APPELLATE TRIBUNAL INLAND
REVENUE, DIVISION BENCH-I,
ISLAMABAD
STA No.150/PB/2021
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M/s International Pipe Tube & Steel Re-Rolling
Industries, Plot NO.47-54 S.I.E Dargai Malakand Agency. |
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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. Naveed Zafar Khan & Mr. Tanveer Azam
Cheema, Advocates |
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Respondent
by: |
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Mr. M. Yasir Nabi, DR |
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Date
of hearing: |
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02.12.2021 |
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Date
of order: |
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02.12.2021 |
O R D E R
M. M. AKRAM (Judicial
Member):
The titled appeal has been filed by the appellant registered person directly
before this Tribunal as the first appeal under section 46(1)(b) of the Sales
Tax Act, 1990 (“the ACT”) against an
Order C.No.ST(Corporate Zone)/FATA/PATA/International Pipe/2021/203 dated 11.11.2021
passed by the learned Commissioner Inland Revenue (Corporate Zone), RTO,
Peshawar on the grounds as set forth in the memo of appeal.
2. Brief facts of the case are that the
appellant i.e. M/s International Pipe Tube & Steel Re-Rolling Industries,
Plot No.47-54, Small Industrial Estate Dargai, Malakand is engaged in the
business of manufacturing the steel pipes in erstwhile FATA, therefore, it is
entitled to exemptions under section 13 read with Serial No.151 of Table-1 of
the Sixth Schedule to the Act. The appellant had imported Prime Hot Rolled
Alloy Steel Strips, Prime Hot Dipped Galvanized Steel Sheet in Coils, Prime
Pre-Painted Galvanized Steel Sheet in Coils, and Prime Cold Rolled Full Hard
Steel Sheet in Coils in accordance with the procedure laid down as per Serial
No.151 of Table-I of the Sixth Schedule to the Act for in-house consumption.
The details of the goods imported during the period from 28.05.2021 to
29.06.2021 are given in the impugned order dated 11.11.2021. The imported raw
materials were detained by the Customs Authorities in terms of CGO No.01 of
2021 read with FBR Circular No. 09 of 2021 through its detention order C.No.210
dated 27.04.2021. To facilitate the process of clearance etc. the FBR issued
several Circulars and CGOs. However, Circular No.09 of 2021 dated 01.03.2021 is
relevant which provides the mechanism to be adopted for the release of
Consignment of FATA or PATA residents. Under the said Circular, para 2(i) to
(v) prescribe that the goods are to be released by Customs Authorities against
postdated cheques (PDCs), the Collector of Customs (Enforcement &
Compliance), Peshawar will issue the detention orders of the raw materials
effective from the day the consignment reaches the manufacturing premises of
the importer. Thereafter, the importer/manufacturer shall along with import
documents and detention order apply to the CIR, Corporate Zone, Peshawar for
issuance of consumption certificate and make arrangements to have the
manufacturing premises/raw material/machinery/goods imported verified.
Accordingly, the CIR, Corporate Zone, Peshawar will be liable to
verify/undertake physical visits as conducted by the importer/manufacturer to
the manufacturing premises where the goods are kept under detention and allow
the raw materials to be consumed/utilized in writing. The CIR, Corporate Zone, RTO,
Peshawar will also ensure the monthly stock-taking of the raw materials
consumed in the production of manufactured goods by these manufacturing units.
This stock-taking will facilitate in the issuance of consumption certificates
under S.No.151 of Table-I of the Sixth Schedule to the Act.
3. As per record, a team was constituted for
verification of imported raw materials for in-house consumption which were
detained by the Customs Authorities in terms of CGO No.01 of 2021 through
various detention orders. The said team visited the premises of the appellant
on 03.08.2021, according to them, the detained imported raw materials
were not found available, which lead to the conclusion that either the
appellant had consumed the goods in production or sold in the same state
without any manufacturing process. Thus, the appellant allegedly
violated the conditions mentioned in Circular No.09 of 2021. On the aforesaid
basis, the Deputy Commissioner Inland Revenue (Audit-1), Corporate Zone, RTO,
Peshawar on the direction of the CIR, Corporate Zone, RTO, Peshawar initiated
the proceedings and issued a show-cause notice dated 06.09.2021 to the
appellant and called upon them as to why the postdated cheques presented to the
customs authority at the time of clearance of the goods should not be forfeited
for violation of Circular No.09 of 2021. In response, the appellant submitted
its reply vide its letter dated 14.09.2021. The reply submitted by the
appellant was found unsatisfactory by the CIR and ultimately, he passed the impugned
order dated 11.11.2021 by directing the customs authority to en-cash the posted
cheques of the appellant. Felt aggrieved, the appellant preferred an appeal
before this Tribunal and assailed the impugned order on a number of grounds.
4. This case came up for hearing on 02.12.2021.
The learned AR vehemently contended that the proceedings are void ab-initio,
admittedly, the show cause notice was issued by the DCIR on the direction of
the CIR, Corporate Zone, RTO, Peshawar without an independent application of
mind, therefore, on this ground alone, the proceedings are unsustainable in law
and liable to be quashed. Further contended that the show cause notice was
issued by the DCIR, therefore, he had to pass the order whereas, the impugned
order has been passed by the learned CIR who even did not hear the appellant.
It has been stated that after importing the goods, the appellant immediately rushed
to the leaned CIR, duly informed him through written applications on various
dates for early verification and revocation of detention of consignment in
terms of Circular No.9 of 2021 and this fact has not been denied in the
impugned order. However, nobody on behalf of the department was turned up for
verification and revocation of detention orders passed by the customs
authorities. As such the fault is on the part of the department and it is
settled law that no one can be penalized on the act of the public functionaries.
Further, contended that the appellant is liable to pay tax if the imported raw
materials are transferred or supplied outside FATA or PATA whereas no such
allegations are levelled against them. Thus, without first determining this
fact, the appellant could not be penalized on the basis of a presumption under
the provisions of the Act. He, therefore, pleaded that the appeal of the
appellant be accepted. On the other hand, the learned DR opposed the
submissions of the learned AR and contended that the appellant has violated the
prescribed procedure envisaged in Circular No.9 of 2021. He, therefore, pleaded
that the learned CIR has passed a speaking order and there is no infirmity in
the impugned order. He, therefore, prayed that the appeal be rejected.
5. We have heard both the parties and perused
the record with the assistance of both parties. Undisputedly, the proceedings under
challenge were instituted through a show-cause notice issued by the learned
Deputy Commissioner (IR) (Audit-I), Corporate Zone, RTO, Peshawar on the
direction of the learned Commissioner Inland Revenue, Corporate Zone, RTO,
Peshawar. However, the impugned order was passed by the learned CIR who did not
even hear the appellant. The proceedings instituted by the DCIR and concluded
by the CIR are alien to the Act. This is impermissible in law.
The statute does not allow such kind of practice by the Inland Revenue
authorities, if it is allowed then the registered person would be debarred from
its statutory right of appeal given by the Act. As per the scheme of the Act, the
appeal lies before the Commissioner Inland Revenue (Appeals) under section 45B
of the Act against the order passed by the ACIR/DCIR, and correspondingly, the
appeal lies before this Tribunal if the order is passed by the CIR under any of
the provisions of the Act or the rules made thereunder. Under the
circumstances, it appears that the DCIR has not applied an independent mind
rather followed the directions, instructions of the CIR and FBR during the quasi-judicial proceedings and acted
upon their whims and wishes without adhering to the law and procedure to invoke
the provisions of the Act. It is settled law that in
the case where tax authorities exercise quasi-judicial
functions, it is not even bound by the instructions and directions or orders of
the superior authorities or the Board which tend to interfere with its judicial
discretion. It has to make its own decision on the basis of the facts and
circumstances and the law applicable to the case. The provisions of section 72
of the Act, clearly protect the discretion of the Inland Revenue Authorities in
the exercise of their quasi-judicial
functions, where the Board or any other authority does not figure in the
hierarchy of the forums provided for adjudication of registered person
liabilities to tax. It may be beneficial here to refer to the judgment in the
case of M/s Central Insurance Co. and others v. The Central Board of
Revenue, Islamabad and others, (1993 SCMR 1232). The relevant
portion thereof reads as follows: -
“Though
the Central Board of Revenue has administrative control over the functionaries
discharging their function under the Ordinance, but it does not figure in the
hierarchy of the forums provided for adjudication of assessee’s liability as to
the tax. Any interpretation placed by the Central Board of Revenue, on a
statutory provision cannot be treated as a pronouncement by a forum competent
to adjudicate upon such a question judicially or quasi-judicially. The Central
Board of Revenue cannot issue any administrative direction of the nature which
may interfere with the judicial or quasi-judicial functions entrusted to the
various functionaries under a statute. The functionaries and directions of the
Central Board of Revenue are binding on section 8 so long as they are confined
to administrative matters. The interpretation of any provision of the Ordinance
can be rendered judicially by the hierarchy of the forums provided for under
the above provisions of the Ordinance, namely, the Income-Tax Officer,
Appellate Assistant Commissioner, Appellate Tribunal, the High Court, and the
Supreme Court and not by the Central Board of Revenue. In this view of the
matter, the interpretation placed by the Central Board of Revenue on the
relevant provisions of the Ordinance in the Circular, can be treated as
administrative interpretation and not judicial interpretation.”
The
above judgment of the Hon’ble Supreme Court has recently been followed in
another case reported as Collector of Customs, Islamabad vs M/s Askari Cement (Pvt.)
Ltd and others, 2020 SCMR 649. Therefore,
by respectfully following the judgments of the Hon’ble Supreme Court, the entire proceedings initiated by the learned DCIR and
concluded by the CIR against the appellant were without jurisdiction. When the
foundation lacks legal mandate, the entire superstructure built thereon would
surely fall. Reliance may be placed on the judgment titled as Moulana
Atta Ur Rehman Vs Al-Hajj Sardar Umer Farooq and others (PLD 2008 SC 663) wherein it was held
that: -
“In the same string are the cases reported as Rehmatullah and others v. Saleh Khan and others (2007 SCMR 729), Punjab Workers' Welfare Board Government of Punjab and Human Resources Department, Lahore v. Mehr Din (2007 SCMR 13), Muhammad Tariq Khan v Khawaja Muhammad Jawad Asami (2007 SCMR 818) and All Pakistan Newspapers Society v. Federation of Pakistan and others (PLD 2004 SC 600). The learned High Court has not appreciated the law laid down in the above-reported cases. It is well settled that when the basic order is without lawful authority and void ab initio, then the entire superstructure raised thereon falls to the ground automatically as held in Yousaf Ali v. Muhammad Aslam Zia (PLD 1958 SC 104)”. (Emphasis supplied)
The
exercise of jurisdiction by an authority is a mandatory requirement and its
non-fulfillment would entail the entire proceedings to be “Coram non-judice”.
Any transgression of such jurisdiction for not being a technical defect would
render the entire exercise of authority to be ab-initio, void, and illegal. In
the case titled as Collector of Customs, Model Customs Collectorate Vs M/s Kapron
Overseas Supplies Co., (Pvt) Ltd, (2010 PTD 465), the question was
raised as to whether the passing of order without jurisdiction is a technical
defect and does not render the proceedings as ab-initio void. The Hon’ble High
Court dismissed the reference application while holding that any transgression
of such jurisdiction for not being a technical defect would render the exercise
of authority to be ab-initio, void, and illegal, without discussing the merit
of the case, which relates to the origin of imported goods and the Hon’ble High
Court further held that “the exercise of jurisdiction by an
authority is a mandatory requirement and its non-fulfillment would entail the
entire proceedings to be “coram non-judice”.
For
the foregoing reasons, the mode and manner of the exercise of jurisdiction by
both the lower authorities do not meet the prescribed statutory criteria and as
such, the entire exercise of the authorities is patently in violation of the
scheme of the Act and the law laid down by the superior Courts. It is trite law
that all the statutes are to be applied fairly and justly, the public
functionaries are under a constitutional mandate to be just and fair. The
assumption of jurisdiction on the direction of the CIR by the DCIR is indeed
incomplete negation thereto. It is an immutable principle of law that defective
assumption/exercise of jurisdiction by the authorities is incurable. Reliance
may be placed on Director General Intelligence and Investigation FBR Vs Sher
Andaz and 20 Others (2010 SCMR 1746), Director General Intelligence and Investigation and others
Vs M/s AL-Faiz Industries (Pvt.) Limited and others PTCL
2008 CL 337(S.C) and Collector, Sahiwal and 2 others Vs Muhammad Akhtar, (1971 SCMR 681).
6. For complete
justice, now we come to the merit of the case. The appellant is engaged in the
business of manufacturing the steel pipes in erstwhile Provincially
Administered Tribal Areas (“PATA”). It is pertinent to mention that before the
promulgation of the 25th amendment through Constitutional Amendment
Act No. XXV of 2018 on 24.05.2018, the persons who were settled/located within
the territory of the erstwhile FATA or PATA were enjoying immunity from payment
of income tax and sales tax provided they were generating their income and
sales from their business located within the territory of erstwhile FATA or
PATA. However, any portion of their income or sales, if was being derived
through any activity beyond the limits of erstwhile FATA or PATA then the same
was subject to the payment of income tax and sales tax. The aforesaid legal
position is by now settled in view of the law laid down by the august Supreme
Court of Pakistan in Pakistan through Chairman FBR and others Vs.
Hazrat Hussain and others, (2018 SCMR 939), Commissioner
Income Tax, Peshawar Vs. M/S Gul Cooking Oil and Vegetable Ghee (Pvt) Ltd,
(2008 PTD 1690) as well as the judgment of the Hon’ble Peshawar High Court in M/s
Taj Packages Company (Pvt.) Ltd Vs The Government of Pakistan through Federal
Secretary Finance and Revenue Division and 6 others, (2016 PTD 2030).
Both the areas of FATA and
PATA were merged in the province of Khyber Pakhtunkhwa vide the Constitution
(Twenty-fifth Amendment) Act, 2018 (hereinafter referred to as “Twenty-fifth
Amendment”). Article 247 of the Constitution was also repealed vide section 9
of the Twenty-fifth Amendment. As a natural corollary, Income Tax Ordinance,
2001 as well as the Sales Tax Act, 1990 became applicable in these parts of the
country. As people of the locality had historically been enjoying tax
exemptions under the above-mentioned two laws, therefore, the Federal
Government also provided for tax exemptions under the two laws. A Development
took place regarding sales tax when Serial No. 151 of Table-1 in the Sixth Schedule to the Sales Tax Act, 1990 was
inserted through Finance Act, 2019. By this amendment, the appellant is exempt
from the levy of sales tax subject to certain conditions. The S.No.151 of the
Sixth Schedule to the Act is reproduced hereunder for ease of reference: -
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Serial No |
Description |
Heading Nos. of the First Schedule to
the Customs Act, 1969 (IV of 1969) |
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(1) |
(2) |
(3) |
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151 |
(a)
Supplies; and (b) imports
of plant, machinery, equipment for installation in tribal areas and of
industrial inputs by the industries located in the tribal areas, as defined
in the Constitution of Islamic Republic of Pakistan,− as made till 30th June,
2023, to which the provisions of the Act or the notifications issued thereunder,
would have not applied had Article 247 of the Constitution not been omitted
under the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018): Provided
that, in case of imports, the same shall be allowed clearance by the Customs
authorities on presentation of a post-dated cheque for the amount of sales
tax payable under the Sales Tax Act, 1990, and the same shall be returned to
the importer after presentation of a consumption or installation
certificate, as the case may be, in respect of goods imported as
issued by the Commissioner Inland Revenue having jurisdiction: Provided
further that if plant, machinery and equipment, on which exemption is availed
under this serial number, is transferred or supplied outside the tribal
areas, the tax exempted shall be paid at applicable rate on residual value. |
Respective headings |
To implement and enforce the tax-related incentive
and benefits extended to FATA or PATA, Circular No.09 of 2021 dated March 1,
2021, was issued by the FBR. The said Circular provides the mechanism in
respect of the industrial inputs imported by FATA or PATA domiciled industries
from the port to the intended manufacturing premises/sites. Section 13(1) read
with Serial No.151 of Table-1 of Sixth Schedule to the Act, exempt import of
“industrial inputs” to FATA or PATA located industries on presentation of a postdated
cheque for the amount
of sales tax payable under the Act and the same shall be returned to the importer
after the presentation of a consumption or installation certificates, as the
case may be, in respect of goods imported as issued by the Commissioner Inland
Revenue having jurisdiction. This particular benefit is subject to a further condition that if the
goods produced from the exempted raw materials are “transferred or supplied
outside the tribal areas, the tax exempted shall be paid at the applicable
rate.”
7. After issuance of Circular No.09 of
2021 dated March 1, 2021, another Circular No.05 of 2021 dated March 26, 2021,
was issued by the FBR prescribing therein the procedure for filing of an
application and thereafter issuance of Consumption Certificate by the CIR for
Import of Industrial Inputs by FATA or PATA domiciled industries. (Both the
Circulars are annexed as “A” & “B” with this Order). The
perusal of the aforesaid Circulars, reveals that the FBR has laid down the
procedure for implementation and carrying out the purposes of the exemption
given by Serial No.151 of Table-1 of the Sixth Schedule to the Act to the
domiciled industries located in FATA or PATA which is contrary to the
provisions of section 50 of the Act. The said Circulars do not have the backing
of any of the provisions of the Act as the source of power to issue the same by
the FBR. This exercise could have only been done by invoking the provisions of
section 50 of the Act through official Gazette Notification. It is to be noted
that when the Sales Tax Act, 1990 stands
extended and being fully operational in the areas of FATA or PATA, a proper
procedure by framing rules under section 50 of the Act for seeking consumption
certificate as required under Serial No.151 of Table-1 of the Sixth Schedule to
the Act must be enforced like to the provisions of section 159 of the Income Tax
Ordinance, 2001 which provides the mechanism, through which a person who claims
to be exempt from payment of any income tax liability under the exemptions
provided in Part 1st of the Second Schedule of the Ordinance, may get a
certificate to said effect and may thereby be treated as exempt from payment of
the tax liability. This would help the registered person for proper
implementation of the exemption clause otherwise the registered person may face
difficulties in getting the consumption certificates from the CIR as observed
by the Hon’ble Peshawar High Court in the case titled M/s Hadi Khan
Silk Mills and another Vs Government of Pakistan etc, (2021 PTD
1842): -
“16. One of the issues that learned counsel for petitioners has repeatedly been highlighting at the bar were their apprehensions that they would not have a fair treatment at the hands of respondents, with whom they have locked horns in litigation, in case they claim exemptions there. They were also wary of the bureaucratic red-taoism and difficulties that they might be facing while applying for exemptions. Their concerns in this respect may not be entirely unfounded. We expect that the concerned authorities of the Inland Revenue Department would understand the backgrounds in which these exemptions have been extended to residents of FATA and PATA by the Federal Government. They would be knowing that this area had been the bedrock of insurgency and terrorism, besides being deprived of normal developments that the rest of parts of the country have been having over a span of decades of development because of government spendings in the shape of annual development programs and the investments made because of relative stability in those areas. We hope that petitioners and people of these areas shall be dealt with by officers of the Inland Revenue not only according to letters of the law providing for exemptions but according to its spirit as well. “While it is perfectly true that the power of granting exemptions is discretionary”, as held by Hon’ble Supreme Court of Pakistan in the case of Pakistan through Chairman FBR and others v. Hazrat Hussain and others reported as 2018 SCMR 939, “It is equally true that said power could not be exercised in a discriminatory manner. Exemptions are to be granted and regulated in terms of consistent policies for sound reasons. There is no justification for granting or refusing exemptions arbitrarily or on the ipse dixit of the concerned officials. Power to grant an exemption or to decline an exemption must be exercised in accordance with the general principles relating to good governance”. Hon’ble Supreme Court of Pakistan had recorded the above passage on the dint of earlier case law reported as 2005 SCMR 25, 1997 SCMR 1804 and a large number of precedents cited therein providing that the functionaries of an organization or establishment could not be allowed to exercise discretions at their whims, sweet will or in an arbitrary manner, rather they were bound to act fairly, evenly and justly. In such backdrop, it is expected that the officers of Inland Revenue Department, while entertaining applications of residents or association of persons of FATA and PATA for granting exemptions, shall exercise their discretions in accordance with ratios of the above-cited judgments. They shall not burden or harass the applicants, nor would they subject them to unnecessary difficulties. The exemption certificates shall be granted to all such applicants for the maximum allowable time, if and when they are found entitled thereto.”
8. Notwithstanding the
aforesaid, under the provisions of the Act, read with Serial No.151 of Table-1
of the Sixth Schedule to the Act, the appellant has to pay the tax under
section 3 of the Act if it is established that the imported raw materials or
the goods produced are supplied by the appellant outside the territory of FATA
or PATA. In the instant case, neither in the show cause notice nor in the
impugned order it has been alleged that the appellant sold the imported raw
materials or goods produced were supplied to the customers outside the
territory of FATA or PATA. Under section 3 of the Act,
sales tax is liable to be charged, levied, and paid at the rate of 17% of the
value of taxable supplies made in Pakistan (excluding FATA/PATA as the Act is still
not extended to such areas till 30th June, 2023) by a registered
person in the course or furtherance of any taxable activity carried on by him
and goods imported into Pakistan. The charge is restricted only against taxable
supplies made in the area where the Act is applicable/extended. Thus, the
directions issued by the CIR, Corporate Zone, Peshawar in the impugned order to
the concerned Collectors of Customs to en-cash the postdated cheques of the
appellant are unsustainable in law. The learned DR contends that if the
postdated cheques are en-cashed by the customs authority then the appellant is
entitled to get input tax against the output tax. This contention of the DR is
flawed. If the provisions of
section 3 of the Act regarding the charge of tax do not apply on supplies made
in FATA or PATA, then the provisions of sections 7 and 8 of the Act regarding
claiming credit of the input tax incidental to such supplies will equally not
apply. Therefore, the appellant cannot claim the credit of input tax against
the supplies made in FATA or PATA. Since, admittedly, the Act has not
been extended to the tribal area till June, 2023, the appellant is not
chargeable to sales tax in respect of supplies made in FATA/PATA. "Taxable goods" are those
goods which are supplied in areas to which the provisions of the Act are
applicable/extended and which are not expressly exempt under section 13 of the
Act. Sales Tax is leviable in relation to taxable supplies made in Pakistan or
goods imported into Pakistan. Goods being supplied in the tribal areas cannot
be classified as taxable goods.
9. Section 7 of the Act entitles any
registered person to adjust any sales tax paid at the import stage or at the
time of local purchase against his liability at the time of supply i.e.
"output tax" and pay the difference if any. The difference paid as
such is recoverable from the recipient of such supplies and the ultimate burden
of sales tax is borne by the consumer being an "indirect tax" and so
also term as "pass-through item". In the instant case admittedly no
output tax is leviable at the time of supplies made in tribal areas therefore,
the appellant is neither entitled to adjust input tax against "output
tax" nor entitled to claim a refund. Entitlement of input tax adjustment
or refund to the registered person is restricted to the registered person making
taxable supplies. Under section 3, the charge is also restricted on those
persons who are engaged in making taxable supplies, i.e. engaged in
"taxable activity" in areas where provisions of the Act are
extended/applicable.
10. For what has been discussed above, the
appeal of the appellant is accepted. Accordingly, the impugned order passed by
the learned CIR is annulled. Let this order be sent to the learned Chairman and
Member (Legal), FBR to look into the matter in accordance with the foregoing
observations.
11. This order consists of (13) pages and each
page bears my signature.
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Sd/- (MUHAMMAD
IMTIAZ) ACCOUNTANT
MEMBER |
Sd/- (M.
M. AKRAM) JUDICIAL
MEMBER |
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CERTIFICATE U/S 5 OF THE LAW REPORT ACT
This case is fit for reporting
as it settles the principles highlighted above.
(M. M. AKRAM)
JUDICIAL
MEMBER
Annexure-A
Annexure-B
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