M/S Hadi Silk Mills etc Vs Govt of Pakistan through federal Secretary & others

JADGMENT SHEET

PESHAWAR HIGH COURT, MTNGORA

BENCH (DAR-UL-Q AZA),SWAT

(ludicial Department)

1)W.P. No. 442-M12020 M/S Hadi Khan Silk Mills & others Versus Government of Pakistan, through Federal Secretary Finance & others

2)W.P. No.886-M/2020 M/S Gul Steel House through Jannat Gul Versus Federation ofPakistan through Sectary Finance & Revenue & others.

3)W.P. No. 1090-M12020 IWS SB SteelMetal & Rolling Mills through Managing Partner Versus Government of Pakistan through Sectary Finance & Revenue & others.

4)W.P. No. l09l-}I/2020 \zVS Sher Steel Finance & Rolling Mills through Managing Partner Versus Government of Pakistan through Sectary Finance & Revenue & others. s) W.P. No. 1092-M12020 M/S Mardan Industries (Pvt.) Ltd, through Representative Versus Government of Pakistan through Sectary Finance & Revenue & others.

6)W.P. No. 1093-lU2020 M/S Gul Shahzada Steel Mills through Managing Partner Versus Government of Pakistan through Sectary Finance & Revenue & others.

7)W.P. No. 1094-M/2020 M/S Waseem Sharif Industries through Representative Versus Government of Pakistan through Sectary Finance & Revenue & others.

N.erb (D.8.) Ho.'ble itr. Justice lshlirq lbrlhim Hor'blc llr. Justic. wiq.. Ahmrd

8)W.P. No. l2l0-lU2020 IWS Dargai Steel Fumace through Partner Versus Government of Pakistan through Sectary Finance & Revenue & others. e) W.P. No. 1245-M12020 M/S Pak Premier Enterprises through General Manager Versus Government of Pakistan through Sectary Finance & Revenue & others. l0) W.P. No. 1267-M12020 M/S Al-Mahmood Lubricants & Allied Industries (P\,1.) Ltd. through Director Versus Government of Pakistan through Sectary Finance & Revenue & others. I l) W.P. No. 1268-M12020 M/S Al-Mahmood Foods (P\,'t.) Ltd. through Director Versus Government of Pakistan through Sectary Finance & Revenue & others. r2) W.P. No. 1243-M12020 IWS Al-Mahmood Silk Mills (Pvt) Ltd. through Director Versus Government of Pakistan through Sectary Finance & Revenue & others. l3) w .P. No. 1082-M/2019 With CMs No. 807 &

IWS Tameer Steel Zone Versus Government of Pakistan through Federal Secretary Finance & others.

14)w.P. No. 1233-M/2019 IWS Dargai Polymer (Pvt.) Ltd. through Mr' Sana Ullah Khan Versus Government of Pakistan through Federal Secretary Finance & others. ls) W.P. N o.421-M/2020 With CMs Nos. 974 & 151812020 M/S Maqbool Plastic Industries Versus

NrMb (D.8.) tlon'ble Mr. Justice hhli.q lb..him Hon'bl.IIr. Jusrice $iq.r Ahm.d

Federation ofPakistan, through Secretary & Economic Affairs & others

16)W.P.No.422-M12020 IWS Al-Mubeen Oil Extraction &Ghee Industries through Manager Finance Versus Government of Pakistan through Federal Secretary Finance & others.

17)W.P. No.435-M/2020 M/S Punjab Steel Works through Ahsanullah Versus Government of Khyber Pakhtunkhwa through Secretary Finance & others.

18)W.P. No.448-M/2020 IWS Ihtisham Steel Mills (Pvt.) Ltd. through

CEO

Versus Government of Pakistan through Federal Secretary Finance & others.

19)W.P. No.522-Ml2020 IWS Taj Wood Board Mills (Prt.) Ltd. through

CEO

Versus Government of Pakistan through Secretary Finance & Revenue & others.

20)W.P. No.525-M/2020 With CM No. 1582/2020 M/S Prime Steel through Managing Partner Versus Government of Pakistan through Secretary Finance & Revenue & others.

2l) W.P. No.527-Ml2020 V/ith CM No. 1583/2020 IvI/S Prime Steel through Managing Partner Versus Government of Pakistan through Secretary 4 Finance & Revenue & others.

22)W.P. No.670-Mi202 With CM No. 1587/2020 M/S Apollo Plastic & Chemicals (P\,1.) Ltd. Versus Government of Pakistan through Secretary Finance & Revenue & others.

23)W.P. No.792-Ml2020 M/S Khaleej Steel Industries Private Limited Nawrb (D.8.) Hon'ble Mr. Justice hhtiaq Ibrahim Hotr'ble Mr. Juslice Wiqrr Ahmrd

Versus Government of Pakistan through Secretary Finance & Revenue & others.

24)W.P. No.8l2-M12020 With CM No. 1586/2020 M/S Mansha Steel Mills through representatives Versus Federation ofPakistan through Sectary Finance & Revenue & others.

2s) W.P. No.8l3-M/2020 With CM No. 1581/2020 M/S Yar Steel Mills through representative Versus Federation ofPakistan through Sectary Finance & Revenue & others.

26)W.P. No.963-M12020 M/S Hilal Plastic Industries through its Sole Proprietor Versus Government of Pakistan through Secretary Finance, Revenue & others.

27)W.P. No. 1004-M/2020 M/S Ali Packages Trading Company through Rahmat Ali Versus Government of Pakistan through Secretary Finance & Revenue & others.

28)W.P. No. 1247-][U2020 M/S Berg Light Engineering through attomey Versus Government of Pakistan through Secretary Finance & Revenue & others.

2e) W.P. No. 1063-NV2020 IWS Lal Qil & Ghee Mills Pvt. (Ltd.) through Rafiullah Versus Government of Pakistan through Secretary Finance & Revenue & others.

Nrwab (D.8.) lloD'ble }lr. Justice lshliaq lbrrhid Hor'ble lli Justice Wiqrr Ahmrd

CONSOLIDATED

JUDGMENT

Date of hearing: 24.11.2020

Present;

lzl/S Isaac Ali Qazi, Barrister Asad-ur-Rehman and Muhammad Akbar Khan, Advocates for petitioners.

lzVS Nawroz Khan, Deputy Attorney General, Raza-ud-Din Khan, A.A.G, NzVS Ishtiaq Ahmad, Mukhtar Ahmad Maneri, (via video link) and Ghulam Shoib Jally, Advocates for respondents.

WIOAR AHMAD. J.- Through this judgment, we intend to dispose of W.P. No.442-M12020, W.P. No.

886-M/2020, W.P. No. 1090-M12020, W.P. No.

1091-M12020, W.P. No. 1092-M12020, W.P. No.

1093-l|1/2020, W.P. No. 1094-M/2020, W.P. No.

l2l0-M12020, W.P. No. 1245-M12020, W.P. No.

1267-M12020, W.P. No. 1268-W2020, W.P. No.

1243-W2020, W.P. No. 1082-M12019, W.P. No.

1233-W2019, W.P. No. 421-M12020, W.P. No.422- W2020, W.P. No. 435-W2020, W.P. No. 448- W2020, W.P. No. 522-M/2020, W.P. No. 525- }t412020, W.P. No. 527-M12020, W.P. No. 670- ll,4.12020, W.P. No. 792-M12020, W.P. No. 812- M12020, W.P. No. 813-M12020, W.P. No. 963- Nawnb (D.8.) Hon'ble Mr. Jusli.e hhtirq Ibrrhim tlon'ble Mr. Justice Wiqar Ahnrd

M12020, W.P. No.1004-M12020, W.P. No. 1247- M/2020 and W.P. No. 1063-M/2020. In all these cases, respective petitioners have been importers of raw materials for their respective industrial concerns situated in the erstwhile Provinciailv Administered Tribal Areas (hereinafter referred to as "PATA") or the erstwhile Federally Administered Tribal Areas (hereinafter referred to as "FATA"). Both PATA and FATA used to be govemed, under the dispensation provided in repealed Article 247 of the Constitution of Islamic Republic of Pakistan, 1973 (hereinafter referred to as "the Constitution'). Under the said scheme, executive authority of the Federation extended to FATA while executive authority of the Provincial Govemment of the Khyber Pakhtunkhwa extended to PATA, but the legislative authorities of Parliament or Provincial Assembly had not been extending thereto, unless the particular acts passed by such legislature were specifically extended with the approval of President in case of FATA or with the approval of Govemor of the Province of Khyber Pakhtunkhwa with the previous sanction of the President in the case of PATA. The Income Tax Ordinance 2001 (hereinafter referred to as "the Ordinance") or the Income Tax Act 1969 had never been extended to FATA or PATA. Same was the case Nawab (D.8.) Hon'bl. Mr. Justice hhtiaq Ibrrhrm Hon'ble Nlr. Justicc Wiqar Ahnad

with Sales Tax Act 1990, and these areas have historically been immune from operations of the two laws. Liability of the industrial concems to pay income tax at import stage under section 148 of the Ordinance, as well as under section 3. 1 (b) of the Sales Tax Act 1990 were also declared not to have been existing on their part in a leading judgment of this Court bearing title "Messrs Tai Packases Companv Qvt.) LTD. throush Manaser v/s The Government of Pakistan throush Federal Secretary Finunce and Revenue Division and 6 others" reported as 2_!.!!_yW!J- (hereinafter referred to as "the case of Taj Packages'). Said judgment was also subsequently upheld by Hon'ble Supreme Court of Pakistan in the case of "Pakistan throush Chairman FBR and others v/s Ha at Hussain und othe /s" reported as "2018 SCMR 939". Both the areas of FATA and PATA were merged in province of Khyber Pakhtunkhwa vide the Constitution (Twenty- fifth Amendment) Act, 2018 (hereinafter referred to as "Twenty-fifth Amendmenf'). Article 247 of the Constitution was also repealed vide section 9 of the Twenty-fifth Amendment. As a natural corollary, Income Tax Ordinance 2001 as well as the Sales Tax Act 1990 became applicable in these parts of the country. As people of the locality had historically Nrwrb (D.BJ Hon'ble IIr. Justice hhtiaq Ibrahim Ilon'ble NIr. Justi.e Wiqrr Ahmtd

been enjoying tax exemptions under the above- mentioned two laws, therefore the Federal Govemment also provided for tax exemptions under the two laws through SRO No. 888 (1)/2018 dated 23 .07 .2018, SRO No. 889 ( 1y20 r 8 dated 23.07 .2018 and SRO No. 890 (1)/2018 dated 23.07.2018, but said SROs were subsequently replaced by SRO No.

l2l2 (l)12018 dated 05.10.201 8 issued by the Federal Board of Revenue Govemment of Pakistan which provided exemptions from liability of payment of sales tax, while SRO No. 1213 (1y2018 issued by the Federal Board of Revenue Government of Pakistan on 5th October, 201 8 provided exemptions from liability of payment of income tax by insertion of clause 146 in Part- 1st of the Second Schedule of the Ordinance and for exemption from operation of certain provisions of the Ordinance by insertion of Clause No. 1 l0 in Part-IV of Second Schedule of the Ordinance.

2 Grievances of the respective

petitioners arose when they were denied the facility of release of goods at import stage according to the mechanism provided in the case of Taj Packages.

Their import consignments were not being cleared by the custom authorities at ports of entries on Nawab (D.8.) Hon'ble Mr. Juslice hhtiaq lbr.hiD tlo!'ble NIr' Justice Wiq.r AhDad

execution of post-dated cheques. This led to fiiing of all these connected petitions.

3.Petitioners have contended in their respective writ petitions that with issuance of SRO Nos. 1212(1)/2018 and 1213(l)12018 the entire tax regime existing before promulgation of the Twenty- fifth Amendment Act has been resurrected and they should be dealt with accordingly.

4 The Inland Revenue Authorities have filed their comments in some of the cases, wherein they have contended that with promulgation of Twenty-fifth Amendment, the Income Tax Ordinance 2001 and Sales Tax Act 1990 stood extended to the areas of FATA and PATA and therefore the petitioners should apply before the authorities under the respective acts for the grant of whatever exemptions they have been claiming' They have fuilher contended in their comments that the benefit of erstwhile regime provided in the case of Taj Packages could not be availed anymore.

5 A Development took place regarding sales tax wherein entry No. 151, has been inserted to the following effect vide Finance Act,2019;'

Nanrb (D.8.) Hon'ble NIr. Justice Ishtirq Ibrahim Hotr'ble Mr. Justice Wiqar Ahmrd

'l5l (a) Supplies; and Respective (b) Impo( of plant, machinery, equipment heading for installation in tribal areas and of industrial inp'rts by the industries located in the txibal areas, as defined in the Constitution of Islamic Republic of Pakistan,....

as made till 30s June, 2023, to which the provisions of the Act or the notification issued thereunder. would have not applied had Article 247 of the Constitution not been omitted under the Constitution (Twenty-fiIlh Amendment) Act, 208 (XXXVII of 20l8);

Provided thal, in case of

imports, the same shall be allowed clearance by the Customs aulhorilies on presentation of a post-dated cheque lor the atnounl of sales tax pa)able under the Sales Tax Act, 1990, and the same shall be returned to the importer afler presentation of a consumption or installation certificates, 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 e\emption is availed under lhis serial number, is transferred or supplied outside the tribal areas, the tax exemPted shall be Paid at applicable rate on residual value' Grievances of the petitioners agitated in and respect of sales tax have already been addressed judgment' We we need not adjudicate upon it in this are left with determining liability of the respective Nrwab (D.8.) llon'ble Mr. iustice lshtirq Ibrrhim Hon'ble Mr. Juslice Wiqir Ahmrd

petitioners in respect of payment of advance income tax at import stage under section 148 of the Ordinance as well as the question that what should be the mechanism for obtaining such an exemption, if they are found entitled thereto.

6.Mr. Isaac Ali Qazi has argued the cases as lead counsel and rest of the leamed counsel for petitioners have mainly relied upon his arguments.

He started his arguments by giving a history of development of taxation regime for explaining the background of issuance of SRO Nos. 1212 (1y2018 and 1213(1)12018. In this respect, he referred to Articles 246 and 247 of the Constitution. He also read selected Paras from the case of Taj Packages as well as the case of Hazrat Hussain Supra and stated that the purpose of issuance of SRO Nos. 1212 ( 1) and 12 I 3 ( I ) by the Federal Government had been no other than restoring the position as it existed prior to promulgation of the Twenty-fifth Amendment. He also added that the case of Taj Packages is quite clear on the subject that people of this area had been exempted from payment of advance income tax under section 148 of the Ordinance and that their import consignments should be released at the ports of entries on execution of post-dated cheques for ensuring that same were consumed entirely in the Nrrrb (D.8.) Hon'ble Mr. Justice Ishtinq Ibrrhiln Hon'ble \lr. Jusrice Wiqar {hmrd

specified area. To substantiate his assertions, he relied upon the texts of SRO Nos. 12 1 2 ( 1 ) and 121 3

(1)and submitted that the two documents had to be read with as an organic whole and when so read it was clear that it created a legal fiction to the effect that Article 247 of the Constitution should not be deemed to have been repealed for the purpose of taxation regime in the area. In this respect, he also placed reliance upon judgments of Hon'ble Supreme Court of Pakistan reported as PJD_.!.UlJ!zu9.

Court 397 and PLD 2012 Supreme Court 1. The learned counsel also argued that Clauses 146 and 110 have been added to Part-lst and Part-IV of the Second Schedule of the Ordinance which provided for total tax exemption. He added that when industrial concems of the petitioners have totally been exempt from payment of tax liability, then they need not apply for obtaining an exemption certificate under section 159 of the Ordinance. He also stated that even ifthey apply for grant of such a certificate the authorities of Inland Revenue would only ascertain place of resident of the petitioners, regarding which no doubt had been existing as all of them were registered with the income tax authorities and have admittedly been carrying their businesses in the areas of FATA or PATA. In order to bolster his Nawab (D.8.) HoD'ble Mi Justice llhtirq lbr.hiD Hon'bl. Mi Justice Wiqar Ahmtd

arguments, he also placed reliance on judgment of Hon'ble Ap ex Court in the case of "Commissioner of Income-Tax, Peshawar v/s Messrs Gul Cookins Oil etable Ghee VT. LTD. thro h the Chie Executive snd 6 others" reported as 2WW!-J-. 7 Leamed counsel appearing on behalf of officers of the Inland Revenue Department mainly contended that with promulgation of the Twenty-fifth Amendment to the Constitution, the Income Tax Ordinance 2001 stood extended to the area and therefore the total immunity that the petitioners have been enjoying before merger of this part with the province ofKhyber Pakhtunkhwa have no more been available to them. They have also asserted that vide SRO No. 1213 (1)12018 exemption had only been provided in respect of provisions falling in Division- III of Part-V of Chapter-X and Chapter-Xll of the Ordinance, while section 148 of the Ordinance falls in Division-Il thereof and therefore they had not been exempted from payment of tax liability at import stage under the said clauses of the Schedule. They also contended that whatever exemption the petitioners have been claiming they would have to apply for the same under section 159 of the Ordinance.

Nsprb (D.8.) Hotr'ble Nlr. Justice Ishlirq lbrrhtD HoD'ble Mr. Justice Wiqrr Ahmrd

t4

8.We have heard arguments of learned counsel for petitioners in all these connected petitions, learned counsel appearing on behalf of officers of the Inland Revenue Department and perused the record.

9 The following two questions require determination in the instant proceedings;

(a)Whether raw materials imported for industrial concerns situated in FATA or PATA are exempt from payment of advance income tax leviable under section 148 ofthe Ordinance?

(b)If first question is answered in ffirmative, then the petitioners would be required to claim and obtain exemption under section 159 of the Ordinance, or the mechanism prottided in the case of Taj Packages should be continued for future imports?

Determination of question (d:

The area falling in FATA or PATA had been exempt from the levy of income tax and sales tax as the respective statutes providing for the lely had not been extending either to FATA or PATA. In other words, they had historically been exempt from payment of sales tax as well as income tax. This benefit was also declared available to them at the Nawrb (D.8.) Hon'ble lUr. Justice hhtirq Ibrahim Hon'ble Nlr. Justice Wiqar Ahmrd

time of importing goods and machineries for their industrial concems situated in FATA or PATA, in the judgment of this Court dated 04.01.2000 rendered in the case of Messrs Gul Cookins

Ghee (PVT.) LTD, throush the Chief Executive and 6 others" v/s Commissioner of Income-Tax, P@("|{.P. No. 1278/1999'). Said judgment was also upheld by Hon'ble Supreme Court of Pakistan in the case of Commissioner of Income- Tax. Peshawar v/s Messrs Gul Cookins Oil and Vesetable Ghee (PW.) LTD. throueh the Chief Executive and 6 others" reported as /Wru-!2,!J-.

Review petition against the judgment had been allowed vide judgment dated 05.03.2007 of Hon'ble Apex Court rendered in the case of Commissioner of Income-Tax, Peshawar v/s Messrs Gul Cookins Oil and Yeeetsble Ghee (PW,) LTD. through the Chief Executive and 6 others" reported as 2@W, but even while allowing the review, liability of persons residing in FATA or PATA for payment of advance income tax at import stage had been kept intact. The situation was further clarified and an authoritative declaration was made by this Court in its leading judgment on the subject which is being referred here as the case of Tai Packages- The concluding Para of said judgment requires Nrw.b (D.8.) Hon'blc Mr. Juticc lshlirq lbmhiB Hor'bl. Mr. J$tic. wiqrr Ah6.d

reproduction hereunder for giving a picture of the state of law that had been existing on the subject, before promulgation of the Twenfy-fifth Constitutional Amendment;

Accordingly, for the reasons slated hereinahove, this Courl would hold and:-

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

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

(iii)Direct the Federal Government to take appropriate steps lo ensure that persons carrying on business in FATA or PATA are rendered immunity from the payment of taues under Income Tax Ordinance, 2001, and the Sales Tau Act, 1990' as the saitl sldtutes lrave not been exlended to the said aress b,ithin the contemplation of Article 247(3) of the Constitution;

(iv)Direct the Federal Government lo take necessary steps to formulate a uniform policy for seeking securilies from the pe$ons importing goods for its consumption and utilizalion in FATA or PATA, so thst the immunity provided under the Constitulion is not abused and in case the imported goods are ulilized or sold outside lhe said area, lhen the reve,tue of lhe Stale is recoverable from the securities, so provided.

(v)Direct thut till the decision is taken by the Federal Government regarding the security mechanism stated hereinabove, lhe Board shall obtain from the petitioners postdaled cheques for lhe psiment of l*res al import slage under the Act antl the Ordinance, as securily, for goods destined for utilization and consumption in FATA or PATA. The posldated cheques shall be returned to the petitioners upon production of consumplion cerlilicales duly issued by the concerned commissioners, as specified in NotiJication dated 28.2.201L lt will be the liability of the petitioners to approach the respondents for the issuance of consumption cerfirtcatus."

Judgment of Tai Packages was also

upheld by Hon'ble Apex Court in the case of Nrrab (D.B.) Hon'ble 11t. Justice Ishtirq Ibrthim Hon'ble M.. Justice Wiqar Ahm.d

t7

"Pakistan throueh Chqiraan FBl sud !!hq!s !

Hazrot Hrtssoin urd otlters" ofied as "2018 SCMR 939", as stated earlier.

10.But after merger of the area falling in FATA and PATA in the province of Khyber Pakhtunkhwa, Income Tax Ordinance 2001 as well as Sales Tax Act 1969 became operational in both these areas automatically, along with all other laws prevalent in the country at the relevant time, as held by Hon'ble Supreme Court in the case of 'on "Nat, ionul Commissi' on Status of women throush Chairperson and o thers v/s Govern ment of Pakistan throu Secretarv Law & Justice and others" reported as PLD 2019 Supreme Court 218. The Federal Govemment then issued SRO No. 888 (1y2018 dated 23.07.2018, SRO No. 889 (1y2018 dated 23.07.2018 and SRO No. 890 (1)/2018 dated 23.07 .2018 for extending tax exemptions to the areas, but same were later on substituted with SRO No.

l2l2 (1)l2}l8 dated 05.10.2018 and SRO No. 1213 (1y2018 dated 05.10.2018. The matter of levy of sales tax does not require adjudication as explained earlier. We are left with determining liability of the petitioners to pay advance income tax at import stage leviable under section 148 of the Ordinance' Grievances of the petitioners in all these petitions Nssrb (D.B.) Hon'ble Nlr. Justice hhtirq lbrrhim Hor'ble Mr. JusticeWiqa. Ahmrd

arose when said benefit was declined by officers of the Inland Revenue Department. Their stance agitated at the bar has been that since section 148 of the Ordinance had not been falling in Division-Ill of Part V of Chapter X which had been given exemption in Clause 110 ofthe Second Schedule to the Ordinance and had rather been falling in Division-Il of Part V of Chapter X of the Ordinance and they have therefore not been exempt from payment of advance income tax leviable at import stage. Stance of the Inland Revenue can properly be discemed from letter No.

D.O.C. No. 1 (l)-M(IR-Ops) 20201165904-R dated 21't September,2020 of the Member (lR-Operations) of the Federal Board of Revenue Govemment of Pakistan, issued during pendency of the instant proceedings, (operation of which had also been suspended through an interim order dated 03.11.2020 in th e case of "ll/aseem Sharif Industries (Pv il. LTD v/s Governm ent of Pakistan & o thers" (*W.P. No.

1094-M of 2020"). Said letter being relevant is reproduced hereunder for ready reference;

D. O. C 1 ( 1 )- turfi R-Ops)/2 02 0/ I 6 5 904-R Islamabad; the 2l't September, 2020

Subject; Colle tion of lV'i oldins Tax n/s I4B o f ITO 2001 on the rt of Raw Materi al and PLant & dc hine Residents TA/PA

Dear

Nrw.b (D.B.) Hotr'ble Mt. Justice Ishlirq lbt.hin Hor'ble Mr. Justice Wiqr Ahmrd

t9

Invite your kind attention to the extremely important issue of alleged non deduction of income tax u/s 148 ofthe Income Tax Ordinance, 200I (hereinafter called "the Ordinance") by the Custom Collectorates on import of raw material and plant & machinery by FATA/PATA residents presumably because of the exemption under the provisions of Clause (110) ofPart IV of Second Schedule to the Ordinance. The said provision reads;

(110)The provisions of sections in Division III of Part V of Chapter X and Chapter XII of the Ordinance for deduction or collection of withholditlg tax which were not applicable prior to commencement of the Constitution Qwenty-fifih Amendment Act, 208 (XXWil of 2018 shall not apply to individual domiciled or company and association of person resident in the Tribal Areas forming part of the Provinces of Khyber Pakhtunkhwa and Baluchistan under paragraph (d) of Article 246 of the Constitution with effect from the lst day ofJune, 2018 to the 30th day ofJune, 2023 (both days inclusive).

2.Since Section 148 is included in Division II of Part V of Chapter X, which finds no mention whatsoever in Clause (l l0) of Part IV of the Second Schedule of the Ordinance which leads to un-resistible conclusion that the legislature did not intend to extend exemption to residents of FATA and PATA on imports of raw material and plant & machinery tt/s 148 of the Ordinance.

3.I avail opportunity to request you to kindly instruct your Officers below particularly at Port Qasim and Karachi Port to collect withholding tax r.t/s 148 of the ITO 2001 on the import of raw material and plant & machinery from all including FATA/PATA residents. " Such an opinion existing across ranks

and files of the Inland Revenue hierarchy has / necessitated addressing of the question in the current situation.

11.Vide SRO No. 1213(1) of 2018 issued by Federal Board of Revenue Govemment of Pakistan on 5n October, 2018 entry No. 146 has been added in Part-l't of Second Schedule and entry No. NlMb (D.8.) Hotr'ble Mr. Justice lshtiaq Ibrthim HoD'ble Mi Justice Wiqtr Ahm.d

110 has been added in Part-IV of the Second Schedule of the Ordinance. Same are reproduced hereunder for ready reference;

"(146) Any income which was not chargeable to tox prior lo the commencemenl of lhe Constitution (Twenly-/ifth Amendment) Act, 2018 (X$WI of 2018 of any individual domiciled or compony and association of percons residenl in lhe Tribal Areas forming parl ofthe Provinces ofKhyber Pakhlunkhwa and Baluchistan under paragraph (d) of Article 246 of the Constitulion with effect from the lst day ofJune,2018 lo the 30th doy of June, 20 1 3 (both tloys incl usive" "(1l0) The provisions of sections in Division III of Part V of Chapter X and Chapter XII of lhe Ordinance for deduclion or collection of withholding tax which h)ere nol applicable prior to commencement of the Constitution (Twenty-Jifih Amendment Act, 208 (XXXVII of 2018 shall not apply to individual domiciled or compan! and associotion of person residenl in lhe Tribal Areas forming part of the Provinces of Khyber Pokhtunkhwa and Baluchistan under poragroph (d) of Article 246 of the Constitution with effect from the lst day ofJune,20I8 to the 30th day ofJune' 2023 (both days inclusive).

While taking the stance, that section 148 of the Ordinance had been falling in Division-Il of Part-V of Chapter-X which had been finding no mention in Clause 110 of Part-IV of the Second Schedule of the Ordinance and thereby exemption had not been available to residents of FATA and PATA, officers of the Inland Revenue have been ignoring Clause 146 added in Part-lst of Second Nrprb (D.B ) Hon'ble Mr. Justice I3htirq Ibrr Hon'bl. Mr. Ju3!i.. Wiqrr Ahm.d

Schedule of the Ordinance. Wordings of the newly inserted Clause 146 makes it quite clear that any income which was not chargeable to tax prior to the commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 of any individual domiciled or company and association of persons resident in the Tribal Areas forming part of the Provinces of Khyber Pakhtunkhwa and Baluchistan as defined under paragraph (d) of Article 246 of the Constitution, shall be exempt from levy and collection of the income tax. The fact that residents of FATA and PATA had been exempt from payment of advance income tax at import stage has been made manifestly clear in the judgment of Taj Packages, concluding Para of which has been reproduced hereinabove. The Federal Govemment have kept continuity of their exemptions by inserting Clause 146 in Part- lst of the Second Schedule, which provided for total exemption from payment of income taxes which were not payable in earlier dispensation. Stance of the Inland Revenue Department has therefore been misconceived and residents of FATA and PATA cannot be divested of the benefit of exemption given to them by the Federal Govemment, on the basis of such misconceived interpretations of the legal provisions on the subject.

Letter No. D.O.C. No. I (l)-M(IR-Ops) 2020/165904- Nrerb (D.8.) Hon'ble Nlr. Jusfice lshiirq Ibrahin Hon'ble Mr. Juslice wiqar Ahmnd

R dated 21.09.2020 which had been issued during -- --o

pendency of the instant proceedings is badly hit by the principle of Lis Pendens besides being ill conceived. Same is declared to be ultra vires invalid and non-est. For removal of doubt, it is once again declared that the consignments of indushial inputs and machineries of the petitioners and all others industrial concerns situated in FATA or PATA are exempt from lely of the advance income tax at import stage.

12.Determination of q uestion (b):

We would first address arguments raised by leamed counsel for petitioners in this respect. His contention was that SRO No. l2l3l2l8 had been aiming to restore the position that existed prior to repeal of Atl.icle 247 of the Constitution therefore it should be read as an organic whole and its net effect would be that whatever dispensation had earlier been existing, same stood restored with promulgation of the SRO. He had referred to judgments of the Hon'ble Supreme Court of Pakistan reoorted as PLD 1975 Suoreme Court 397 and PLD 2012 Supreme Court 1 and submitted that the SRO had been having the effect of introducing a deeming clause to the effect lhat Article 247 of the N.pab (D.8.) Ho!'ble Mr. Juslice Ishtitq Ibrthin Hor'ble Nt r. Justice Wiqrr Ahmad

Constitution, though in-fact been repealed, shall be deemed not to have been repealed and therefore the matter should be given same effect as it had been having prior to repeal of Article 247 of the Constitution. On these premises, the leamed counsel also added that the dispensation provided in the case of Taj Packages for execution of post-dated cheques and release of consignments on its basis at import stage, should be kept continued. The leamed counsel vehemently opposed the contention of the Inland Revenue Department that in any case the petitioners would be required to apply for and obtain exemption certificate from the Commissioner Income Tax for claiming exemption under Clause 146 of Part-1't of Second Schedule and Clause 110 ofParl-IV ofthe Second Schedule ofthe Ordinance.

13.SRO No. 121312018 has been issued by the Federal Govemment under the powers vested in it by sub-section (2) of section 53 of the Income Tax Ordinance, which provision of the Ordinance being relevant for the present discourse, is reproduced hereunder for ready reference;

(2)The Federal Government may whenever circumstsnces exist to take immediate oction for the purposes of national security, natural disaster, national food security in emergency situations, protection of national economic interests in situations arising of abnormal Jluctuation in Nawab (D.B.) Hor'ble Mr. Justice lshtiaq lbr.hiD Hon'ble Mr. Justice wiqrr Ahmrd

internalional commodity prices, implementation of bilateral and multilateral agreements or granling an exemption from any tax imposed under this Ordinance including a reduction in the rate of tax imposed under this Ordinance or an exemption from the operation of any provision of this Ordinance to any international Jinancial institution or foreign Government owned financiul institution operating under an qgreement, memorandum of understanding or any other arrangement with the Government of Pakistan by noti/ication in the ofJicial Guzette, make such amendment in the Schedule by;

(a)adding any clause or condition therein;

(b)omitting any clause or condition therein; or

(c)making any change in any clause or condition therein, as lhe Government may think fit, and all such amendments shall have effect in respect of any tax year beginning on any date before or after the commencement of the Jinancial year in which the notification is issued, The enabling powers of the Federal

Government, in respect of granting exemptions through the above reproduced clause of section 53 has been to the effect of making amendments in Second Schedule of the Income Tax Ordinance. What is to be given effect to, are the amendments brought in the Second Schedule whereby clause 146 has been added to Part- 1 st of the Second Schedule and clause 110 has been added to Part-IV of the Second Schedule. The prelude given in opening Paras of SRO No. l2l3l20l8 can be referred to for knowing the purpose of making amendments in Second Schedule, but cannot be given a super imposing effect, so as to read something not expressly Nawlb (D.B.) Hon'ble Nti Justice Ishli.q lbrlhin Hon'ble Mn Justice wiqarAhmrd

incorporated in the Income Tax Ordinance. It would therefore be difficult for us to agree with the learned counsel for petitioners that SRO No. 1213/2018 may be read as an organic whole and should interpret other provisions of the Income Tax Ordinance like section 159 of the Ordinance, accordingly. Regarding his arguments that a deeming clause has been introduced in SRO No. 121312018, which should be given a super imposing effect over other provisions of the Income Tax Ordinance, we would not be able to read it in said fashion and give it an effect more than the power of the Federal Government vested in it by sub-section (2) of Section 53 of the Ordinance, unless immunity from operation of certain provisions of the Ordinance is found to have been granted by amendment of Part-IV of the Second Schedule of the Ordinance.

14.So far as the mechanism provided in the case of Taj Packages for release of consignments in lieu of post-dated cheques at import stage ls concemed, it is important to be noted that said mechanism had been provided by this Court, when the Income Tax Ordinance had not been extending to FATA or PATA. With promulgation of Twenty-fifth Amendment, Income Tax Ordinance stood extended to these specified areas ipso facto. This Court had felt a necessity for providing temporary arrangements N!*rb (D.8.) Hon'ble Mr. Justice hhtiaq Ibrahim Hon'blc Mr. Justice Wiqar Ahmid

due to the fact that no altemate procedure for getting exemption had been available by then. This fact is itself clear from concluding part of the judgment where such a mechanism had been provided. Said Para is re-quoted for ready reference herein;

(v)Direct that till the ision is taken bv the Federal Government resa s the secafitv mechanism slated hereinabove, the Board shall obtain from the petitioners postdated cheques for the payment of laxes dt import stage under the Act and lhe Ordinance, as security, for goods destined for utilization and consumption in FATA or PATA, The postdated cheques shall be rcturned to the petitioners upon production of consumption certirtcarcs duly issued by the concerned commissioners, as speciJied in Notification dated 28.2,2011. It will be the liability of the petitioners to approach the respondents for the issuance of cohsumption certilicstes."

(emphasis supplied)

When the Income Tax Ordinance stands

extended and being fully operational in the area, a self-contained mechanism for seeking exemption from payment of liability of income tax stands provided therein. In such situation, resort may not be had to the temporary regime provided in the case of Taj Packages. Section 159 of the Ordinance do provide the mechanism, through which a person who claims to be exempt from payment of any tax liability under the exemptions provided in Part l" of the Second Schedule of the Ordinance, may get certificate to said effect and may thereby be treated as exempt from payment of the tax liability. Said provision of law has not been exempted under clause Nrsrb (D.B.) Hon'ble Mr. Justice Ishtiaq Ibrrhim Hon'ble Nlr. Juslice wiqar Ahmrd

110 of Part-IV of the Second Schedule, therefore it would have its due operation and petitioners may have recourse thereto if they seek exemption from liability of income tax at import stage.

15.In some of the cases, leamed counsel for petitioners have relied upon judgment of this Court given in the case of "M/S lkram Ullsh Associates and 08 others v/s Government of Khvber Pakhtunkhwa throush Chief Secretary and 17 others" ("W.P. No. 886-M/2019"), but it is important to be noted here that said judgment is distinguishable from facts of the instant cases. There this Court was seized with petitions of people carrying on execution of different construction contracts in the area of PATA. Their activity was subject to the incident of advance income tax under section 153 of the Ordinance which fell in Division-Ill of Part-V of Chapter X of the Ordinance, and a specific exemption from operation of said provision of law had been available in Clause 110 of Part-IV of the Income Tax Ordinance. In the cases in hand, the charging provision for petitioners has been section 148 which falls in Division-Il of Part-V of Chapter X of the Ordinance and no specific exemption from operation of the said provision has been given thereto. Ratio of Nlrrb (D.B.) Hor'ble Mr. Justice lshtitq lbrrhim HoD'ble ML Justice Wiqr. Ahmad

the said judgment cannot be made applicable in these connected cases.

16.One of the issues that leamed counsel for petitioners has repeatedly been highlighting at the bar were their apprehensions that they would not have a fair treatment at the hands of respondents, with whom they have locked horns in litigation, in case they claim exemptions there. They were also wary of the bureaucratic red{apism and difficulties that they might be facing while applying for exemptions. Their concerns in this respect may not be entirely un-founded. We expect that the concemed authorities of Inland Revenue Department would understand the backgrounds in which these exemptions have been extended to residents of FATA and PATA by the Federal Government. They would be knowing that this area had been the bedrock of insurgency and terrorism, besides being deprived of normal developments that rest of parts of the country have been having over a span of decades of development because of govemment spendings in the shape of annual development programs and the investments made because of relative stability in those areas. We hope that petitioners and people of these areas shall be dealt with by officers of the h_reab (D.8.) Hon'hle Mr. Justice Ishtiaq Ibrahim Hotr'ble \'tr. Juslice !l iq.r Ahmad

Inland Revenue not only according to letters of the law providing for exemptions but according to its spirit as well. "While it is perfectly true that the power of granting exemptions is discretionary", as held by Hon'ble Supreme Court of Pakistan in the case of Pakistun throush Chairman FBR and others v/s Hazrat Hussain and others reported as 2OI8 SCMR 9 9 "It is equally true that said power could not be exercised in a discriminatory manner.

Exemptions are to be granted and regulated in terms of consistent policies for sound reasons.

There is no justification for granting or refusing exemptions arbitrarily or on the ipse dixit of the concemed officials. Power to grant an exemption or to decline an exemption must be exercised in accordance with the general principles relating to good govemance". Hon'ble Supreme Courl of Pakistan had recorded the above passage on the dint of earlier case law reported as 2005 SCMR 25 1997 SCMR 1804 and a large number of precedents cited therein providing that the functionaries of an organization or establishment could not be allowed to exercise discretions at their whims, sweet will or in an arbitrary manner, rather they were bound to act fairly, evenly and justly. In Nr*.b (D.8.) Hor'ble Mr, Juslice lshlirq lbrahin Iton'ble NIr. Justic. \Yiqar Ahnad

such backdrop, it is expected that the officers of Inland Revenue Department, while entertaining applications of residents or association of persons of FATA and PATA for granting exemptions, shall exercise their discretions in accordance with ratios ofthe above citedjudgments. They shall not burden or harass the applicants, nor would they subject them to unnecessary difficulties. The exemption certificates shall be granted to all such applicants for the maximum allowable time, if and when they are found entitled thereto. With these observations, we dispose of all these connected writ petitions by holding and declaring;

(a)that individuals and association of persons resident in the areas of erstwhile FATA or PATA shall be exempt from levy and imposition of advance income tax payable under section 148 of the Income Tax Ordinance at import stage, till the period mentioned in Clause 146 of Part-l't of Second Schedule to the Ordinance;

(b)that for seeking exemption from payment of advance income tax under section 148 of the Ordinance at import stage, the petitioners shall Nrwab (D.8.) Hon'ble NIr. Justice hhtiaq Ibrrhim Hotr'ble Mr. Justice Wiqar Ahmrd

have to seek exemption from the levy thereof, under section 159 ofthe Ordinance.

17.Since main writ petitions have been disposed oi C.Ms Nos. 505-M, 807-M, 974-M, 989-M, 1420-M.,ls03-M, 1s18-M, l58l-M, 1582- M, 1583-M, 1586-M and 1587-M have therefore become infructuous and same are also disposed of accordingly. The consignments already released on receipt of post-dated cheques, in pursuance to interim orders of this Court in various writ petitions, shall however be processed according to the erstwhile regime provided in the case of Taj Packages.

ANNO UNCED

Dt: 24.1 1.2 020

GE

JUDGE

6t1 Lp va2>o o I t> I :tr*.b{D.B.) Hoo'bl. Mr. JBlic.

Hon'bl. Nlr. Justice Wiqrr Ahnrd