons, the value of
the service shall mean the price at which the
service is provided to such other persons who
are not associated persons excluding the
amount of sales tax;
(iii) in case a person provides a service for no
consideration or for a consideration is lower
than the price at which such a service is
provided by other persons, the value of the
service shall mean the open market price for
such a service;
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(b) in case of trade discounts, the discounted price

excluding the amount of sales tax under this Act,
provided the tax invoice shows the discounted price
and the related tax and the discount allowed is in
conformity with customary business practice;
(c) in case there is reason to believe that the value
of a service has not been correctly declared in the
invoice or for any special nature of transaction it is
difficult to ascertain the value of a service, the
open market price, as determined under section 6;
(d) notwithstanding any of the above, where the
Board deems it necessary it may, by notification in
the official Gazette, fix the value of any Service or
class of services and for that purpose fix different
values for different classes or description of the
same or similar types of services;
Provided that where the value at which the service
is provided is higher than the value fixed by the Board, the
value of the service shall, unless otherwise directed by the
Board, be the value at which the service is provided.
8. Scope of tax.--(1) Subject to the provisions of this Act,
there shall be charged, levied and collected a tax known as
sales tax on the value of a taxable service at the rate
specified in the Schedule in which the taxable service is
listed.
(2) The Board, with the approval of Government,
may, subject to such conditions and restrictions as it may
impose, by notification in the official Gazette, declare
that in respect of any taxable service provided by a
registered person or a class of registered persons, the tax
shall be charged, levied and collected at such higher or
lower rate or rates as may be specified in the said
notification for any given tax period.”

13. It is the consideration in money including federal and provincial

duties and taxes which constitute value of taxable services which the

person provides against the consideration but it excludes the amount of

sales tax under the ibid Act. The Tribunal was of the view that the

invoices generated on the amount includes the expenses/expenditures

plus 10-% service charges and is to be taken as one revenue component

for services rendered. The Tribunal is also of the view that in certain

cases there is specific rule in Sindh Sales Tax on Services Act, 2011

providing for valuation of a particular service and providing a certain

minimum threshold and also any exemption and exception. However,

Tribunal considered that since no rule is available for the category of

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“Business Support Services” full value of generated invoices shall be

taken as the value of services rendered or provided in terms of

provisions of Section 5 ibid.

14. We do not agree with the observation as Section 5 itself is clear

that it is for the value of the service which is taxable; the reimbursed

part of the invoice may or may not be of the goods which have been

separately subjected to tax and the provincial Act itself would then not

come into play for the entire invoice and the rule that is being discussed

perhaps would deal with the exceptions not the one in hand.

15. The department has absolutely not disputed about the value of

the service rendered. It is their view that even the reimbursed part of

invoice is liable to be taxed and hence the value of service has not been

disputed. Proviso to Section 5(1)(a) also supports the disintegration of

Invoice component i.e. service value and other value which is

reimbursable.

16. In the case of Sami Pharmaceuticals1 the Bench is of the view that

it is only the quantum and value of service which is taxable and not the

amount being reimbursed by service recipient.

17. Primarily value of service charges for the purposes of Act 2011 is

governed by the value of service agreed upon between the provider and

the recipient as the market itself is so competitive that nothing could

defeat the actual amount being declared to be taxed. However, in case

such understanding of value of service is doubtful as it does not disclose

correct value of service, it was open for the department to have

considered the open market price of such service as required to be

determined under section 6 of Sindh Sales Tax on Services Act, 2011

which is not the case here. Two provisos to Section 5 deals the situation

of value of service. In a situation where the consideration of value of

1
2021 PTD 731 (Sami Pharmaceuticals (Pvt.) Ltd. v. Sindh)
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service is in kind or is partly in kind and partly in money, value of service

shall mean open market price2 excluding the amount of sales tax under

Act 2011. Similarly in case where service is provided by provider to a

recipient who is an associated person and the value is not the actual

value of service, then the value of service which is being provided by a

provider to a non-associated person shall be counted and in case no

consideration is claimed or value is lower than it is being provided by

other persons, the value of service shall be of open market. In principle

the department has not disputed the value of services rather the

department is of the view that reimbursed amount or the amount of

maintenance/expenses incurred should be made part of the value of the

service.

18. A dispute came for consideration before Delhi High Court in the

case of Intercontinental Consultants & Technorats (P.) Ltd.3 in relation

to Section 66 and 67 Chapter V of Finance Act, 1994 which perhaps is

pari materia to the relevant provisions of Sindh Sales Tax on Services

Act, 2011 such as Section 5 and 6, which provide clear mandate of the

value of taxable service by charging service tax to be in consonance with

Section 66 which levies tax only on taxable service and nothing else.

There was however an inbuilt mechanism to ensure that only the taxable

service shall be evaluated under the relevant provisions of the said

Finance Act, 1994 such as Section 67. Delhi High Court thus concluded

that in determining the value of the service nothing more and nothing

less than the consideration paid as quid pro quo for which service can be

brought to charge, as Rule 5(1) of Service Tax Rules, 2006 ran contrary

to the substantive Statue which was declared ultra vires by the Delhi

High Court.

2
Section 6 of Sindh Sales Tax on Services Act, 2011.
3
Intercontinental Consultants & Technorats (P.) Ltd. v. Union of India
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19. The above matter went up to Supreme Court of India4 which found

no merit and the appeals were dismissed thus maintained the findings of

the Delhi High Court.

20. In the case of Human Resources5 the same principle was

maintained. The gross amount was thus defined to be read in

consonance with the subject of taxable service. Thus, it cannot be read

in isolation of the “actual subject” which in the context of “valuation of

service” is the gross amount, inclusive of federal and provincial duties

and taxes which could only be taken into consideration after excluding

the sales tax, which is to be applied on such gross value of taxable

service.

21. Section 8 also limits the applicability to the extent of its charge,

levy and collection which is restricted to the value of taxable service.

This however deals with the specified rate in the schedule where taxable

services listed. Thus, the collective reading of Section 3, 5 and 8 would

take us to an irresistible conclusion that it is only the value of service

rendered and provided that could be subjected to Sindh Sales Tax on

Services Act, 2011 and not any other components therein as this would

invade the jurisdiction of other statutes as the invoice could contain a

component of an amount likely to be reimbursed which amount either

has already been subjected to a treatment on the basis of other

applicable laws, or otherwise.

22. In relation to the last point that deals with the default surcharge

and penalty, the applicant’s case is that since the element of mens rea

was missing, as held by the Tribunal, the applicant should not have been

burdened with the default surcharge and penalty in case amount was not

paid within 30 days from the receipt of the order of the Tribunal.

4
AIR 2018 SC 3754 (Union of India v. Intercontinental Consultants & Technocrats (P.)
Ltd.
5
2021 PTD 933 (Human Resource Solutions (Pv.) Ltd. v. Federation of Pakistan)
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Learned counsel for the applicant has relied upon the case of ICI6

wherein the Hon’ble Supreme Court held that failure of a person to

register with the authority and pay sales tax within the time is to be

scrutinized on the basis of facts and circumstances as such liability being

not automatic would better be determined by appropriate authority as

to whether there was any reasonable ground that default in payment of

sales tax which could be considered as willful and deliberate. Only on a

decision of willful and deliberate non-payment would enter into a

regime of recovery of additional tax such as penalty and surcharge. The

proceedings throughout were contested on lawful grounds and there is

no element of willful and deliberate negligence. Even the Tribunal

considered the entire amount of invoice which includes reimbursed

amount as well for the purposes of sales tax payable hence the applicant

was justified by contesting it within the frame of law and hence there is

no element of willful evasion of such taxes. Same rule is considered in

the case of Habib Bank Ltd.7

23. In view of above facts and circumstances, we are of the view that

department has misapplied the provisions of Section 5 of Sindh Sales Tax

on Services Act, 2011 by including reimbursed and other components of

the invoice in charging tax on the value of services rendered by the

applicant. However, the department has validly considered the case of

the applicant to have fallen under Tariff Heading 9805 with its sub-

heading/suffix 9200 in the Second Schedule of Sindh Sales Tax on

Services Act, 2011 and hence the rate specified in the third column of

the Second Schedule at the relevant time is recoverable on the value of

the services rendered, which is disclosed in the invoices and is not

disputed throughout by the department. The questions (A) and (B) are

thus answered in negative. However, since the tax is to be recovered on

6
2006 SCMR 626 (Deputy Collector Central Excise v. ICI Pakistan)
7
2007 PTD 901 (Commissioner of Income Tax v. Habib Bank Ltd.)
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A[Type the sidebar content. A

the basis value of the service, the amount be deposited in 30 days’ time

and only on failure thereof the penalty and surcharge shall then be

liable to be paid and recovered. Question (C) is thus answered

accordingly.

24. In result of answers to the above, the petitions are also disposed

of accordingly.

25. A copy of this decision may be sent under the seal of this Court

and the signature of the Registrar to learned Appellate Tribunal Sindh

Revenue Board, as required by section 63(5) of Sindh Sales Tax on

Service Act, 2011.

Dated: 29.11.2021 Judge

Judge