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Petitioner: Chenab Flour & General Mills VS Respondent: Federation of Pakistan and others
Court Name: Lahore High Court Judge(s): Jawad Hassan Title: Chenab Flour & General Mills vs Federation of Pakistan and others Case No.: Writ Petition No.7263 of 2020/BWP Date of Judgment:2021-02-08 Reported As: PLD 2021 Lahore 343, 2021 PTD 892, 2021 LHC 299 Result: Petition dismissed
JUDGMENT
JUDGMENT JAWAD HASSAN, J. Through this single judgment, this Court will decide this petition filed under Article 199 of the Constitution of Islamic Republic of Pakistan, 1973 (the "Constitution" ) as well as connected Writ Petitions Nos.7335, 7432, 7650, 7798, 8004 and 8281 of 2020/BWP as these are the outcome of same impugned Notification dated 12.10.2020 and involve same question of law and facts. The Court framed constitutional moot points whether the FBR is the Regulator of entire tax regime and whether the jurisdiction of transfer exercised under Section 209 of the Income Tax Ordinance, 2001 (the "Ordinance" ) is ultra-vires or intra-vires. This judgment will also discuss in detail that the FBR is the Regulator of fiscal laws in Pakistan, its nexus with the Revenue Division, legal anthropology , basic object and purpose and its regulatory regime besides interpretation of Section 209 of the Ordinance. A. CONTEXT 2. The Petitioner of this petition and the Petitioners of connected petitions (the "Petitioners" ) are tax payers with the Federal Board of Revenue (the "FBR" ) and have sought judicial review of the administrative action through Notification No.F.No.1 (48)Jurisdiction/2014-177049-R dated 12.10.2020 (the "Impugned Notification" ) according to which their taxing jurisdiction have been changed mainly from the Regional Tax Office (the "RTO") Bahawalpur to the Large Taxpayer Office (the "LTO"), Multan by the Federal Board of Revenu e (the "FBR" ) under Section 209 of the Ordinance. B. PETITIONERS' ARGUMENTS AND LEGAL SUBMISSIONS 3. Mr. Naveed Farhan, ASC/counsel for the Petitioner argued that the change of taxing jurisdiction through the Impugned Notification from the RTO to the LTO has been done in clear violation of the Section 209 of the Ordinance as it is not practicable and possible for the Petitioners to visit the LTO in order to manage and handle fiscal affairs of their business. He further argued that the impugned Notification has been issued without affording
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an opportunity of being heard and as such it is against the spirit of Article 10-A of the Constitution. While advancing arguments, he has referred to Article 37(i) of the Constitution by stating that it is the duty of the State to decentralise the Government administrat ion so as to facilitate expeditious disposal of its business to meet the convenience and requirements of the public and change of taxing jurisdiction from the RTO to the LTO is in conflict with the referred Article. Mr. Naveed Farhan, ASC further argued that Section 209(1) of the Ordinance gives general powers of transfer and proviso to aforesaid Section is only meant for change of transfer from one Commissioner to another . He maintained that the Impugned Notification was issued under Section 209 of the Ordinance and the proviso to aforesaid Section deals with transfer jurisdiction because as per Table-A, Sr.No.3 of the Notification such powers cannot be conferred to the LTO as it conflicts with proviso of the Ordinance. He strenuously argued that the taxing jurisdiction of the Petitioners have been transferred from the RTO to the LTO while the whole Ordinance is silent about pecuniary jurisdiction as such the Impugned Notification has been issued without following the basic principle of the Ordinance. In order to strengthen the arguments, learned counsel has relied on "CHAIRMAN, REGIONAL TRANSPOR T AUTHORITY , RAWALPINDI Versus PAKIST AN MUTUAL INSURANCE COMP ANY LIMITED, RAWALPINDI" (PLD 1991 SC 14), "GOVERNMENT OF PAKIST AN throu gh Director-General, Ministry of Interior , Islamabad and others Versus FARHEEN RASHID" (2011 SCMR 1), "Qazi ABDUL JALIL Versus N.W.F.P. FOREST DEVELOPMENT CORPORA TION through Chairman and others" (2010 SCMR 1933 ) and "Messrs HAQ BAHU SUGAR MILLS (PVT .) LTD. Versus FEDERA TION OF PAKIST AN and others" ( 2016 PTD 955 ). 4. Mr. Muhammad Saddiq Chouhan, Advocate argued that transfer of jurisdiction from the RTO to the LTO is not specifically provided under Section 209 of the Ordinance as it only states about the powers of the Chief Commissioner who may transfer jurisdiction in respect of cases or persons from one Commissioner to another but this does not include transfer to another office of the LTO away from the RTO. He strenuously argued that the LTO is not defined under the Ordinance or even under the Federal Board of Revenue Act, 2007 (the "Act" ) rather the power to transfer is provided only under the proviso to Section 209(i) of the Ordinance. He next argued that the Respondents have violated the principle of "Audi Alteram Partem" as it is applicable to judicial as well as non- judicial proceedings and it would be read into every statute as its part if right of hearing has not been expressly provided therein. Further argued that shifting of taxing jurisdiction from the RTO to the LTO must be based on well- based and reasoned consideration but the Respondents have not taken into consideration the peculiar circumstances coupled with facilitation of the taxpayers before issuing the Impugned Notification. Mr. Muhammad Saddiq Chouhan, Advocate added that the Federal Government has recently announced to issue the pending refunds of the industry but instead of issuing the said refunds the Respondents have issued the Impugned Notification by changing the jurisdiction for refunds when the refunds process are not at final stage which showed malafide on their part. Further argued that the Petitioners registered offices as well as their units, factories etc. are existing and operational in the vicinity of Bahawalpur where they are dealing their tax related issues, filling their tax returns etc. regularly in a convenient course with the Regional Tax Office Bahawalpur but the Respondents instead of facilitating the taxpayers have created obstacles in the smooth running of their business activities. Although, Mr. Muhammad Siddiq Chouhan, Advocate has also put his reliance on the judgments referred by Mr. Muhammad Naveed Farhan, Advocate, however , in addition to that he further relied on "Mrs. ANISA REHMAN Versus P.I.A.C. and another" (1994 SCMR 2232 ), "Messrs DEW AN SALMAN FIBER LTD. and others Versus (GOVERNMENT OF N.W.F.P., through Secretary , Revenue Department, Peshawar and others" (PLD 2004 SC 441) and "LIAQA T ALI CHUGT AI Versus FEDERA TION OF PAKIST AN through Secretary Railways and 6 others" (PLD 2013 Lahore 413 ). C. RESPONDENTS ARGUMENTS AND LEGAL SUBMISSIONS 5. Report and parawise comments have been filed on behalf of the Respondents. Mr. Tariq Mehmood, Advocate of the FBR vehemently opposed the arguments advanced by learned counsel for the Petitioners and stated that the Impugned Notification has been issued strictly in accordance with law. He argued that change of jurisdiction has been done on the basis of cogent reasons backed by a clear-cut rationale to facilitate the large taxpayers through automated system which would enable the taxpayers to resolve their tax related issues in more effective way. He
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argued that the filing of return and other documents before the FBR has now become automated therefore, the Petitioners/taxpayers can file their returns, statements, applications, documents etc through online electronic manner from their places and all type of communication and processing can easily be carried out electronically and all this exercise has been done to cater with the needs of taxpayers as such they do not need to visit the tax offices. Mr. Tariq Mehmood, Advocate specifically mentioned that the taxpayers of the Bahawalpur whose cases have been transferred from the RTO to the LTO are not required to visit the LTO for any related proceedings. He candidly stated that change of taxing jurisdiction has been done on the basis of turnover basis of the taxpayers which is strictly in accordance with Section 209 of the Ordinance, Section 30 of the Sales Tax Act, 1990 and Section 29 of the Federal Excise Act 2005 which provide legal justification to FBR to transfer jurisdiction of any case. Mr. Tariq Mahmood, Advocate frankly stated that the FBR is established to enhance the capacity of tax system to collect tax dues through application of modern techniques, providing assistance to taxpayers. He argued that Proviso of the Act also clearly state s that the FBR must pursue its objecti ve and vision to be a modern, progressive, effective, autonomous and credible organization by providing quality services to the taxpayers and to achieve this purpose, the FBR has transferred the jurisdiction from the RTO to the LTO to be handled by four original Divisions made for their facilitation. While concluding arguments, learned counsel for the Respondents referred to judgment passed by this Court in case titled "Crescent Textile Mills Limited Versus Federation of Pakistan etc" W.P.No.52548 of 2020 dated 21.12.2020 whereby the issue of transfer of jurisdiction was held valid within the scope of FBR. 6. Ms. Attiya Rehman, Additional Commis sioner , Inland Revenue Service (FBR) present in Court, while highlighting historical context of Tax Administration Reform Project ("TARP") explained that Large Tax Unites ("LTUs") for providing high quality services to big taxpayers of the country have already been constituted and in this respect, LTUs, in major cities of Pakistan like Islamabad, Karachi and Lahore, have already been established and functional. She further explained that only cases of those taxpayers whose turnov er is Rs.1.0 billion or more and have a revenue contribution of Rs.20.00 million or more have been assigned to LTOs and best human resource and physical/technological infrastructure has been provided therein with the object to provide maximum ease of doing business. For this purpose, taxpayers can file their returns, statements, applications and documents online from their places to the LTOs concerned without visiting the tax office with the view to eliminate contact between the taxpayers and tax collector . While addressing to the Court, she emphasized the purpose of establishment of LTO, Multan by stating that it has been established to cater for the needs of growing industry on a vast geographic area which is in line with the efforts of Federal as well as Provincial Government to establish new South Punjab Province. 7. I have heard the arguments of learned counsel for the parties at length and perused the record. 8. From the arguments advanced by learned counsel for the parties, following constitutional moot point were framed by this Court on 04.02.2021. i. Whether FBR is the Regulator to regulate the entire tax regime authorities and tax laws in Pakistan and has jurisdiction to pass impugned Notification? ii. Whether the jurisdiction of transfer exercised under Section 209 of the Ordinance is ultra-vires or intra vires? D. FBR BEING A REGULA TOR OF FISCAL LAWS IN P AKIST AN 9. Learned counsel for the Petitioners has mainly attacked on the Impugned Notification on the ground that the FBR has no authority to change the jurisdiction of taxpayers from RTO to LTO. Before moving ahead, it is imperative to reproduce the relevant part of impugned Notification which reads as under: "(To be Published in the Gazette of Pakistan - Part II) Government of Pakistan Revenue Division Federal Board of Revenue Inland Revenue F.No.1(48)Jurisdiction/2014-177049-R Islamabad, the 12th October , 2020 Order Subject: Jurisdiction of the Chief Commissioner and Commissioners Inland Revenue, Large Taxpayers' Office, Multan.
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In exercise of the powers conferred under section 209 of the Income Tax Ordin ance, 2001, sub-section (1) of section 30 and section 31 of the Sales Tax Act, 1990, sub-section (1) of section 29 of the Federal Excise Act, 2005, read with the Islamabad Capital Territory (Tax on Services) Ordinance, 2001, the Federal Board of Revenue is pleased to: (i) Direct that the Chief Commissioner Inland Revenue, Large Taxpayers' Office Multan shall exercise the powers and perform functions under the Income Tax Ordinance, 2001, the Sales Tax Act, 1990, and the Federal Excise Act, 2005 in respect of persons mentioned in T able-B and T able-C. (ii) Assign to the Commissioner Inland Revenue as mentioned in column 2 of the following Table A jurisdiction, powers and functions as specified in column 3 of the said Table A in respect of persons and cases as mentioned in column 4 of the said T able A. 2. This order shall take effect from 15th of October , 2020". i. FBR nexus with the Revenue Division, Ministry of Finance, Revenue, Economic Affairs, Statistics and Privatization, Government of Pakistan. 10. Admittedly , the Impugned Notification has been issued by the FBR Inland Revenue, Revenue Division, Government of Pakistan according to which the powers conferred to the FBR under the fiscal statues in terms of Section 2(g) of the Act have been exerci sed by the FBR directing the Chief Comm issioner Inland Revenue, LTO, Multan to exercise powers and perform functions under the fiscal laws in respect of persons mentioned in Table-B and Table C. While the Commissioners Inland Revenue, mentioned in column 2 of the Table A, were assigned the jurisdiction, powers and functions in respect of persons and cases as specified in Column 4 of the Table A. Under the Constitution, the Federal Government is established under Article 90 of the Constitution and functions under Article 97 read with Article 99 according to which the Federal Government or executive action of the Federal Government shall make rules for the allocation and transaction of its business. Under the Federal Government Rules of Business, 1973, the affairs of the Federation lie with the Divisions created under Rule 3(1), Schedule-I. The FBR is the attached Department to Revenue Division as per Schedule-III, Column-I, Sr.No.68. The Revenue Division falls under the Ministry of Finance, Revenue, Economic Affairs, Statistics and Privatization and has the responsibilities/duties to look into the entire matters relating to fiscal laws in Pakistan. One of the key functions of Revenue Division is to deal with tax policy and tax administration in Pakistan. However , the FBR was established under Section 3 of the Act with the powers and functions provided under Section 4 of the Act including the powers and functions to implement tax administr ation reforms and to adopt modern effective tax administration methods, information technology systems and policies in order to consolidate tax assessments. More particularly , the Preamble of the Act plainly demonstrates to enhance the capacity of the tax system to collect due taxes through application of modern techniques, providing assistance to taxpayers and creating a motivated, satisfied, dedicated and competent professional workforce that is required to perform at an enhanced efficiency level. The Preamble of the Act laid strong emphasis to regulate the matters relating to the fiscal and economic policies; administration management; imposition, levy and collection of duties and taxes which includes administration of tax. ii. Legal anthropology of the FBR. 11. In order to regulate tax regime in Pakistan, the reasons for enacting the Act and the establishment of FBR being the Regulator , has to be seen from its legal anthropology . The FBR which was formerly called the Central Board of Revenue (CBR) was created through enactment of Central Board of Revenue Act, 1924 on 01.04.1924 and later on a Revenue Division under the Ministry of Finance was created. This arrangement continued after Independence and up to 31stAugust 1960 when on the recommendations of the Administrative Reorganisation Committee, CBR was made an attached department of the Ministry of Finance. In 1974, further changes to the organisation and its functions included a new a post of Chairman CBR with status of ex-of ficio Additional Secretary were introduced. However , the Secretary Finance was relieved of his duties as ex-of ficio Chairman of CBR. The status of CBR as Revenue Division was restored under the Ministry of Finance on October 22, 1991 but was abolished in January 1995, and CBR reverted to its pre-1991 position. In 1998, the Revenue Division was revived and it continues to exist since then. By the enactment of the FBR Act, 2007 in July 2007, the name Central Board of Revenue was changed and it was renamed as Federal Board of Revenue. This legal anthropology has the existence of CBR and
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now the FBR being the Regulator from time to time under the various statutes in order to achieve the main goal of tax collection in Pakistan. iii. Basic object and purpose of FBR reflected in the Preamble 12. The basic emphasis was focused on its preamble of the FBR Act where it has been clearly mentioned that it was created to enhance (i) capacity of the tax system; (ii) to collect due taxes through application of modern techniques; (iii) providing assistance to taxpayers; (iv) creating a motivated and competent professional work force. The preamble further strengthens the objective and creation of FBR in the following words: "It is expedient to regulate the matters relating to the fiscal and economic policies; administration, management; imposition, levy and collection of taxes and duties" 13. Preamble of a statute though not a substantive and enforceable part of the enactment yet it provides primary guidelines about the object and scope of the legislation being its usher . As per the Treatise Practical Legislation by Lord Thring J, [Page92], "The proper function of a preamble is to explain certain facts which are necessary to be explained before the enactments contained in the Act can be understood". In well acclaimed book, Understanding Statutes- Cannons of Construction by S.M. Zafar , [Fourth Edition page 53] the significance of a preamble is highlighted as follows:- "Edward S. Corwins in his classic work (The Constitution and What it Means by Edward S. Corwins P.1) has employed a rather descriptive phraseology when he says 'the preamble strictly speaking, is not a part of the constitution, but it walks before'. The preamble undoubtedly throws light on the intent and design of the legislature and the scope and purpose of legislation itself, it cannot be read as an embedded part of an particular section of act but it permeates the entire enactment." The August Supreme Court of Pakistan in "DIRECT OR GENERAL, FIA AND OTHERS Versus KAMRAN IQBAL and others" (2016 SCMR 447) laid down the significance of preamble in a statute by holding that:- "indeed, preamble to a Statute is not an operative part thereof, however , as is now well laid down that the same provides a useful guide for discovering the purpose and intention of the legislature. Reliance in this regard may be placed on, the case of Murree Brewery Company Limited v. Pakistan through the Secre tary of Government of Pakistan and others (PLD 1972 SC 279). It is equally well-established principle that while interpreting a, Statute a purposive approach should be adopted in accord with the objective of the Statute and not in derogation to the same." This Court in its recent Judgment titled "ABW A KNOWLEDGE PVT. LTD AND ANOTHER Versus FEDERA TION OF PAKIST AN and another"(2020 LHC 3491) [Writ Petition No. 54112 of 2020 decided on 21-12-2020] also highlighted the importance of preamble in order to unearth the object and true intent behind the particular enactment while holding "The preamble to a statute is though not an operational part of the enactment but it is a gateway , which opens before us the purpose and intent of the legislature, which necessitated the legislation on the subject and also shed clear light on the goals which the legislator aimed to secure through the introduction of such law. The preamble of a statute, is therefore, holds a pivotal role for the purposes of interpretation in order to dissect the true purpose and intent of the law ." iv. Regulatory Regime of the FBR 14. In view of the above, the FBR being regulator has powers and functions under Section 4 of the Act which corresponds with the preamble of the Act and in furtherance of the object provided therein. The preamble mentioned above further emphasis the purpose of creating the Authority of FBR i.e. to:- (i) regulate; (ii) administer; (iii) manage; (iv) impose; (v) levy and collection of taxes and duties. The preamble if read with powers and functions of FBR empowers it to perform functions that are necessary to achieve the objectives and purposes of the Act. So far as the transfer of taxing jurisdiction, Section 4(1)(a) of the Act, the FBR can implement the tax administration reforms. Section 4(1)(h) of the Act empowers the FBR to re-des ignate existing posts within its jurisdiction, prepare job description of any post and create posts in accordance with the rules. The FBR functions under the Act and the Federal Board of Revenue Rules, 2007 (the "Rules" ). Rule 3 of the Rules clearly states that Board may under Section 8 of the Act delegate its powers and functions to the Chairman or the line member , functional member and support member who shall transact such business and exercise such powers and functions singly as Board, as may be allocated to him. 15. The role of the FBR is of a regulator and literal interpretation of the term 'Regulator ' and 'Regulate' is of utmost significance in order to clearly understa nd the scope, extent and functionality of a Regulator . "Regulator" is
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essentially a bridge spanning the waterway , to be regulated in the openings of which shutters are installed, capable of adjustment, so as to regulate the amount of waterway , left free for passage of water , and this is sometimes called 'Sluice'. [Advanced Law Lexicon, 4th Edition, Volume-4, Page-4130] . "To "regulate," in sense intended in commerce clause, is to foster , protect, control, and restrain, with appropriate regard for welfare of those who are immediately concerned and of public at large." [Words and Phrases, Permanent Edition, Volume 36B, Page- 249]. "The word 'regulate' has different shades of meaning and must take its colour from the context in which it is used having regard to the purpose and object of the relevant provisions." [K J Aiyar Judicial Dictionary 16th Edition, V olume 2-L to Z, Page-1488]. Regulate: "To control sth by means of rules: The activities of credit companies are regulated by law. It is up to the regulating authority to put the measures into effect." Regulator: "A person or an organization that officially controls an area of business or industry and makes sure that it is operating fairly" [Oxford Advanced Learner 's Dictionary , International Student' s Edition, Page-1259] 16. Considering the literal interpretation of the term, the significance of the FBR being the Regulator of all fiscal laws enforced in Pakistan is crystal clear from the reading of Section 2(a) of the Act and Section 2 (8) of the Ordinance, Section 2(4) of the Sales Tax Act, 1990 and Section 2(4) of the Federal Excise Act, 2005 wherein the FBR is defined as Board which means the Federal Board of Revenue established under Section 3 of the Act. According to Section 4(1)(r) of the Act, the FBR can create field formations of Board for greater efficiency in implementation of fiscal laws and refer to them with appropriate titles. As Board is defined under Section 2(4) of the Act which primarily was Central Board of Revenue and now Federal Board of Revenue and it can determine the fiscal laws and its jurisdiction through the Board. The fiscal laws are defined under Section 2(g) of the Act which means the laws relating to tax matters including the Customs Act, 1969, Sales Tax Act 1990, Income Tax Ordinance 2001, Federal Excise Act 2005, and any other law imposing any tax, levy or duty having nexus with taxation. Section 4 of the Act deals with the powers and functions of the Board i.e. FBR while sub-section (2) of Section 4 of the Act emphasis about issuance of statutory rules, (SROs), orders, circulars and instructions for the enforcement of any of the provisions of fiscal law. From the perusal of the Impugned Notifi cation, it reveals that the Chief Commissioner Inland Revenue, LTO, Multan has been given powers to perform functions under the fiscal laws, which is proper , valid and within the permissive ambit of law. This Court in its recent judgment "ABW A KNOWLEDGE PVT. LTD, mentioned supra, has elaborately discussed and laid down the functions of a Regulator and held that if a Regulator is restrained from performance of its function it will negate the very purpose of law, which chalk out the functionality of such Regulator by observing…
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