Cir. vs Newage Cables Pvt. Ltd.

Stereo. H C J D A 38.

IN THE LAHORE HIGH COURT, LAHORE

JUDICIAL DEPARTMENT

JUDGMENT

PTR No.551 of 2010

Commissioner Inland Revenue Versus Newage Cables (Pvt.) Ltd. Large Taxpayers Unit, Legal Lahore Division, Lahore

Date of Hearing: 25.10.2021 Petitioner by: Mr. Liaqat Ali Chaudhry, ASC Respondents by: Barrister Khawaja Ahmad Tariq Rahim, Sr. ASC, Hissam Tariq Rahim and Hashim Tariq Rahim, Advocates.

JAWAD HASSAN, J. Through this reference under Section 133(1) of the Income Tax Ordinance, 2001 (the “Ordinance”) the Petitioner/Commissioner Inland Revenue Large Taxpayers Unit, Legal Division, Lahore (the “Petitioner”) has raised following questions of law:

“1. Keeping in view the fact that the honourable Supreme Court of Pakistan in re: Collector Central Excise & Sales Tax Karachi v. M/s. Hilal Steel Industries (2001 PTD 3945) = (2002 85 Tax 150 (S.C. Pak)” has held that slitting does not amount to manufacturing, was the learned Tribunal justified to categorize the cutting of copper cathode and nickel cathode plates as manufacturing.

2.Whether the learned Appellate Tribunal Inland Revenue’s Order is not in violation of the ratio laid down by the honourble

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Supreme Court of Pakistan qua “manufacturer” in the case 1988 PTD 571 Rafhan Maize Products Company Ltd. v. CIT?”

(I) BRIEF FACTS

2.Brief facts of the case are that the Respondent/Newage Cables (Pvt.) Ltd. Lahore (the “Respondent”) is a Private Limited Company and derives income from manufacturing and sale of cable, conductors and supply of cut to size pieces of copper cathode and nickel cathode plates. The Respondent being taxpayer filed its Return for the year 2003 was selected for audit within the meaning of Section 177 of the Ordinance and assessment deemed completed under Section 120 was amended under Section 122(5) on the basis of discrepancies/defects noticed while conducting audit of the company affairs. The amendment so made was also inclusive of the treatment accorded to the activity of “cutting to size” pieces of copper cathode and nickel cathodes plates as of a non-manufacturing activity and tax the import of both the items under Section 148(7) of the Ordinance. Being aggrieved thereof the Respondent filed an appeal before the learned Commissioner (Appeals), who vide order dated 18.11.2009 vacated the order of the Taxation Officer and restored the original assessment. Against the said order of Commissioner (Appeals), the Petitioner/Department preferred an appeal before the learned ATIR, who has maintained the order of Commissioner (Appeals) especially on the issue of manufacturing, relying on provisions of Section 153(5) and declaration of the taxpayer as “manufacturer” of copper cathode cut to pieces in the Custom General Order No.11/2007 dated 28.08.2007. Hence the Petitioner raised the aforesaid questions of law.

(II) PETITIONER’S SUBMISSIONS

3.Mr. Liaqat Ali Chaudhry, Advocate submits that the Respondent is not a manufacturer as the slitting/cutting of copper cathode and nickel cathode plates does not fall within the category of “manufacturing”. Therefore, the orders passed in favour of the Respondent by the lower

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forums are not sustainable in the eyes of law, hence are liable to be set aside. To strengthen his arguments learned counsel relied on the judgment of the Hon’ble Supreme Court of Pakistan reported as “Collector of Central Excise & Sales Tax (Central), Karachi and another” (2001 PTD 3945), wherein it has been held that:

“Mere cutting to required size by itself did not change the nature of the goods and its utility also remained the same. In other words, the final commodity is not essentially and commercially different from the original one. We are of the view that it is not the case of manufacturing.”

Mr. Liaqat Ali Chaudhry, Advocate also relied on the judgments cited as “Messrs. Central Insurance Co. and others v. The Central Board of Revenue, Islamabad and others” (1993 SCMR 1232) and “Zila Council Jehlum through District Coordination Officer v. Messrs. Pakistan Tobacco Company Pvt. Ltd and others” (PLD 2016 SC 398).

(III) RESPONDENTS’ SUBMISSIONS

4.Conversely, Barrister Khawaja Ahmad Tariq Rahim, Sr. ASC submits that the Revenue Division, Central Board of Revenue, Government of Pakistan issued Custom General Order No.11/2007 wherein at item No.344 Copper Cathode cut to pieces clarified as manufacturing process. Further submits that “manufacturer” as defined under Section 153(7)(iv) of the Ordinance fully applies to the case of the Respondent. He adds that the definition of manufacturer was added to the Ordinance vide Finance Act, 2008 (the “Act 2008”) and the same applies to the case of the Respondent retrospectively as it is remedial and curative in nature. He also submits that Section 122(9) of the Ordinance envisages the issuance of show-cause notice in case the relevant authority felt that an assessment was to be amended and its wording is very clear that the same is mandatory as the word “shall” has been used but in this case the Petitioner/Department despite of availing

PTR No.551 of 2010

opportunity has not produced copy of show-cause notice purportedly sent to the Respondents. He adds that the judgment (2001 PTD 3945) = (2002 85 Tax 150 (S.C. Pak) relied by the Appellant relates to the levy of sales tax as such distinguishable from the case in hand. He relied on the judgments reported as “Messrs Army Welfare Sugar Mills Ltd. v. Federation of Pakistan and others” (1992 SCMR 1652), “Commissioner Income tax v. Shahnawaz Ltd and others” (1993 SCMR 73), “Commissioner Inland Revenue Zone-II, Regional Tax Office, Multan v. Mrs. Ambreen Fawad Co. Pak Arab Fertilizers Limited, Multan” (2014 PTD Lahore 320), “China Harbour Engineering Company Limited v. Federation of Pakistan through Secretary, Chairman and others” (2016 PTD Sindh 427) and “Muhammad Sadiq v. Inspector-General of Police Lahore and other” (2017 SCMR 1880). He lastly prayed for dismissal of this reference.

5.We have heard the arguments of both the sides and perused the record.

(IV) DETERMINATION BY THE COURT

6.The basic question of law raised by the Petitioner in this reference is whether business of the Respondent regarding slitting/cutting of copper cathode and nickel cathode plates falls within the category of manufacturing or not? The word “manufacturer” is defined under Section 153(7)(iv)(b) of the Ordinance, which clearly states that the manufacturer means a person who engaged in process of assembling, mixing, cutting or preparation of goods in any other manner. For ready reference Section 153(7)(iv)(a)(b) ibid is reproduced as under:

“(iv) “manufacturer” means a person who is engaged in production or manufacturing of goods, which includes—

(a)any process in which an article singly or in combination with other articles, material, components, is either converted into another distinct article or product is so changed,

PTR No.551 of 2010

transferred, or reshaped that it becomes capable of being put to use differently or distinctly; or

(b)a process of assembling, mixing, cutting or preparation of goods in any other manner”

7.Furthermore the Regional Commissioner Income Tax constituted a Committee vide letter dated 25.06.2003 to determine the nature of the process of Copper and Aluminum pieces cut to sizes, who after conducting an inquiry vide letter dated 19.07.2003 held that the aforesaid process was a manufacturing activity and not trading one and consequently the show-cause notice issued to the Respondent was withdrawn. It has been further observed that the Central Board of Revenue, Revenue Division, Government of Pakistan vide its Custom General Order No.11/2007 also clarified that Copper Cathode cut to pieces is a manufacturing process. It is also worth mentioning that the definition of manufacturer was added to the Ordinance vide Act 2008 and the same applies to the case of the Respondent retrospectively as it is remedial and curative in nature as it had rectified an apparent mistake and omission.

8.So for as the issuance of show-cause notice is concerned, Section 122(9) of the Ordinance clearly envisages that in case the relevant authority felt that an assessment was to be amended a fair right of hearing should be provided to the taxpayer. It is very much clear that the same is mandatory as the word “shall” has been used. For ready reference Section 122(9) is reproduced as under:

122.Amendment of assessments.

(9)No assessment shall be amended, or further amended, under this section unless the taxpayer has been provided with an opportunity of being heard.

But in this case the Petitioner/Department despite of availing opportunity has not produced copy of show-cause notice purportedly sent to the Respondents. The judgments relied by the Petitioner are not applicable in

PTR No.551 of 2010

this case. In view of above circumstances, question of law do not arise in the present reference, hence the same is not maintainable.

9.On the touchstone of above discussion, this Reference is hereby dismissed being bereft of any force.

10.Office shall send a copy of this order under seal of the Court to the Appellate Tribunal as per Section 133(5) of the Ordinance.

(MUZAMIL AKHTAR SHABIR) (JAWAD HASSAN)

JUDGE JUDGE

ZIA.UR.REHMAN