THE APPELLATE TRIBUNAL INLAND REVENUE, KARACHI, SPECIAL DIVISION BENCH, QUETTA
Present: MR. M M AKRAM, JUDICIAL MEMBER
MR. M ABDULLAH KHAN KAKAR,
MEMBER
ITA NO.1078/KB-2016
Tax Year: 2013
ITA NO.1079/KB-2016
Tax Year: 2014
&
ITA NO.1080/KB-2016
Tax Year: 2015
U/s 162
The
Commissioner-IR,
Withholding
Zone, RTO, Quetta. ………..…Appellant
V E R S U S
M/s
Farooq Ghee & Oil Mills (Pvt) Ltd;
D-27-87
Industrial Area, Quetta. …………..Respondent
Appellant By :
Mr. Muhammad Aslam, (DR)
:
Mr. Usama Zaheer, Advocate/LA
Respondent By :
Mr. Munir Ahmed, ITP
Date of Hearing : 11.08.2026
Date of Order : 11.08.2026
O R D E R
M.
M. AKRAM (Judicial Member): The titled appeals
have been instituted by the appellant-taxpayer against the impugned consolidated
order dated 11.07.2016, passed for the Tax Years 2013, 2014 and 2015
(hereinafter referred to as the “Impugned
Order”) by the learned Commissioner (Appeals)
Inland Revenue, RTO Quetta [hereinafter referred to as the “CIR(A)”]
under section 129(1) of the Income Tax Ordinance, 2001 (hereinafter referred to
as the “Ordinance”).
Since all the appeals arise out of an identical factual matrix and involve
common questions of law and facts, they are being disposed of through this
consolidated common order.
2. The taxpayer is a private limited company engaged in the business
of manufacturing other food products not elsewhere classified. For the Tax
Years 2013, 2014 and 2015, the taxpayer electronically filed its Returns of
Income/Statements of Final Taxation along with the prescribed withholding
statements. Upon examination of the returns, it was observed by the assessing
officer that the taxpayer had declared export proceeds but had not
paid/deducted tax thereon at the rate prescribed under sub-section (1) of section
154 of the Income Tax Ordinance, 2001. Consequently, proceedings under section
162 of the Ordinance were initiated for the respective tax years by issuance of
show-cause notices. The taxpayer furnished replies thereto, which were
considered by the assessing officer but found unsatisfactory, whereafter orders
under section 162 were passed creating liability on account of the alleged
failure to deduct/collect tax under section 154 amounting to Rs.28,532,930/-,
Rs.28,257,337/- and Rs.17,479,511 in respect of the tax years 2013, 2014 and 2015
respectively.
3. Aggrieved, the taxpayer preferred appeals before the learned
CIR(A), who allowed the appeals in favour of the taxpayer. The learned CIR(A),
after examining the record and considering the written and verbal submissions
of the parties, held that the taxpayer, being an exporter of cooking oil and
vegetable ghee to Afghanistan and operating under the Duty and Tax Remission for
Exports (DTRE) Scheme, was entitled to the benefit of clause (47C) of Part-IV
of the Second Schedule to the Income Tax Ordinance, 2001. The learned CIR(A)
relied upon Appellate Order No. 915/2014 dated 30.06.2014 passed in the
taxpayer’s own case for Tax Year 2012 and observed that, although the said
order arose from proceedings under section 122 rather than section 162, its
findings regarding the applicability of section 154 and clause (47C) remained
relevant. The learned CIR(A) further observed that section 154 is a machinery
provision relating to deduction of advance tax and that, under the DTRE Rules,
the amount of withholding tax otherwise leviable on imported inputs was secured
through indemnity bonds and post-dated cheques. On that basis, it was concluded
that the statutory condition contained in clause (47C) stood substantially
complied with, notwithstanding that the tax had not actually been realised at
the import stage. The learned CIR(A), therefore, annulled the orders passed
under section 162, holding that the taxpayer was not liable to deduction of tax
under section 154 on its exports to Afghanistan. However, it was observed that,
being a company maintaining audited accounts and declaring net business profit,
the taxpayer remained subject to determination of its tax liability under the
normal provisions of the Ordinance.
4. Felt aggrieved by the impugned appellate orders, the Department
has preferred the instant appeals before this Tribunal.
5. The titled appeals earlier came up for hearing on 10.08.2026. On
that date, the learned AR for the respondent-taxpayer appeared and moved an
application seeking adjournment, which was allowed, and the appeals were
adjourned to 11.08.2026. Since the matter is an old one, the learned AR was
categorically informed that no further adjournment would be granted. It is
pertinent to note that, during the hearing on 10.08.2026, the learned AR
maintained that the respondent-taxpayer was operating under the DTRE Scheme and
had furnished post-dated cheques in respect of the amounts of duties and taxes
secured at the import stage. However, he did not dispute that the said
post-dated cheques were never subsequently realised or encashed by the
Collector of Customs.
Today,
the learned AR again appeared and sought an adjournment. Upon being asked to
produce the Power of Attorney authorising him to represent the
respondent-taxpayer, he candidly stated that no such Power of Attorney had been
executed in his favour by the respondent. In the absence of any authority or
Power of Attorney authorising the learned AR to represent the
respondent-taxpayer, his request for further adjournment could not be acceded
to.
6. The learned DR, thereafter, assailed the impugned orders and
contended that the exemption contemplated under clause (47C) of Part-IV of the
Second Schedule to the Ordinance is conditional in nature and is available only
where advance tax under section 148 has actually been collected on the import
of edible oil. According to the learned DR, the language employed in the
provision is plain and unambiguous and, therefore, must be accorded its
ordinary and literal meaning. The provision specifically uses the expression “from
whom advance tax has been collected under section 148”, which,
according to him, necessarily envisages actual collection of the tax and not
merely securing the amount through an indemnity bond or post-dated cheque.
It
was further submitted that the respondent-taxpayer had availed the DTRE
facility, under which the amounts of duties and taxes were merely secured
against indemnity bonds and post-dated cheques. The learned DR emphasised that
the learned AR himself had admitted during the course of hearing that the
post-dated cheques furnished under the DTRE arrangement were never subsequently
encashed by the Customs authorities. Therefore, no advance tax under section
148 was, in fact, collected from the respondent-taxpayer at the import stage.
Consequently, the essential condition precedent for availing the exemption
under clause (47C) of Part-IV of the Second Schedule remained unfulfilled. The
respondent-taxpayer was, therefore, liable to deduction of tax under section
154 on its exports to Afghanistan and, upon failure to deduct or pay the tax so
required, was liable to proceedings under section 162 of the Ordinance.
FINDINGS
AND DECISION:
7. We have carefully examined the impugned orders, the material
available on record, the relevant statutory provisions, and the respective
submissions advanced by the learned DR. The controversy arising for
determination in the instant appeals is narrow and essentially concerns the
question whether the respondent-taxpayer, having exported cooking oil/vegetable
ghee to Afghanistan under the DTRE Scheme, but admittedly having not suffered
actual collection of advance tax under section 148 on the imported edible oil,
was entitled to claim exemption from deduction of tax under section 154 by
virtue of clause (47C) of Part-IV of the Second Schedule to the Income Tax
Ordinance, 2001, inserted through the Finance Act, 2006. For the sake of
convenience and proper appreciation of the controversy involved between the
parties, the relevant clause is reproduced hereunder:
“(47C)
The provisions of sub-section (1) of section 154 shall not apply to an exporter
in respect of cooking oil or vegetable ghee exported to Afghanistan, from whom advance
tax has been collected under section 148 on import of edible oil”.
(Emphasis supplied)
8. The above provision stipulates in clear terms that the provisions
of sub-section (1) of section 154 shall not apply to an exporter in respect of
cooking oil or vegetable ghee exported to Afghanistan “from whom advance tax has been
collected under section 148 on import of edible oil.”
The language employed by the legislature is significant. The exemption is not
unconditional; rather, it is expressly made dependent upon the fulfilment of a
specific condition, namely, that advance tax under section 148 has been
collected from the exporter on the import of edible oil. It is a settled
principle of statutory interpretation that where the language of a taxing or
exemption provision is unambiguous, effect must be given to the words employed
by the legislature, and no words can be added, substituted or ignored on the
basis of equitable considerations.
9. It is
a settled principle of law that an exemption provision is to be construed
strictly, and the person claiming exemption must bring his case squarely within
the language and conditions prescribed by the legislature. In this regard,
reliance may be placed upon the judgment of the Hon'ble Supreme Court in M/s Humayun Ltd. v. Pakistan and others (PLD 1991 SC 963),
wherein, while referring to the basic principles governing exemption clauses
and relying upon Bank
of Commerce v. Tennessee (161 US 134), the
Hon'ble Court emphasized that a claim to exemption must be founded upon clear
and plain language and that no implication or presumption can be indulged in to
enlarge the scope of an exemption. The principle was expressed in the following
terms:-
"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."
The same principle was
reiterated by the Hon'ble Supreme Court in Karachi Development Authority v.
Central Board of Revenue through Members Central Excise and Land Customs,
Islamabad and others (2005 PTD 2131), wherein it was
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 of the
aforesaid principles is that, while interpreting an exemption clause, the plain
language employed by the legislature must be given effect; implications cannot
be imported; and every condition expressly stipulated for the grant of
exemption must be fulfilled. Where the language admits of no ambiguity, the
Tribunal cannot enlarge the exemption by resorting to equitable considerations
or by treating something which is merely analogous to the prescribed condition
as equivalent to its actual fulfilment. Moreover, where an exemption is
claimed, it presupposes the existence of chargeability and operates only to the
extent expressly provided by the legislature. In this regard, reference may
also be made to the judgment of the Hon'ble Supreme Court in Collector of Customs and others v. Ravi
Spinning Ltd. and others (1999 SCMR 412).
10. It is equally well settled that every word used by the legislature
is presumed to have been deliberately employed and must be given meaning and
effect. No word or expression occurring in a statutory provision can be
rendered redundant, surplusage or otiose. This principle has been consistently
recognized by the Hon'ble Supreme Court in In the matter of Reference by the
President of Pakistan under Article 162 of the Constitution of Islamic Republic
of Pakistan
(PLD 1957 SC (Pak.) 219), Muhammadi Steamship Company Ltd. v. CIT
(Central), Karachi (PLD 1966 SC 828), M/s V. N. Lakhani and Company v. M. V.
Lakatoi Express and 2 others (PLD 1994 SC 894)
and Director
General Intelligence and Investigation FBR v. Sher Andaz and 20 others (2010 SCMR 1746).
Accordingly, the expression employed in clause (47C), namely “from whom advance tax has been
collected under section 148”, cannot be treated as mere
surplusage or substituted by the broader concept of tax being secured,
undertaken to be paid, or otherwise protected through an indemnity bond or
post-dated cheque. The legislature having consciously used the expression “has been collected”,
effect must necessarily be given to that expression according to its ordinary
and legal meaning.
11.
The distinction between “collection”
and “security”
therefore assumes decisive importance in the present case. Section 148
contemplates collection of advance tax by the Collector of Customs at the
import stage. On the other hand, the DTRE Rules permit a DTRE user to acquire
input goods without immediate payment of customs duty, sales tax and
withholding tax, subject to the amounts otherwise payable being secured in the
prescribed manner. Rule 300 of the Customs Rules, 2001, for example, provides
for securing the suspended amounts through an indemnity bond along with a
post-dated cheque in the case of a direct or indirect exporter. Thus, the
statutory scheme itself recognises a distinction between an amount which is secured and an
amount which is collected
or paid.
12. This distinction assumes decisive importance
in the present appeals in view of the factual position brought on record during
the course of hearing. On 10.08.2026, the learned AR stated that the taxpayer
had availed the DTRE facility and had furnished post-dated cheques in respect
of the duties and taxes secured at the import stage. Significantly, the learned
AR did not dispute that the said post-dated cheques were never subsequently
realised or encashed by the Collector of Customs. Thus, irrespective of the
fact that the amounts in question were secured through the DTRE mechanism, the
record does not establish that advance tax under section 148 was actually
collected from the taxpayer. The furnishing of a post-dated cheque may
constitute security for a suspended liability under the DTRE Scheme, but such
security cannot, by itself, be equated with actual collection of advance tax
for purposes of a statutory condition which expressly requires that the tax “has
been collected under section 148”.
13. The contemporaneous administrative clarification also supports
this interpretation. Circular No.14 of 2004 dated 13th July 2004, while
explaining the introduction of clause (47C), stated that no tax under section
154 was to be collected from an exporter of cooking oil or vegetable ghee to
Afghanistan provided advance tax under section 148 had been collected from such
exporter at the time of import of edible oil. The Circular further contemplated
verification of the relevant Bill of Entry to confirm that the advance tax
under section 148 had been duly collected. This reinforces the conclusion that
the legislative condition was linked to actual collection of tax at the import
stage and not merely to creation of a contingent security.
14. The reliance placed by the learned CIR(A) upon the earlier
appellate order passed in the taxpayer’s own case for Tax Year 2012 does not
alter the above legal position. Although consistency in taxation matters is an
important consideration, an earlier decision cannot dispense with fulfilment of
an express statutory condition, particularly where the factual position now
brought on record is that the post-dated cheques furnished under the DTRE
arrangement were never encashed and no advance tax under section 148 was
actually collected. An earlier order, therefore, cannot be construed as
conferring an exemption beyond the precise language of clause (47C). The
entitlement to exemption has to be determined in accordance with the statutory
conditions governing the relevant transaction and tax year.
15. We are also unable to agree with the proposition that the fact
that section 154 is a machinery provision, rather than a charging provision,
assists the taxpayer in the circumstances of the present case. There is no
dispute that section 154 provides the mechanism for collection of advance tax
on export proceeds. The question, however, is whether the taxpayer falls within
the specific statutory exception to that mechanism. Clause (47C) creates the
exception only where the stipulated advance tax under section 148 has been
collected. Once that condition is not established, the general requirement of
section 154 remains operative. The characterisation of section 154 as a
machinery provision therefore does not eliminate or dilute the express
condition attached to the exemption.
16. It is equally significant that the DTRE facility cannot be
construed as having the effect of automatically converting a secured or
suspended tax liability into a tax liability already collected for all purposes
of the Income Tax Ordinance. The DTRE Scheme provides a facility for
acquisition of input goods without immediate payment of specified duties and
taxes, subject to prescribed securities and subsequent compliance with the
export and accounting requirements. The existence of such a facility may postpone
or secure the liability in accordance with the Customs Rules, but it cannot, in
the absence of actual realisation, satisfy a separate statutory condition
requiring that advance tax “has
been collected” under section 148.
17. Accordingly, on the factual position available on record, we find
that the taxpayer failed to establish fulfilment of the essential condition
prescribed under clause (47C) of Part-IV of the Second Schedule. The material
available before us does not establish that advance tax under section 148 was
actually collected from the taxpayer on the imported edible oil; rather, the
position brought on record is that the amounts were secured under the DTRE
arrangement through post-dated cheques which were not subsequently encashed.
The mere furnishing of such security cannot satisfy the statutory requirement
of actual collection. The taxpayer was, therefore, not entitled to exemption
from the provisions of section 154 in respect of its exports of cooking
oil/vegetable ghee to Afghanistan. Consequently, the export proceeds remained
subject to deduction of tax under section 154 and failure to deduct/pay such
tax attracted the consequences provided under section 162 of the Ordinance. The
learned CIR(A), therefore, erred in treating the security furnished under the
DTRE Scheme as equivalent to actual collection of advance tax under section 148
and in holding that the condition prescribed by clause (47C) stood fulfilled.
The impugned appellate orders, being inconsistent with the plain language of
the statutory provision and the factual position available on record, cannot be
sustained.
18. For
further clarity, it is also necessary to advert to section 169(2)(f) of the
Ordinance, which expressly provides that where “tax deductible has not
been deducted, or short deducted, the said non-deduction or short deduction may
be recovered under section 162, and all the provisions of this Ordinance shall
apply accordingly.” The statutory scheme, therefore, expressly provides
a mechanism for recovery where tax otherwise deductible has not been deducted.
Once it is held that the taxpayer was not entitled to the exemption
contemplated under clause (47C), the provisions of section 154 remained
applicable to the export proceeds in question. Consequently, failure to deduct
or pay the tax so deductible attracted the statutory consequences contemplated
under section 162, read with section 169(2)(f) of the Ordinance. The fact that
advance tax was not actually collected at the import stage under section 148
cannot, by itself, confer the benefit of clause (47C); rather, the absence of
such collection is precisely what prevents the taxpayer from satisfying the
express condition attached to the exemption.
19. Resultantly, the departmental appeals are
allowed. The impugned orders passed by the learned CIR(A) are set aside, and
the orders passed under section 162 of the Income Tax Ordinance, 2001, are
restored.
-sd-
(M M AKRAM)
JUDICIAL MEMBER
-sd-
(M ABDULLAH
KHAN KAKAR)
MEMBER
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