KAMALIA SUGAR MILLS LTD. VS CUSTOMS CENTRAL EXCISE AND SALES TAX APPELLATE TRIBUNAL, 2016 PTD-LAHORE-HIGH-COURT-LAHORE 2183 (2015)

(a) Interpretation of statutes---

----Fiscal statute---Exemption clause is to be construed strictly---In case of doubt or two interpretations, resolve should tilt towards chargeability, which is presupposed in case of an exemption.

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

----Ss. 2(46), 3(1A) & 47---Notification No. SRO 208(I)/98, dated 31-3-1998---Further tax---Exemption---Jurisdiction of High Court---Income Tax Appellate Tribunal had found that exemption under notification SRO 208(I)/98, dated 31-3-1998, did not include further tax levied under S. 3(1A) of Sales Tax Act, 1990---Validity---Levy and charge of tax under S. 3 (1A) of Sales Tax Act, 1990, was in addition and different from tax levied and charged under S.3(1) of Sales Tax Act, 1990---Section 3(1A) of Sales Tax Act, 1990, being not on the statute book on the date when Notification SRO 208(I)/98, dated 31-3-1998, was issued, the exemption could not be allowed as envisaged by the notification---High Court, under its advisory jurisdiction, was to answer proposition of law and statutory authorities including Appellate Tribunal were required to give effect to the binding opinion of High Court---High Court was not to settle as to how and when "Further Tax" would be charged---Reference was dismissed in circumstances.

Messrs Kamalia Sugar Mills Ltd., Kamalia v. Superintendent, Intelligence and Investigation (Customs and Central Excise), Regional Office Lahore and another 2002 PTD 632; Collector of Customs and others v. Ravi Spinning Ltd. and others 1999 SCMR 412; Messrs Gadoon Textile Mills and 814 others v. WAPDA and others 1997 SCMR 641; Sohail Jute Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance and others PLD 1991 SC 329; The Treasurer of Charitable Endowments for Pakistan v. Central Board of Revenue and 2 others 1986 MLD 1731; Tandlianwala Sugar Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance, Revenue and Economic Affairs, Islamabad and others 2001 SCMR 1398 and Hashwani Hotels Limited v. Government of Pakistan and others PTCL 2008 CL 45 ref.

Ali Sibtain Fazli, Imtiaz Rashid Siddiqui, Barrister Shehryar Kasuri, Sh. Naveed Masud, Syed Moazzam Ali Shah, Khalid Ishaque, Ijaz Ahmad Awan, Nauman Mushtaq Awan, Tariq Aziz, Mian Abdul Ghaffar, Salman Akram Raja, Ch. Muhammad Asghar Saroha, Mujtaba Jamal and Shahid Pervez Jami for Applicants (in connected S.T.Rs.).

Sarfraz Ahmad Cheema, Ch. Muhammad Zafar Iqbal, Izharul Haque, Ahmad Raza, Muhammad Raza Qureshi and Mrs. Kausar Parveen for Respondents (in connected S.T.Rs.).

Date of hearing: 15th December, 2015.

JUDGMENT

SHAHID JAMIL KHAN, J,---This judgment shall decide captioned, as well as, connected Tax References, which are arising out of consolidated judgment dated 27.06.2005 passed by erstwhile Customs, Excise and Sales Tax Appellate Tribunal Lahore ("Appellate Tribunal").

2.Number of questions are proposed, which are argumentative in nature. The proposition of law, requiring expression of this Court, is summarized to answer it in advisory jurisdiction under Section 47 of the Sales Tax Act, 1990 ("Act of 1990").

"Whether under the facts and circumstances of the cases, Appellate Tribunal was justified to hold that exemption, under SRO 208(I)/1998 dated 31.03.1998, did not include further tax levied under Section 3(1A) of the Sales Tax Act, 1990?"

3.Impugned order was passed after remand by Hon'ble Supreme Court of Pakistan through judgment dated 18.01.2005 in Civil Appeal No.142/2002 (along with connected appeals); A decision by learned Division Bench of this Court in Messrs Kamalia Sugar Mills Ltd., Kamalia v. Superintendent, Intelligence and Investigation (Customs and Central Excise), Regional Office Lahore and another (2002 PTD 632) was assailed by applicants taxpayers to the extent of finding on exemption of tax under Section 3(1A) of the Act of 1990. Hon'ble Supreme Court set aside the asserted part of decision for the reason that Appellate Tribunal had not decided the cases on merits. Matter was remanded to the Appellate Tribunal for re-adjudication on merits. Relevant part from the judgment by Hon'ble Supreme Court in Civil Appeal No. 142/2002 is reproduced for ease of reference:--

"4. We have heard learned counsel for parties and have also gone through the impugned judgment, judgment of the Tribunal as well as law on the subject. Initially we were of the opinion to dispose of the appeals finally without taking into consideration the effect and non-decision of cases on merits by the Tribunal but during hearing when the learned counsel for appellants expressed his grievance that the Tribunal had not decided the cases on merits, therefore, learned High Court instead of non-suiting them on merits in the interest of justice should have remanded the cases to the Tribunal for sake of justice. Besides it we have also noticed that the findings of the Tribunal on merits are necessary, so that the learned High Court may take its benefit while deciding the cases. Even otherwise it is consistent practice of the judicial forums that a party cannot be non-suited on the point on which the lower forum had not given its decision, therefore, we have decided to remand the cases to the Tribunal for decision of appeals on merits within a period of three months."

4.Facts, necessary to form an opinion, are that an S.R.O. 207(I)/1998 dated 31.03.1998 ("SRO 207") was issued under Section 2(46) of the Act of 1990, whereby value of taxable supply on locally produced sugar was fixed at Rs.13/- per kilogram for the month of April, 1998. This SRO was extended/ amended from time to time through various notifications and last in line was SRO 818(I)/1999 dated 05.07.1999 ("SRO 818"), which extended the period till January, 2000, besides enhancing the value so fixed from Rs.13/- to Rs.14/- per kilogram. Another SRO 208(I)/1998 dated 31.03.1998 ("SRO 208") was issued under Section 13(2) of the Act of 1990 (along with the SRO 207); Sales Tax leviable in excess of the assessable value fixed under the SRO 207 was exempted.

Applicants/Sugar Mills were served with respective show cause notices for not paying sales tax on actual value of supplies received from market for the period February, 2000 onwards, as they continued paying sales tax at value of Rs. 14/- despite the fact that after January 2000, value fixed under SRO 207 was not extended. The show cause notices were followed by orders-in-original for payment of sales tax on actual market value along with Further Tax, under Section 3(1A) at the rate of 1% on the supplies made to unregistered persons. Meanwhile the then Central Board of Revenue (now Federal Board of Revenue) ("FBR") issued yet another SRO 751(I)/2000 dated 21.10.2000 ("SRO 751"), whereby further amendment was made in SRO 207 by inserting the months from February to October, 2000, i.e., value of supply fixed at Rs.14/- was extended retrospectively for the months of February to October, 2000.

The matter reached Appellate Tribunal through appeals filed by the appellants/applicants/Sugar Mills. The Appellate Tribunal vide judgment dated 31.03.2001, declared the amendment made through SRO 571(I)/2000 dated 21.10.2000 ("SRO 571") as ultra vires and upheld levy of Further Tax. Being dissatisfied the applicants/Sugar Mills brought the matter before this Court through respective Tax References. Learned Division Bench of this Court through its judgment in M/s. Kamalia Sugar Mills' Case (supra) held that Appellate Tribunal had no jurisdiction to examine the vires of SRO 571. Retrospective effect of SRO 571, being beneficial in nature, was restored and charge of Further Tax under Section 3(1A) of the Act of 1990 was upheld. The judgment in M/s. Kamalia Sugar Mills' Case was assailed by applicants/Sugar Mills before Hon'ble Supreme Court of Pakistan to the extent of Further Tax; levy of which was held not exempted under SRO 208. The Apex Court, through its judgment in Civil Appeal 142/2002 (supra) remanded the cases to Appellate Tribunal for decision on merits i.e., to the extent of charging Further Tax which was challenged before Apex Court. After rehearing appeals learned Appellate Tribunal through its impugned judgment dated 27.06.2015, held that levy of Further Tax was not exempted under SRO 208 and was leviable on actual market value of the supply, hence these Tax References.

5.Mr. Ali Sibtain Fazli, Advocate opened arguments for the applicants. It was argued that tax leviable under Section 3(1A) of the Act of 1990, at relevant time, was nothing but sales tax, therefore, was exempted under SRO 208. He read the text of SRO 208 along with subsections (1) and (1A) of Section 3 of the Act of 1990, in support of these contentions. Learned counsel advanced his arguments by reading Section 23(1)(ff), [before amendment by Finance Act, 2004,] to contend that amount of tax charged under subsection (1) is contained in the invoices as sales tax. He has placed reliance on Collector of Customs and others v. Ravi Spinning Ltd. and others (1999 SCMR 412), Messrs Gadoon Textile Mills and 814 others v. WAPDA and others (1997 SCMR 641), Sohail Jute Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance and others (PLD 1991 SC 329) and The Treasurer of Charitable Endowments for Pakistan v. Central Board of Revenue and 2 others (1986 MLD 1731).

It is also argued that charging of Further Tax was not confronted to the applicants/registered persons in the show cause notices which is defective, therefore, Further Tax could not be charged in the proceedings initiated through these notices.

6.Mr. Ijaz Ahmad Awan, Advocate besides adopting arguments of Mr. Ali Sibtain Fazli, Advocate referred to definition of "Registered Person" as contained under Section 2(25) of the Act of 1990 to contend that a person liable to be registered also falls in the definition of "Registered Persons", therefore, Further Tax could not be charged on a supply to persons who were liable to be registered. Further submitted that levy of Further Tax under subsection (1A) of Section 3 of the Act of 1990 was declared ultra vires by Hon'ble Supreme Court of Pakistan, therefore, was not leviable for relevant tax period. He has placed reliance on judgment in Tandlianwala Sugar Mills Ltd. and others v. Federation of Pakistan through Secretary, Ministry of Finance, Revenue and Economic Affairs, Islamabad and others (2001 SCMR 1398).

Rest of the counsel for applicants/appellants have adopted the arguments advanced by both the learned counsel.

7.Mr. Sarfraz Ahmad Cheema, Advocate argued for respondents. He submitted that Section 23(1)(ff) contained machinery provisions and had to be read as a whole. He referred to clause (f) of Section 23(1) to contend that it dealt separately with sales tax leviable under sub-section (1). He argued that Further Tax was charged in addition of the sales tax and was not sales tax. Also submitted that SRO 208 was issued on 31.03.1998, whereas Further Tax was levied w.e.f. 01.07.1998 through Finance Act, 1998, hence the later levy cannot be construed to have been exempted by SRO issued earlier. He has supported the reasons given by Appellate Tribunal in Paragraphs Nos. 17 to 27. Finally, he has placed reliance on Hashwani Hotels Limited v. Government of Pakistan and others (PTCL 2008 CL 45).

8.Heard, record perused.

9.Perusal of record shows that chargeability of tax under Section 3(1) of Act of 1990, on the valuation determined in SRO 207 till October 2002, read with SRO 208 had been settled between the parties. Mainly two grounds were pleaded before the Appellate Tribunal in second round; first that levy/ chargeability of Further Tax was not confronted in the respective show cause notices and second that tax under Section 3(1A) ("Further Tax") was also exempted under SRO 208.

During arguments on first ground before this Court, Mr. Ali Sibtain Fazli, Advocate was asked to read the show cause notice to substantiate that chargeability of Further Tax was not confronted. On examination of attached show cause notice (Annexure-D), it was found that Further Tax was proposed in remarks of a table given in the show cause notice, which was to be calculated on the basis of actual supplies made in each case.

The Appellate Tribunal had also dealt with this ground in Paragraphs Nos.24 and 25 of the impugned order. Detail of each show cause notice was given by the Appellate Tribunal to hold that chargeability of Further Tax was duly confronted and dilated upon in the orders-in-original. In our opinion, the findings by Appellate Tribunal on this ground are findings of fact which cannot be displaced in exercise of advisory jurisdiction.

10.The moot point arising out of arguments of learned counsel for both the parties is "whether tax levied under section 3(1) of the Act of 1990 was in the nature of sales tax and is exempted under SRO 208".

By now it is settled principle of interpretation that exemption clause is to be construed strictly and in case of doubt or two interpretations, the resolve should tilt towards chargeability, which is presupposed in case of an exemption. To understand the spirit of exemption granted under the SRO 208, it is reproduced hereunder:-

"Notification No. S.R.O. 208(I)/98, dated 31st March, 1998.---In exercise of the powers conferred by clause (a) of subsection (2) of section 13 of the Sales Tax Act, 1990, the Federal Government is pleased to exempt such amount of sales tax on sugar as is in excess of the tax leviable at the assessable value notified by the Central Board of Revenue under its Notification S.R.O. No. 207(I)/98, dated the 31st March, 1998."

Bare perusal of the exemption clause, ibid, shows that the exemption was envisaged only of the value, which was to be received in excess of what was fixed under the SRO 207. Needless to say that the SRO 207 had fixed per kilogram value of taxable supply of locally produced sugar at Rs.13/14 for a specified period i.e., October 2000.

11.Under Section 3(1) of the Act of 1990, a tax known as sales tax was chargeable, on a given percentage [e.g., 15%] of value of taxable supply by a registered person. Value of supply was defined under Section 2(46); in case of supply of locally produced sugar, clause (a) of Section 2(46) was applicable, whereunder; actual consideration received, in shape of money, from recipient of the supply was the value of supply. Under proviso to clause (g) of Section 2(46), FBR was given power to fix value of taxable supply.

Subsection (1A) was inserted in Section 3 through Finance Act, 1998 w.e.f. 01.07.1998. It is important to note that subsection (1A) was not in existence on the date when the SRO 208 was issued i.e., 31.03.1998. Under Section 3(1A), a tax in addition to tax under subsection (1) was to be levied if supplies were made to unregistered person. Most importantly, under subsection (1) a tax known as sales tax was to be levied on a supply to be made by a registered person irrespective of the fact, whether recipient was a registered person or not.

After examination of the above noted provisions, it can safely be concluded that levy and charge of tax under subsection (1A) was in addition and different from the tax levied and charged under subsection (1). Since subsection (1A) was not in existence on the date when SRO 208 was issued, hence same cannot said to had been exempted by SRO 208.

12. Argument of Mr. Ali Sibtain Fazli, Advocate that a tax under Section (1A) was to be included in the invoice under Section 23(1)(ff) is misconceived. Section 23 contemplates the particulars to be written in tax invoice to be issued while making taxable supplies. Reply by Mr. Sarfraz Ahmad Cheema, Advocate that under clause (f) of Section 23(1), sales tax is written separately, cannot be ignored.

Under the circumstances, in our opinion benefit of the SRO 208 could not be extended to Further Tax chargeable under subsection (1A) of Section 3. Both the SROs, if read collectively, had envisaged fixation of the value of taxable supply of locally produced sugar which, otherwise, was chargeable on the actual value as envisaged under Section 2(46)(a). However, exemption was given to the extent of remaining value, actually received from recipient.

Further Tax under subsection (1A) was in the nature of extra/further tax from the tax already been charged under subsection (1); if supply was made to an unregistered person. The legislature, in its wisdom, had levied this additional amount of tax to bring maximum number of businessmen into tax net by imposing extra/further levy of tax, where recipient of supply was not in the tax net.

13.Argument by Mr. Ijaz Ahmad Awan, Advocate that under Section 2(25) of the Act of 1990, a person liable to be registered is also registered person, has not impressed us. Suffice it to say that levy of sales tax under subsection (1) is on supply to any person irrespective of the fact whether he was liable to be registered or not. His argument that Further Tax was declared ultra vires, is also misplaced. Hon'ble Supreme Court had declared 1% Further Tax as ultra vires on a conceding statement by learned counsel for CBR (FBR). However, subsequent levy under Section 3(1A) was upheld. In advisory jurisdiction, this Court has to answer the proposition of law and statutory authorities, including Appellate Tribunal, is required to give effect to the binding opinion by this Court. It is not our domain of jurisdiction to settle how and when Further Tax shall be charged.

14.We have also examined the judgments, relied upon by Mr. Sibtain Fazli, Advocate in backdrop of the discussed legal position. In our opinion, the judgments are not relevant.

15.For what has been discussed above, our answer to the framed question is in Affirmative, i.e., against the applicants (registered persons) and in favour of respondent department.

All Reference Applications, as well as, Appeals are decided against the applicants/appellants and in favour of respondent department.

16.For the reasons given in this judgment, connected cases, detailed hereunder, are also decided in same terms;

S.T.Rs. Nos.01, 03, 04, 06, 07, 08, 09, 10, 11, 12, 14, 15, 16, 17 and 18 of 2005, S.T.Rs. Nos. 04, 05, 20 and 25 of 2006, S.T.R. No. 20 of 2010, S.T.Rs. Nos. 10, 11 and 12 of 2011, S.T.As. Nos. 03, 09, 10 and 11 of 2002 and S.T.A. No. 03 of 2006.

17.Office shall send a copy of this judgment under seal of the Court to Appellate Tribunal Inland Revenue as per Section 47(5) of the Sales Tax Act, 1990.

M.H./ K-20/ LReference dismissed.