APPELLATE TRIBUNAL INLAND REVENUE, SPECIAL DIVISION BENCH,
PESHAWAR
ITA No.218/PB/2021
Tax Year 2017
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M/s Babri Cotton Mills, Habib Abad, Kohat. |
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Appellant |
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Vs |
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Commissioner Inland Revenue (Corporate Zone), RTO, Peshawar. |
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Respondent |
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Appellant By: |
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Mr. Ishtiaq Ahmed, Advocate |
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Respondent By: |
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Mrs. Fouzia Iqbal, DR |
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Date of Hearing: |
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27.10.2021 |
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Date of Order: |
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27.10.2021 |
O R D E R
M.
M. AKRAM (Judicial Member): The titled appeal has been filed by the
appellant/taxpayer against an Appeal Order No.117 dated 25.08.2021 passed by
the learned Commissioner Inland Revenue (Appeals), Peshawar for the Tax Year
2017 on the grounds as set forth in the memo of appeal.
2. Brief
facts culled out from the record are that the taxpayer is a Private Limited
Company engaged in the manufacture and sale of yarn. Return of income for the
tax year 2017 was e-filed accompanied by audited accounts. On examination of
the audited accounts, it was noticed that certain transactions under various
heads have been made during the year under consideration. To ascertain proper
deduction of withholding taxes, notice under section 161(1A) of the Income Tax
Ordinance, 2001 (“the Ordinance”) was
issued. In reply, the taxpayer failed to make any compliance and a reminder
notice was issued. On the due date, the taxpayer sought an adjournment which
was accordingly given and the case was adjourned. Again, on the due date, the
taxpayer sought an adjournment and was accordingly given. On the given date the
taxpayer produced a reply along with supporting documents and tax deduction
challans. In the view of the show cause notice given and the reply produced by
the taxpayer, the assessing officer passed the impugned order under section
161/205 of the Ordinance charged total default tax at Rs.4,403,990/- and
default surcharge @ 12% at Rs.528,479/-. Being aggrieved, the appellant filed
an appeal before the learned Commissioner Inland Revenue (Appeals) who decided
the appeal of the taxpayer vide Appeal Order No.117 dated 25.08.2021. Still aggrieved,
the appellant has preferred an appeal before this forum and assailed the
impugned order on a number of grounds.
3. The
case was heard on 27.10.2021. Learned AR for the appellant contended that the
goods mentioned in section 236G of the Ordinance for collection of advance tax
relate to the finished products which are ultimately used by the end consumer.
Thus, according to him, manufacturer or commercial importer of the finished
goods mentioned in the said section are required to collect advance tax at the
time of sale to distributors, dealers, and wholesalers. He explained that the
appellant is a manufacturer of cotton yarn which is the intermediary good and
therefore, does not come within the ambit of section 236G ibid, hence, the
appellant was not required to collect the advance tax from the wholesaler while
selling the cotton yarn to them. The learned AR also relied upon the
definitions of the expression “distributor”, “dealer” and “wholesaler”. It has
been stated that the FBR has issued the clarification vide its letter
C.No.3(2)ST-L&P/2011(Pt) dated 12.12.2014 that the yarn supplied by
spinning mills cannot be used other than for textile purposes. Further
contended that in a similar set of circumstances, the learned CIR(A) in another
case observed that the provisions of section 236G of the Ordinance apply to
sales to the retailer who are the people selling goods to the general public
for consumption. It was further observed in the said case that the taxpayer was
not the manufacturing of cloth rather it was the manufacturing of yarn which
was further sold to cloth manufacturers and they produce end products i.e cloth
which was sold to retailers. On the foregoing observations, the CIR(A) deleted
the tax. He, therefore, pleaded that the appeal be accepted.
4. On
the contrary, the learned DR opposed the appeal and contended that the
appellant is a manufacturer of yarn and the taxpayer has made the supplies
partly to unregistered persons and partly to registered persons but failed to
provide evidence which could establish the fact that these persons are
manufacturers. She explained that the record shows that the supplies made to
the registered persons are the wholesalers and the appellant was required to
collect advance tax at the time of sales to them under section 236G of the
Ordinance. She argued that the order passed by the assessing officer is a
speaking order and there is no infirmity in the said order. The learned CIR(A)
has rightly confirmed the order of the assessing officer. Ample opportunities were
given to the appellant to establish that the sales were made to the
manufacturers but he failed to do so. She, therefore, prayed that the appeal of
the appellant be dismissed.
5. We
have heard both the parties in detail and perused the available record. The
submissions made on behalf of the appellant have substance. Undisputedly, the
appellant is a manufacturer of cotton yarn and has made the supplies to the
wholesaler for the tax year under consideration.
Thus, the appellant claimed that its manufacturing product viz.,
"yarn" does not fall under the expression “textile” used in section
236G of the Ordinance. The learned AR submitted that the manufacture of cotton
yarn did not amount to the manufacture of "textile". Yarn is the material
or component with which the "textiles" are manufactured and since in
section 236G, the word "textile" is used, manufacture of yarn is not
covered under the said connotation. He explained that the expression "textiles" usually refers to finish
goods like clothes or fabrics made by weaving, knitting, netting, or braiding
and classified according to their component fibres such as silk, wool, cotton,
linen, and such synthetic fibres as rayon, nylon, etc. The following question
emerges from the record and the submissions advanced by both the parties for
our determination: -
Whether the article in question i.e cotton yarn, manufactured by the
appellant comes within the ambit of the expression “textile” as used in section
236G of the Ordinance and consequently the appellant was obliged to collect
advance tax from the distributors, dealers, and wholesalers at the time of sale
to them?
To appreciate the submissions of the parties,
it would be expedient to first reproduce hereunder the relevant provision of
section 236G of the Ordinance: -
“236G. Advance tax on sales to distributors, dealers, and wholesalers: (1) Every manufacturer or commercial importer of electronics, sugar, cement, iron and steel products, fertilizer, motorcycles, pesticides, cigarettes, glass, textile, beverages, paint or foam sector, at the time of sale to distributors, dealers and wholesalers, shall collect advance tax at the rate specified in Division XIV of Part IV of the First Schedule, from the aforesaid person to whom such sales have been made.”
The word "textile" has not been defined in the Ordinance.
Therefore, it must be interpreted according to its ordinary or popular sense,
the sense in which they are commonly understood in ordinary parlance, and not
in its primary or technical sense. The word 'textiles' is
derived from the Latin 'texere'
which means “to weave” and it means any woven fabric. When yarn, whether
cotton, silk, woolen, rayon, nylon, or of any other description or made out of
any other material is woven into a fabric, what comes into being is a “textile” and it is known as such. It
may be cotton textile, silk textile, woolen textile, rayon textile, nylon
textile, or any other kind of textile. The word "textile" would
include every kind of cloth, whether made of cotton, wool, jute or silk, natural
or artificial, which is a finished product in accordance with the needs of
human beings who include all classes, those who want very fine cloth and those
who are satisfied with comparatively coarser kind and who include men and women
and the latter may require beautiful colours and beautiful prints. If in a
factory where, apart from weaving, bleaching, dyeing, and printing are also
done, would fall within this definition of the expression "any industry
engaged in the manufacture or production of textiles". It is true
that the manufacture of cotton yarn is a stage earlier than the manufacture of
"textiles" as understood commonly. In fact, cotton is the first
stage, next comes "cotton yarn" which finally produces
"textiles".
In the Shorter Oxford Dictionary, the meanings given to the word "textile" are: -
"that has been or may be woven; of or connected with
weaving; a woven fabric any kind of cloth; of or pertaining to weaving or to
woven fabrics".
Again, according to the Websters
Third New International Dictionary, the meanings of the word
"textile" are: -
"Cloth, especially a woven or knit cloth; a fibre,
filament, or yarn used in the making of cloth".
Again, the following are the
meanings given to the word "textile" in the Random House Dictionary
of the English language: -
"1. Any material that
is woven;
2. A material as fibre or yarns, used in or suitable for weaving;
3. Woven or capable of being woven textile fabrics;
4. of or pertaining to weaving, textile industries".
It would follow from the above that
whatever may be the other ancillary attributes thereof, yet a weaving or
knitting process is foundational to the manufacture or production of textiles.
However, the learned DR for the department, pinned upon the secondary meaning
of "textile" namely, that a fibre, filament, or yarn suitable or
capable of being woven, was equally within the ambit of the word
"textile". This may perhaps be so but we are unable it would, in any
way, ultimately advance the case of the appellant. At best, it would appear
that even though a weaving or a knitting process is the foundation to the
manufacture or production of textiles yet, as a matter of enlarged or loose
terminology, the fibre, filament, or yarn to be used for such a weaving or
knitting process may also be loosely labelled as a textile. To our mind, this
secondary meaning does not appear to be attracted or applicable when viewed in
the context of section 236G of the Ordinance, the legislature has deliberately
used the words “manufacture of textile” in the restrictive sense. Had it been
the intention of the legislature to levy the advance tax on cotton yarn or any
other raw materials as well then, the phrase “manufacture of textile and articles
thereof” would have been used in section 236G of the Ordinance. It is pertinent to mention here that the
legislature is conscious about the use of word “Textile”’ and the
phrase “Textile and articles thereof” and in its wisdom and with clear
deliberation has used these terms distinguishably in some other provisions of
the Ordinance, for instance in Clause (45A) of Part-IV and Clause (66) of
Part-IV of Second Schedule to the Ordinance. Similarly,
the connotation “cotton yarn” has been used in the Ordinance in a
different context. Thus, in section 236G of the Ordinance, the Legislature is using the word
"textile" in a somewhat restricted sense and not to the enlarged one
of even including a fiber, filament, or yarn itself as a textile. It is
an established and settled principle, evolved through a series of judgments by
the higher judicial forums of the country, that there is no room for any
intendment and there is no presumption as to tax/duty and tax can only be
charged on a clear verdict of the fiscal statutes. Reliance is placed on the
judgments reported as Commissioner Inland Revenue (Legal),
Islamabad Vs M/s Wi-Tribe Pakistan Limited, Islamabad, (2020 SCMR
420).
6. For
what has been discussed, we are inclined to hold that because the sale of
cotton yarn has not been covered within the restricted meaning of ‘Textile’
used in section 236G of the Ordinance, therefore initiation of proceedings
under section 161 of the Ordinance is void ab-initio, the
superstructure built/based thereon automatically falls to the ground. We also
hold that because the appellant was making taxable sales, therefore the
Department may invoke appropriate provisions of the law to charge tax, which
has not been done in the instant case. Hence, we accept the appeal and vacate
the orders passed by the lower authorities to the extent of the subject matter of
the appeal. Let this order be sent to the
Member Legal and Member Policy, Federal Board of Revenue for information.
7. This
order consists of (07) pages and each page bears my signature.
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This case is fit for reporting
as it settles the principles highlighted above.
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