KASHMIR SUGAR MILLS LTD. VS FEDERATION through Secretary Revenue, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 1649 (2016)

Federal Excise Act (VII of 2005)---

----Ss. 3 & 42---Recovery of federal excise duty---Show cause notice---Interpretation of any provision by Federal Board of Revenue---Scope---Petitioner was aggrieved of show cause notice issued by adjudicating authority and consequential orders-in-original passed as consequence of interpretation by Federal Board of Revenue---Validity---Primary jurisdiction to interpret any provision was vested with quasi-judicial authorities under Federal Excise Act, 2005, which should not be by passed merely because taxpayer was offering another interpretation---No jurisdictional defect was found in issuance of show cause notice, therefore, no interference was warranted to such extent---Authorities followed interpretation made by Federal Board of Revenue through order-in-original and the same was against provisions of S. 42 of Federal Excise Act, 2005---High Court directed the petitioners to plead their cases as well as interpretation before Adjudicating Authority by reply to show cause notices already issued and set aside order-in-original---Adjudicating Authority was directed to proceed in the matter with independent mind after addressing all points raised or to be raised by petitioners before it---Constitutional petition was allowed accordingly.

Deputy Commissioner of Income Tax/Wealth Tax, Faisalabad and others v. Messrs Punjab Beverage Company (Pvt.) Ltd. 2007 PTD 1347 ref.

Mughal-e-Azam Banquet Complex through Managing Partner v. Federation of Pakistan through Secretary and 4 others 2011 PTD 2260; Northern Power Generation Company Limited v. Federation of Pakistan and others 2015 PTD 2052; Attock Cement Pakistan Ltd. v. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and 4 others 1999 PTD 1892 and Messrs Central Insurance Co. and others v. The Central Board of Revenue, Islamabad and others 1993 SCMR 1232 rel.

Akhtar Ali and Sumair Saeed Ahmad for Petitioners.

Sarfraz Ahmad Cheama, Ch. Zafar Iqbal and Tariq Saleem Sheikh, Dr. Ishtiaq Ahmad Khan, Commissioner, Inland Revenue, LTU, Lahore for Respondents.

Date of hearing: 13th January, 2016.

JUDGMENT

SHAHID JAMIL KHAN, J.---This judgment shall also decide connected Writ Petitions Nos.27267 of 2012 and 32842 of 2013, as same legal issue under similar facts is involved.

Petitioner has challenged show cause notices and consequential orders-in-original for having been passed as consequence of interpretation by Federal Board of Revenue ("FBR") vide letter dated 06.08.2011, operative part of which is reproduced hereunder:-

"I am directed to refer to your letter No.NS/ED/GI/01/187 dated 18.07.2011 (copy enclosed) on the subject cited above and to say that prior to 04th June, 2011, sales tax @ 8% on the actual transactional value was chargeable on White Crystalline Sugar and w.e.f. 04th June, 2011 FED @ 8% in sales tax mode is chargeable on White Crystalline Sugar. It is clarified that the mode and manner of payment and collection of duty/tax on Sugar has not been changed. The FED @ 8% is, therefore, chargeable on the stocks lying with sugar mills on 04th June, 2011, as and when supply is made.

[emphasis supplied]

2.Learned counsel for petitioner submits that this letter was circulated to all the Chief Commissioners with the interpretation contained therein and there is no chance of decision in favour of petitioner by any of the authorities under FBR, hence this petition. In support, he has referred to impugned order-in-original dated 23.10.2012 passed by respondent No.5, who has followed the interpretation given in the impugned letter.

3.Mr. Sarfraz Ahmad Cheema, Advocate for respondents, submits that appeal is provided against the order-in-original, therefore, this petition is not maintainable. He has placed reliance on judgments in Deputy Commissioner of Income Tax/Wealth Tax, Faisalabad and others v. Messrs Punjab Beverage Company (Pvt.) Ltd. (2007 PTD 1347), Mughal-e-Azam Banquet Complex through Managing Partner v. Federation of Pakistan through Secretary and 4 others (2011 PTD 2260) and Northern Power Generation Company Limited v. Federation of Pakistan and others (2015 PTD 2052).

Replying to objection on maintainability, learned counsel for petitioner has placed reliance on judgment in Attock Cement Pakistan Ltd. v. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and 4 others (1999 PTD 1892), to contend that statutory authorities would follow the interpretation already given by FBR, therefore, this petition is maintainable.

4.On merits, learned counsel for petitioner submits that Sales Tax @ 8%, on the actual transaction value, was payable before 04.06.2011, however, w.e.f. said date Federal Excise Duty ("FED") @ 8% in Sales Tax mode was made chargeable on White Crystalline Sugar. Argues that Federal Excise Duty is leviable on goods produced or manufactured in Pakistan under charging Section 3 of Federal Excise Act, 2005 ("Act of 2005"). Since, FED was levied w.e.f. 04.06.2011, therefore, production of sugar already made till this date was not chargeable retrospectively. He contends that interpretation made by FBR through letter dated 06.08.2011, ibid, is against the express provision of law.

5.Heard, record perused.

6.There is force in arguments by learned counsel for petitioner that interpretation by FBR should not and could not be followed by Quasi-Judicial Authorities, under the Act of 2005. His assertion finds support from record that respondent No.5 had followed the interpretation given by FBR. Relevant paragraph from Order-in-Original dated 23.10.2012 is reproduced hereunder:-

"3. The above contention of the registered person has been found contrary to the law. Effective from 4th June 2011 while crystalline sugar has been made chargeable to Federal Excise Duty @ 8% under Federal Excise Act, 2005, through insertion of serial No.53 of table-I of the First Schedule to the Federal Excise Act, 2005. FED on white crystalline sugar is collectable in 'sales tax mode' in view of insertion of serial No.3 in the Second Schedule to the Federal Excise Act, 2005 as warranted under section 7 of Federal Excise Act, 2005 read with section 2(21a) of Federal Excise Act, 2005. As the charging section i.e. 3 of the Federal Excise Act, 2005 is subservient to the other provisions of the Act, hence, FED in the instant case has to be collected and paid at the time of supply as warranted under section 7 of Federal Excise Act, 2005 read with section 2(21a) and clarification issued by Board vide letter C. No.3(6)ST-L & P/2011 dated 06.08.2011."

[emphasis supplied]

7.Hon'ble Supreme Court of Pakistan in Messrs Central Insurance Co. and others v. The Central Board of Revenue, Islamabad and others (1993 SCMR 1232), held that interpretation by CBR (now FBR) is not judicial interpretation. Relevant excerpt is reproduced for ease of reference:-

"22. It is evident from the above provisions that though the Central Board of Revenue has administrative control over the functionaries discharging their functions under the Ordinance, but it does not figure in the hierarchy of the forums provided for adjudication of assessee's liability as to the tax. In this view of the matter, any interpretation placed by the Central Board of Revenue, on a statutory provision cannot be treated as a pronouncement by a forum competent to adjudicate upon such a question judicially or quasi-judicially. We may point out that the Central Board of Revenue cannot issue any administrative direction of the nature which may interfere with the judicial or quasi-judicial functions entrusted to the various functionaries under a statute. The instructions and directions of the Central Board of Revenue are binding on the functionaries discharging their functions under the Ordinance in view of section 8 so long as they are confined to the administrative matters. The interpretation of any provision of the Ordinance can be rendered judicially by the hierarchy of the forums provided for under the above provisions of the Ordinance, namely, the Income Tax Officer, Appellate Assistant Commissioner, Appellate Tribunal, the High Court and this Court and not by the Central Board of Revenue. In this view of the matter, the interpretation placed by the Central Board of Revenue on the relevant provisions of the Ordinance in the Circular, can be treated as administrative interpretation and not judicial interpretation."

The principle enshrined by Apex Court, has now been codified by legislature in Section 42 of the Act of 2005, which is reproduced hereunder:--

"42. Observance of Board's order, directions and instructions.---All officers and persons employed in the execution of this Act and the rules made thereunder shall observe and follow the orders, directions and instructions of the Board provided that no such order, direction or instruction shall be given by the Board so as to interfere with the discretion of an officer in deciding the issues or matters brought before him for adjudication under this Act or rules made thereunder."

[emphasis supplied]

In presence of the Section 42 any attempt on the part of FBR of giving judicial interpretation is against the law and any order based on FBR's interpretation is not sustainable.

8.The interpretation offered by learned counsel for petitioner on merits is also examined. The arguments, noted above, itself show that the interpretation needs to be crystalized, after considering various provisions of the Act of 2005 as well as Sales Tax Act, 1990 ("Act of 1990").

In Northern Power Generation Company's case, (supra), this Court has already held that constitutional jurisdiction cannot be invoked merely because the petitioner pleads a different interpretation than the one made by department. Relevant paragraph from the judgment is reproduced hereunder:-

"9. In light of various enunciations by Hon'ble Supreme Court of Pakistan it can safely be concluded that where alternate remedy is available, non exercise of jurisdiction under Article 199 of the Constitution by High Court, is a rule to be applied for regulating its constitutional jurisdiction. Exceptions to this rule are that the show cause notice or order is ultra vires, palpably without jurisdiction or with mala fide intent; availing of statutory remedy, against which, would be inefficacious because such action is to be nipped in the bud. In presence of the exceptions, the High Court should lean its discretion in favour of the petitioner to provide him speedy and efficacious justice by issuing writ of certiorari.

However, where petitioner approaches High Court for issuance of a writ of certiorari by pleading jurisdictional issue, on an interpretation of his choice and relevant provision is susceptible to various interpretations, the issuance of show cause notice or an order cannot said to be palpably without jurisdiction or mala fide.

As pointed out, supra, the question of Additional Commissioner's jurisdiction to invoke the provisions of subsection (5A), under delegation by Commissioner, has already reached this Court under Advisory jurisdiction through various Tax References, hence exercise of writ jurisdiction would amount to circumvent this Court's jurisdiction under Section 133 of the Ordinance, which has to be exercised by two Judges. If matters of interpretation simplicitor are taken up in writ jurisdiction, on the pretext of inefficacious remedy, intent of Legislature, of vesting this Court with Advisory jurisdiction on questions of law, would be frustrated.

In Mughal-e-Azam Banquet Complex's case, (supra), another Single Bench of this Court had declined to exercise constitutional jurisdiction against show cause notice. Relevant excerpt is reproduced hereunder for ease of reference:--

"6. Interference at the stage of issuance of Show-Cause Notice stultifies and retards the adjudicatory process provided under the relevant law, in this case Ordinance, 2000 read with Sales Tax Act, 1990. This unduly stalls the investigative machinery of the quasi judicial authorities and hampers discharge of their statutory duties which are to be done with a free hand independent from outside control. The petitioner has an opportunity to place its case before the concerned authority who is competent to look into the factual receipts besides there are elaborate procedures by way of appeal or revision against order passed in such proceedings. The petitioner has already filed its replies to the Show-Cause Notice and the matter is pending adjudication before the concerned authority."

Judgment in Attock Cement Pakistan's case (supra), is examined. In that case exercise of constitutional jurisdiction by the High Court was affirmed also for the reason that Tribunal was not constituted and matter was to be heard by a Member of Central Board of Revenue, who has already given his point of view. Relevant paragraph is reproduced hereunder:--

"12. It was argued on behalf of the respondents that the appellant ought to have recourse to the other remedy provided by law. It was urged that the remedy with the appellant was to invoke the jurisdiction of the Tribunal to be constituted under section 46 of the Act. We have noticed that when this controversy was being agitated in the Balochistan High Court and at the leave granting stage, no such Tribunal had been constituted as envisaged by section 46 of the Act. On the other hand, instead of a Tribunal, a Member of the Central Board of Revenue was performing these functions. In the background of these circumstances, it cannot be said that the appellant had the other adequate remedy. The view point of the Central Board of Revenue had become crystal clear when having opined that the accessories and spare parts were not the goods and the deduction of input tax could be made, yet the Central Board of Revenue in the same breath observed that in the past, such deduction had been made, but that was illegal. In these circumstances, how could a member in the Central Board of Revenue adjudicate upon the controversy. Thus, we are of the view that remedy by way of an appeal before the Member, Central Board of Revenue was not an adequate remedy as envisaged under Article 199 of the Constitution and, therefore, in our view the writ petition was maintainable.

[emphasis supplied]

9.Necessary corollary of what has been discussed hereinabove, is that primary jurisdiction to interpret any provision is vested with the Quasi-Judicial Authorities under the Act of 2005, which should not be by-passed, merely because taxpayer is offering another interpretation. Since no jurisdictional defect is found in issuance of impugned show cause notices, therefore, no interference is warranted to this extent.

10.Nevertheless, contention of learned counsel for petitioner, that respondent No.5 has followed the interpretation made by FBR through impugned letter dated 06.08.2011, finds support from the reproduced part, ibid, which is against provision of Section 42 of the Act of 2005, as well as, judgment by Hon'ble Supreme Court of Pakistan in Central Insurance's case (supra). The orders-in-original challenged in this and connected writ petitions are set aside, however, petitioners are directed to plead their cases, as well as, interpretation before the Adjudicating Authority by reply to the show cause notices already issued. The Adjudicating Authority is directed to proceed in the matter with independent mind after addressing all the points raised or to be raised by the petitioners before it.

The petition is allowed to the extent of Order-in-Original, however, interference against the impugned show cause notices is declined.

MH/K-9/LOrder accordingly.