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Petitioner: M/S M.K Steel Mills VS Respondent: Collector of Customs, MCC Custom House, Peshawar & others
Court Name: Peshawar High Court Judge(s): Abdul Shakoor, Syed Arshad Ali Title:M/S M.K Steel Mills vs Collector of Customs, MCC Custom House, Peshawar
& others Case No.: WP No.2350-P/2022 Date of Judgment:2023-05-17 Reported As: 2023 PHC 334 Result: Petition Accepted Judgment SYED ARSHAD ALI, J. This consolidated judgement shall dispose of instant petition as well as the connected petitions as adjudication of common questions of law are involved therein. The particulars of the said petitions have been provided in Annexure 'A' to this judgement. 2. In all these petitions, the petitioners, while invoking the constitutional jurisdiction of this Court, have prayed that the impugned FIRs registered at Police Station I&P Branch, Customs House, Peshawar be declared as illegal and void ab-initio with direction to the respondents that pursuant to the impugned FIRs, their imports shall not be affected and to issue them delay detention certificate in respect of their delayed consignments. 3. Arguments heard and record of the case perused. 4. The essential grievances of all the petitioners are against the registration of the first information reports whereby they have been charged for their failure to honour their statutory obligation of providing consumption certificate in terms of Entry No.151 of the Sixth Schedule to the Sales Tax Act, 1990 and subsequent dishonouring of security instruments/cheques which they had provided at the time of releasing the imported goods against payment of taxes and duties. 5. We are conscious of the settled legal preposition that the Constitutional Court has very limited jurisdiction to interfere in any criminal investigation initiated/launched by a competent authority unless it is established that initiation of criminal proceedings is either tainted with mala-fide or the same is the result of excess or lack of jurisdiction.[1] 6. Similarly, it is trite that while criminal and civil proceedings can co-exist and proceed side by side, in cases where the subject matter of both the proceedings is so closely interrelated, so that
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the outcome of civil proceedings can have a material bearing on criminal proceedings, a safer course to adopt is to stay the criminal proceedings till the finalization of the civil matter.[2] 7. In order to ascertain whether the case of the petitioners falls within the exception of the rules laid down by the Apex Court in the case of Shahnaz Begum, we would like to refer to the factual as well as legal background of the case. 8. All the petitioners hail from Erstwhile Tribal Area and have also established their manufacturing unit therein. Furthermore, the import of raw material for sole consumption in the Erstwhile Federal Administered Tribal Area are immune from the levy of sales tax under the Sales Tax Act, 1990 ("the Act") as well as income tax under the Income Tax Ordinance, 2001 ("the Ordinance"). 9. Prior to the 25th amendment in the Constitution, through Act No. XXXVII of 2018 dated 05.06.2018, there was a separate dispensation/mechanism for extension of laws to the erstwhile FATA. The relevant provision of the Constitution i.e. Article 247(3) for ease reference is reproduced as under: - "247 (3). No Act of [Majlis-e-Shoora (Parliament) shall apply to any Federally Administered Tribal Area or to any part thereof unless the President so directs, and no Act of [Majlis-e-Shoora (Parliament)] or a Provincial Assembly shall apply to a Provincially Administered Tribal Area, or to any part thereof unless the Governor of the Province in which the Tribal Area is situate, with the approval of the President, so directs; and in giving such a direction with respect to any law, the President or, as the case may be, the Governor, may direct that the law shall, in its application to a Tribal Area, or to a specified part thereof have effect subject to such exceptions and modifications as may be specified in the direction". 10. There remained a judicial consensus that the Income Tax as well as Sales Tax Laws were never extended to the PATA/FATA, prior to the promulgation of 25th amendment thereby omitting Article 247 from the Constitution. However, there has been a long standing dispute between the Federal Board of Revenue ("FBR") and the trade community/business community of Erstwhile Tribal area regarding the imposition of income tax as well as sales tax on the import of raw material for the manufacturing units, which were located in the erstwhile FATA. This Court in its celebrated judgment authored by his Lordship Justice Yahya Afridi, as he then was in this Court, in the case of Messrs Taj Packages Company (Pvt) Ltd.[3] has elaborately dealt with the issue of taxing the raw material/goods which were imported for the purpose of its consumption in the erstwhile FATA. The said judgment was also approved by the august Supreme Court of Pakistan in Hazrat Hussain case[4], wherein it has been unequivocally held that the business concerns/manufacturing units located in the PATA are immune from the impost of both, the income tax as well as sales taxes and that similarly, the goods or machinery, which they are importing for their home consumption are equally immune from the impost of both taxes at the import stage. However, in order to ensure that the consumption of goods do not cross the limits of non-tariff area, the importers have to provide a security in form of post-dated cheques equal to the value of leviable taxes against the imported goods. 11. After the 25th amendment in the Constitution, the trade community had demanded continuity of the said exemption from imposition of income tax and sales tax which was acceded to by the Federal Government by issuing SR0.1212 (1)/2018, dated 05.10.2018, and SRO. 1213(1)/2018, dated 05.10.20218, allowing the said exemption to the residents and domiciled of the erstwhile FATA/PATA. The exemptions granted through the aforesaid SROs were, later, reflected through insertion of entry No. 151 in the sixth schedule of Sales Tax Act, 1990.[5] Similarly, Section 40D[6] was also inserted in the Sales Tax Act, 1990 through Tax Laws (Amendment) Act, 2020 relating to taxation of such goods which were imported for tribal area, in terms of entry No. 151, and later sold in the tariff area. 12. The aforesaid legal dispensation reflects that an industrial unit, located in the erstwhile FATA, can import raw material for its consumption within such area without payment of taxes and duties. However, against the said leviable taxes and duties, security in shape of post-dated cheque equal
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to the amount of leviable sales tax is to be provided. The importer is required to provide a consumption certificate issued by the relevant Commissioner Inland Revenue/RTO and the said cheques would be returned when the said consumption certificate is produced. This does not, however, mean that the importer cannot sell the goods outside the tribal territory as evident from the clear verbiage of Section 40-D and entry No.74 of the 8th Schedule which states that in such an event the importer has to pay the applicable duty. 13. Close perusal of first provision to Entry No.151 would reveal that the goods imported for consumption at the Erstwhile Tribal area would be released against post-dated-cheques for the amount of sales tax payable under the Act and the same shall be returned to the importer after presentation of a consumption or installation certificate, as the case may be, in respect of goods imported as issued by the Commissioner Inland Revenue having jurisdiction. The Act is completely silent about the mechanism of issuance of consumption certificate. Similarly, Entry No.151 does not envisage that on failure of importer to provide consumption certificate, the instrument/post- dated-cheque would be presented for encashment. 14. The Federal Board of Revenue through Circular No.05 of 2021 has provided guidelines for issuance of a consumption certificate. The said notification is reproduced as under: - "Government of Pakistan Revenue Division Federal Board of Revenue Inland Revenue C.No.7(1)TIPU/1N2020 Islamabad,March26,202l Circular No. 05 of 2021 -- Operations (Sales Tax/Federal Excise) Subject: Procedure for Issuance of Consumption Certificate for Import of Industrial Inputs by FATA/PATA Domiciled Industries In order to earnestly implement and enforce the tax-related incentives and benefits extended by the Parliament to residents of FATA/PATA, Circular No. 9 of 2021 dated March 1, 2021, has been issued. The Circular takes account of safe arrival of industrial inputs imported by FATA/PATA domiciled industries from the port to the intended manufacturing sites. Section 13(1) read with Serial No. 151 of Table I of Sixth Schedule to the Sales Tax Act, 1990, exempts import of "industrial inputs" to FATAJPATA-located industries "on presentation of a post-dated cheque for the amount of sales tax payable under..., and the same shall be returned to the importer after presentation of a consumption...certificate...in respect of goods imported as issued by the Commissioner Inland Revenue having jurisdiction." This particular benefit is subject to a further condition that if the goods produced from the exempted raw materials are "transferred or supplied outside the tribal areas, the tax exempted shall be paid at the applicable rate." 2. This makes CONSUMPTION CERTIFICATE issued by Commissioner Inland Revenue (CIR) the centerpiece of the tax-exempt cycle of importation of industrial inputs, production of finished goods by FATA/PATA-domiciled industries and their ultimate consumption within the FATANATA regions. It is therefore that a standardized procedure for the issuance of Consumption Certificate is being rolled out so as to ensure fair operationalization of the exemptions enshrined in the law. 3. A FATA/PATA based manufacturer/Registered Person (RP), who is also an "active taxpayer" in terms of section 2(1) of the Sales Tax Act, 1990 (hereinafter "the STA, 1990"), and intending to import raw materials for consumption at his own manufacturing site would make a written application to the CIR concerned providing therein: - i. Production capacity of the manufacturing unit, and if the same has increased over time, the month from which the enhanced production capacity was installed along with particulars of the additional manufacturing capacity; ii. Month-wise quantity of (a) raw material imported, and (b) purchased locally since July, 2020 (or l' month of the tax year);
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iii. Quantity of stock available from earlier imports; iv. Month-wise details of Gas and Electricity consumed since July, 2020 (or 1st month of the tax year); v. Month-wise particulars of goods produced; vi. Month-wise details of post-dated cheques (PDCs) deposited with Customs authorities, if any; vii. List of buyers of the goods produced; viii. Bank statement for the relevant periods; ix. Electricity & Gas bills for the relevant period; & x. Month-wise proof of Federal Excise paid -- only in case of goods covered under the Federal Excise Act, 2005. 3. The CIR would ensure that particulars supplied by the RP are verified before the issuance of Consumption Certificate. In case any data are not verified, the RP would be given an opportunity to complete the application, provide the required information, and make up the deficiency. The Consumption Certificate issued will be directly mailed to the Collector Customs concerned with a copy thereof being duly marked to Member (IR Operations) and Member (Customs Operations), and under no circumstances will be handed over to the taxpayer. If the CIR decides to reject the application for a Consumption Certificate, the previous PDCs deposited would be encashed" 15. This Court is not convinced from the assertions of the respondents that the failure on part of the petitioners to provide a consumption certificate, will lead to a presumption that the petitioners have evaded the relevant taxes and duties under the Act and the Ordinance. The Act has provided a wholesome procedure for scrutiny, audit and adjudication of the liability of the sales tax payable by a registered person. Since, all the petitioners are persons registered under the Act, therefore, they are required to maintain record as provided under Section 22[7] of the Act and are required to file their returns under Self-Assessment Scheme provided under Section 26[8] of the Act. The respondents have the authority to access the said record and conduct the audit of the petitioners under Section 25[9] of the Act. Similarly, the Board may also select person or class of persons for audit of tax affairs through computer ballot which may be random or parametric as the Board may deem fit in terms of Section 72B[10] of the Act. Any discrepancies relating to the short levy of the sales tax can be assessed under Section 11[11] of the Act through a proper assessment order against the taxpayer thereby adjudicating the actual tax liability along with the penalties as provided under Section 33 and default surcharge under Section 34 of the Act. Thus, a taxpayer cannot be termed as defaulter unless tax due is first assessed and determined under the provisions of the Act. Similarly, under Section 25(5) of the Act during and after the audit proceedings, the taxpayer has the option to deposit the tax along with default surcharge and penalties to avoid further proceedings. 16. Under Section 37A[12] of the Act, prosecution can be launched against the taxpayer by the competent authority who, on the basis of material evidence, has reasons to believe that the taxpayer has committed a tax fraud or any offence warranting prosecution under the Act. The phrase "tax fraud" is defined under Section 2(37)[13] of the Act which means that the registered person is with dishonest intention falsify sales tax invoices to avoid payment of duties and taxes to makes a false claim of refund. 17. The impugned FIRs were registered against the petitioners on the request of Commissioner Inland Revenue through letter dated 28.01.2022 wherein the Collector Custom was informed that since the petitioners have failed to cooperate while determining their liability relating to issuance of consumption certificate, therefore, security document be encashed. It is reiterated at the of cost of repetition that Entry 151 of the Sixth Schedule to the Act only envisages that the security instruments/cheques are returnable to the importer under the Concessionary regime once the consumption certificate has been provided under Entry No.151 ibid. Thus, it means that so far the
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importer under concessionary regime stated above does not provide consumption certificate, the respondent department should be at liberty to retain security instrument i.e. post-dated-cheque. The said security instrument should be enforceable only when the liability of the petitioners, if any, is determined under Section 11 of the Act. Before the determination of the said liability, in view of the dispensation stated above, the respondents have illegally and without lawful authority presented the said cheques, which were provided by the petitioners in terms of Entry No.151 for presentation to the bank, therefore, the launching of criminal prosecution on the basis of dishonouring the said cheques is obviously pre-mature and without lawful authority. Besides, the respondents have acted in excess of their authority, therefore, the registration of impugned FIRs, on the basis of letter dated 28.01.2022, is not sustainable in the eyes of law. It would be important to note that in a good number of cases, the said letters/refusal to provide consumption certificates have been annulled by the Appellate Tribunal Inland Revenue vide order dated 10.03.2022. 18. In the case of Taj Packages Company (Pvt) Ltd,[14] the Lahore High Court, Mr. Justice Syed Mansoor Ali Shah, while dealing with somewhat similar cases, relating to the quashment of FIR, has made certain observations regarding the launching of criminal investigation when prima-facie the matter relates to adjudication of tax liability. The relevant paragraphs of the judgement are reproduced as under: - "22. Collective reading of sections 11, 25(5), 33, 37A and 72B of the Act indicates that the criminalization under the Act is principally to effectuate recovery or is being largely used to effectuate recovery. Two clear pointers are: dependence of fine on the "amount or loss of tax involved." and the window of compoundability available to the taxpayer who can pay the "amount of tax due along with such default surcharge and penalty as determined under the provisions of this Act." If the purpose was simple retribution and deterrence, there was no need to load the fine with the amount or loss of tax involved. However, if the fine under criminal prosecution is to be loaded with the amount or loss of tax, such a criminal construct must be prefaced with the mandatory requirement of assessm ent of tax through civil adjudication provided under section 11 of the Act. This precondition is the minimum constitutional requirement to ensure fair trial and due process under Articles 4 and 10-A of the Constitution. 23. It has been vehemently stated at the bar, by almost all the petitioners, that the department forcibly hauls up taxpayers under the threat of arrest and criminal prosecution and releases them after extraction of money (shown as the amount of tax due under section 37A). In the absence of tax assessm ent under section 11 of the Act and without knowing the "amount or loss of tax involved," neither compoundability is possible nor the award of sentence against the tax payer. Hence the process of hauling up taxpayers and effecting recovery of self-determined amount of sales tax by the officer of the Inland Revenue is brutally unconstitutional. 26. Even if the criminal prosecution under the present scheme of the Act is initiated after assessm ent of tax under section 11 as discussed above, the constitutionality of hurriedly invoking section 37A on the basis of material evidence requires consideration. Material evidence must be credible and definite if it is to deprive a citizen of his constitutional protection and safeguards under Articles 4 (due process), 9 (human liberty), 10A (fair trial) and 14 (human dignity). Setting in motion of the criminal prosecution cannot be left in the hands of any officer of the Inland Revenue, especially when the said Officers are under an obligation to recover the tax and meet tax targets before the close of the financial year set by the FBR. The process of initiation of criminal prosecution must comply with the requirement of due process and fair trial. The material evidence collected under section 37A needs to be credible and can best pass the test of fair trial and due process if it is an outcome of an inquiry or investigation envisaged under the proviso to section 25(2) of the Act. The outcome of any such inquiry and investigation must be placed before an independent forum like the Directorate General (Intelligence and Investigation), Inland Revenue established under
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section 30A of the Act to first review the inquiry and investigation and the material evidence and then proceed under the law. Anything short of this process will not only lead to persecution of the tax payers, it will also make a mockery of the fundamental right of fair trial. 28. In view of the above, we hold that the pre-trial steps including arrest and detention cannot be given effect to unless the tax liability of the taxpayer is determined in accordance with section 11 of the Act. In this background, criminal proceedings initiated against the petitioners, and documented as the First Information Report in this case and cases mentioned in Schedule-A is quashed as being unconstitutional, violative of fundamental rights, ultra vires the Act and hence illegal and without lawful authority. For the above reasons all these petitions are allowed. In the light of the above discussion, we see no need to answer the question regarding the jurisdiction or competence of the officer who initiated the criminal proceedings in these cases." 19. Rahmat Hussain Jafferi J, as he then was, speaking for the Court in the case of Ghulam Sarwar Zardari,[15] while distinguishing the law laid down by the Apex Court in the case of Shahnaz Begum supra, has observed that there has been consensus of Supreme Court since 1971 onwards that the High Court has jurisdiction under Article 199 of the Constitution and is competent to correct such proceedings and pass necessary orders to ensure justice fair play. The authorities conducting the investigation have no right to run the investigation as per their whims, therefore, if the investigation is launched mala-fide or is beyond the jurisdiction of investigation agency, then the same can be corrected and appropriate orders can be passed. 20. The perusal of record and the law laid down by the Apex Court in the cases of Ghulam Sarwar Zardari and Taj International (Pvt) Ltd , we are convinced that this is an appropriate case for interference by the High Court, while exercising jurisdiction under Article 199 of the Constitution, as prima-facie the respondents have exceeded their authority by registering the impugned FIR and unless the liability of the petitioners relating to the payment of sales tax and income tax is determined under the concessionary regime stated above, the registration of FIR against all the petitioners was beyond the authority of respondents. Hence, as a corollary thereof, the impugned FIRs are directed to be quashed, however, the respondents would be at liberty to conduct audit of the petitioners in terms of Section 25 of the Act read with enabling provisions of the Ordinance and if any discrepancy is pointed out relating to the sale of goods in the tariff area, the matter may be adjudicated against the petitioners under Section 11 of the Act and relevant provisions of the Ordinance.
Annexure "A" I. W.P No.1451-P/2022 (Muhammad Omer Vs. the Federation through Additional Attorney General, Peshawar & others). II. W.P No.1468-P/2022 (M/S AK Tariq Foundary, District Khyber & others Vs. Commissioner Inland Revenue, RTO, Peshawar & others). III. W.P No.2074-P/2022 (M/S Ihtesham Steel Mills (Pvt) Ltd Malakand House, Tehsil Dargai, Malakand through its authorized representative Mr. Asad Mehmood Vs. The State & others). IV. W.P No.2533-P/2022 (M/S Universal Steel Mills, Tehsil Ghalani, District Mohmand through Authorized Representative, Mr. Haroon ur Rasheed Vs. Collector of Customs, MCC, Custom House, Peshawar & others). V. W.P No.2795-P/2022 (M/S Sher Muhammad Customs Clearing Agency, Peshawar through its owner/proprietor Mr. Sher Muhammad Vs. Collector of Customs, MCC, Custom House, Peshawar & others). VI. W.P No.2882-P/2022 (M/S M.R Steel Mills, District Khyber through its owner/proprietor Mr. Haji Rehmat Shah Vs. Collector of Customs, MCC, Custom House, Peshawar & others).
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VII. W.P No.2990-P/2022 (Shah's Enterprises (Import & Export Custom Agency), Peshawar through its owner/proprietor Mr. Syed Farooq Shah Vs. Collector of Customs, MCC, Custom House, Peshawar & others). VIII. W.P No.3301-P/2022 (M/S Mansha Steel Mills Manzari Baba, Tehsil Dargai Malakand, Swat through attorney Naveedullah Vs. Collector of Customs, MCC, Custom House, Peshawar & others). IX. W.P No.4077-P/2022 (M/S Punjab Steel Works Tehsil Dargai Malakand, Swat through its attorney Mr. Muhammad Irtiza Adeel Vs. Collector of Customs, MCC, Custom House, Peshawar & others).
[1] Shahnaz Begum Vs. Hon'ble Judge of the High Court of Sindh and Baluchistan (PLD 1971 SC 677), Anwar Ahmad Khan Vs. The State (1996 SCMR 24), Raja Rustam Ali Khan Vs. Muhammad Hanif (1997 SMCR 2008) and Choudhary Shah Muhammad, Inspector Vs. Mst. Ramzan Bibi (1998 SCMR 2415). [2] Akhlaq Hussain Kayani Vs. Zafar Iqbal Kiyani and others (2010 SCMR 1835), Muhammad Akbar Vs. State (PLD 1968 SC 281). [3] Messrs Taj Packages Company (Pvt) Ltd through Manager vs. The Government of Pakistan through Federal Secretary Finance and Revenue Division and 6 other (2016 PTD 203) [4] Pakistan through Chairman, FBR and others Vs. Hazrat Hussain (2018 SCMR 939) [5]"151. (a) Supplies; and (b) imports of plant, machinery, equipment for installation in tribal areas and of industrial inputs by the industries located in the tribal areas, as defined in the Constitution of Islamic Republic of Pakistan, as may till 30th June, 2023, to which the provisions of the Act or the notifications issued thereunder, would have not applied had Article 247 of the Constitution not been omitted under the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018): Provided that, in case of imports, the same shall be allowed clearance by the Customs authorities on presentation of a post-dated cheque for the amount of sales tax payable under the Sales Tax Act,…
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