COMMISSIONER INLAND REVENUE, ZONE-III, KARACHI VS ADAM SUGAR MILLS LIMITED, KARACHI, 2013 PTD-KARACHI-HIGH-COURT-SINDH 556 (2013)

(a) Sales Tax Act (VII of 1990)---

----S. 47---Income Tax Ordinance (XLIX of 2001), S. 130---Constitution of Pakistan, Art. 203 & 201---Supervisory jurisdiction of High Court over Federal Tribunals operating within jurisdiction of High Court---Reference against order of Appellate Tribunal, Inland Revenue---Territorial jurisdiction of High Court---Proceedings against taxpayer were initiated in the Province of Punjab and appeal of taxpayer against original order was accepted by the Inland Revenue Tribunal in Punjab---Department filed reference against order of Inland Revenue Tribunal at Sindh High Court---Contention of Department inter alia, was, that due to certain legislative and administrative changes in the year 2009, the taxpayer came under jurisdiction of the Large Taxpayers Unit situated in the Province of Sindh, hence the present reference was filed at the Sindh High Court---Validity---Tribunal whose order was impugned, was constituted under S. 130 of the Income Tax Act, 2001 and had jurisdiction to deal with matters relating to income tax, sales tax and federal excise---Each High Court was at the apex of the judicial hierarchy in its Province and subject always to a decision of the Supreme Court, a decision of a High Court, to the extent that it decides a question of law or is based upon or enunciates a principle of law was binding on all courts subordinate do it---Each High Court also had the power to supervise and control all courts subordinate to it---Customs, Excise and Sales Tax Tribunals were courts within the meaning of Art. 203 of the Constitution, hence fell within the supervisory jurisdiction and control of the High Court---Federal Tribunal was bound by its Constitutional mandate to follow and apply the relevant decisions of the High Court within whose jurisdiction it sits---Reference against a decision of a Tribunal could only be filed in the High Court which exercises jurisdiction over the Bench of the Tribunal that made the impugned order---Reference, in the present case, could only be filed before the Lahore High Court in Punjab and not in the Sindh High Court as it did not have jurisdiction to entertain the same---Reference, being not maintainable, was dismissed in circumstances.

Philips Electrical Industries of Pakistan Ltd. v. Pakistan and others 2000 YLR 2724; State of Andhra Pradesh v. Commercial Tax Officer and another 169 ITR 564; Commissioner of Gift Tax v. J.K. Jain 230 ITR 839; Taylor Instrument Co. (India) Ltd. v. Commissioner of Income Tax 232 ITR 771 and IndiaTube Co. Ltd. v. Commissioner of Income Tax and others 203 ITR 54 rel.

Asghar Hussain v. Election Commissioner of Pakistan PLD 1968 SC 387; Al Iblagh Ltd. v. The Copyright Board 1985 SCMR 758 and Sandalbar Enterprises (Pvt.) Ltd. v. Central Board of Revenue PLD 1997 SC 334 distinguished.

(b) Constitution of Pakistan---

----Arts. 203 & 201---Supervisory jurisdiction of High Court over subordinate courts---Federal Tribunals---Each High Court was at the apex of the judicial hierarchy in its Province and subject always to decisions of the Supreme Court, a decision of a High Court, "to extent that it decides a question of law or is based upon or enunciates a principle of law" was binding on all courts subordinate do it---Each High Court had the power to supervise and control all courts subordinate to it---Federal Tribunal was bound by its Constitutional mandate to follow and apply the relevant decisions of the High Court within whose jurisdiction it sits---Reference against a decision of a Tribunal could only be filed in the High Court which exercises jurisdiction over the Bench of the Tribunal that made the impugned order.

S. Mohsin Imam for Applicant.

Mian Abdul Ghaffar for Respondent.

Date of hearing: 17th January, 2013.

ORDER

MUNIB AKHTAR, J.---This is a reference by the Inland Revenue Department ("Applicant") under section 47 of the Sales Tax Act, 1990. The reference is against the order dated 23-12-2011 of the Appellate Tribunal Inland Revenue ("Tribunal") made by its Bench sitting at Lahore. On 24-8-2012, learned counsel for the Applicant was asked to satisfy the Court as regards the maintainability of the reference before this Court since prima facie, the reference ought to have been filed in the Lahore High Court. Learned counsel sought time, and filed written submissions. On 17-1-2013, the matter came before us and after hearing learned counsel, by a short order made on that date, we dismissed the reference as not maintainable on the ground of jurisdiction. The following are our reasons for having done so.

2.The facts necessary for present purposes can be stated briefly. The matter had come before the Tribunal by way of an appeal by the taxpayer (i.e., the present respondent) against the order dated 5-3-2008 of the Collector, Sales Tax and Federal Excise, Multan. That order had been made by the Collector as Re-opening Order No. 1 of 2008. The allegation against the taxpayer was that it had engaged in evasion of sales tax. The details of the allegations are not relevant. What is important to note is that the proceedings were initiated by the Assistant Collector, Sales Tax, Bahawalpur (after obtaining the necessary permission from the Collector). Thus, the entire proceedings at the departmental level were in the Punjab. The matter was heard over several dates and eventually, the Collector made the order against the taxpayer. Being aggrieved by this decision, the taxpayer preferred an appeal before the Tribunal at its Lahore Bench, which allowed the same by Means of the order presently impugned. It is against this decision that the present reference was filed by the department.

3.Learned counsel for the applicant submitted that the reference came to be filed in this Court (and not the Lahore High Court) by reason of certain legislative changes and administrative measures taken in 2009 to merge the income tax and sales tax departments into one department of Inland Revenue. This resulted in the taxpayer corning under the jurisdiction of the Large Taxpayers' Unit (LTU), Karachi and hence the reference was filed here. Learned counsel submitted that prior to the aforesaid merger, the income tax affairs of the taxpayer were being dealt with at Karachi by the concerned commissioner of Income Tax, whereas its sales tax affairs were in the jurisdiction of the concerned collector of Sales Tax at Multan. After the administrative streamlining and creation of a unified department dealing with Inland Revenue, these jurisdictions were combined in the Commissioner, Inland Revenue (LTU) at Karachi and hence the present reference came to be filed here. In support of his contention that the reference was maintainable before this Court, learned counsel also referred to certain case-law. It will however be convenient to refer to the cited decisions later on.

4.The jurisdictional issue that arises is of some importance. The first point to note is that prior to the 2009 changes there were two federal appellate tribunals functioning in the country in relation to fiscal matters. One was an appellate tribunal constituted under section 130 of the Income Tax Ordinance, 2001. This was commonly known as the Income Tax Tribunal and as this suggests, dealt with appeals arising under the Income Tax Ordinance. (It also heard appeals in relation to wealth tax, but that is not relevant for present purposes.) The second tribunal was constituted under section 194 of the Customs Act, 1969. This was known as the Customs, Excise and Sales Tax Appellate Tribunal, and as its name indicates dealt with appeals arising in relation to customs duty, excise duty and sales tax. Thus, section 2(1) of the Sales Tax Act defined the appellate tribunal exercising jurisdiction under that Act as the tribunal constituted under section 194 of the Customs Act.

5.As a result of the 2009 legislative changes, the tribunal established by section 130 of the Income Tax Ordinance was re-designated as the Appellate Tribunal Inland Revenue. At the same time, section 2(1) of the Sales Tax Act was substituted so that the appellate tribunal defined therein, and exercising jurisdiction in relation to that Act, became the aforesaid Tribunal. (A similar change was made in the Federal Excise Act, 2005 while the tribunal constituted under section 194 of the Customs Act became known as simply the Customs Appellate Tribunal.) Thus the Appellate Tribunal Inland Revenue now had (and has) the jurisdiction to deal with matters relating to income tax, sales tax and federal excise, while the Customs Appellate Tribunal had jurisdiction with regard to customs duty. Thus, the Tribunal with which we are concerned is that constituted under section 130 of the Income Tax Ordinance.

6.For present purposes, it is necessary to consider subsections (6) and (12) of section 130. These provide as follows:--

"(6)The powers and functions of the Appellate Tribunal shall be exercised and discharged by Benches constituted from members of the Tribunal by the Chairperson of the Tribunal.

(12)Subject to this Ordinance, the Appellate Tribunal shall have the power to regulate its own procedure, and the procedure of Benches of the Tribunal in all matters arising out of the discharge of its functions including the places at which the Benches shall hold their sittings."

It will be seen that firstly, the Tribunal is to sit and discharge its powers and functions in Benches, to be constituted by the Chairperson (subsection (6)) and secondly, that the Tribunal has the power to regulate its own procedure including determining the places at which the Benches shall hold their sittings (subsection (12)).

7.The Tribunal of course, has a long history and is the direct successor of the tribunals constituted by and under the precedent legislation, being the Income Tax Act, 1922 and the Income Tax Ordinance, 1979. For present purposes, the common thread that runs through the decades and all the successive laws is that the appellate tribunal hearing income tax (and of course, now sales tax) appeals sits in benches, which sit in different parts of the country. Putting the matter more formally, the Tribunal is a federal appellate tribunal that, by law, is designed to exercise its jurisdiction and discharge its functions and powers not en banc (i.e., as a single body or bench comprising of all the members for the time being of the tribunal) but in specified panels (i.e., benches) and these benches sit in different parts of the country. What is also of importance is to note that the jurisdiction exercised by the various benches sitting across the country has been specified in relation to various provinces. As will be seen in more detail in a moment, this is not accidental or incidental, but purposely and by design. The reason, broadly stated, is that a reference can lie on questions of law arising out of a decision of the Tribunal to the High Court. All the relevant provisions in the fiscal laws so provide: see, e.g., section 47 of the Sales Tax Act and section 133 of the Income Tax Ordinance. This naturally raises the question, which has in effect arisen in the present case, to which High Court would the reference lie? To the foregoing question, the immediate and obvious answer is that the High Court concerned is the one within whosejurisdictiontherelevantBenchoftheTribunalis sitting. This is how references are invariably filed. The question thereforebecomes: isthistheonlywayinwhichareferencecanbefiled?Inotherwords,canareferencebefiledinaHighCourtother than the one within whose jurisdiction the relevant Bench is sitting?

8.The foregoing question must be answered not as a matter of statutory interpretation of the relevant provisions of the Income Tax Ordinance or the Sales Tax Act, but on the constitutional plane. The reason for this is that each Province (and now of course, the Islamabad Capital Territory as well) has its own High Court. Each High Court is at the apex of the judicial hierarchy in its Province. This has two consequences, both expressly stated in the Constitution. Firstly, subject always to a decision of the Supreme Court, a decision of a High Court, "to the extent that it decides a question of law or is based upon or enunciates a principle of law", is binding on all courts subordinate to it (Article 201). Secondly, each High Court has the power to supervise and control all courts subordinate to it (Article 203). In Philips Electrical Industries of Pakistan Ltd. v. Pakistan and others 2000 YLR 2724,it was held by a learned Division Bench of this Court that the Customs, Excise and Sales Tax Tribunal was a court within the meaning of Article 203 and hence within the supervisory jurisdiction and control of the High Court. This finding was not peculiar or limited to that tribunal, but applied generally to all "judicial or quasi-judicial forums or administrative tribunals" (see para 10 of the decision) and obviously applied to the tribunal constituted by section 130 of the Income Tax Ordinance, i.e., the present Tribunal. Since the same expression, "courts subordinate to it", is used in both Articles 201 and 203 in the same or broadly similar contexts, in our view, it necessarily follows that a tribunal such as the present Tribunal is also a court within the meaning of Article 201. Hence, the decision of the High Court, insofar as it decides a question of law or is based upon or enunciates a principle of law, is binding on the Tribunal.

9.However, the question is as to how effect is to be given to the foregoing principle in relation to a federal tribunal that sits in benches in different parts of the country. In our view, the only sensible and obvious way in which this can happen is for the Bench sitting in a particular Province to be bound by the decisions of the High Court of that Province. One necessary consequence of this is that different Benches of the same tribunal may have to decide the same point differently if the various High Courts have expressed divergent views on a point of law. It is to be emphasized that the Bench concerned has no choice or option in this regard. It is bound by constitutional mandate to follow and apply the relevant decisions of the High Court within whose jurisdiction it sits. This conclusion follows naturally from Article 201. (This is subject to one possible exception noted below.) Thus, for example, if the relevant section of the statute under consideration has been interpreted differently by the Lahore High Court and this Court, a Bench of the Tribunal sitting at Lahore would have to apply that section as interpreted by the Lahore High Court, while a Bench sitting at Karachi would have to apply the provision as interpreted by this Court even though the underlying facts in both cases may be the same in all material respects. Neither Bench would have the option to act in any other manner. It would not merely be improper but illegal for the Bench sitting at Karachi to prefer the decision of the Lahore High Court over that of this Court and vice versa. This point has been consistently made by the High Courts in India, where the position of the Income Tax Tribunal ("Indian Tribunal") constituted under the (Indian) Income Tax Act, 1961 is the same for present purposes as the Tribunal. The High Courts have held that a Bench of the Indian Tribunal (and of course, the subordinate tax authorities) is bound to follow the decisions of the High Court within whose jurisdiction it is sitting. Reference may be made to State of Andhra Pradesh v. Commercial Tax Officer and another 169 ITR 564, Commissioner of Gift Tax v. J.K. Jain 230 ITR 839 and Taylor Instrument Co. (India) Ltd. v. Commissioner of Income Tax 232 ITR 771. In India is Tube Co. Ltd. v. Commissioner of Income Tax and others 203 ITR 54, a commissioner of income tax exercising jurisdiction at Calcutta declined to follow a decision of the High Court of the state of West Bengal (i.e., the Calcutta High Court) and preferred instead to follow decisions of the Bombay, Kerala and Allahabad High Courts where a different view of the law had been taken. The Calcutta High Court in the cited decision firmly declared that the Bench had erred in adopting this course of action; it was bound to follow the decision of the High Court and could not act otherwise. The Indian decisions correctly lay down the applicable principles.

10.In our view, a necessary consequence of the foregoing is that a reference against a decision of the Tribunal can only be filed in the High Court which exercises jurisdiction over the Bench that made the impugned order. To conclude otherwise would be inconsistent with the constitutional mandate as explained above. It would also encourage forum shopping. A party (whether the Department or the taxpayer) aggrieved by a decision of the Tribunal would feel encouraged to file the reference in that High Court which the applicant believed had, or would, interpret and apply the law in a manner more favorable to it. This would obviously be detrimental to the rule of law. The federal scheme of the Constitution, the creation of a High Court for each Province, the mandate, jurisdiction and power given to a High Court over all courts subordinate to it and the fact that the Tribunal is statutorily designed to exercise its jurisdiction in Benches sitting in the various Provinces point onlyinonedirection,namelythatareferencemustbefiledintheHigh Court within whose jurisdiction the Bench is sitting and not otherwise.

11.The decisions relied upon by learned counsel for the Applicant may now be considered. Reference was made to Asghar Hussain v. Election Commissioner of Pakistan PLD 1968 SC 387, Al Iblagh Ltd. v. The Copyright Board 1985 SCMR 758 and Sandalbar Enterprises (Pvt.) Ltd. v. Central Board of Revenue PLD 1997 SC 334. It is pertinent to note that all of these cases came to the Supreme Court by way of appeals against High Court decisions given in writ (i.e., constitutional) petitions and not by way of a reference from the decision of a tribunal such as the present Tribunal. The importance of this distinction will be stated in a moment. In the last mentioned case, the writ petition was dismissed and an appeal was taken before the Supreme Court. The Supreme Court was in fact referred to the other two decisions mentioned above. The Supreme Court refused to grant leave to appeal and inter alia observed as follows (see para 8, pg. 339):--

"We may observe that it has become a common practice to file a writ petition either at Peshawar, or Lahore, or Rawalpindi or Multan etc. to challenge the order of assessment passed at Karachi by adding a ground for impugning the notification under which a particular levy is imposed. This practice is to be [deprecated]. The Court is to see, what is the dominant object of filing of the writ petition. In the present case, the dominant object was not to pay the regulatory duty assessed by a Customs official at Karachi. We are, therefore, not inclined to grant leave. Leave is refused."

If anything, this decision goes against the applicant. The remedy is to be sought from the High Court within whose jurisdiction the "dominantobject"hasarisen.Inthepresentcontext,therecanbehardly any doubt that the "dominant object", namely to challenge a decision by the Tribunal by way of a reference, arises within the jurisdiction of the High Court of that Province where the Bench was sitting. More particularly, in the present case, that "dominant object" clearly arose within the jurisdiction of the Lahore High Court and not this Court.

12.In the first mentioned case relied upon by learned counsel for the applicant, the question was whether a decision of the Election Commission could be challenged in the High Court where it had neither its main office nor its secretariat (the erstwhile High Court of East Pakistan). The High Court answered this question in the negative but on appeal, the Supreme Court reversed and gave an answer in the affirmative. It held that the Election Commission was a person carrying out functions in connection with the affairs of the Centre, namely, elections to the office of the President, National Assembly etc. throughout the country and hence its decision was amenable to the jurisdiction of the High Court. It will be noted that the question before the Supreme Court was materially different from that before us. The cited case turned on the proper meaning of Article 98 of the late 1962 Constitution (the predecessor of Article 199 of the present Constitution) whereasweareconcernedwithdeterminingwhetherareferenceundera fiscalstatuteinthefactsandcircumstancesofthepresentcase can be filed in this Court or not. With respect, the question raised before and answered by the Supreme Court was of a different nature altogether.

13.In the second mentioned case, the question was whether the Copyright Board ("Board"), which had its central office at Karachi, could be made amenable to the writ jurisdiction of the Lahore High Court. This case has perhaps a greater similarity with the one at hand inasmuch as the decision of a tribunal (the Board) was involved. It is to be noted that the appellant was aggrieved by a decision of the Registrar of Copyright and had filed an appeal before the Board. Some of the hearings took place at Lahore but the decision, dismissing the appeal, was given at Karachi. This decision was challenged before the Lahore High Court in writ jurisdiction, which declined to interfere on the ground that it lacked jurisdiction to do so. On appeal, the Supreme Court held as follows:--

"The Central Government has set up a Copyright Board for the whole of Pakistan and it performs functions in relation to the affairs of the Federation in all the Provinces. Hence, any order passedbyitorproceedingstakenbyitinrelationtoanypersoninanyofthefourProvincesofPakistanwouldgivethe High Court of the Province, in whose territory the order would affect such a person, jurisdiction to hear the case." (pg. 763)

Indeed, it was observed that the Lahore High Court and this Court had concurrent jurisdiction in the facts and circumstances of the case. After having carefully considered this decision, we are of the view, with respect, that it does not apply in the facts and circumstances of the present case. It is important to note that the Supreme Court observed (see pp. 762-3) while considering the relevant provisions of the Copyright Ordinance, 1962 that it was therein provided that a decision of the Board made in the exercise of its original (and not appellate) jurisdiction was appealable before the High Court within whose jurisdiction the appellant ordinarily resided or carried on business or worked for gain. It was also noted that the Board had beenconstituted to exercise jurisdiction all over the country and had the power to regulate its own procedure and fix the place of its sittings. However, what is of crucial importance is to note that the Board was (and is) designed to ordinarily sit en banc, i.e., as a single body comprising of all of its members for the time being. It was not, in other words, to ordinarily sit in Benches. Indeed, it would appear from a consideration of the Copyright Ordinance, the Copyright Rules, 1967 and the Copyright Board (Procedure) Regulations, 1981 that it cannot sit in Benches. This position is in stark contrast with the Tribunal. As noted above, subsection (6) of section 130 of the Income Tax Ordinance expressly provides that the Tribunal is to ordinarily sit in Benches. This is how it is designed to function, and it is this characteristic that has raised the question before us today. The similarity in the power of the Board ontheonehandandtheTribunalontheothertoregulateitsownprocedure anddeterminetheplaceofsittingismoreapparentthanreal. Thereasonis that there is again, here, the crucial difference ofthe Board sitting at various places as one single body and the Tribunal sitting in various Benches (see section 130(12)). In our view, with respect, the manner in which the Tribunal is to function is fundamentally different from that envisaged for the Board and hence the decision relied upon does not provide any assistance to learned counsel for the applicant.

14.Before concluding, one point may be noted, and this is the possible exception noted in para 9 above. In some cases, the same Bench of the Tribunal exercises jurisdiction and hears appeals from more than one Province. What is to happen in such a situation, i.e., where different/successive appeals (or even appeals being disposed off together as raising the same legal issues) relate to matters arising from the different Provinces? Various solutions suggest themselves to this interesting (and important) question. However, since it does not arise in the facts and circumstances of the present case, we expressly leave it open to be decided in an appropriate case.

15.For all of the foregoing reasons, we concluded that a reference impugning the decision of the Tribunal by its Lahore Bench could only be filed before the Lahore High Court, and not this Court. This Court has not the jurisdiction to entertain such a reference. Hence, the present referencewasnotmaintainableandwasliabletobedismissedassuch.

KMZ/C-16/KReference dismissed.