M/S Apallo Plastic and Chemicals (Pvt) Ltd, Plot No. 63, Small Industrial Estate, Dargai, Malakand Vs Government of Pakistan through Federal Secretary, Finance and Revenue Division, Islamabad & others.

PESHAWAR HIGH COURT, PESHAWAR

(JUDICIAL DEPARTMENT)

WP No. 5105-P/2021 with CM No. 125-P/2022 M/s Apallo Plastic and Chemicals (Pvt) Ltd, Plot No. 69, Small Industrial Estate, Dargai, Malakand.

...........................Petitioner.

V/s

Government of Pakistan Through Federal Secretary, Finance and Revenue Division, Islamabad and others.

.........................Respondents.

For the Petitioner: Mr. Isaac Ali Qazi, Advocate.

For the Respondents: M/s Aamir Javed, Addl. Attorney General & Ishtiaq Ahmad (Junior), Advocate, along with Arshad Hilali Law Officer Customs Department & Siraj Muhammad Assistant Commissioner Inland Revenue.

Date of hearing: 09.02.2022

JUDGMENT

SYED ARSHAD ALI, J:- This consolidated judgment of us is aimed to dispose of the instant Writ Petition as well as connected Writ Petitions because not only the manufacturing units of all the petitioners are located in the erstwhile Federally Administered Tribal Area (“FATA”) but the grievances of the present petitioners are common. Particulars of the said petitions are as under:-

S. No. Case Title

1.WP No. 5105-P/2021 “M/s Apallo Plastic and Chemicals (Pvt) Ltd vs. Government of Pakistan through Federal Secretary Finance and Revenue Division, Islamabad and others”.

2.WP No. 1618-P/2021 “M/s Hassan Zai International vs. Government of Pakistan through Federal Secretary Finance and Revenue Division, Islamabad and others”.

3.WP No. 5119-P/2021 “M/s Dargai Polymer (Pvt) Ltd vs. Government of Pakistan through Federal Secretary Finance and Revenue Division, Islamabad and others”.

4.WP No. 5184-P/2021 “M/s Taj Wood Board Mills (Pvt) Ltd vs. Government of Pakistan through Federal Secretary Finance and Revenue Division, Islamabad and others”.

5.WP No. 5313-P/2021 “M/s Zam Zam Family Steel (Pvt) Ltd vs. The Government of Pakistan through Federal Secretary Finance & Revenue Division, Islamabad and others”.

6.WP No. 5361-P/2021 “M/s Torkham Industries (Pvt) Ltd vs. The Government of Pakistan through Federal Secretary Finance & Revenue Division, Islamabad and others”.

7.WP No. 1328-P/2021 “M/s Al-Mashood Oil & Ghee Industries (Pvt) Ltd vs. Government of Pakistan through Federal Secretary Finance and Revenue Division, Islamabad and others”.

8.WP No. 1355-P/2021 “M/s Poly Foam (Private) Limited vs. Government of Pakistan through Federal Secretary Finance and Revenue Division, Islamabad and others”.

9.WP No. 1516-P/2021 “M/s Bara Ghee Mills (Pvt) Ltd vs. Government of Pakistan through Federal Secretary Finance and Revenue Division, Islamabad and others”.

10.WP No. 1591-P/2021 “M/s Bacha Khel Enterprises vs. Government of Pakistan through Federal Secretary Finance and Revenue Division, Islamabad and others”.

11.WP No. 1633-P/2021 “M/s Shahid Iqbal Steel Casting Factory vs. Government of Pakistan through Federal Secretary Finance and Revenue Division, Islamabad and others”.

12.WP No. 5006-P/2021 “M/s MSK Industries vs. The Government of Pakistan through Federal Secretary Finance & Revenue Division, Islamabad and others”.

2.In the instant petition, the petitioner while invoking constitutional jurisdiction of this Court has prayed that:- “Considering the above submissions, it is therefore, respectfully prayed that on acceptance of this Petition, this Honourable Court may please to:

(i)DECLARE that the Petitioner’s imports could only be subjected to the statutory laid down procedure under Entry No. 151 of Sixth Schedule to the Sales Tax Act, 1990 only.

(ii)DECLARE that the Impugned Customs General Order No. 01 of 2021 dated 25.02.2021 and subsequent Circular No. 09 of 2021 dated 01.03.2021 and Letter No. C.No. 2(2)L&P/2016 dated 02.03.2021 are ultra vires, unreasonable and suffering from excess of law and authority, thus, of no legal effect.

(iii)Declare and Direct that the provision of paras (a) & (b) of CGO No. 08 of 2021 dated 31.08.2021 may please also be extended to the Petitioner imports and may please treated accordingly.

(iv)DIRECT the Respondents to clear the Petitioner’s Imports in accordance with the procedure laid down in Entry No. 151 of the Sixth Schedule to the Sales Tax Act, 1990 and

in M/s Taj Packages Judgment dated 30.04.2015 reported as 2016 PTD 203.

(v)DIRECT the Respondents to refund the exempt taxes paid by the Petitioners due to struck up created by the impugned instrument.

(vi)DIRECT the Respondents to issue delay detention certificate caused by the delay due to the aforesaid impugned ultra vires instruments.

Interim Relief

(vii)In view of all the ingredients requisite for interim relief, it is further prayed that during the pendency of the main Petition, the Impugned Customs General Order No. 01 of 2021 dated 25.02.2021 and allied instructions may please be suspended and Petitioner’s imports may please be allowed against post- dated cheque in lieu of payment of Income Tax and Sales Tax on its imports.

(viii)Any other relief appropriate in the circumstances but not specifically asked for may please also be granted to the petitioner”.

3.The learned counsel appearing on behalf of the petitioners has argued that the industrial unit of the present petitioners situated at erstwhile FATA before the 25th amendment in the Constitution vide Act No. XXXVII of 2018 dated 05.06.2018 were enjoying complete immunity from payment of sales tax and income tax, however, after the merger of the erstwhile tribal area into the Province of Khyber Pakhtunkhwa through SRO. 1212(1)/2018 & SRO. 1213(1)/2018 both dated 05.10.2018, the same immunity were extended to the manufacturing unit of the present petitioners for a period of five years. The learned counsel has further maintained that respondent/Revenue had always questioned the said immunity and it was through the intervention of this Court that the present petitioners were able to get benefit of the said immunity. In order to frustrate the said immunity to the petitioners, the respondent has issued the impugned Notifications/Customs General Orders imposing unnecessary fetters on the business activities of the present petitioners which has adversely effected the cost of the present petitioners on transportation of the imported goods to its destination. The learned counsel has further maintained that the impugned

Circulars/Orders are not only malafide but beyond the authority of the respondent as well as the rights of the present petitioners of free trade guaranteed through Article 18 of the Constitution of Islamic Republic of Pakistan, 1973 (“Constitution”).

He next argued that the impugned Notifications are also discriminatory and in violation of the mechanism for release of the goods as provided under the Customs Act, 1969. The learned counsel while referring to Circular No. 08 dated 31.08.2021 has argued that through the said Circular, the importers whose import is less than Rs. 200 millions per annum have been dispensed with the said rigours as provided in Circulars No. 01 and 09 whereas the present petitioners whose imports are more than Rs. 200 million per annum have been denied the said concession which action of the respondents offend Article 25 of the Constitution. On the other hand, the learned AAG and Mr.

Rahmanullah, Advocate, representing the Revenue have argued that the impugned Circulars were issued by the Federal Board of Revenue (“FBR”) which is a statutory body having the mandate under the law to have issued the said Circulars which does not contravene any provision of law. They have next argued that the matter in issue is indeed a fiscal matter where the Government or for that matter FBR have the jurisdiction to make classification for a particular purpose; hence, the said classification having intelligent differentia is not prohibited under Article 25 of the Constitution.

4.Arguments heard and record perused.

BACKGROUND OF IMMUNITY FROM TAXES FOR

THE INDIVIDUALS/PERSONS/COMPANIES ETC

LOCATED IN THE ERSTWHILE FATA

5.Prior to the 25th amendment in the Constitution through Act No. XXXVII of 2018 dated 05.06.2018, there was a separate dispensation/mechanism for extension of laws to the erstwhile FATA. The relevant provision of the

Constitution i.e. Article 247(3) for ease reference is reproduced as under:- “247 (3). No Act of [Majlis-e-Shoora (Parliament0) 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 Governor, may direct that the law shall, in its application to a Tribal Area, or to a specified part thereof, have effect subject to such exceptions and modifications as may be specified in the direction”.

6.There remained a judicial consensus that the Income Tax as well as Sales Tax Laws were never extended to the FATA, prior to the promulgation of 25th amendment thereby omitting Article 247 from the Constitution. However, there has been a long standing dispute between the Federal Board of Revenue (“FBR”) and the trade community/business community of erstwhile tribal area regarding the imposition of income tax as well as sales tax on the import of raw material for the manufacturing units, which were located in the erstwhile FATA. This Court in its celebrated judgment authored by his Lordship Justice Yahya Afridi as he then was in the case of Messrs Taj Packages Company (Pvt) Ltd through Manager vs. The Government of Pakistan through Federal Secretary Finance and Revenue Division and 6 other (2016 PTD 203), has elaborately dealt with the issue of taxing the raw material/goods which were imported for the purpose of its consumption in the erstwhile FATA. The said judgment was also approved by the august Supreme Court of Pakistan in case titled Pakistan through Chairman, FBR and others Vs. Hazrat Hussain (2018 SCMR 939), wherein it has been unequivocally held that the business concerns/manufacturing units located in the PATA are immune from the impost of both, the income tax as well as

sales taxes; that similarly, the goods or machinery, which they are importing for their home consumption are equally immune from the impost of both taxes at the import stage, however, in order to ensure that the consumption of goods do not cross the limits of non-tariff area, the petitioners have to provide a security in form of post-dated cheques equal to the value of the imported goods.

7.The perusal of the aforesaid judgments would show that the main concern of the FBR was that there is no foolproof system ensuring that the goods which are imported for its consumption in the FATA and for that reason, this Court in the case of Messrs Taj Packages Company (Pvt) Ltd (supra) has issued the following directions.

“Accordingly, for the reasons stated hereinabove, this Court would hold and:--

(i)Declare that advance tax charged on import under section 148 of the Income Tax Ordinance, 2001, is not payable by petitioners importing goods for its utilization or consumption in Federally Administered Tribal Area or Provincially Administered Tribal Area;

(ii)Declare that Sales Tax charged under section 3(1)(b) of the Sales Tax Act, 1990, is not payable by the petitioners importing goods for its utilization or consumption in Federally Administered Tribal Area or Provincially Administered Tribal Area;

(iii)Direct the Federal Government to take appropriate steps to ensure that persons carrying on business in FATA or PATA are rendered immunity from the payment of taxes under Income Tax Ordinance, 2001, and the Sales Tax Act, 1990, as the said statutes have not been extended to the said areas within the contemplation of Article 247(3) of the Constitution;

(iv)Direct the Federal Government to take necessary steps to formulate a uniform policy for seeking securities from the persons importing goods for its consumption and utilization in FATA or PATA, so that the immunity provided under the Constitution is not abused and in case the imported goods are utilized or sold out side the said area, then the

revenue of the State is recoverable from the securities, so provided.

(v)Direct that till the decision is taken by the Federal Government regarding the security mechanism stated hereinabove, the Board shall obtain from the petitioners postdated cheques for the payment of taxes at import stage under the Act and the Ordinance, as security, for goods destined for utilization and consumption in FATA or PATA. The postdated cheques shall be returned to the petitioners upon production of consumption certificates duly issued by the concerned commissioners, as specified in Notification dated 28.2.2011. It will be the liability of the petitioners to approach the respondents for the issuance of consumption certificates.

8.The apprehensions of the FBR in this regard are not without reason. The menace of tax evasion in collaboration with the government official is known to all. The Apex Court in the case of Messrs Elahi Cotton Mills LTD and others vs. Federation of Pakistan through Secretary M/o Finance, Islamabad and 6 others (2016 PTD 1555) has also elaborately considered various aspect of this issue. The relevant paras for reference are reproduced as under:- “In the scenario of the corruption obtaining in Government and semi-Government Departments and so also to curb the dishonest tendency on the part of the tax-payers to evade the payment of lawful taxes by using unfair means, the Legislature is bound to adopt modern and progressive approach with the object to eliminate leakage of public revenues and to generate revenues which may be used for running of the State and welfare of the people”.

9.After 25th amendment in the Constitution, the trade community had raised voice for continuance of the said exemption from imposition of income tax and sales tax. The Federal Government through SRO.1212 (1)/2018 dated 05.10.2018 and SRO. 1213(1)/2018 dated 05.10.20218 had allowed the said exemption to the resident/domicile of the erstwhile FATA/PATA. Similarly, by inserting entry No. 151 and 152 in the 6th Schedule of the Sales Tax Act, 1990, a

mechanism was provided for availing exemption of the sale tax on import of goods which were meant for its consumption in FATA. The said entries are reads as under:- “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 may 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 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.

152.Supplies of electricity, as made from the day of assent to the Constitution (Twenty-fifth Amendment) Act, 2018, till 30th June, 2023, to all residential and commercial consumers in tribal areas, and to such industries in the tribal areas which were set and started their industrial production before 31st May, 2018, but excluding steel and ghee or cooking oil industries”.

10.Even after the said exemption through SROs ibid, the FBR was still reluctant to provide exemption to the trade community, who would import raw material for consumption in the FATA and in this regard a good number of traders have approached this Court. However, the issue of safe transportation and avoiding the leakage of public Revenue still remained the concern of FBR as they had no mechanism for ensuring that the goods imported by a manufacturing unit located at FATA would be solely consumed in the FATA. This Court while dealing with the petitions filed by the trade community from erstwhile FATA impugning the conduct of

the respondents/denial of the said exemption from tax through judgment passed in Writ Petition No. 2009-P/2020 dated 24.11.2020 has given the following declaration/direction: “In view of the above, we, while disposing of these petitions, hold that:

a. The profit and gain/income of the present petitioners from their business activities solely limited within the territorial limits of erstwhile FATA is immune from payment of income tax, during the life of SRO N. 1213(1)/2018 dated b. The import of the Present Petitioners for home consumption (industrial units located at erstwhile FATA) is not liable to the impost of income tax.

c. The present petitioners are required to obtain exemption certificate u/s 159 of the Ordinance from the Commissioner Inland Revenue/FBR for availing the said exemption.

d. The Commissioner shall grant the exemption certificate to the Petitioners if they fulfil the required criteria as provided in SRO No. 1213(1)/2018 dated 05.10.2018”.

IMPUGNED CIRCULARS

“GOVERNMENT OF PAKISTAN

(REVENUE DIVISION)

FEDERAL BOARD OF REVENUE

C.No. 2(2)/L&P/2004 Islamabad, the 25th February, 2021

CUSTOMS GENERAL ORDER NO. 01 OF 2021-04-09

SUBJECT: AMENDMENTS IN CUSTOMS GENERAL ORDER NO. 12

OF 2002 DATED 15.06.2002

The Federal Board of Revenue is pleased to direct that the following further amendments shall be made in Customs General Order No. 12 of 2002 dated the 15th June, 2002, namely:- In the aforesaid order, after paragraph 116, the following new paragraph shall be inserted, namely:-

“117.PROCEDURE FOR CLEARANCE OF GOODS

IMPORTED BY INDUSTRIAL UNITS OF ERSTWHILE

FATA/PATA

In order to ensure safe and secure transportation of the raw material imported under SROs 1212(1)/2018 & 1213 (1)/2018 both dated 5th October, 2018, which grants exemption of leviable Sales Tax and Income Tax at import stage, if imported by industrial units, located in erstwhile FATA/PATA, following procedure is prescribed in respect of goods/raw materials imported thereof:-

(i)On importation of goods/raw materials intended for use in industrial units availing the afore-referred benefits, TP will be filed at Karachi.

(ii)Goods will be transported through bonded carriers only;

(iii)The goods and raw materials shall be cleared at the nearest dry port i.e. Azakhel and Peshawar;

(iv)The containers/vehicles carrying goods/raw materials meant for consumption in these industrial units shall be monitored in terms of Tracking and Monitoring of Cargo Rules, 2012 from Karachi to Peshawar and then to factory premises;

(v)The industrial units availing the exemption shall be subjected to annual audit regarding input and output and other parameters to be determined by the Directorate General of Post Clearance and Internal Audit”.

Sd/--- (Wajid Ali) Secretary (Law & Procedure)

Government of Pakistan Revenue Division Federal Board of Revenue Inland Revenue

C. No. 7(1)TIPU/IR/2020 Islamabad, the March 1, 2021 Circular No. 09 of 2021 – Operations (Inland Revenue/Customs)

Subject: Mechanism to be adopted for the release of Consignment of FATA/PATA Residents Stuck-up at the Karachi Ports A meeting was held under the Chairmanship of the Chairman, FBR with Inland Revenue-Operations and Customs Operations Wings to sort out the issues of imported goods of FATA/PATA residents stuck-up at Karachi Ports, Consumption/Installation Certificates, Postdated Cheques and Exemption Certificates under Section 148 of the Income Tax Ordinance, 2021.

2.After thorough deliberations between the Chairman, Member (IR- Operations) and Member (Customs-Operations) following mechanism was devised for the release of consignments of FATA/PATA residents stuck-up at the Karachi Ports:-

(i)The stuck-up containers are to be released by Customs authorities against Postdated Cheques (PDCs) and sent to their destination (FATA/PATA) under standard tracker mechanism.

(ii)The Collector Customs (Enforcement & Compliance), Peshawar, will issue detention orders of the raw materials effective from day the consignment reaches the manufacturing premise of importers.

(iii)The importer/manufacturer will be responsible to take the import documents alongwith detention order to the CIR Corporate Zone, RTO, Peshawar and make arrangements to have the manufacturing premises/raw material/machinery/goods imported verified.

(iv)The CIR Corporate Zone, RTO, Peshawar will be liable to verify/undertake physical visit as conducted by the importer/manufacturer to the manufacturing premises where the goods are kept under detention, and allow the raw material to be consumed/utilized in writing.

(v)The CIR, Corporate Zone, RTO, Peshawar will ensure the monthly stock-taking of the raw materials to consumed in the production of manufactured goods by these manufacturing units. This stock-taking will facilitate in issuance of the Consumption Certificate

under S. No. 151 of the Sixth Schedule of the Sales Tax Act, 1990.

(vi)The residents of FATA/PATA will apply for tax exemption certificates under section 159 of the Income Tax Ordinance, 2001 for the import of raw material/machinery in light of the Honorable Peshawar High Court, Mingora Bench (Dara-ul-Qaza), Swat’s decision dated 24.11.2020.

3.Commissioner Corporate, RTO, Peshawar and Collector Customs (Enforcement & Compliance), Peshawar would keep a close liaison to successfully implement the laid down mechanism. Sd/--- Dr. Nasser Janjua Chief (IR-Analysis)

GOVERNMENT OF PAKISTAN

(REVENUE DIVISION)

FEDERAL BOARD OF REVENUE

C.No. 2(2)/L&P/2016 Islamabad, the 31st August, 2021 CUSTOMS GENERAL ORDER NO. 08 of 2021

SUBJECT: AMENDMENTS IN CUSTOMS GENERAL ORDER NO. 12 OF

2002 DATED 15.06.2002.

The Federal Board of Revenue is pleased to direct that the following further amendments shall be made in Customs General Order No. 12 of 2002 dated the 15th June, 2002, namely:- In the aforesaid order, in para 117,-

(a)In sub-para (i), after the word “Karachi” the, the expression “whereas ST type of GD will be filed for goods imported in bulk by manufacturers of edible oil located in erstwhile FATA/PATA” shall be added;

(b)In sub-para (iii), after the word “Peshawar” the expression “except the goods imported in bulk by manufacturers of edible oil, cleared under safe transportation regime as applicable to such manufacturers located outside erstwhile FATA/PATA” shall be added.

(c)After sub-para (v), the following new sub-para shall be added, namely:- “(vi). The provisions from sub-para (i) to (iv) above shall not be applicable to the goods/raw materials imported by small manufacturers of plastic goods, wood, pharmaceutical, food and aluminium foil established upto March, 2021 in erstwhile FATA/PATA and having imports of Rs. 200 million or less per annum (FY). In case where the annual imports by these small manufacturers increase to more than Rs. 200 million, the imports of such an importer will be subject to provisions sub-para (i) to (iv)”.

Sd/----- (Wajid Ali) Secretary (Law & Procedure)

11.The impugned Circulars have been challenged by the petitioners on different ground including the Authority of FBR to have issued the said Circulars and secondly that these Circulars offend the existing fiscal laws as a separate

mechanism for release of goods against post-dated cheque have already been provided. From the respective contentions of the parties, the following questions are formulated by this Court being the bone of contention between the parties.

i. Whether the FBR has any Authority to have issued the impugned Circulars?

ii. Whether the impugned Circulars offend any provision of the fiscal laws of the country if so then its effect?

iii. Whether the impugned Circular No.01 dated 25.02.2021 which was amended through Circular No. 08 dated 31.08.2021 allowing the import of those industrial concerned, whose total import is of a value less than Rs. 200 million per annum is discriminatory to the present petitioners whose import is more than Rs. 200 million per annum?

i. Whether the FBR has any Authority to have issued the impugned Circulars?

12.The perusal of Circular No. 09 dated 01.03.2021 would show that it was a onetime arrangement for the release of stuck up goods at Karachi Port destined for erstwhile tribal area and even the learned counsel for the Revenue has agreed that this dispensation was one time and is no more applicable to the regular import of the present petitioners, therefore, the grievances of the present petitioners against the said Circulars are unfounded.

13.The FBR is established under Section 3 of the Federal Board of Revenue Act, 2007 (“Act of 2007”). FBR is the successor of the Central Board of Revenue (“CBR”), which was established on 1st April, 1924 through Central Board of Revenue Act, 1924. In 1944, the CBR was put under the Revenue Division with the Ministry of Finance until, 1960, when on the recommendation of “Administrative Reorganization Committee” the CBR was made into a Division of Ministry of Finance. Under the Act of 2007, indeed FBR is a State instrumentality responsible for

enforcing fiscal laws and collecting revenue for the Federation. The perusal of Section 4 of Act of 2007 would show that main functions of FBR, inter alia, are (i) formulation and administration of fiscal policies (ii) to make regulations, polices, programs, strategies in order to carry out the purposes of this Act; (iii) levy and collection of federal duties, taxes and other levies; (iv) quasi judicial functions of deciding taxation cases/another appeals.

Subsection (ii) of Section 4 clearly envisages that the FBR where deemed appropriate may issue statutory rules and orders (SROs), orders, circulars and instruction for the enforcement of any of the provision of the fiscal law. The impugned Customs General Order No.01 of 2021, Circular No. 09 of 2021 & Circular No. 08 of 2021 appear to be policy decision of the Federal Board of Revenue ensuring the transportation of goods right from Karachi till its safe transit to the dry port at Peshawar or the industrial unit of the consumer/importer. These circulars neither offend any statutory right of the present petitioners nor the petitioners could refer to any law or rules contradicting the said policy rather this policy appears to be in conformity with the concerns of the Apex Court highlighted in the case of Messrs Elahi Cotton Mills for eliminating leakage of public Revenue. Therefore, we are not swayed and impressed by the arguments of learned counsel for the petitioners that the impugned Customs General Order/SROs are beyond the authority of the Federal Board of Revenue.

14.The close perusal of impugned circulars/orders would show that the object of issuance of these circulars/orders is to ensure the safe transportation of imported goods, which are destined for its consumption at the erstwhile tribal area, lest it may not reach into the hands of those industrial units, which are located in the settled area. At this juncture, we may add that the other industries located in specialized zone enjoying similar exemptions are subjected to

similar fetters/contours relating to the import of raw material. His Lordship Yahya Afridi J. as then he was has referred to all such restrictions in para-14 of the judgment delivered in Messrs Taj Packages Company (Pvt) Ltd (supra), which reads as under:-

Notification Nature of Condition for ensuring Exemption consumption

SRO 450(I)/2001

dated 18.6.2001.

The Customs Rules, 2001 Customs Rules, 2001 are general in nature, the below are various regimes which are in practice whereby goods clearing, forwarding and transporting from Port of Entry say at Karachi to upcountry warehousing or consumption without payment of duties and taxes and any of the regimes with suitable amendments / adjustment can be adopted by the Revenue to ensure tax enforcement of the constitutional immunity under Article 247(3) of the Constitution from taxes leviable under the Sales Tax Act, 1990 and Income Tax Ordinance, 2001 to the residential and consumer of Tribal Area.

1.Warehousing In warehousing duties The person must be Rules 342 to 363 and taxes are licensee of bonded ibid Sections 86 DEFERRED under warehouse granted by to 115 of the section 80 ibid at the the Collector Customs

Customs Act, port of entry and of its jurisdiction under 1969. finally, the duties and section 13 ibid. Goods taxes are paid at the are transported under place of manufacturer Bond which released on at the time of reaching the goods at clearance of warehouse.

consumption under section 104 ibid.

2.Public Bonded Do Do Warehouse

3.Transshipment Is the facility from The goods are allowed Rules 236 to 338 allowing transporting to be transporting from ibid sections 121 of goods from one one custom station to the to 126 ibid Customs Station to other only by license the other generally bonded career which are from the port of entry Pakistan Railway, NLC to the other Dry Ports and other licensee elsewhere in the private bonded career Country without who are responsible for payment of Duties carrying the goods.

and Taxes.

Export Related Regime: Export related regime are closely akin to the requirement of Tribal Area, the consume good imported for consumption in foreign Territory or non-tariff territory.

4.Export- Export Processing It is a kind of Customs Processing Zone Zone ("EPZ") is a Station where the goods Rules 225 to 236 non-tariff area are transshipped from ibid established within the the port of entry to the Tariff Area separated EPZ and finished goods by clear demarcation. to exporting customs The raw material or port. Imports are made machinery are against Bond.

imported free of duties and taxes and goods manufactured out of it mostly exported from Pakistan or exported to Pakistan.

5.Manufacturing This is again carrying The conditions of into Bond Rules the same feature as of transportation are same 237 to 263 ibid bonded warehouse as of warehousing. The which facility is rest of the features are normally extended to same of the DTRE Rules the export oriented which are delineated in industries with only the next section. Imports differentiating feature are made against Bond. is that it carrying a concept of no payment of duties and

taxes at import and no duty drawback or refund at export.

6.Duty and It is more liberal The person entitled for Taxes Remission regime of availing DTRE facility Rules 296 to 307 manufacturing into should be a sales tax ibid bond, its features are registered person and delineated in the next should make at least column. 15% value addition and have a valid export contact. The exporter is allowed to make imports and acquire locally manufacture goods without payment of duty and taxes used in this finished product to be exported against postdated cheques/ corporate guarantee. The goods imported or locally acquired shall be utilized in manufacturer of the goods to be exported within 12 months or in such extended period as approved by the competent authority. The person entitled shall apply to the Regulatory Collector of Customs in whose jurisdiction its manufacturing facility is located. That on satisfaction, the Regulatory Collector against the security in form of bond and bank / corporate guarantee to grant license. Prior to approval, Regulatory Collector shall verify manufacturing facility requested for the goods intended to be exported. That on receipt of Application within 3 days issue the Provisional DTRE Approval subject to final determination of the input output ratios to the "Input Out Coefficient Organization (IOCO) or Engineering Development Board (EDB)". The Regulatory on receipt of the Application within 7 days refer the

Application to either IOCO or EDB which has to finally determine the ratios within 30 days. That where after the Regulatory shall issue final approval of DTRE to the Applicant.

That no DTRE Application shall be rejected without affording opportunity to the Applicant.

7.Common It is carrying all the Goods are imported Bonded Rules features of the under Bond or Postdated Warehouse manufacturing into cheques. (conventional) bond license for Rules 279 to 295 export oriented ibid industries, however, it is deferred in because like public bonded warehouse, it can be used by many industries together.

SRO 108(I)/1995 Exemption from i. Suitable in-house dated 12.02.1995 Customs Duties and capacity to manufacture In exercise of components as are the goods. ii. powers conferred imported for the Manufacturer shall by Section 19 of exclusive furnish the list of items the Customs Act, manufacturers of that he is manufacturing 1969 and goods by recognized along with the details of subsection (1) of industrial units raw material. iii. To Section of the located in approved prepare a deletion Sales Tax Act, industrial estate of program spreading over 1990 exemption Gadoon Amazai, a maximum period of of quantity of NWFP. five years within which equal to one- period he shall achieve a fourth is minimum deletion target exempted from to the extent of 75 whole of percent of the C&F Customs Duty value of the inputs of and Sales Tax manufacturer item. (2) leviable for a ____________________ period of five ____________________ years. iv. Declaration by the manufacturer to the effect that raw materials and components have been imported in accordance with his entitlement in terms and conditions. v. Bank Guarantee equivalent to the customs duty and sales tax in respect of which exemption is sought. vi. Maintenance of the record of raw materials and components and items manufactured out of

them. vii. Apply for discharging of bank guarantee within one year of date of importation. viii.

Maintain record of the sales of the items manufactured under this Notification.

SRO 71(I)/1995 Exemption from i. The project shall cost dated 19.01.1995 twenty-five percent of more than US$ ten (a) The industries the Customs Duty million and should excluding those leviable under first empty minimum one specified in the schedule of Customs hundred person. ii. table in this SRO Act, 1969 on import Suitable in-house which commence of such raw materials facilities for commercial which are not manufacture of goods. operation upto produced locally for iii. Furnish list of goods the 31st the manufacture of he is manufacturing or December, 2002 their goods. intends to manufacturing in Special Exemption of whole to the person authorized. Industrial Zone Custom Duty and iv. Written declaration and whose letter Sales Tax on import of the Bill of entry that of credit are of raw materials raw materials imported opened upto 31st which are not according to conditions. January 1996. (b) produced locally. v. undertaking to All industries collector customs to that are not abide by the conditions already existing given in this till the date of notification. vi. To this notification maintain record of raw in Pakistan and materials and are setup in components special Industrial manufactured as Zones shall be prescribed by CBR. ix.

exempt for a Shall maintain a record period of ten of the sale of years from whole manufactured goods and of customs duty machinery and shall and sales tax on produce the same on import of raw demand of competent materials which authority. x. To are not produced communicate the locally provided consumption of the letter of credit imported goods within for their plant one month of and machinery consumption. If not are opened upto consumed within 180 the 31st of days than custom duty January and and taxes to be paid and commercial plausible reason shall be operations are given and seek commenced upto extension for a the 30th June, reasonable period.

S.R.O. 530(I)/89 Exemption from The importer shall, at dated 03.06.1989 customs duty and the time of importation, sales tax on Plaint by documents in his and machinery. possession, satisfy the Collector of Customs that the plant and

machinery have been imported for projects located in the areas specified in the Table and shall furnish an indemnity bond in the FORM set out below to the extent of customs duties and sales tax exempted under this Notification. The said indemnity bond will be discharged subsequently on production of a certificate from the Assistant Collector, Customs and Central Excise, the Secretary Kashmir Affairs Division, or an officer authorized by him in this behalf or the Resident Commissioner for Northern Areas, as the case may be, the effect that the plant and machinery as declared to the customs have been duly installed in an area specified in the Table and such other evidence as the Collector of Customs may require and after such enquiry as he deems fit, in order to establish such installation; the importer shall, at the time of importation of the plant and machinery, furnish a bond to the Collector of Customs to abide by the conditions laid down in this Notification failing which he would pay the amount of customs duties and sales tax due and make payment of any penalties that may be imposed in this behalf. The certificate of installation referred to in such paragraph (2) shall be submitted to the Collector of Customs not later than one year from the date of importation of such plant and machinery and if the plant and machinery are removed

to an area other than that for which these have been imported within a period of ten years from the date of installation;

the amount of customs duties and sales tax exempted under this notification and any penalties that may be imposed in this behalf shall be recovered under section 202 of the Customs Act, 1969 (IV of 1969).

SRO The benefit of this On import by registered 1125(I)/2011 notification shall be manufacturers of five dated 31.12.2011 available to every zero-rated sectors It is zero rated such person doing mentioned in condition regime under the business in textile (i) above, sales tax shall Sales Tax Act, (including jute), be charged at the rate of 1990 for 128 carpets, leather, zero per cent on goods Article for five sports and surgical useable as industrial sectors for being goods sectors, who is inputs; The goods export oriented registered as:- (a) imported by, or supplies manufacturer; (b) made to manufacturers, importer; (c) other than manufacturers exporter; and (d) mentioned in condition wholesaler; (i) above, shall be charged , sales tax at the rate of five per cent; The commercial importers, on import of goods useable as industrial inputs, shall be charged sales tax at the rate of two per cent along with one per cent value addition tax at the import stage, which will be accountable against their subsequent liabilities arising against supply of these goods to the zero-rated sector at the rate of zero per cent or to non-zero-rated sectors or unregistered persons at the rate of five per cent as the case may be. The balance amount shall be paid with the monthly sales tax return or in case of excess payment shall be carried forward to the next tax period;

15.Having said that the issuance of the aforesaid notifications were within the competence of FBR then this Court is left with very less jurisdiction to interfere in the policy matters of a competent authority. The Apex Court in the case of Dossani Travels Pvt. Ltd and others vs. Messrs Travels Shop (Pvt) Ltd and others (PLD 2014 Supreme Court 1) has observed that in absence of any illegality, arbitrariness or established malafides, it is not open for the High Court to annul the policy framed by the competent authority. Similarly, in the case of The Secretary Punjab Public Service Commission, Lahore and others vs. Aamir Hayat and others (2019 SCMR 124), the Apex Court has observed that:- “We also notice that the High Court lost sight of the fact that it is settled law that Courts cannot interfere in lawful exercise of discretion by the concerned departments and substitute lawful decisions of the departments, by their own. The jurisdiction of the High Court under Article 199 of the Constitution is limited to the extent of ensuring that state functionaries do what they are required by law to do and refrain from doing what they are prohibited by law to do. Unless an act or omission of a state functionary falls within the above parameters it is not liable to be interfered with. Such interference would constitute overstepping its jurisdiction by the High Court and entering the domain of the executive which is contrary to the concept of trichotomy of powers as per the scheme of the Constitution”.

In view of the above, it is clear that the Federal Board of Revenue has the authority to issue statutory circulars/ instructions not in conflict with the other fiscal laws including the Sales Tax Act, 1990, Income Tax Ordinance, 2001 and Customs Act, 1969. However, its legality on the touchstone of reasonability and either in conflict to any other statutory dispensation can be looked into by the Constitutional Court. Let us answer the second question.

ii. Whether the impugned Circulars offend any provision of the fiscal laws of the country if so then its effect?

16.It is the contention of the learned counsel for the petitioners that under the Customs Act, 1969 (“Act”), a proper procedure for declaration and assessment of goods for home consumption and warehousing has been provided under Chapter-IX, X, XI & XIII of the Act, therefore, through the impugned Circulars, the said dispensation cannot be dispensed with and secondly, a specific criteria of release of goods provided in Entry No. 151 of the Sixth Schedule of the Sales Tax Act, 1990, therefore, the said process cannot be substituted through the impugned Circular No.01. The mechanism for declaration and assessment for home consumption or warehousing or transshipment has been provided in Sections 79, 80 and 83 of the Customs Act, 1969. The said provisions read as under:-

79.Declaration and assessment for home consumption or warehousing [or transhipment].- [(1) The owner of any imported goods shall make entry of such goods for home consumption or warehousing [or transhipment] or for any other approved purposes, within [ten] days of the arrival of the goods, by,-

(a)filing a true declaration of goods, giving therein complete and correct particulars of such goods, duly supported by commercial invoice, bill of lading or airway bill, packing list or any other document required for clearance of such goods in such form and manner as the Board may prescribe; and

(b)assessing and paying his liability of duty, taxes and other charges thereon, in case of a registered user of the Customs Computerized System:

[Provided that if, in case of used goods, before filing of goods declaration, the owner makes a request to an officer of customs not below the rank of an Additional Collector that he is unable, for want of full information, to make a correct an complete declaration of the goods, then such officer subject to such conditions as he may deem fit, may permit the owner to examine the goods and thereafter make entry of such goods by filing a goods declaration after having assessed and paid his liabilities of duties, taxes and other charges:]

Provided further that no goods declaration shall be filed prior to ten days of the expected time of arrival of the vessel.]

[Explanation.- For the purposes of this clause, the assessment and paying of duty, taxes and other charges in respect of transhipment shall be at the port of destination.]

(2)If an officer, not below the rank of Additional Collector of Customs, is satisfied that the rate of customs duty is not adversely affected and that there was no intention to defraud, he may, in exceptional circumstances and for reasons to be recorded in writing, permit, substitution of a goods declaration for home consumption for a goods declaration for warehousing or vice versa.

(3)An officer of Customs, not below the rank of Assistant Collector of Customs, may in case of goods requiring immediate release allow release thereof prior to presentation of a goods declaration subject to such conditions and restrictions as may be prescribed by the Board.]

80.Checking of goods declaration by the Customs.-

(1)On the receipt of goods declaration under section 79, an officer of Customs shall satisfy himself regarding the correctness of the particulars of imports, including declaration, assessment, and in case of the Customs Computerized System, payment of duty, taxes and other charges thereon.

(2)An officer of Customs may examine any goods that he may deem necessary at any time after the import of the goods into the country and may requisition relevant documents, as and when and in the manner deemed appropriate, during or after release of the goods by Customs;

(3)If during the checking of goods declaration, it is found that nay statement in such declaration or document or any information so furnished is not correct in respect of any matter relating to the assessment, the goods shall, without prejudice to any other action which may be taken under this Act, be reassessed to duty [taxes and other charges levied thereon]:

[Provided that in case of reassessment, a notice shall be served to the importer through Customs Computerized System and opportunity of hearing shall be provided, if he so desires.]

(4)In case of the Customs Computerized System, goods may be examined [and assessed] only on the basis of computerized selectivity criteria.

(5)The Collector may, however, either condone the examination or defer the examination of imported good or class of goods and cause it to be performed at the designated place as he deems fit and proper either on the request of the importer or other.]

83.Clearance for home consumption.- (1) When the owner of any goods entered for home-consumption and assessed under section 80 or 81 has paid the import duty and other charges, if any, in respect of the same the appropriate officer, if he is satisfied that the import of the goods is not prohibited or in breach of any restrictions or conditions applying to the import of such goods, may make an order for the clearance of the same:

Provided that, at customs-stations where the Customs Computerized System is operational the

system may clear the goods through system generated clearance documents.

(2)Where the owner fails to pay import duty and other charges within (ten) days from the date on which the same has been assessed under sections 80, (omitted) or 81, he shall be liable to pay surcharge at the rate of [KIBOR plus three per cent] or import duty and other charges payable on such goods.]

17.We have closely perused the said provisions which deal with the manner and mode of filing of declaration of goods, assessment of liabilities and clearance of the imported goods for home consumption. It is the contention of the present petitioners that it is the discretion of the importer either to release the goods at Karachi Port or for that matter, the Dry Port, Peshawar, however, through this Circular No. 01 the said discretion has been taken away from the petitioners. These arguments of the learned counsel for the petitioners have not impressed us. Sections 79, 80 and 83 of the Customs Act, 1969 deals with the release of goods on its import and this procedure is equally applicable at the Customs Port Karachi as well as Custom Dry Port, Peshawar. Since the present petitioners are enjoying immunity from the payments of duties and taxes, therefore, in order to protect the State interest i.e. leakage of Revenue, the Federal Board of Revenue, through Circular No. 01 has provided a mechanism for the transportation of goods from Port at Karachi to its onward destination where the industrial unit is situated. Therefore, condition No.(i) to (iv) provides for the safe and supervised transportation of goods which are exempt from payment of duties and taxes. As far as the assertion of the learned counsel for the petitioners that since the petitioners have provided a post dated cheque against the duties and taxes, therefore, this method of transportation is a futile exercise for the Revenue and will only complicate the process of import/transportation. These arguments of the learned counsel for the petitioners are equally unimpressive. The purpose of depositing the security is that the importer shall ensure to the Revenue that the goods imported would be

consumed in the erstwhile FATA, however, in this regard, there is no mechanism that how the Revenue would supervise that indeed the imported goods are consumed in the erstwhile FATA. Condition No. (i) to (iv) of Circular No. 01 dated 25.02.2021 are meant to ensure that the said transportation of goods from Karachi to the Industrial Unit situated is foolproof and is not being mis-utilized.

18.Moving on to the condition No. v of the said Circular. Through this condition, the Revenue has subjected the importers to annual audit regarding input and output as per parameters to be determined by the Directorate General of Post Clearance and Internal Audit. Section 177 of the Income Tax Ordinance, 2001 and Section 25 of the Sales Tax Act, 1990 provide a comprehensive procedure for audit of the taxpayer. The aforesaid provisions reads as under:- “177. Audit.- (1) The Commissioner may call for any record or documents including books of accounts maintained under this Ordinance or any other law for the time being in force for conducting audit of the income tax affairs of the person and where such record or documents have been kept on electronic data, the person shall allow access to the Commissioner or the officer authorized by the Commissioner for use of machine and software on which such data is kept and the Commission or the officer may have access to the required information and data and duly attested hard copies of such information or data for the purpose of investigation and proceedings under this Ordinance in respect of such person or any other person:

Provided that-

(a)The Commissioner may, after recording reasons in writing call for record or documents including books of accounts of the taxpayer; and

(b)The reasons shall be communicated to the taxpayer while calling record or documents including books of accounts of the taxpayer: Provided further that the Commissioner shall not call for record or documents of the taxpayer after expiry of six years from the end of the tax year to which they relate.]

(2)After obtaining the record of a person under sub-section (1) or where necessary record is not maintained, the Commissioner shall conduct an audit of the income tax affairs (including examination of accounts and records, enquiry into expenditure, assets and liabilities) of that person or any other person and may call for such other information and documents as he may deem appropriate.]

[(2A) For the purpose of sub-section (2), the Commissioner may conduct audit proceedings electronically through video links, or any other facility as prescribed by the Board.] [(2AA) Where a taxpayer-

(a)has not furnished record or documents including books of accounts;

(b)has furnished incomplete record or books of accounts; or

(c)is unable provide sufficient explanation regarding the defects in records, documents or books of accounts, it shall be construed that taxable income has not been correctly declared and the Commissioner shall determine taxable income on the basis of sectoral benchmark ratios prescribed by the Board. Explanation.- The expression “sectoral benchmark ratios” means standard business sector ratios notified by the Board on the basis of comparative cases and includes financial ratios, production ratios, gross profit ratio, net profit ratio, recovery ratio, wastage ratio and such other ratios in respect of such sectors as may be prescribed.]

(3)to (5).................Omitted

(6)After completion of the audit[], the Commissioner may, if considered necessary, after obtaining taxpayer’s explanation on all the issues raised in the audit, amend the assessment under sub- section (1) or sub-section (4) of section 122, as the case may be.

(7)The fact that a person has been audited in a year shall not preclude the person from being audited again in the next and following years where there are reasonable grounds for such audits.

(8)The [Board] [or the Commissioner] may appoint a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961) [or a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966)], to conduct an audit of the income tax affairs of any person [or classes of persons] and the scope of such audit shall be as determined by the [Board/or the Commissioner/] on a case to case basis.

(9)Any person employed by a firm referred to in sub-section (8) may be authorized by the Commissioner, in writing, to exercise the powers in sections 175 and 176 for the purposes of conducting an audit under that sub-section.]

[(10) Notwithstanding anything contained in sub- sections (2) and (6) where a person fails to produce before the Commissioner or a firm of Chartered Accountants or a firm of Cost and Management Accountants appointed by the Board or the Commissioner under sub-section (8) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the firm of Chartered Accountants or the firm of Cost and

Management Accountants for the purpose of audit or determination of income and tax due thereon, the Commissioner may proceed to make best judgment assessment under section 121 of this Ordinance and the assessment treated to have been made to he basis of return or revised return filed by the taxpayer shall be o no legal effect.]

(11)The Board may appoint as many special audit panels as may be necessary, comprising two or more members from the following:-

(a)an officer or officers of Inland Revenue;

(b)a firm of Chartered Accountants as defined under the Chartered Accountants Ordinance, 1961 (X of 1961);

(c)a firm of Cost and Management Accountants as defined under the Cost and Management Accountants Act, 1966 (XIV of 1966); or (d) any other person as directed by the Board.

To conduct an audit, including a forensic audit of the income tax affairs of any person or classes of persons and the scope of such audit shall be as determined by the Board or the Commissioner on case to case basis.

(12)Special audit panel shall be headed by a Chairman who shall be an officer of Inland Revenue.

(13)Powers under sections 175 and 176 for the purposes of conducting an audit under sub-section (11), shall only be exercised by an officer or officers of Inland Revenue, who are member or members of the special audit panel, and authorized by the Commissioner.

(14)Notwithstanding anything contained in sub- sections (2) and (6), where a person fails to produce before the Commissioner or a special audit panel under sub-section (11) to conduct an audit, any accounts, documents and records, required to be maintained under section 174 or any other relevant document, electronically kept record, electronic machine or any other evidence that may be required by the Commissioner or the panel, the Commissioner may proceed to make best judgment assessment under section 121 and the assessment related to have been made on the basis of return or revised return filed by the taxpayer shall be of no legal effect.

(15)If any one member of the special audit panel, other than the Chairman, is absent from conducting an audit, the proceedings of the audit may continue, and the audit conducted by the special audit panel shall not be invalid or be called in question merely on the ground of such absence.

(16)Functions performed by an officer or officers of Inland Revenue as members of the special audit panel, for conducting audit, shall be treated to have been performed by special audit panel.

(17)The Board may prescribe the mode and manner of constitution procedure and working of the special audit panel.]

[Explanation.- For the removal doubt, it is declared that the powers of the Commissioner under this section are independent of the powers of the Board

under section 214C and nothing contained in section 214C restricts the powers of the Commissioner to call for the record or documents including books of accounts of a taxpayer for audit and to conduct audit under this section.]

[25. Access to record, documents, etc.- [(1)] A person who is required to maintain any record or documents under this Act [or any other law] shall, as an when required by [Commissioner], produce record or documents which are in his possession or control or in the possession or control of his agent; and where such record or documents have been kept on electronic data, he shall allow access to [the officer of Inland Revenue authorized by the Commissioner] and use of any machine on which such data is kept].

[(2) The Officer of Inland Revenue authorized by the Commissioner, on the basis of the record, obtained under sub-section (1), may, once in a year, conduct audit:

Provided that in case the Commissioner has information or sufficient evidence showing that such registered person is involved in tax fraud or evasion of tax, he may authorize an officer of Inland Revenue, not below the rank of Assistant Commissioner, to conduct an inquiry or investigation under section 38.

Provided further that nothing in this sub- section shall bar the officer of Inland Revenue from conducting audit of the records of the registered person if the same were earlier audited by the office of the Auditor-General of Pakistan.

[(2A) For the purpose of sub-section (2) of section 25, the Commissioner may conduct audit proceedings electronically through video links, or any other facility as prescribed by the Board.] [(3) After completion of audit under this section or any other provision of this Act, the officer of Inland Revenue may, after obtaining the registered person’s explanation on all the issues raised in the audit shall pass an order under section

(4)omitted.

[(5) Notwithstanding the penalties prescribed in section 33, if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded long with [default surcharge] voluntarily, whenever it comes to his notice, before receipt of notice of audit, no penalty shall be recorded from him: Provided if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with [default surcharge] during the audit, or at any time before issuance of show cause notice, he may deposit the evaded amount of tax, [default surcharge] under section 34, and twenty five per cent of the penalty payable under section 33: Provided further that if a registered person wishes to deposit the amount of tax short paid or amount of tax evaded along with [default surcharge] after issuance of show cause notice, he shall deposit

the evaded amount of tax, [default surcharge] under section 34, and full amount of the penalty payable under section 33 and thereafter, the show cause notice, shall stand abated.]

[Explanation.- For the purpose of sections 25, 38, 38A, 38B and 45A and for removal of doubt, it is declared that the powers of the Board, Commissioner or officer of Inland Revenue under these sections are independent of the powers of the Board under section 72B and nothing contained in section 72B restricts the powers of the Board, Commissioner or officer of Inland Revenue to have access to premises, stocks, accounts, records, etc. under these sections or to conduct audit under these sections.]

19.The close perusal of the aforesaid provisions would show that the purpose of the audit is to ensure that the taxpayer has complied with the relevant fiscal laws and instructions issued by the Fiscal Regulator i.e. FBR. It is not meant to conduct a roving and fishing inquiry into the affairs of any taxpayer in order to fish for default. Against any audit proceedings under Income Tax Ordinance, 2001 and Sales Tax Act, 1990, the taxpayer has been given a complete statutory protection to defend itself/himself. Therefore, through the impugned Circulars making the taxpayer to a further audit through an unstructured policy is against the letter of Section 177 of the Income Tax ordinance, 2001 and Section 25 of the Sales Tax Act, 1990. Unstructured discretion in the hands of Executive dealing with pecuniary interest of the citizens have never been approved by the Superior Courts. If a decision is taken without any principle or without any rule it is unpredictable and such a decision is the antithesis of a decision taken in accordance wit the rule of law. (See Dicey--- “Law of the Constitution”---- 10th Edn., Introduction cx). “Law has reached its finest moments”, stated Douglas, J. in United States vs. Wunderlinch, (1951) 342 US 98, “when it has freed man from the unlimited discretion of some ruler--- Where discretion is absolute, man has always suffered”. It is in this sense that the rule of law may be said to be the sworn enemy of caprice. Discretion, as Lord Mansfield stated it in classic terms in the case of John Wilkes “means should

discretion be guided by law. It must be governed by rule, not by humour; it must not be arbitrary, vague and fanciful”. S.G. Jaisinghani vs. Union of India (AIR 1967 SC 1427).

20.Thus, this unguided, unbridled discretion authorizing the Revenue for annual audit of the importer more particularly in the circumstances when the field of audit is occupied for the purpose of income tax and sales tax as provided under Section 177 of Income Tax Ordinance, 2001 and Section 25 of the Sales Tax Act, 1990, amounts to excessive delegation and thus, is illegal.

iii. Whether the impugned Circular No.01 dated 25.02.2021 which was amended through Circular No. 08 dated 31.08.2021 allowing the import of those industrial concerned, whose total import is of a value less than Rs. 200 million per annum is discriminatory to the present petitioners whose import is more than Rs. 200 million per annum?

21.As stated above, it has been the concern of the Revenue that since the present petitioners seeking immunity/exemption from payment of taxes should not mis- utilize the facility. So far neither any statistic nor data is available with the Revenue to ascertain the quantum of imported goods required for home consumption of the present petitioners. Therefore, the Revenue has classified the importers in two categories; first, those industries, whose import are upto the value of Rs. 200 million per annum and the second is the one whose import exceeds the value of Rs. 200 million. The obvious purpose of this classification is to keep check on the large scale import of goods in the tribal area. Indeed Legislature and other Taxing Authority have the power to classify persons or properties into categories and subject them to different dispensation of taxes. Zaman Cement Company (Pvt) Ltd vs. Central Board of Revenue and others (2002 SCM?R 312) and Elahi Cotton Mills Ltd vs. Federation of Pakistan (PLD 1997 SC 582).

22.In view of the above, we hold that:

i. The Federal Board of Revenue has the authority to issue Circulars and Instructions as provided under Section 4 of the Federal Board of Revenue Act, 2007 and thus, issuance of Circular No. 01 dated 25.02.2021 except condition No.v has been lawfully issued.

ii. Condition No. v of Circular No. 1 dated 25.02.2021 authorizing the Revenue to subject the importers for annual audit is illegal and thus ultra vires to Section 177 of the Income Tax Ordinance, 2001 and Section 25 of the Sales Tax Act, 1990 and is, accordingly, struck down.

iii. Circular No. 09 dated 01.03.2021 was onetime dispensation meant for the release of stuck up imported goods at Karachi Port destined for consumption at the industrial units at erstwhile FATA/PATA and thus is no more applicable to the import of the petitioners.

23.All Writ Petitions stand disposed of accordingly.

ANNOUNCED.

09.02.2022 SENIOR PUISNE JUDGE

JUDGE

Nawab Shah CS (DB) Justice Rooh-ul-Amin Khan & Justice Syed Arshad Ali