Commissioner Inland Revenue Vs M/S Wasim Sharif Industries (Pvt) Ltd.

PESIIAtrIAR HIGH COURT. PESHAUIAR v (JUDICIAL DEPARTMENT)

TR No.29-Pl2022

Commissioner Inland Revenue, Corporate Zone, Peshawar Petitioner

Versus

M/S Wasim Sharif lndustries (P\,'t) Ltd Respondents.

For the Petitioner: M/S. Rahmanullah, Advocate. Mr. Sharif Ullah, Assistant Director (Legal).

For the Respondents: M/S Shumail Ahmad Butt, Qazi Shehzad lqbal, Saad Ali Qazi and Ms. Khoshnuma, Advocate.

Date of Hearing: 12.09.2023

JUDGMENT

SYED ARSHAD ALI. J.- This consolidated judgment is aimed to decide the instant Tax Reference as well as the connected References, the detail whereof along with disputed oA' claim in the show cause notices is provided in Annexure to this judgment, as adjudication of common questions of law and facts are involved therein.

2.The petitioner-department has filed the instant Tax References under section 34A of the Federal Excise Act, 2OO5 ("Act of 2005") against the judgments/orders of the Appellate Tribunal Inland Revenue, Islamabad dated 22.04.2021, 18.01 .2022, t4.07.2022, 28.09.2022 & nJ,0.2022 ("Tribunal") whereby the worthy Tribunal accepted the appeals of the respondents and annulled/set aside c 4 the orders of the forum below; whereas in STRNo.37-P12022 the worthy Tribunal dismissed the appeal of respondents.

3.After assessing the record we are to answer the following questions of law which are arising out of the judgment of the Tribunal: - (i). Whether the economic activities of the respondents prior to the Finance Act, 2019

were subject to the impost of FED under the Act of 2005?

(tr. Whether after the promulgation of Finance Act,2019 making addition in the Second Schedule to the Act of 2005, (inserting Oil & Ghee Sector) the respondents are liable to pay the FED on their economic activities?

4, The precise and admitted facts of the cases are that the respondents-companies have established their Ghee and Oil manufacturing units at erstwhile Provincially Administered Tribal Area ("PATA"). It is the case of all the respondents that since the provision of the Act of 2005 was never extended to PATA in terms of Article 247 of the Constitution of Islamic Republic of Pakistan, L973 ("Constitution"), therefore, for the relevant period prior to 25th amendment in the Constitution, their economic activities at the erstwhile tribal area never remained subject to the impost of Federal Excise Duty (*FED") which is charged in terms of section 3 of the Act of 2005.

5.Against that, it is the contention of the petitioner- department that since the Central Excises and Salt Act, 1944 ("Act of 1944") was extended to the erstwhile PATA through Notification No. 137-F dated 20.06.1945, therefore, even if the Act of 2005 was not extended to PATA, the petitioner would still fall within the regulatory regime of Act of 1944, hence cannot avoid payment of FED.

SHOW CAUSE NOTICE

4 6. The show cause notices issued to the respondents demanding them to pay FED in terms of section 3 of the Act of 2005 can be classified in two categories. The first category relates to the alleged liability of the respondents to pay the FED during the period from July, 2017 to June, 2019. During the said period the Oil & Ghee sector never remained subject to the impost of FED. It was through Finance Act, 2019 that

"Ghee & cooking oil" were inserted in the second schedule to the Act of 2005 and thus their economic activities became subject to the impost of FED. There is yet another angle to be viewed this proposition that the Act of 2005 was never extended to the erstwhile PATA and it stood extended on repeal of the constitutional barrier embedded through Article 247 Q)t of the constitution of Islamic Republic of pakistan, L973 ("Constitution"), through 25th Amendment in constitution by Act of XXXVII of 2018 dated 04.06.2018.2 7. The other category is the period when the Oil & Ghee sector was made subject to the impost of FED through Fihance Act, 2019 whereby edible Oil was inserted as Entry No.1 in the second schedule to the Act of 2005.Later, the said entry was omitted through Finance Act of 2021.

8.Under two other statutes dealing with the imposition of taxes i.e. Income Tax Ordinance, 2001 ("Ordinanceo') and the Sales Tax Act, 1990 ("Act of 1990") certain notifications have been issued whereby despite the extension of the said two statutes to the erstwhile PATA/FATA immunity/exemption was granted to the business community/industries, who were carrying their economic ltaxable activities solely in erstwhils p{fA{FATA for a specified period ending on 30.06.2023. However, relating to the imposition of FED, no such notification has ever been issued by the Federal Government under the

enabling provision of the Act of 2005. Thus, there is no cavil to the proposition that after the promulgation of 25th

Arti.l.247.

(l).........

(3). No Act of Majlis-e-Shoora (Parliament) shall apply to any Federally Administered Tribal Area or to any part thereof, unless the President so directs, and no Act of Majlis- e-Shoora (Parliament) or a Provincial Assembly shall apply to a Provincially Administered Tribal Area or to any part thereof, unless the Governor of the Province in which the Tribal Area is situate, with the approval of the President, so directs; and in giving such a direction with respect to any law, the President or, as the case may be, the Govemor, may direct that the law shall, in its application to a Tribal Area, or to a specified part thereof, have effect subject to such exception and modifications as may be specified in the direction.

9.Omission of Article 247 of the Constitution.-In the Constitution, Article 247 shall be omitted.

amendment in the constitution through Act No. XXXVII of 2018 dated 05.06.2018, the Act of zoo5 is applicable to the erstwhile PATA.

SCOPE AND APPLICATION OF ACT OF 2OO5

9.Section 3 of the Act of 2OO5 is indeed a charging section which envisages for charging of FED on goods produced or manufactured in Pakistan, goods imported into Pakistan and such other goods as the Federal Government may by notification in the official Gazette speciff as are produced or manufactured in non-tariff areas and are brought to the tariff areas for sale or consumption therein, to be charged to the FED described in the First Schedule to the Act of 2OOS. Therefore, unless the goods are specified in the First schedule to the Act of 2005 it is not liable to pay any FED under the Act of 2005.

10.Section 4 of the Act of 2005 envisages for filing of return and payment of duties, according to which, for every month a registered person shall furnish not later than due date a true and correct return in such manner and form as may be prescribed by the Board.

11.Section 6 of the Act of 2005 envisages that for the purpose of determining the net liability of FED in respect of any goods, the duty already paid on goods specified in the First Schedule and used directly as input goods for the manufacturer or production of such goods shall be deducted from the amount of duty calculated on such goods.

12.Section 7 of the Act of 2005 refers to the <f payability and levy of the FED in the manner and mode of the Sales Tax Act, 1990, which, inter alia, envisages for input deduction of duty/taxes paid at the time of purchase or import from the output tax. However, this provision is applicable only to the goods specified in the Second Schedule to the Act of 2005 and the case of the respondents falls in the said category

as far as the relevant period is concemed being an entry No. I in the Second Schedule.3

13.Through Finance Act,20l9, vegetable, Ghee and cooking oil were inserted in the Second Schedule to the Act of 2005 and thus, the duty under the Act of 2005 became leviable on the import of raw materiallproduction of vegetable, ghee and cooking oil w.e.f. I't July, 2019. The said entry was omitted through Finance Act,2027, therefore, with effect from l't July, 2019 tin 30*' June, AOZL vegetable, ghee and cooking oil were subject to the impost of FED in the manner and mode provided under the Act of 1990.

14.The reading of the aforesaid provisions of law would clearly suggest that central FED is an indirect tax, the incidence whereof is to be passed on to the consumer. The charging section (section 3 of the Act of 2005) clearly envisages that the FED is leviable in the prescribed manner on goods produced or manufactured in Pakistan, goods imported into Pakistan and such other goods as notified by the Federal Government which are specified in the First Schedule to the Act of 2005. There is a marked distinction in the applicability of FED to a taxable activity under the Act of 2005 and the applicability of charging section under the Income Tax Ordinance,200l and Sales Tax Act, 1990. In the later statutes the taxes are charged subject to the taxable activities as provided in the said statutes whereas in the cases of FED, unless the goods which are produced/manufactured in Pakistan or imported into Pakistan are specified in the schedule to the 4 Act of 2005, no FED can be demanded from a person involved in manufacturing/production of goods or importation of goods into Pakistan.

LIABILITY TO PAY EXCISE DUTY UNDER THE ACT OF 2OO5

PRIOR TO THE FINANCE ACT.2019.

3 Earlier it was inserted Finanoe 2019.

I Goods 15.07, 15.08, 15.09, 15.10, l5.l l, Edible oil excluding expoxidized soyabean oil falling 15.12, 15.13, 15.14, 15.15, 15.16, 15.17, and 15.18 under headine 15.18.

15.In Tax References No. 30-p, 33-p, 35-p, 36-p, 37-P & 4l-P12022, the liability of the respondents relates to the period prior to the Finance Act, z0r9. In this regard, it is the contention of the respondents-assessee that since at the relevant time, the Act of 2005 was not extended to erstwhile PATA, therefore, they were not liable to pay any FED whereas it is the case of the revenue that since the erstwhile Act of 1944 was extended to the erstwhile pATA, therefore, all the respondents were liabte to pay the FED for the relevant period and in this regard, the petitioner has placed reliance on the judgment of this Court passed in the case of IWs Taj Veoetahle Oil Processins t. Skhako Darsai. Malakand Agenclt vs. The Government qf Pakistan through Federal Secretary Finance & Revenue Division, Islamabad and others fiYrit Petition No. 4495-P/2017 decided on 10.03.2020.

16.Mr. Shumail Ahmad Butt, Advocate, the learned counsel representing the respondents has taken exception to the said judgment by arguing that since the Malakand Agency at the relevant time was part of the princely state in India and was not forming part of the British India, therefore, was not a tribal area1' hence, the Notification No. 137-F dated 20.06.1945 has no application to the area. This aspect of the case had escaped the attention of this Court while rendering judgment in the case of fuI/s Taj Vegetable Oil Processing Unit (supra).

17.Since we are dealing in the matter where the FED has been demanded from the respondents under the Act of 2005, therefore, we should not detain ourselves in the 4 urulecessary discussion regarding the applicability of Act of 1944 to the erstwhile PATA as far no demand has been raised from the respondents regarding any duty leviable under the Act of 1944. Even till June, 2019 i.e. prior to the Finance Act, 2019 no FED was payable by the Ghee and Oil sector and the said sector at the relevant time fell under the taxation regime provided by the Act of 1990.

18.The record is very clear and straightforward that through Finance Act, 2019 the FED was payable by Ghee and cooking oil industry throughout Pakistan and at the relevant time the law was extended to erstwhile ?ATA by dint of omission of Article 247 from the constitution vide Act No. xxxvu of 2018 dated 04.06.2018, therefore, the respondents were liable to pay the FED only with effect from I't July, ZOlg till 30th June, 2021.

19.The assessing officer keeping in view the ratio of the judgrnent of this Court has held that the FED was payable by all the respondents from 2017 till the crucial date given in the show cause notices for the reason that this Court in the case of lrl/s Taj vegetable oil Processing unit (supra) has held that the provisions of erstwhile Act of 1944 were extended to PATA ignoring the fact that neither any FED at the relevant time was payable by the ghee and cooking oil sector either under the erstwhile Act of L944 nor under the Act of 2005. Indeed, it is settled law that a fiscal statute normally contains two provisions; charging provisions which impose the charge to ta>r and machinery provisions which provide the machinery for quantification of tax and the levy and collection of tax so imposed. Charging provisions are construed strictly while machinery provisions of the Statute are not generally subject to a rigorous constructiona.

20.Distinction between chargeability and recovery 4 provision in a taxing statute was very well explained by Lord 5f Dunedin in the following manner: - "My Lords, I shall now permit myself a general observation. Once that it is fixed that there is liability, it is antecedently highly improbable that the statute should not go on to make that liability effictive. A statute is designed to be worksble, and the interpretation thereof by a Court should be to secure that object, unless crucial omission or clear direction makes that end unattainqble. Now, there are three stages in the imposition of a tax: there is 4 Commissioner of Wealth tax vs. Sharvan Kumar Swarup & sons (1995 ECR 425

SC).

the declaration of liability that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessment. Liability does not depend on assessment. That, ex hypothesis, has already been fixed. But assessment particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily poy." (CIWL APPEALS NO.LS2L TO 1526 OF 2018, The Commissioner Inland Revenue, Legal Division, Regional Tax Ofrice, Multan vs The Commissioner Inland),

It was observed in W.H. Cockerline & Company v. The Commissioner of Inland Revenue (16) TC I at 19, Lord Hanworth quoted with approva| a following passage from the judgment of Sargent, L.J.:

The liability is imposed by the charging Section, namely, Sectiory 38 the words of which are clear. The subsequent provisions as to assessment and so on are machinery only. They enable the liability to be quanti/ied and when quanti/ied to be enforced against the subject, but the liability is definitely andfinally created by the charging section and all the materials for ascertaining it are available immediately.

In Halsbury's Law of England (Fourth Edn. Vol. 23,Para29), refering to the machinery provisions it is stated that:

"It is importont to distinguish between charging provisions, which impose the charge to tax, and machinery provisions, which provide the machinery for the quantification of the charge and the levying and collection ofthe tax in respect ofthe chorge so imposed. Machinery provisions do not impose a charge or extend or restrict a charge elsewhere clearly imposed. "

S.M. Zaffar in first edition of Understanding Statutes, Canons of Construction observed that: "In a tming statute, os in other statutes, there should be no departure from the general rule that words used in a statute must first be given their ordinary and natural meaning. It is only when such an ordinary meaning does not mqke sense that resort can be made to discovering other appropriate meanings.

The principle upon which this view rests is that a tax cannot be imposed without the use of clear and express language. To hold otherwise would allow the courts to impose taxation, and that

would clearly constitute an encroachment upon the power of the legislature. More than that taxation is a process which interferes with the personal and property rights of the people, although it is a necessary interference. But because it does take from the people a portion of their property, seems to be a valid reason for construing tax laws in favour of the tac payer".

21.It is also settled law that no tax can be levied against a person beyond the scope of a charging section and it has to be construed and applied strictly. The rule of construction is that before taxing any person, it must be shown that he falls within the ambit of the charging section by clear words used therein. If the case does not fall within the four corners of the charging section, no tax can be imposed by inference, analogy, or trying to probe into the intention of the legislatures.

22, In the present case as stated above, admittedly, prior to the Finance Act, 2019 envisaging for impost of FED on Ghee and Oil sector, no FED was chargeable/leviable on Oil and Ghee sector, therefore, no demand can be made from the respondent to pay the said duty. It would be important to note that prior to Finance Act, 2019, the Ghee and Oil sector was subject to impost of sale ta:< and for the relevant period, the respondents were enjoying exemption from impost of sale tax in terms of entry No.151 and 152 to the 6ft Schedule of the Sales Tax Act, 1990.

23.The assessing officer has ignored this crucial aspect of the case, therefore, the finding of the worthy Tribunal to the said extent annulling the said recovery is not open to any exception.

Collector of Customs, Sales Tax and Central Now Federal Excise Quetta vs. Messrs Haji Mehmood Essa Co. and another (2017 SCMR 884). Zilla Council Jhelum v. Messrs Pakistan Tobacco Company Ltd (PLD 2016 SC 3e8).

Gursahai Saigal v. Commissioner of Income Tax (AIR 1963 SC 1062). State of Punjab v. Messrs Jullunder Vegetables (AIR 1966 SC 1295). Lakshmanah Rao Yadavalli and another v. State of A.P. and others (2013 INSC l07s).

CIT v. Vatika Township P Ltd (2015 I SCC l).

24.However, aftet the promulgation of Finance Act, 2019, the respondents cannot escape the liability not onry to pay the said FED but to comply with the entire regulatory regime provided under sections 4,6 and 7 of the Act of ZOO5, which, inter alia, includes the filing of returns and claiming input adjustment at the time of passing on the incidence of taxation to the consumer.

25.The assessing officer through the impugned show cause notice even without hearing the respondents has passed an order that the input adjustment has not been taken into consideration on the ground that neither invoices or local purchases nor proof of payment made to suppliers in terms of section 73 of the Sales Tax Act, 1990 were available. The said findings of the assessing officer are absurd and based on no reasons. Similarly, the worthy Tribunal has set aside the order of assessment on the ground that the respondents-assessees have not passed on the incidence of FED to the consumer, therefore, the liability to pay the FED does not arise. In this regard the worthy Tribunal has relied upon the law laid down by the apex Court in the case of "Army Welfare Trust (Nizampur Cement Project), Rawalpindi and another Vs Collector of Sale Tax Qr{ow Commissioner Inland Revenue) Peshawar (2017 SCMR 9)."

26.We have perused the law laid down by the apex Court in Army Welfare Trust' case, which in our humble view is not applicable to the present case. ln Army Welfare Trust' < case the assesse was enjoying exemption in terms of section 13 of the Finance Act, 20L9 and there was ample evidence available on record that the assessee did not charge the consumer for sale tax, therefore, it had no liability under section 3-B of the Sales Tax Act, which provides that if a person has collected or charged any tax under misrepresentation which was not payable, the assessee has to pay the said tax to the Federal Government. As stated above, since, the respondents-assessees were not exempt from

payment of FED after promulgation of Finance Act, 2019, therefore, in our humble view the said law is not applicable to the present case. similarly, there was no evidence before the Tribunal that the respondents-assessees had not passed on the incidence of the FED to the consumer, therefore, the said findings were on no evidence.

27.The levy and collection of FED on Ghee and Oil sector for being placed in 2d schedule to the Federal Excise Act, 2005, were recoverable in the manner and mode as provided under the Sales Tax Act, 1990. The intention of law maker by inserting section 7 in the Act of 2005 where the input adjustment has already been provided was aimed to allow to the assesse all the adjustment even admissible to it under the regime provided under the Sales Tax Act, inter-alia, including input adjustment of sales tax on all purchases made by a registered person during the taxable/economic activities. Indeed, through section 7 to the Act of 2005 by reference the beneficial regime of input adjustment as provided under section 7 of the Sales Tax Act, 1990 has been borrowed which is also a machinery provision relating to adjustment of input tax.

28.On the other hand, section 6 of the Act of 2005 only allows input adjustment of FED paid at the time of purchase/import whereas section 7 of the Sales Tax Act, 1990 as stated above and subject to section 8 of the said Act envisages for entire input adjustment of sales tax paid during the taxable activities under the regime of the Sales Tax Act, 1990 to an assessee while determining its ta:< liability. 4 Needless to mention, that there is no cavil to the proposition that any law can be incorporated by way of reference and can be made part of the another enactment. The legislature has every right to incorporate one Act into another by way of reference for the purpose mentioned in the Act. Similarly, when arry law to which reference is made, is incorporated/made applicable to the proceedings under any

special statute or the statute having reference, then all the provisions contained in the statute to which reference has been made are attracted except those which are expressly excluded.6 29. The assessing officer was dealing with the cases where all the assessees were registered persons under the sales Tax Act regime and have also filed returns, therefore, they should have been given a complete opportunity to have established before the assessing officer the input adjustment of Sales Tax while calculating their liability to pay the applicable

FED.

30.In our view the findings of both the forum relating to the liability of the respondents to pay the FED are not based on correct principle as stated above. The assessing officer has passed an order of assessment ignoring the essential legal & factual aspect of the case as identified above whereas the worthy Tribunal has straightaway annulled the said assessment order ignoring the fact that during the period as stated above, the respondents were subject to the impost of

FED.

31.In view of the above, we have reached to the conclusion and thus answer the questions of law in the following manner.

i. That the economic activities of the respondents prior to the Finance Act, 2019 were not subject to the impost of excise duty under the Act of 2005.

ii. With ffict from promulgation of Finance Act, 2019 till 30h June, 2021 the economic activities of the respondents are subject to the impost of excise duties in the manner and mode as provided under the Act of iii. The respondents (Oil & Ghee sector) are entitled to { adjust input tax in terms of section 7 of the Act of 2005 as well as section 7 of the Sales Tax, 1990 from their output FED.

iv. The respondents were obliged to have filed return in terms of section 4 of the Act of 2005 claiming the said input adjustment by paytng the applicable FED in the manner and mode provided under the Act of 2005. v. As o corollary of the above, the impugned findings of the wortlry Tribunal to the aforesaid extent are set aside and the matter is remitted to the Assessing 6'Nagpur Improvement Trust Vs Amrik Singh and others (AIR 2002 SC 3499)."

fficer to re-determine the liability of the respondents by providing them a complete opportunity to defend their case and the said respondents would be at liberty to provide their audited accounts to the assessing fficer for reconciliatton relating to their liability for payment of FED under the Act of 2005.

32.The assessment shall be completed by the Assessing officer within the manner and the timeline provided under the Act of 2005. All the References stands disposed of accordinsty. f$t \r-

JUDGE

JT]DGE

Date of hearing & announcement of iudgment....12.09.2023 Date of preparation & signing of judgment.........'13.10.2023 Nawab Shah CS (DB) Justico Abdul Shakoor & Justice Syed Arshad Ali

L

Y,

Annexure t'A" ,S. Case title No.

I TR No.29-P/2022 "Commissioner Inland Revenue Corporate Zone Vs AqI/S Wasim Sharif Industries (Pvt) Ltd".

2.TR No.30-P/2022 "Comrnissioner Inland Revenue Corporate Zone Vs MS Mardan Industries (Pvt) Ltd".

3.TR No.31-P/2022 "Commissioner Inland Revenue Corporate Zone Vs AII/S Bara Ghee Mills (Pvt) Ltd".

4.TR No.32-P/2022 " Commissioner Inland Revenue Corporate Zone Vs IuI/S Mardan Industries (Pvt) Ltd".

5 TR No. 3 3-P/2022 " Commissioner Inland Revenue Corporate Zone Vs ltI/S Lal Ghee & Oil Mills (Pvt) Ltd"

6.TR No.34-P/2022 " Commissioner Inland Revenue CorPorate Zone Vs IrrI/S United Ghee Industries (Pvt) Ltd"

7.TR No.3 5-P/2022 " Commissioner Inland Revenue CorPorate Zone Vs Gul Shehzada Enterprises (Pvt) Ltd".

8.TR No. 36-P/2022 " Commissioner Inland Revenue CorPorate Zone Vs ItrI/S United Ghee Industries (Pvt) Ltd".

9 TR No. 37-P/2022 " Commissioner Inland Revenue CorPorate Zone Vs ll/S Wasim Sharif Industries (Pvt) Ltd"

10.TR No.38-P/2022 " Commissioner Inland Revenue CorPorate Zone Vs luI/S Tai Vegetable Processing Unit (Pvt) Ltd"

11.TR No.39-P/2022 " Commissioner Inland Revenue CorPorate Zone Vs II,I/S Gut Shehzada Enterprises (Pvt) Ltd"'

12.TR No.40-P/2022 " Commissioner Inland Revenue CorPorate Zone Vs III/S Lal Ghee & Oil Mills (Pvt) Ltd"' 13 TR No.4 I P/2 0 ) 2 'Commissioner Inland Revenue Corporate Zone Vs ArI/S Taj Vegetable oil Processing Unit (Pvt) Ltd a

Syed ABhad Ali Nawab Shah CS (DB) Justlco Abdul Shakoor & Justlco