MKB SPINNING MILLS (PVT.) LTD. VS FEDERATION OF PAKISTAN, 2018 PTD-LAHORE-HIGH-COURT-LAHORE 2364 (2017)

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

----Ss. 3, 4 & 2(29A)---Scope of sales tax---Zero-rating---"Further tax" under the Sales Tax Act, 1990---Nature---Imposition of further tax on supplies made by zero-rated sectors---Scope---Under S. 3(1A) of the Sales Tax Act, 1990; in order to be subject to further tax, a registered person must be making taxable supplies to an unregistered person and such tax was in addition to tax payable under Ss. 3(1),3(1B),3(2), 3(5) and 3(6) of the Sales Tax Act, 1990---"Further tax" was a specie of sales tax in view of the definition of "sales tax" given in S. 2(29A) of the Sales Tax Act, 1990 and nothing existed in S. 3(1A) of the Sales Tax Act, 1990 which took "further tax" outside the ambit of definition of "sales tax"---"Zero rating" facility granted to certain industrial sectors under S. 4 of the Sales Tax Act, 1990 was absolute and therefore they could not be burdened with "further tax" under S. 3(1A) of the Sales Tax Act, 1990---Non-obstante clause contained in S. 4 of the Sales Tax Act, 1990 made reference to S. 3 of the same, and therefore incident of making payment of tax at the rate of zero percent on supplies made to an unregistered person would not be attracted to levy of "further tax".

1999 SCMR 412 = 1999 PTD 1078 and 2012 SCMR 880 = 2012 PTD 969 ref.

Assistant Collector Sales Tax, Peshawar Cantt. and 2 others v. Northern Bottling Company (Pvt.) Limited Jamrud Road Peshawar 2001 PTD 2636 rel.

(b) Interpretation of statutes---

----Language employed in a statute must be interpreted and understood in the context of the enactment---Taxing statute---Nothing ought to be read in or implied in a statute, particularly a taxing statute---Definition of a word or phrase in an interpretation clause would, prima facie, govern meaning ascribed to same in the body of the statute, unless qualified otherwise and such rule was subject to the condition that where context of the provision of a statute made a definition clause inapplicable, then said word or phrase may have to be given a different meaning from one contained in the interpretation clause.

(c) Interpretation of statutes---

----"Non-obstante clause"---Meaning---Non-obstante clause was a Legislative tool employed to give overriding effect to certain provisions over some contrary provisions which were found in the same enactment or in a different enactment in order to avoid operation and effect of all such contrary provisions.

Messrs E.F.U. General Insurance Company Limited v. The Federation of Pakistan PLD 1997 SC 700 = 1997 PTD 1693 and Chandavarkar S.R. Rao v. Ashalata S. Guram (1986) 4 SCC 447 rel.

(d) Interpretation of statutes---

----Conflict between two provisions of an enactment---Principle of harmonious statutory construction---Scope---Court had a duty to avoid head-on clause between two sections of an Act, and to construe provisions which appeared to be in conflict, in such a manner as to harmonize them---Provisions of one section of a statute could not be used to defeat other provisions unless the Court, in spite of its efforts, found it impossible to effect reconciliation between them---When two conflicting provisions in a statute could not be reconciled with each other, the same should be so interpreted that, if possible, effect should be given to both---Interpretation which reduced a provision to a "dead letter" or "useless lumber" was not harmonious construction and to harmonize was not to destroy any statutory provision or to render the same otiose.

Sultana Begum v. Prem Chand Jain AIR 1997 SC 1006 rel.

Ehsan ur Rehman for Petitioner.

M.M. Akram, Mudassar Shuja ud Din, Muhammad Naeem Munawar, Abuzar Hussain and Abdul Waheed Habib for Petitioners.

Sarfraz Ahmad Cheema for Respondent/FBR.

Mrs. Kausar Parveen for Respondents.

ORDER

SHAMAS MEHMOOD MIRZA, J.---(1) Through this writ petition, the vires of show-cause notice dated 24.10.2016 issued under section 11(2) of the Sales Tax Act, 1990 (the Act) has been challenged wherein it was alleged that the petitioner made supplies to unregistered persons and is, therefore, required to pay further tax in terms of Section 3(1A) of the Act along with default surcharge, penalty etc.

This judgment shall also dispose of other connected writ petitions, details whereof is given in schedule A attached hereto, in which a similar issue has been raised.

2.The learned counsel for the petitioner submits that the supplies made by the petitioner have been made zero rated in terms of S.R.O. No. 1125(I)/2011 dated 31.12.2011 as amended by S.R.O. No. 491(I)/ 2016 dated 30.06.2016. In terms of the said Notifications, supplies made by five export sectors including the textile industry were granted the benefit of zero rating. It is stated that the case of the petitioner is covered by section 4(1)(c) of the Act and as such Section 3(1A) of the Act is not applicable. It was also the case of the petitioner that "further tax" payable in terms of Section 3(1A) of the Act is confined to sales tax chargeable on the taxable supplies under the provisions listed therein which does not include Section 4.

3.Learned counsel for the respondent department contended that the writ petition is not maintainable against issuance of the show-cause notice as alternate remedy under Section 45B of the Act is available before the Commissioner Inland Revenue (Appeals). It was submitted that the reliance of the petitioner on Section 4 of the Act was misplaced as the scope of the said provision was restricted to the taxable supplies which are otherwise covered under section 3(1) of the Act whereas Section 3(1A) deals with the "further tax" chargeable on supplies made to persons who have not obtained sales tax registration number. It was also stated that the petitioner is claiming exemption from payment of "further tax" which exemption has not expressly been provided in the Act.

4.Arguments heard and record perused.

5.It is an admitted position in the present case as well as in the connected writ petitions that the petitioners fall under S.R.O. 1125(I)/ 2011 as amended by S.R.O. 491(I)/2016 and are, therefore, exempt from paying sales tax on the supplies made by them to registered or unregistered persons. The Act visualizes two regimes of tax; one under section 3 [at the rate of 17% or such rate as may be specified by Federal Government under Section 3(5) or (6)] and the other under section 4 under which tax is to be charged at zero rate. The issue raised by the learned counsel for the respondent department is that exemption can only be granted to taxable supplies made to unregistered persons by virtue of proviso to section 3(1A) of the Act and not through section 4 of the Act. If exemption is allowed under section 4, it is contended, the proviso to section 3 would become redundant, which cannot be the intent of the legislature. In order to further argument their point, the learned counsel points out to the omission of section 3(1A) of the Act in SRO No.1125(I)/2011. Relying upon the judgments reported as 1999 SCMR 412 = 1999 PTD 1078 followed in 2012 SCMR 880 = 2012 PTD 969 it is submitted that exemption from tax under section 4 of the Act does not ipso facto creates exemption from payment of further tax under section 3(1A) of the Act.

6.In order to appreciate the competing submissions made by the learned counsel for the parties, it is imperative to reproduce the relevant portions of sections 3 and 4 of the Act.

3. Scope of tax.---(1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of [seventeen] per cent of the value of---

(a) taxable supplies made by a registered person in the course or furtherance of any [taxable activity] carried on by him; and

(b) goods imported into Pakistan.

(1A) Subject to the provision of subsection (6) of section 8 or any notification issued thereunder, where taxable supplies are made to a person who has not obtained registration number, there shall be charged, levied and paid a further tax at the rate of [two] percent of the value in addition to the rate specified in subsections (1), (1B), (2), (5) and (6) provided that the Federal Government may, by notification in the official Gazette, specify the taxable supplies in respect of which the further tax shall not be charged, levied and paid.

4. Zero rating.--Notwithstanding the provisions of section 3, the following goods shall be charged to tax at the rate of zero per cent:--

(c) such other goods as the Federal Government may, by notification in the Gazette, specify.

7.S.R.O. No.1125(I)/2011 was issued by the Federal Government in terms of section 4(c) of the Act whereby five sectors namely textile, carpets, leather, sports and surgical were granted zero rating facility on supplies made by them to registered persons. The said Notification was subsequently amended by S.R.O. No. 491(I)/2016 whereby the supplies made by the five sectors to unregistered persons was also made exempt from payment of sales tax.

8.The points for determination raised in this petition depend entirely upon the true extent and import of section 4(c) of the Act which is required to be gathered in view of the established principles of statutory interpretation. It is settled principle of interpretation of statutes that the language employed therein must be interpreted and understood in the context of that enactment. In so far as it is possible, the courts have a duty to see that the interpretation sought to be placed on a particular provision is consistent with the entire scheme of the statute. The application of these rules is premised on the principle that nothing ought to be read in and nothing implied in a statute particularly a taxing statute. A bare reading of section 3(1A) of the Act clearly shows that in order to be subject to the payment of "further tax", a registered person must be making taxable supplies to an unregistered person and that this further tax is in addition to tax payable under section 3(1), (1B), (2), (5) and (6) of the Act. It is thus apparent that the operation of further tax under section 3(1A) is confined to persons who pay taxes in terms of section 3(1), (1B), (2), (5) and (6). It is, however, the omission of section 4 from section 3(1A) that is most significant and clearly brings out the fact that persons falling is the purview of section 4(c) shall not be covered by section 3(1A). Under section 4(c) the Federal Government is empowered to notify any goods on which sales tax shall be charged at the rate of zero percent. It is contended by the Revenue that notwithstanding the omission, section 3(1A) is a stand-alone provision which is not subservient to section 4. This contention is not tenable. In a similar situation, the Hon'ble Supreme Court of Pakistan in a judgment reported as Assistant Collector Sales Tax, Peshawar Cantt. and 2 others v. Northern Bottling Company (Pvt.) Limited Jamrud Road Peshawar 2001 PTD 2636 while interpreting Section 3(1A) (as it was enacted in the year 1998) held that further tax can only be charged in addition to tax(s) under the provisions mentioned in said Section 3(1A) and not otherwise.

9.It was also argued that "further tax" is perhaps a form of tax which does not come within the scope of sales tax. This Court is in respectful disagreement with the submission made by the learned counsel for the respondent department. Sales tax is defined by section 2(29A) of the Act as follows:--

"sales tax" means---

(a)the tax, additional tax, or default surcharge levied under this Act;

(b)a fine, penalty or fee imposed or charged under this Act; and

(c)any other sum payable under the provisions of this Act or the rules made there under;

"Further Tax" admittedly is a specie of sales tax in view of the definition of "sales tax" contained in section 2(29A) of the Act. The said clause includes in the definition of sales tax any amount or levy payable under the Act. It is a fairly well settled principle that definition of a word or phrase in the interpretation clause would prima facie govern the meaning ascribed to it in the body of the statute unless qualified otherwise. This rule is subject to the condition where the context of the provision in the statute makes the definition clause inapplicable, the said word or phrase may have to be given a meaning different from the one contained in the interpretation clause. There is nothing in section 3(1A), however, that takes "further tax" out of the ambit and scope of the definition of sales tax as contained in section 2(29A). There is thus no ambiguity that "further tax" is specie of sales tax.

10.The context in which section 4 was inserted in the Act is extremely relevant and needs to be kept in mind while interpreting it. The reading of section 4 brings one to the inescapable conclusion that the benefit of zero percent tax conferred by this provision was meant to support that component of local industry which was engaged in manufacturing export oriented products. The supplies of five sectors made exempt from payment of sales tax under S.R.O. No. 1125(I)/2011 included the textile, carpets, leather, sports and surgical goods. The goods that these sectors export earn much valuable foreign exchange. The supplies of the goods manufactured by these five sectors were, therefore, declared zero rated to ensure that the suppliers are also eligible to the input tax credit. The context of section 4 in the light of subject-matter it deals with and the purpose behind its enactment as found in its text shows that the zero rating facility granted to the five sectors was absolute and that they cannot be burdened with "further tax" under section 3(1A). There is no other equally justifiable meaning that the text of section 4 will bear.

11.Even otherwise, S.R.O. 1125(I)/2011 was subsequently amended by S.R.O. 491(I)/2016 and by virtue of the latter SRO all supplies made by a person covered by the said notification whether to registered or unregistered persons have been subjected to zero rate of tax. In the present case, the supplies to unregistered persons were made after the issuance of S.R.O. No. 491(I)/2016. These supplies to the unregistered persons, therefore, cannot be subjected to the levy of further tax. As the said notification clearly states that no sales tax except at zero rate can be charged hence the demand under the impugned show cause notice is illegal and without lawful authority.

12.Lest there remains any doubt that supplies made by the five sectors under S.R.O. No. 1125(I)/2011 were not exempt from "further tax", it may be stated that section 4 contains a non-obstante clause which makes a specific reference to section 3. A non-obstante clause is a legislative tool employed to give overriding effect to certain provisions over some contrary provisions that are to be found in the same enactment or in a different enactment in order to avoid the operation and effect of all contrary provisions. The Hon'ble Supreme Court in Messrs E.F.U. General Insurance Company Limited v. The Federation of Pakistan PLD 1997 SC SC 700 = 1997 PTD 1693 explained the scope of such a clause by stating as under:--

Thus a non obstante clause is usually used in a provision to indicate that the provision should prevail despite anything to the contrary in the provision mentioned in non obstante clause. In case there is any inconsistency between the non-obstante clause and another provision, one of the objects of such a clause is to indicate that it is the non obstante clause which would prevail over the other clause.

Similarly, the Indian Supreme Court in Chandavarkar S.R. Rao v. Ashalata S. Guram (1986) 4 SCC 447 held as under:--

A clause beginning with the expression 'notwithstanding anything contained in this Act or in some particular provision in the Act or in some particular provision in the Act or in some particular Act or in any law for the time being in force, or in any contract' is more often than not appended to a section in the beginning with a view to give the enacting part of the section in case of conflict an overriding effect over the provision of the Act or the contract mentioned in the non-obstante clause. It is equivalent to saying that in spite of the provision of the Act or any other Act mentioned in the non-obstante clause or any contract or document mentioned in the enactment following it will have its full operation or that the provisions embraced in the non-obstante clause would not be an impediment for an operation of the enactment.

In view of the non-obstante clause, section 4 and the incident of making payment of tax at the rate of zero percent on the supplies made to an unregistered person will not attract the levy of "further tax" under section 3(1A). It is, therefore, axiomatic that the supplies made by the petitioner being zero rated under section 4 cannot be subjected to further tax under section 3(1A).

13.There is yet another aspect of the matter which pertains to reconciling the proviso to section 3(1A) with section 4. A conjoint reading of sections 3(1A) and 4 shows that the proviso to the former provision in fact compliments the interpretation that taxpayers falling within the zero rating regime envisaged by section 4 are not required to pay further tax under section 3(1A). Although the learned counsel for the respondents contended that section 3(1A) was inserted in the statute through Finance Act, 2013 and as such the exemption granted through section 4 does not encompass further tax envisaged by section 3(1 A), this submission has no merit. Section 4(c) quite clearly lays down that the Federal Government may notify goods on which sales tax be charged at the rate of zero percent. Since section 3(1A) was introduced later in time, the legislature consciously reserved therein a similar power with the Federal Government to notify taxable supplies in respect of which the further tax shall not be charged, levied and paid. The said proviso had obvious reference to section 4(c) of the Act. Another well-established rule applicable to all statutes is the rule of construction ex visceribus actus, which helps in avoiding any inconsistency either within a section or between two different provisions of the same statute. The Indian Supreme Court in Sultana Begum v. Prem Chand Jain AIR 1997 SC 1006 while resolving inconsistency between section 47 and Order XXI Rule 2, C.P.C. made the following observation on the rule of ex visceribus actus.

On a conspectus of the case law indicated above, the following principles are clearly discernible:

(1) It is the duty of the courts to avoid a head-on clash between two Sections of the Act and to construe the provisions which appear to be in conflict with each other in such a manner as to harmonise them. (2) The provisions of one Section of a statute cannot be used to defeat the other provisions unless the court, in spite of its efforts, finds it impossible to effect reconciliation between them. (3) It has to be borne in mind by all the courts all the time that when there are two conflicting provisions in an Act, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This is the essence of the rule of "harmonious construction". (4) The courts have also to keep in mind that an interpretation which reduces one of the provisions as a "dead letter" or "useless lumber" is not harmonious construction. (5) To harmonise is not to destroy any statutory provision or to render it otiose.

It is thus the duty of this Court to make certain while construing the proviso to section 3(1A) that it is circumscribed and harmonized with reference to the context of the Act and with section 4(c) and to ensure that no violence is done to the context in which section 4 came to be inserted in the Act. Be that as it may, there appears to be no reason why same consequence is not implied by the proviso to section 3(1A) as is said to arise under section 4(c) as these provisions have interaction on one another. There also appears to be no reason to restrict the condition of applicability of exemption under S.R.O. No. 1125(I)/2011 only to section 4(c) when the said provision also contains the non-obstante clause. Viewed from this angle, there does not appear to be any inconsistency between the two provisions.

14.All the above considerations lead-this Court to the conclusion that the sectors mentioned in S.R.O. No. 1125(I)/2011, which are entitled to zero rating are not required to pay "further tax" under section 3(1A) of the Act. This Court is being asked to read in section 4 a limitation which would constraint its operation so as to make zero rating facility granted by it to be not covered by section 3(1A). In my respectful opinion, it is not permissible in case of a provision of the nature before this Court to read into it something by implication and make it smaller than what is expressed by its scope. The objective of section 4 and the considerations grounded in the scheme of S.R.O. No. 1125(I)/2011 require that section 3(1A) must as far as possible be read so as to harmonize it with the former provision. This is the only way I am able to read section 4 after giving the words of that section their proper legal meaning in the context of Sales Tax Act.

15.In the result, this writ petition as well as connected writ petitions are allowed and the impugned show-cause notices requiring payment of "further tax" is declared to be without lawful authority and of no legal effect.

KMZ/M-140/L Petition allowed.