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Petitioner: M/S Abid Foundry VS Respondent: Pakistan, through Federal Secretary, Finance and Revenue Division, Islamabad and others
Court Name: Peshawar High Court Judge(s): Rooh-ul-Amin Khan, Muhammad Nasir Mehfooz Title:M/S Abid Foundry vs Pakistan, through Federal Secretary, Finance and
Revenue Division, Islamabad and others Case No.: Writ Petition No.1881-P/2019 Date of Judgment:2019-04-03 Reported As: 2019 PHC 136 Result: petitions disposed of Judgment ROOH-UL-AMIN KHAN, J:- Through this common judgment, we propose to decide this and the following connected writ petitions, as identical question of law and fact is involved therein. Particulars of the connected writ petitions are given below:- 1. Writ Petition No.1997-P/2019 M/S Universal Steel Mill Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 2. Writ Petition No.1998-P/2019 M/S Umer Stell Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 3.Writ Petition No.1999-P/2019 M/S Steel Foundry Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 4. Writ Petition No.2000-P/2019 M/S Muslim Steel Mills Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 5. Writ Petition No.2001-P/2019 M/S Lillah Stell Mills Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 6. Writ Petition No.2002-P/2019 M/S Malik Steel Foundry Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others.
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7. Writ Petition No.2003-P/2019 M/S Mustafa Steel Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 8. Writ Petition No.2004-P/2019 M/S A.K Tariq Foundry Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 9. Writ Petition No.2005-P/2019 M/S Al Raziq Steel Mills Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 10. Writ Petition No.2006-P/2019 M/S Dua Stell Furance Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 11. Writ Petition No.2007-P/2019 M/S Royal Foundry Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 12. Writ Petition No.2008-P/2019 M/S Khyber Foundry Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 13. Writ Petition No.2009-P/2019 M/S MK Steel Mills Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 14. Writ Petition No.2010-P/2019 M/S Shahid Iqbal Steel Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 15. Writ Petition No.201 1-P/2019 M.S Makka Steel Furnace Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 16. Writ Petition No.2012-P/2019 M/S MR Steel Mill Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 17. Writ Petition No.2014-P/2019 M/S Al Falah Steel Mill Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 18. Writ Petition No.2015-P/2019 M/S Mohmand Moulding Workers Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 19. Writ Petition No.2016-P/2019 M/S Naseeb Steel Furnace Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 20. Writ Petition No.2017-P/2019 M/S MZ Foundry Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 21. Writ Petition No.2018-P/2019 M/S Al Haj Foundry Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 22. Writ Petition No.2019-P/2019 M/S New Mohmand Steel Mills Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others.
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23. Writ Petition No.2020-P/2019 M/S Gul Badshah Steel Furnace Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 24. Writ Petition No.2021-P/2019 M/S Daud Steel Fabrication Factory Vs Pakistan through Federal Secretary Finance and Revenue Division, Islamabad, and others. 2. Petitioners, who are proprietorship concerns, having manufacturing Units of Steel Products in the erstwhile Federally Administrated Tribal Area ("FATA") now District Khyber, seek issuance of the following writ:- "To declare that the petitioners are not amendable to pay the impugned taxes, levies and charges along with electricity bills including Income Tax, Sales Tax, Further Tax (FT), Extra Tax (ET) etc for their Industrial Units, situated in the defunct FATA, on the strength/basis of dispensation provided/promised at the time of 25th amendement, therefore, any demand raised by the respondents irrespective of the recent Notification No.SRO.1213(1)/2018 dated 05.10.2018 for the Income Tax and SRO. 1212(1)/2018 dated 05.10.2018, for the Sales Tax and any adverse action taken in this respect, be declared as illegal unlawful, without lawful authority and of no legal effect; and That the respondents be directed to send electricity bills of the petitioners' Industries without charging the impugned levies, Income Tax, Sales Tax, F-Tax and E-Tax. Any other relief, if not specifically asked for by the petitioners". 3. In their respective writ petitions, the petitioners have averred that Tribal Areas Electric Supply Company (TESCO) "respondent No.4", under supervision and control of the Federal Ministry of Energy and Peshawar Electric Supply Company (PESCO) provides and distributes electricity in seven Agencies i.e. the erstwhile FATA, whereas petitioners being its consumers are regularly paying electricity bills of their Industrial Units. For the month of January, 2019, respondent No.4/TESCO, sent electricity bills of Industrial Units of the petitioners wherein unprecedented heavy and exorbitant amount under the heads of Income Tax, Sale Tax, FC Surcharge, E-Tax (Extra Tax) and F-Tax (further Tax), have been charged without any legal justification. Petitioners emphasize that on 29 May, 2018, a Regulation to provide for an Interim System of Administration of Justice, Maintenance of Peace and good Governance in the Federally Administered Tribal Areas, "FATA Interim Governance Regulation, 2018", was promulgated, under section 3 whereof, Frontier Crimes Regulation (FCR), 1901 (Amended in 2011), was repealed. On 31 May, 2019, the President assented the Act, namely, "Constitution (Twenty-fifth Amendment) Act, 2018" promulgated on 5 June, 2018, consequent whereupon, Article 247 of the Constitution was omitted and relevant changes in Article 246 of the Constitution were made. Eventually, FATA/PATA was merged with the Province of Khyber Pakhtunkhwa. Nevertheless, the Members of Majlis-e-Shura and Provincial Assembly had desired that special incentives and exemptions should be given by the Federal and Provincial Governments to the newly created Districts of defunct FATA for a period of 5 to 10 years. Resultantly, Economic Coordination Committee (ECC), approved tax exemptions and incentives for the people of erstwhile FATA and PATA for a period of five years so as to also facilitate the general consumers and domestic consumers of electricity. The immunity also includes the use of Non-Custom Paid (NCP) vehicles for a period of five years ending on 30.06.2023. Here apropos is the SRO No.887(I)/2018 dated 23.07.2018, whereby after clause 143 in Part-I, new clauses 144 & 145 were inserted in the Income Tax Ordinance, 2001, whereby profits and gains derived by individuals, association of persons and companies, inter alia, of the defunct FATA, were exempted from payment of income tax w.e.f. 01.06.2018 to 30.06.2023. Similarly, clause 106 was omitted and new clause 110 was inserted in the Ordinance (ibid), whereby deduction or collection of withholding tax was made not applicable to individuals, association of persons and companies of newly created Khyber District. Petitioners allege that, Income Tax on Steel Melting Units, is charged under section 235-B of the Income Tax Ordinance, 2001, whereas F-Tax and E-Tax are charged under section 3(1A) and 3(5) read with SRO.509(1)/2013 dated 12.06.2013 of the Sales Tax Act, 1990, respectively . Similarly , Sales Tax is either charged under section 3(1) of the Sales Tax Act, 1990 orth st th
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under Chapter-XI of the Sales Tax Special Procedures Rules, 2007, issued under the relevant provisions of Sales Tax Act, 1990. The petitioners being manufacturing Units, carrying on business in the vicinities of the erstwhile FATA, in view of the SRO (ibid), are not amenable to levy of any Income Tax or Sales Tax, hence, these writ petitions. 4. The moment, this and the connected cases were taken up for preliminary hearing yesterday i.e. 02.04.2019, learned counsel for the respondents along with representative of the Income Tax and Sales Tax, came to the rostrum and while accepting notice requested for time to file their respective replies to the writ petitions. Their request was acceded to with the direction to file their comments and also to provide copy thereof in advance to the learned counsel for petitioners, whereas, the cases were posted for today. 5. Arguments of learned counsel for the parties heard and record perused with their able assistance. 6. The epitome of the controversy, involved in the instant cases, revolves around interpretation of "exemption from payment of tax and exemption from certain provisions of tax", now provided to Individuals, Association of persons and Companies, located in the Tribal Areas of Pakistan, (the defunct FATA), as defined by Article 246 of the Constitution. Before discussing merits of the case, it is necessary to mention that before the constitutional (25 Amendment Act 2018), Income Tax and Sales Tax laws, were not applicable to the erstwhile FATA. However, on omission of Article 247 and changes in Article 246 of the Constitution through the aforesaid amendment, all the laws, including tax laws enforced in the country, particularly, in the Provinces of the Khyber Pakhtunkhwa and Baluchistan, ipso facto, became applicable to the defunct FATA. Since, the Federal Government realized that inhabitants of the defunct FATA needed breathing space for entering into the tax regime, therefore, the already existing constitutional tax immunity was maintained and inhabitants of the defunct FATA were exempted from certain provisions of the Income Tax Ordinances w.e.f. 1st June 2018 to 30th June, 2023, vide two different Notifications of even date i.e. 05.10.2018. The SRO No.1213(I)/2018, whereby clauses 144, 145 and 110, have been inserted in the Income Tax Ordinance, 2001, is taken for consideration and for the sake of convenience and ready reference, is reproduced below:- Government of Pakistan Revenue Division Federal Board of Revenue Islamabad the 5th October , 2018 NOTIFICA TION (Income T ax) S.R.O.1213(1)/2018.- WHEREAS prior to the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018) , the Income Tax Ordinance , 2001 (XLIX of 2001) was not in force in the Tribal Areas as defined in Article 246 of the Constitution of the Islamic Republic of Pakistan, hereinafter called as the Constitution , and the levy of income tax was not attracted to the said Tribal Areas; AND WHEREAS Article 247 of the Constitution stood omitted on commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 20 18) with effect from 31st day of May, 2018 and the Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA) stood merged in the Provinces of Khyber Pakhtunkhwa and Balochistan under paragraph (d) of Article 246 of the Constitution; AND WHEREAS on commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018), the Income Tax Ordinance, 2001 (XLIX of 2001) is in force in the said Provinces including the erstwhile Tribal Areas forming part thereof ; AND WHEREAS a phased approach was needed for the full application of fiscal laws to the said erstwhile Tribal Areas, a decision was made to exempt all persons from levy of income tax which was not applicable to the said areas by virtue of said Article 247 and accordingly Notification No. S.R.O 887(1)/2018, dated the 23rd July, 2018, was issued by the Federal Government granting exemption from income tax as aforesaid; AND WHEREAS concerns were raised by the trading community of the said erstwhile Tribal Areas to the effect that the aforesaid Notification did not restore the position as existed prior to the commencement of the Constitution (Twenty-fifth Amendment) Act , 2018 (XXXVII of 2018) ;th
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NOW THEREFORE in order to address the concerns so raised and to restore the position in relation to levy of income tax to the said erstwhile Tribal Areas, and in exercise of the powers conferred by sub-section (2) of section 53 of the Income Tax Ordinance, 2001 (XLIX of 2001), the Federal Government is pleased to direct that the following further amendments shall be made in the Second Schedule to the said Ordinance namely: -- In the aforesaid Schedule- (a) In Part 1,- (i) clauses (144) and (145) shall be omitted ; and (ii) after clause (145), omitted as aforesaid, the following new clause shall be added , namely:- "(146) Any income which was not chargeable to tax prior to the commencement of the Constitution (Twenty- fifth Amendment) Act, 2018 (XXXVII of 2018) of any individual domiciled or company and association of persons resident in the Tribal Areas forming part of the Provinces of Khyber Pakhtunkhwa and Balochistan under paragraph (d) of Article 246 of the Constitution with effect from the 1st day of June, 2018 to the 30th day of June, 2023 (both days inclusive); and (b) In Part-IV - (i) clause (106) shall be omitted; (ii) after clause (109), the following new clause shall be added, namely; "(110) The provisions of sections in Division Ill of Part-V of Chapter-X and Chapter-XII of the Ordinance for deduction or collection of withholding tax which were not applicable prior to commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018) shall not apply to individual domiciled or company and association of person resident in the Tribal Areas forming part of the Provinces of Khyber Pakhtunkhwa and Balochistan under paragraph (d) of Article-246 of the Constitution with effect from the 151 day of June, 2018 to the 30th day of June, 2023 (both days inclusive).(emphasis supplied). 7. Concerns were raised by the Trading Community of the erstwhile Tribal Areas regarding the abrupt and sudden applicability of taxes in the defunct FATA, where its concept was alien to the inhabitants. The Federal Government, while realizing the restiveness amongst the bewildered residents of defunct FATA due to abrupt applicability of tax laws, decided to provide a time limit so as to shift them from centaury old system into the constitutional tax regime prevalent in the settled area and so issued SRO No.887 dated 23.07.2018, whereby the following four amendments were made in the tax regime:- i. Business in defunct F ATA shall be registered with the field Of ficer by 30.09.2018. ii. The person owing business must be a bona fide resident of defunct F ATA. iii. The earning of the person must be from the locality of defunct F ATA; and iv. The registered of the business concern be situated in those areas. Those qualifying the above criteria were put to exemption through the above mentioned SRO. 8. As is manifest from the record, the Trading and Business community had raised strong concerns to the effect that above-mentioned SRO is mere an eyewash and is against the spirit of Resolution of the Provincial Assembly as well as assurance of the Federal Government that position regarding taxes in the defunct FATA shall be the same as was prevalent before 25 Constitutional amendment Act, 2018. Thus, in order to address the concerns so raised and to restore the position in relation to levy of income tax to the said area, the earlier SROs were rescinded. 9. There is no cavil to the legal provisions that before 25th Amendment Act, 2018 and merger of FATA into settled area, the residents and inhabitants of Tribal Areas were enjoying immunity from every kind of tax, either on Person, Occupier, Company and Properties etc, however, this immunity was done away with by the Constitutional 25th Amendment Act, 2018, whereby Tribal Areas were merged into settled area and all the Federal laws, including tax laws, automatically got extended to the Tribal Areas and as such, the residents and persons carrying on business in the Tribal Areas remained no more immune from the payment of taxes. It is also an undeniable fact that through the above quoted SRO No. 1213, the Federal Government has decided to continue concession to the residents of Tribal Areas by providingth
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breathing space to them to enter into the regime of tax gradually and so they were granted all those benefits, in the shape of exemption from all taxes, which were available to them prior to the 25 Amendment Act, 2018. The legislative intent in this respect is clear than crystal, which denotes in the following phrase of SRO 1213. "And whereas a phased approach was needed for the full application of fiscal laws to the said erstwhile Tribal Areas, a decision was made to exempt all persons from levy of income tax which was not applicable to the said areas by virtue of said Article 247 and accordingly Notification No.SRO.887(i)/2018, dated the 23rd July, 2018, was issued by the Federal Government granting exemption from income tax as aforesaid. AND WHEREAS concerns were raised by the trading community of the said erstwhile tribal areas to the effect that the aforesaid Notification did not restore the position as existed prior to the commencement of the Constitution (Twenty-fifth Amendment) Act, 2018 (XXXVII of 2018). NOW THEREFORE, in order to addres s the concerns so raised and to restore the position in relation to levy of income tax to the said erstwh ile Tribal Areas and in exercise of the powers concerned by sub- section (2) of section 53 of the Incom e tax Ordinance, 2001 (XLIX of 2001), the Federal Government is pleased to direct that the following further amendment shall be made in the Second schedule to the said Ordinance; namely:-..... The above cited phrases in Preamble of the SRO 1213, indicate the intention of acknowledgement of concerns and strong reservations of business community raised before the Federal Government and most particularly to transform the attitude of inhabitants of FATA phase-wise from century old tribal traditions to perfect constitutional state, hence, it was not a simple exemption to be regulated under section 53 (1) of the Income Tax Ordinance, 2001, rather the Federal Government intended to keep the situation intact regarding all the non applicable taxes as it was existing prior to the twenty-fifth amendment. 10. It transpired from the record that in order to make the Fiscal Laws applicable to the erstwhile Tribal Areas, sale tax Notification No. SRO 888(1)/2018, SRO 889(1) of 2018, and SRO No. 890(1) of 2018 both dated 23 of July, 2018, were issued by the Federal Government qua exemption of the supplier specified therein from sale tax, but subject to registration of Industrial Units with the Federal Tax Authorities i.e under section 181 of the Income Tax Ordinance. However due to strong reservations and concerns of the Trading Community of the Tribal Areas to the effect that said notifications are not in consonance with the promise made by the Legislative Authority regarding keeping status-quo in the matters of taxes as was existing prior to merger of FATA, subsequent Notifications SRO Nos. 1212(1)/2018 and 1213(1)/2018, were issued whereby earlier Notifications No. 888 to 890 of 2018, were rescinded ab-initio and by insertion of section 110 in the 2 Schedule Part-IV, the provision of section in Division-III of Part-V Chapters-X and XII were made not applicable to the merged area of FATA, for the purpose of collection of withholding tax on the same pattern as it was not applicable to the then FATA. 11. In the cases in hand, undisputedly, SROs under discussion have been issued under section 53(2) of Income Tax Ordinance, which not only empower the Federal Board of Revenue (with the approval of Federal Minister-in-charge) to exempt any class or classes of persons specified in the 2 Schedule from payment of tax, but also empower the Federal Government to exempt any person from the operation of any provision of the Ordinance. For the purpose of clarity, section 53 of Income Tax Ordinance, is reproduced below:- "S.53. Exemption and tax concession in the Second Schedule:- (1) The income or classes of income or persons or classes of persons specified in the Second Schedule shall be:- (a) exempt from tax under this Ordinance, subject to any conditions and to the extent specified therein' (b) subject to tax under this Ordinance at such rates, which are less than the rates specified in the first Schedule, as are specified therein' (c) allowed a reduction in tax liability under this Ordinance, subject to any conditions and to the extent specified therein; or (d) exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein;th rd nd nd
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(2) The Board with the approval of Federal Minister-in-Charge may, from time to time pursuant to the approval of the Economic Coordination Committee of Cabinet, whenever circumstances exist to take immediate action for the purposes of national security, natural disaster, national food security in emergency situations, protection of national economic interest in situations arising out of abnormal fluctuation in international commodity prices, removal of anomalies in taxes, development of backward areas implementation of bilateral and multilateral agreements or granting an exemption from any tax imposed under this Ordinance including a reduction in the rate of tax imposed under this Ordinance or a reduction in tax liability under this Ordinance or an exemption from the operation of any provision of this Ordinance to any international financial institution or foreign government owned financial institution operating under an agreement, memorandum of understanding or any other arrangement with the Government of Pakistan, by notification in the official Gazettee, make such amendment in the Second schedule by:- (a) adding any clause or condition therein; (b) omitting any clause or condition therein; or (c) making any change in any clause or condition therein, as the Government may think fit and all such amendments shall have effect in respect of any tax year beginning on any date before or after the commencement of the financial year in which the notification is issued. (3) The Federal Government shall place before the National Assembly all amendements made by it to the Second Schedule in a financial year". (emphasis supplied). (Sub-section 4 and proviso attached thereto have no relevancy with the controversy in the instant case, therefore, are not reproduced). From the above quoted section of Income Tax Ordinance, it is manifest that exemption from tax or exemption from the operation of any provision of the Income Tax Ordinance, may be granted to any person who falls within the domain and regime of Federal Board of Revenue and liable to pay tax. As discussed in the preceding Para, the defunct FATA, after the 25% constitutional Amendment, has been merged into the settled area, and like residents of the settled areas, the inhabitants of merged FATA have entered into the tax regime, thus, they have been held liable to pay all kinds of taxes unless granted exemption from tax or from any provision of payment of tax. It is to be noted that a person exempted under section 53(1) (a, b and c), shall make recourse to section 159 of the Income Tax Ordinance, which provides a mechanism of grant of exemption. 12. No doubt, through SRO No.1213, sections 144 and 145 of the Income Tax Ordinance have been omitted from the Second Schedule while new sections i.e.146 and 110, have been added/inserted in the Second Schedule Part-I and Part-IV , respectively . Similarly , through SRO No.1212, issued under section 13(2) (a) of Sales Tax Act, 1990, the petitioners are found granted exemption from whole of the sales tax, by whatever name called. Manifestly, by SRO No.1213, exemption had not been granted to the people of merged areas from payment of income tax, rather they have been exempted from applicability of provisions of Chapter-X and XII of Ordinance. Emphasis supplied to the provision of newly inserted sections 110 in preceding Para, where SRO No.1213, has been reproduced, shall make it abundantly clear that provisions of sections 149 to 158, being part of Division-III Part-V, Chapter-X and section 231-A to 236-X being part of Chapter-XII, have…
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