MUHAMMAD ANWAR VS FEDERATION OF PAKISTAN through Secretary, Revenue Division, Pakistan Secretariat, Islamabad, 2013 PTD-KARACHI-HIGH-COURT-SINDH 1568 (2013)

Al Samrez Enterprise v. Federation of Pakistan 1986 SCMR 817 and M.Y. Electronics Industries (Pvt.) Ltd. and others v. Government of Pakistan and others 1998 SCMR 1404 rel.

Sameer Ghazanfar, Khalid Javed Khan, Muhammad Ahmer, Ms. Ismat Mehdi, M. Afzal Awan, Aqeel Ahmed and Ghulam Nabi Shar for Petitioners.

Kashif Nazeer, Zaheer ul Hasan Minhas, Iqbal Khurram, Ghulam Haider Sheikh, Shakeel Ahmed and Ms. Masooda Siraj for Respondents.

S. Mohsin Iman, D.A.-G.

Dates of hearing: 8th and 22nd May, 2013.

ORDER

MUNIB AKHTAR, J.---By this common judgment, we intend disposing off the petitions listed in para. 11 below since they raise the same issues. The relevant facts can be stated shortly. Each of the petitioners has imported certain goods. Under section 148 of the Income Tax Ordinance, 2001 ("2001 Ordinance"), advance income tax is payable on the importation of goods. Ordinarily, this is payable, as specified in the First Schedule to the 2001 Ordinance, at the rate of 5% of the value of the goods. However, in terms of clauses (9) and (9A) of Part-II of the Second Schedule, the rates applicable were reduced to the extent therein stated, in respect of the goods as therein specified. These clauses were as follows:

"(9) Taxunder,section148shallbecollectedatrateofthe 1% on import of all fibres, yarns and fabrics and goods covered by the Zero Rating Regime of the Sales Tax notified by Board.

(9A) Tax under section 148 shall be collected at the rate of 3% on the import value of raw material imported by an industrial undertaking for its own use:

Provided that the rate of 3% shall be applicable on production of an exemption certificate issued by the Commissioner."

Thepetitionerscontendthat eachofthemcamewithinthescope of either clause (9) or (9A), as the case may be and therefore advance income tax under section 148 was to be collected at the reduced rates. Their grievance, which led to the filing of the present petitions, arises from S.R.O. 140(I)/2013 dated 26-2-2013. By means of this Notification ("S.R.O. 140"), the aforesaid clauses (9) and (9A) were omitted.

2.Since learned counsel for the petitioners made complementary submissions we will take them up together. Learned counsel contended that S.R.O. 140 on the face of it did not (and according to them could not) have any retrospective effect. It could only apply from 26-2-2013 onwards. The petitioners' grievance is that although the goods imported by them arrived in Pakistan on or after the date of S.R.O. 140, they were acquired before the date of issuance thereof. More particularly, the relevant acts, such as entering into the contract of purchase or issuance of invoice or opening of the letter of credit or other act of appropriation in respect of the goods, were all done before S.R.O. 140 was issued, i.e., when clauses (9) and (9A) were still in the field. Relying on the well known principle enunciated by the Supreme Court in its landmark decision reported as Al-Samrez Enterprise v. Federation of Pakistan 1986 SCMR 817 ("Al-Samrez"), learned counsel contends that the petitioners are entitled to the benefit of the reduced rates specified in clauses (9) and (9A) notwithstanding that these clauses stood omitted by the time the goods arrived in Pakistan.

3.Subsection (1) of section 148 empowers the Collector of Customs to collect the advance income tax payable under that section, and subsection (5) provides that it shall be collected in the same manner and at the same time as any customs-duty payable in respect of the imported goods. Subsection (6) provides that the Customs Act, 1969, "insofar as relevant" shall apply to the collection of advance income tax under section 148. The Customs Department (through its various Collectorates) has refused to allow the benefit of clauses (9) and (9A) in respect of those goods where the goods declarations were filed on or after the date of S.R.O. 140. Their case, as explained by learned counsel for the respondents, is that since the Customs Act is to apply, the benefit of the clauses being relied upon was only available up to and when they were in the field. In response to the submission on behalf of the petitioners that the rule laid down in Al-Samrez is applicable, learned counsel for the respondents rely on section 31-A of the Customs Act. Their case is that the aforesaid decision is no longer applicable and therefore the fact that the petitioners entered into their respective contracts or opened the letters of credit, etc. while clauses (9) and (9A) were in the field is of no relevance.

4.The foregoing, in brief, are the competing claims of the parties. The point in issue can thus be narrowed simply to this: in relation to the facts and circumstances of the petitioners, is the Al-Samrez principle applicable or must it be regarded as having been overridden by section 31-A of the Customs Act? For the reasons hereinafter appearing, we are in no doubt that the rule laid down in Al-Samrez is applicable in the present facts and circumstances, and the goods, imported by the petitioners are liable to be dealt with, and the advance income tax collected, on that basis.

5.We have had occasion to consider section 148 in a recent decision, Lucky Cement Ltd. v. Federation of Pakistan and others (C.P. D-216 of 2013 decided on 26-2-2013). We examined the issue whether, in view of the fact that it was collected at the same time and manner as customs-duty, advance income tax could be regarded as a duty of customs. In this connection, we were referred to an earlier decision of this Court reported as Al-Haj Industrial Corporation (Pvt.) Ltd. v. Collector of Customs (Appraisement) 2004 PTD 801 (DB). The matter there arose under section 50(5) of the repealed Income Tax Ordinance, 1979, but that provision is in pari materia section 148. We also considered the relevant provisions in the Sales Tax Act, 1990 and the Federal Excise Act, 2005. As will be seen below the provisions in respect of sales tax are particularly relevant for present purposes. After considering the foregoing material, we observed as follows:--

"24. ... In our view, the observations of the learned Division Bench in Al-Haj Industrial Corporation in respect of section 50(5) can aptly be applied in respect of section. 148. Thus, merely because the customs authorities have been empowered to collect advance income tax under section 148 does not change the nature of the levy and make it into a customs duty. It is pertinent to note that in the Sales Tax Act, 1990 and the Federal Excise Act, 2005, the customs authorities are also empowered to collect sales tax and excise duty respectively on imported goods. The relevant provisions are contained in section 6(1) and section 3(2) respectively. However, in both these provisions, the language used has certain words not found either in section 50(5) or section 148. These provisions are as follows (as presently material; emphasis supplied):

The words emphasized could be regarded as being in the nature of deeming provisions. If so, then (subject to the rules of interpretation that apply in such a situation) the nature of sales tax or excise duty on imports, for purposes of levy, charge or collection (as the case may be), may be regarded as a customs duty. Clearly, this would be a materially different situation than that which obtains in relation to advance income tax on imports. In our view, the jurisdiction of the customs authorities (i.e., the Collector of Customs) is limited to only the collection of the advance income tax. Furthermore, subsection (6) of section 148 emphasizes that the provisions of the Customs Act apply only to the collection of the tax and that too, only insofar as is relevant...."

6.Since the nature of the tax being collected under section 148 does not change and the Customs Act only has a limited applicability, in our view, the submission by learned counsel for the respondents that section 31-A is attracted cannot be accepted. In this regard, we may refer to a reporteddecision of this Court, Crescent Pak Industries (Pvt.) Ltd. v. Federation of Pakistan and others 1990 PTD 29 (DB) ("Crescent Pak"). The matter there arose under the Sales Tax Act, 1951 ("1951 Act"). Section 3(5) thereof directed that sales tax on imports and exports be collected at the same time and manner as a duty of customs. It will be pertinent to reproduce this provision along with section 6(1) of the successor legislation, the Sales Tax Act, 1990 (partially reproduced in the extract from Lucky Cement quoted above). These provisions are as follows (emphasis supplied):--

For purposes of completeness, subsections (5) and (6) of section 148 may also be reproduced:--

"(5) Advancetaxshallbecollectedinthesamemannerandat the same timeasthecustoms-dutypayableinrespectof the import or, if the goods are exempt from customs-duty, at the time customs-duty would be payable if the goods were dutiable.

(6) The provisions of the Customs Act, 1969 (IV of 1969), in so far as relevant, shall apply to the collection of tax under this section."

It will be noted that section 3(5) of the 1951 Act is quite similar to a combination of subsections (5) and (6) of section 148, and as explained by us in Lucky Cement, these provisions are quite different from those contained in section 6(1) of the Sales Tax Act, 1990.

7.InCrescentPak,thefactswerethat thepetitionerenteredintoa contract for the import of tallow from an Australian supplier on 30-4-1988. The necessary import licence was obtained on 29-5-1988 and the letter of credit was opened on 18-6-1988. At that time, the import of tallow was exempt from sales tax under an exemption notification issued in 1986. The bills of entry (the predecessor of the goods declaration) werefiledon10-8-1988.Bythattime,underanotificationdated28-6-1988, the exemption had been withdrawn and sales tax on import of tallow was applicable at the statutory rate. The customs authorities sought to recover sales tax, and the petitioner claimed the benefit of the exemption on the basis of the rule laid down in Al-Samrez. The learned Division Bench observed as follows (pp. 32-33):

"4. There is little to argue on the point that the Sales Tax Act of 1951 and the Customs Act of 1969, though taxing statutes, operate in different fields. To our minds what section 3(5) of the Sales Tax Act, 1951, achieves is the introduction of machinery operating under the Customs Act to realizations under the Sales Tax Act, as well. There is a clear distinction between charging provisions of a statute and the machinery part thereof. It is axiomatic that mode and manner of recovery does not alter the nature of a tax nor can a tax be introduced or imposed by implication. We are clear in our minds that it is only payability which is covered by section 3(5) of the Sales Tax Act and not the imposition or levy of Sales Tax, which is provided for elsewhere in the Sales Tax Act itself. Merely, because of the invocation of section 3(5) of the Sales Tax Act and the application of the Customs Act, 1969, pursuant thereto Sales Tax is not divested of its inherent attributes and does not become Customs duty and, therefore, the introduction of section 31-A in the Customs Act, cannot take away vested rights under the Sale Tax Act and does not make any difference whatever on that score.

5. The above conclusion is strengthened on the language of section 31-A of the Customs Act itself. Nowhere in that provision the word "tax" is found to be employed and throughout the tenor of the provision the legislature has and obviously on purpose, chosen to use the expression duty or duties by which nomenclature is underscored a limitation to specified duties only and not to any tax going by that name, such as Sales Tax. This also stands to reason as the protection against vested rights, if otherwise lawful, was considered in the context of Customs Act only which deals with specific duties alone. For this reason,coverwasnotintendedtobeextendedtoanyother rights falling under a different statute not mentioned in section 31-A ibid. It is manifest therefore, that section 31-A has no nexus with Sales Tax levied under the Sales Tax Act, 1951.

6. On the above rationale, the dictum of the Supreme Court of Pakistan, in Al-Samrez Enterprise's case and the principle underlying the same un-escapably applies to this case, since the application of the doctrine invoked thereunder was not limited to Customs duty alone. No vested rights of exemption in relation to the levy of Sales Tax can, accordingly, be affected adversely once the same have matured and come to occupy the field. The withdrawal of exemption, therefore, under section 7 of the Sales Tax Act w.e.f. 26-6-1988 could not be given effect to retrospectively so as to infringe petitioner's rights, which on payment and opening of Letters of Credit, on 18-6-1988, had duly been established. Even otherwise, it is well settled that a notification operates only prospectively and not retrospectively. The imposition of Sales Tax, by withdrawal of exemption through Notification dated 26-6-1988, thus, can only be prospective and not retro-active."

The foregoing passages were cited with approval by the Supreme Court in M.Y. Electronics Industries (Pvt.) Ltd. and others v. Government of Pakistan and others 1998 SCMR 1404 (at pp. 1439-40) ("M.Y. Electronics"). The Supreme Court also cited with approval the relevant passage from another decision of this Court, Ahmed Investment (Pvt.) Ltd. v. Federation of Pakistan and another 1994 PTD 575 (DB), and then observed as follows (pp. 1440-41):--

"We are inclined to agree with the view expressed in the above two cases decided by two different Division Benches of the High Court of Sindh with regard to the applicability of section 31-A of the Act to the withdrawal of the exemption of sales tax by the Government. We, accordingly, hold that the withdrawal of exemption from payment of sales tax granted by the Government under Notification Not S.R.O. 517(I)/89 dated 3-6-1989 through notification dated 9-5-1991 was only prospective in operation and could not take away or interfere with any of the vested right of appellants."

8.It is pertinent to note that the judgment of the Supreme Court in M.Y. Electronics was announced on 11-5-1998. Shortly thereafter, the legislature, by means of the Finance Act, 1998 added the words to section 6(1) of the Sales Tax Act, 1990 that have been emphasized above (see para 6), i.e., "including section 31A thereof. Thus, an attempt was madetonullify the effect of the Supreme Court's decisioninrelationto the Sales Tax Act by express reference to and incorporation of section 31A. As is obvious, section 148 of the 2001 Ordinance contains no such provision, and the position under this section is entirely different.

9.Mr. Kashif Nazeer, learned counsel appearing for the respondents in some of the petitions relied on a decision of the Supreme Court reported as Hashwani Hotels Ltd. v. Government of Pakistan and others 2007 PTD 1473, referring in particular to para 8 and pg. 1478. The matter was on appeal from the decision of a learned Division Bench of this Court, which is reported at 2004 PTD 901. The facts were that the appellant had imported a motorboat in 1996 and claimed exemption from sales tax under a notification issued in 1991. That notification exempted sales tax on the importation of the goods therein specified but subject to certain conditions, one of which was that the goods not be manufactured locally, and another being that permission or approval from the Tourism Ministry of the Federal Government be obtained. It appears that when the motorboat arrived in Pakistan and bill of entry filed(15-2-1996),theexemptionwasstillinthefield.However,the requisite permissionhad not yet been obtained, although an application in this regard had been made on 12-11-1995. The Ministry finallyconveyeditspermissionon4-4-1996,whichwasforwardedtothe CollectorofCustoms.However,beforethepermissioncouldreachthelatter,theexemptionhadbeenwithdrawnbyanotificationdated4-4-1996 (which came into force on 6-4-1996). On these facts, the Supreme Court held as follows (pp. 1478-9; emphasis supplied):--

"9. One of the essential conditions for claiming exemption from payment of sales tax on the motorboat of the classification imported by the appellant was that it was not being manufactured locally. It was, thus, necessary for the appellant to have taken steps for obtaining information from the concerned authorities that the motorboat sought to be imported could not be manufactured locally and such certificate/information should have been obtained preferably prior to the import of the motorboat locally. However, such was not done. No doubt that before arrival of the boat in Pakistan the appellant had written to the authorities to confirm that the motorboat in question could not be manufactured locally but no such information/decision was obtained by them till the time of filing the Bill of Entry nor conveyed to the Customs Authority dealing with the question of allowing exemption till such time when the exemption notification remained in force. In view of their inability to produce information to the above effect before the Customs Authorities till 5-4-1996 which was the last date of the exemption notification, the appellant deprived itself of the benefit of the exemption notification and became liable to pay sales tax in pursuance of the withdrawal notification. At the same time 2nd proviso to section 5 of the Sales Tax Act got attracted requiring the appellant to pay the sales tax within seven days from the date of withdrawal of exemption at the rate mentioned therein."

It will be seen that the facts of the cited case and the basis on which the petitioner's appeal was dismissed by the Supreme Court are quite different from those at hand. With respect, this decision does not at all assist or further the respondents' case. Learned counsel also referred to Abdul Wahid Abdul Majid v. Government of Pakistan and others 1993 SCMR 17, but that case arose wholly under and in relation to the Customs Act and not in respect of any other fiscal statute. With respect, this decision also does not provide any assistance to the respondents' case.

10.In our view, the issue raised before us is fully answered by the decision of the Supreme Court in M.Y. Electronics and the decisions of this Court cited with approval therein, especially that in Crescent Pak. Section 3(5) of the Sales Tax Act, 1951 was essentially in the same terms, and to the same effect, as subsections (5) and (6) of section 148. Section 6(1) of the present Sales Tax Act, 1990 is cast in terms that are significantly different and in which section 31A of the Customs Act has been expressly inserted, clearly in order to nullify the effect of M.Y. Electronics. In our view, as presently relevant, section 148 is to apply in the same terms as did section 3(5). The facts and circumstances of the case in Crescent Pak are in all material respects similar to those at hand: Therefore, the principles of Al-Samrez are fully attracted and applicable as confirmed by the Supreme Court in M.Y. Electronics.These petitions must therefore be allowed.

11.This judgment shall apply to the following petitions: C.Ps. Nos.D-1259, 2171, 1371, 1084, 1898, 936, 935, 2103, 1896, 1344, 1374, 1375, 1571, 1261, 1260, 1437, 1458, 2201 and 2204, all of 2013.

12.Accordingly, these petitions are allowed in terms that it is declared that the petitioners are, in respect of their subject consignments, liable to pay advance income tax under section 148 of the 2001 Ordinance only to the extent as specified in clauses (9) and (9A) (as the case may be) of Part II of the Second Schedule and this is so notwithstanding the omission of these clauses by S.R.O. 140(I)/2013 dated 26-2-2013. Furthermore, in those cases where interim arrangements were made, the amounts and post dated cheques deposited with the Nazir of this court may be returned subject to proper verification andconfirmation. There will be no order as to costs.

SAK/M-99/KPetition accepted.