APPELLATE TRIBUNAL INLAND REVENUE, DIVISION BENCH-I,
ISLAMABAD
ITA No.1300/IB/2023
ITA No.1301/IB/2023
ITA No.1302/IB/2023
ITA No.1303/IB/2023
ITA No.1304/IB/2023
ITA No.1305/IB/2023
(Tax
Years, 2016 to 2021)
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Fazal Dall and Food Mills, Plot No.23, I-10/3,
Islamabad. |
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Appellant
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VS |
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Commissioner Inland Revenue RTO, Islamabad. |
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Respondent |
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Appellant
by: |
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Mr. Safeer
Ahmed, Advocate & Muhammad
Musawar, Advocate |
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Respondent by: |
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Ms. Sidra
Shafique, DR |
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Date of hearing: |
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06.10.2023 |
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Date of order: |
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06.10.2023 |
O R D E R
M.
M. AKRAM (Judicial Member): The titled appeals have
been filed by the appellant taxpayer against Appeal Orders Nos.1135, 1136, 1137,
1138, 1139 & 1140/2022 all dated 27.06.2023 passed by the learned
Commissioner Inland Revenue (Appeals-II), Islamabad for the tax years 2016 to
2021 respectively on the grounds as set forth in the memo of appeals. All these
appeals are based on a common set of facts and involve identical questions of
law therefore, these appeals are being decided through this common order.
2. The brief facts culled out from the record
are that after examining the relevant record, the Additional Commissioner
Inland Revenue (Add CIR) observed that the deemed assessment completed under
section 120(1)(b) of the Income Tax Ordinance, 2001 (“the Ordinance”)
was earlier amended under section 122(1) of the Ordinance which was found erroneous
as well as prejudicial to the interest of revenue due to reason that the
taxpayer was obliged to pay minimum tax under section 113 of the Ordinance @ 1%, 1.25% and 1.50 instead of 0.20%
and 0.25% on the declared turnovers for the tax years under consideration which
it failed to do. Therefore, the Add CIR issued show cause notices under section
122(9)/122(5A) of the Ordinance for each tax year independently. In response,
the taxpayer submitted a written reply, which was found unsatisfactory.
Consequently, proceedings were finalized and orders under section 122(5A) of
the Ordinance were passed on 16.05.2022 by charging turnover tax @ 1%, 1.25%
and 1.50% minimum tax under section 113 of the Ordinance at Rs.1,422,993/-,
Rs.1,140,961/-, Rs.1,728,088/-, Rs.1,952,220/-, Rs.2,695,259/- &
Rs.2,962,939/- in respect of tax years 2016 to 2021 respectively. Felt
aggrieved, the appellant preferred the appeals before the learned CIR(A) who
vide Appeal Orders Nos.1135, 1136, 1137, 1138,1139
& 1140/2022 all dated 27.06.2023 confirmed the orders passed by the Add CIR. Still feeling aggrieved by these
orders, the appellant has now come up before this Tribunal and has assailed the
impugned appellate orders on a number of grounds.
3. This
case came up for hearing on 06.10.2023. Learned AR for the appellant apprised
that in terms of clause 2(d) of Division IX of Part-I of 1st
Schedule to the Ordinance at the relevant time provides the reduced rate of
minimum tax under section 113 of the Ordinance for “Flour Mills” by
virtue of which the appellant rightly paid the minimum tax on turnovers @
0.20%, 0.25%. He argued that the word “Flour” has not been defined in the
Ordinance therefore, by relying upon the different dictionary meanings of the expression
“Flour” contended that it refers predominantly to “soft powder or fine powder”
obtained from the grinding of “wheat” but also includes soft powder or fine
powder of any other substance, foodstuffs, edible roots, nuts, vegetables, etc.
Thus, the word “Flour” does not exclusively refer to soft powder or fine powder
of wheat or grains. The learned AR, therefore, explained that when the
legislature has used the word “Flour” without an adjective, the intent of the
legislator is clear that it includes all types of flour and does not restrict
to any particular type of flour. Reliance was also placed on the Sales Tax
Circular C.No.1/2-STB/2019 dated 15th July 2019 and clause (24C) of
Part II of the Second Schedule to the Ordinance. He, therefore, pleaded that
the appeals be accepted. On the other hand, the Learned DR opposed the appeals
and contended that the impugned order passed by the learned CIR(A) is a
speaking order and there is no infirmity in the impugned order. She, therefore,
pleaded that the appeals be dismissed.
4. We have heard the parties and perused the
record. Undisputedly, the appellant has established a “Dal Mill” for the manufacturing
and sale of besan. Under the Ordinance, as per Division IX of Part-I of 1st
Schedule to the Ordinance the reduced rate of minimum tax under section 113 of
the Ordinance is provided to certain persons including “Flour mills”. The
simple point in the instant appeal for consideration is as follows:-
“Whether the Appellant’s Dal Mill, which manufactures
besan out of dal can come within the meaning of "Flour mills" and is
entitled to claim reduction in minimum tax under section 113 of the Ordinance provided
in Division IX of Part-I of the 1st Schedule to the Ordinance?”
To
begin with, it is an undisputed fact that the term “Flour mills” is not defined
in the statute. “…As per the settled rules of
interpretation, when a word has not been defined in the statute, the ordinary
dictionary meaning is to be looked at” Chairman
Pakistan Railway v. Shah Jehan Shah, PLD
2016 SC 534. The submissions advanced
by the learned AR for the appellant have not impressed us. The arguments of the
learned AR for the appellant are based on the interpretation of the simple word
“Flour” whereas the legislature has used the expression “Flour mills” in
Division IX of Part-I of 1st Schedule to the Ordinance for the
purpose of reduction in the tax rate while computing the minimum tax on
turnovers under section 113 ibid. Therefore, we have to look at and interpret
the words “Flour mills” in conjunctive form rather than “Flour” in singular
form. The expression “Flour mills” has been defined in section 2(b) of The
Flour Mills (Control) Order, 1959 No. SOF-III-IV-15/58 (1180), 24th April, 1959
(Gazette Extraordinary, 25th April, 1959) which read as under:-
(b)
“Flour Mill” means:-
i) a roller flour mill equipped with
rollers, cleaning and washing arrangements;
ii) a modern wheat grinding plant equipped
with cleaning and washing grinders excluding rollers;
iii) a Chakki equipped with stone grinder
(excluding rollers) and without cleaning, washing and fines manufacturing
arrangements;}
Where
the business of cleaning or milling of wheat or the manufacture of wheat
products is carried on with the aid of electrical or any other form of
mechanical energy excluding human or animal energy.” (Emphasis
supplied)
According
to the above definition, a flour mill is a
facility that grinds wheat into flour through several stages of separation
using roller mills to separate the three components of a wheat seed: the white
endosperm, the outer bran layers, and the wheat germ. On
the other hand, a dal
mill is a facility that processes pulses (dal) such as chana
dal, moong dal, urad dal, and others. The
process involves cleaning, grading, de-husking, splitting, and polishing pulses. The final product is a split pulse with an outer husk
removed and split into two halves. In summary, while both flour mills and dal
mills are facilities that process grains, flour mills process wheat into flour
while dal mills process pulses into split pulses, and as such both are
independent units as well as commonly understood. The reduction in tax
liability is intentionally given to the flour mills only under the law.
Similarly, The Essential Commodities
Act 1955 read with The Maharashtra Scheduled Commodities Whole-Sale Dealers’
Licensing Order, 1998 has defined the expression “Dal Mill” and “Roller Flour
Mill” separately as under:-
“Dal Mill” means the
plant and machinery with which and the Premises (including the precincts
thereof) in which or in any part of which a process of milling of pulses is
being carried on or it ordinarily so carried on;
“Roller
Flour Mill” means a flour mill in which the disintegration of wheat
is done by grooved steel or iron rollers worked by power;
“Flour
mill” is
also defined in clause (b) of section 2 of the West Pakistan Flour Mills
(Control) Orders, 1958 “as a mill where the business of cleaning or milling
of wheat or the manufacture of wheat products is carried on with the aid of
electrical or any other form of mechanical energy excluding human or animal
energy”; S.M.M.A. Bakhsh Vs Govt of W. Pak, (PLD 1961
Lah 772)
Considering the above definitions, it also
clearly indicates that "units manufacturing besan out of dal" clearly
indicates that a flour mill does not include a mill producing besan out of dal.
5. Looking at the matter from another angle by
applying the principle of common parlance test. Common Parlance Test is the
most common test used for the classification of goods for the Levy of Tax under
a fiscal statute. The test has been commonly referred to by the Courts in their
judgments. The very basic nature of the taxing statutes is such that they touch
the common man in his everyday life. This very nature of the enactment forms
the very basis of the applicability of the theory of common parlance test.
Further, the penalty for the wrong classification of goods under an incorrect
tax rate is also very high, therefore to save a common man from such hassles
and penalties and harsh consequences on account of classification of goods
based on technical or scientific meaning and otherwise, classification of goods
for levy of tax is commonly done as per the general understanding of a common
man or as per the meaning he knows the best. The Apex Court of India in the
matter of Porritts & Spencer (Asia) Ltd. A vs State Of Haryana,
(1979 AIR SC 300) observed that:
“Where
a word has a scientific or technical meaning and also an ordinary meaning
according to common parlance, it is in the latter sense that in a taxing
statute, the word must be held to have been used, unless a contrary intention
is clearly expressed by the Legislature. The reason is that as pointed out by
Story, J., in 200 Chest. (of Tea (supra), the Legislature does “not suppose our
merchants to be naturalists, or geologists, or botanists”.
The above judgment provides
that the legislature also understands that the classification of the goods has
to be made by a common man and not by a scientist, botanist, or geologist. This
common man spreads right across from an urban area to a rural area and from
being a literate person to being an illiterate person but whoever he may be, he
knows the basic characteristics and qualities of the goods in which he is
dealing. It's that basic understanding of the goods which the legislature uses
for the purpose of classification of goods for the purpose of levy of tax.
So far as the interpretation of the
word “Flour” is concerned, it has to be determined according to the meaning it
naturally or popularly bears when used in connection with a mill. According to
Craies on Statute Law, for the construction of ordinary and technical terms and
expressions, there are two rules according to which such terms and expressions
are to be construed when used in an Act of Parliament. The first rule is that
general statutes will prima facie be presumed to use words in their popular sense.
The second rule is that if the statute is one passed with reference to a
particular trade, business or transaction and words are used therein, which
everybody conversant with that trade, business or transaction knows and
understands to have a particular meaning in it, then the words are to be
construed as having that particular meaning which may differ from the ordinary
or popular meaning. In this connection, Craies on Statute Law has stated at
p.162 as under:
“There
are two rules as to the way in which terms and expressions are to be construed
when used in an Act of Parliament. The first rule is that general statutes will
prima facie be presumed to use words in their popular sense. This rule was
stated by Lord Tenterden in Attorney-General v. Winstanley [(1831) 2 D. &
Cl.302, 310] “the words of an Act of Parliament which are not applied to any
particular science or art” are to be construed “as they are understood in
common language”. Critical refinements and subtle distinctions are to be
avoided and the obvious and popular meaning of the language should, as a
general rule, be followed.”
The learned Author at
p.164, has further stated as under:-
“The
second rule is that if the statute is one passed with reference to a particular
trade, business or transaction, words are used therein which everybody
conversant with that trade, business or transaction knows and understands to
have a particular meaning in it, then the words are to be construed as having
that particular meaning which may differ from the ordinary or popular meaning.
Lord Esher M.R. in R. V. Commissioners under Boiler Explosions Act, 1882
[(1891) 1. Q.B. 703, 716] in considering the meaning of the term “boiler”,
said: “I apprehend that in this Act it was not meant to draw these scientific
distinctions but to deal with the thing in which is steam under pressure which
is likely to explode”.
As
Fry J. said: “If it is a word which is of a technical or scientific character
then it must be construed according to that which is its primary meaning
namely, its technical or scientific meaning [Halt & C. V. Collyer (1881) 16
Ch. D. 718, 720] and Farwell L.J. said in Mason v. Bolton’s Library
[(1813)1K.B,83, 901. “It is a stringent rule of construction that in construing
an Act of Parliament or a deed containing technical words, those words must be
given their technical meaning”. The learned Lord Justice was referring to the
use of the expression “Interpleader summons” in Section 1 of the Bankruptcy
Act, 1890”.
In our
opinion, the words “Flour mills” written in Division IX of Part-I of 1st
Schedule to the Ordinance under consideration are used with reference to the
trade or business of flour is made from gains and, therefore, it should be
understood according to its trade and business sense. A dal mill is a facility
that processes pulses (dal) such as chana dal, moong dal, urad dal, and
others. The
process involves cleaning, grading, de-husking, splitting, and polishing pulses. The final product is a split pulse with an outer husk
removed and split into two halves. Therefore,
the appellant is not entitled to claim a reduction in tax rate provided in
Division IX of Part-I of the 1st Schedule to the Ordinance.
6. Further, in the said Division, the concession in tax rates has been given to certain persons therefore according to the settled principle of interpretation; it has to be strictly construed. Reliance may be placed to M/s Humayun Ltd. v. Pakistan and others (PLD 1991 SC 963), the basic principles and rationale of the exemption clause are emphasized by reproducing an excerpt from the case Bank of Commerce v. Tennessee (161 US 134), which is as under:-
"Taxes being the sole means by which sovereignties can maintain their existence, any claim on the part of anyone to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded on plain language. There must be no doubt or ambiguity in the language used upon which the claim to the exemption is founded. It has been said that a well-founded doubt is fatal to the claim; no implication will be indulged in for the purpose of construing the language used as giving the claim for the exemption, where such claim is not founded upon the plain and clearly expressed intention of the taxing power".
In
Karachi
Development Authority v. Central Board of Revenue through Members Central
Excise and Land Customs, Islamabad and others (2005 PTD 2131), the
Hon'ble Apex Court held,
"Taxing
statutes were construed strictly in favour of subjects whereas the provisions
relating to exemptions were construed in favour of Government as Taxing
authority and the Government while exercising the power of exemption of duty on
a particular article, might impose such condition, limitation, and restriction
as it deemed fit."
A necessary corollary is that while
interpreting an exemption clause, plain language is to be considered;
implications are not allowed; conditions stipulated in the exemption clause
must be fulfilled; and in case of any doubt or two possible interpretations,
the one favouring chargeability of tax is to be employed. It is also a
principle that exemption presupposes the chargeability, the judgment in Collector
of Customs and others Vs. Ravi Spinning Ltd. and others (1999 SCMR 412)
can be referred to.
7. For what has been discussed above, the
appeals of the appellant are dismissed.
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Sd/- (M. M. AKRAM) JUDICIAL MEMBER |
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Sd/- (SAJID
NAZIR MALIK) ACCOUNTANT MEMBER |
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