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Petitioner: Federal Board of Revenue (in both cases) VS Respondent: Dewan Salman Fiber Ltd and JUDGMENT
Court Name: Supreme Court of Pakistan Judge(s): Munib Akhtar, Yahya Afridi, Umar Ata Bandial (C.J) Title:Federal Board of Revenue (in both cases) vs Dewan Salman Fiber Ltd and
JUDGMENT
Reported As: 2023 SCP 265, PTCL 2024 CL. 131, 2023 SCMR 1871, 2023 PTD 1635 Result: Order Accordingly Judgment JUDGMENT Munib Akhtar, J.- The judgment of the learned High Court assailed in these appeals is reported as Dewan Salman Fibre Ltd. and others v. Federation of Pakistan and others 2015 PTD 2304. Three matters--all filed by the present contesting respondents- were disposed of by means of the impugned judgment. (The contesting respondents are the respondent No. 1 and its chief executive; for convenience, they are together referred to as the "company".) Two of the matters were writ petitions filed in the High Court (WP 287/1996 and WP 1105/1996) and one was an IntraCourt Appeal (ICA 82/1997). The ICA arose out of a writ petition that had been filed by the company but was dismissed by a learned Single Judge. The learned Division Bench that gave the impugned judgment allowed ICA 82/1997 and WP 287/1996, but dismissed WP 1105/1996. The present appellant (FBR) filed leave petitions against the two matters that had been allowed while the company filed a leave petition in respect of the matter that stood dismissed. Leave was granted in all three petitions. 2. In the two matters allowed by the learned High Court the company had challenged certain exemption notifications which had been issued in respect of sales tax, excise duty and customs duty. In the third matter, that stood dismissed, the company had challenged the vires of certain provisions of the Sales Tax Act, 1990 ("1990 Act"). The three appeals that resulted (as noted above) were being listed together, and so came up before us. After some preliminary submissions, it was decided that the two appeals in which the FBR is the appellant (being CA 1089/2015 and CA 1090/2015), which relate to the exemption notifications, would be heard first, and together. The third appeal (CA 1091/2015), in which the company is the appellant and which relates to the vires of the
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legislation, was adjourned. (It now awaits the outcome of the decision in these two appeals.) Thus, this judgment disposes of CA 1089/2015 and CA 1090/2015. 3. We begin by noting that the company was incorporated as a public limited company on 04.06.1989. It manufactures polyester staple fiber, commonly referred to as PSF. The principal raw materials for the manufacture of PSF are mono-ethylene glycol (known as MEG) and pure terephthalic acid (PTA). The company set up its production facilities in District Hattar, NWFP, an under-developed part of the country. The first unit ("Unit I") came into production on 01.01.1992 and there appears to be no dispute as regards this unit. The second unit ("Unit II") came into production, according to the company, on 15.06.1995. As we will see, there is a dispute raised with regard to Unit II. It is to be kept in mind (as this aspect is crucial for the company's case) that there are other companies that also manufacture PSF, but these are located in other parts of the country. More particularly, none of those companies (save perhaps one) have (or at least had at the relevant time) a plant in NWFP (now of course KPK). 4. The dispute and issues that eventually came before the learned High Court have a long and rather tangled history involving, and requiring reference to, many notifications issued over quite a few years under the Central Excises Act, 1944 ("1944 Act"), the Sales Tax Act, 1951 ("1951 Act"), the 1990 Act and also (though this is somewhat marginal) the Customs Act, 1969 ("1969 Act"). During the course of his submissions, learned counsel for the company filed a detailed note giving the history of, and background to, the dispute as per the company's perspective. We would like to acknowledge the assistance provided to the Court in this regard. It will be convenient to set out in tabular form the various notifications that will be referred to below. We may note that the notifications identified below in bold are those that were challenged specifically by the company. Notification How identified in this judgmentPurpose/effect SRO 462(I)/88 dated 26.06.1988SRO 462/88 Issued under the 1951 Act and the 1969 Act. Effect: granted exemption on the import/sale of PTA and MEG SRO 529(I)/88 dated 26.06.1988SRO 529/88 Issued under the 1951 Act: exempted all goods produced or manufactured by industries set up between 01.07.1988 to 30.06.1991 in (inter alia) NWFP from sales tax. The exemption was to be effective for a period of 8 years from 01.07.1988. SRO 531(I)/88 dated 26.06.1988SRO 531/88 Issued under the 1944 Act: amended a general exemption notification SRO 555(I)/79 dated 28.06.1979. Effect: exempted the manufacture of PSF from excise duty SRO 580(I)/91 dated 27.06.1991SRO 580/91 Issued under the 1990 Act: exempted all goods produced or manufactured by industries set up between 01.07.1991 to 30.06.1996 in NWFP from sales tax "for a period of five years from the date the industry is set up"
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SRO 482(I)/92 dated 14.05.1992 [challenged in WP 287/96, the subject matter of CA 1090/2015]SRO 482/92 Issued under the 1969 Act and the 1990 Act, in supersession of SRO 462/88. Effect: removed the exemption previously available on the import/sale of PTA and MEG SRO 500(I)/93 dated 14.06.1993SRO 500/93 Issued under the 1944 Act: superseded and replaced exemption notification SRO 555(I)/79 dated 28.06.1979. Effect: exemption on the manufacture of PSF from excise duty was continued SRO Nos. 545(I)/94 and 546(I)/94, both dated 09.06.1994SRO 545/94 and SRO 546/94Issued under the 1944 Act. General notifications. Combined effect: superseded SRO 500/93, but exemption on the manufacture of PSF from excise duty was continued SRO 561(I)/94 dated 09.06.1994 [challenged in WP 287/96, the subject matter of CA 1090/2015]SRO 561/94 Issued under the 1990 Act: superseded SRO 580/91 and exempted all goods produced or manufactured by industries set up between 01.07.1991 to 30.06.1994 in (inter alia) NWFP from sales tax "for a period of five years from the date the industry is set up". Also contained certain conditions set out in its two provisos SRO 477(I)/95 dated 14.06.1995 [challenged in ICA 82/97, the subject matter of CA 1089/2015]SRO 477/95 Issued under the 1944 Act: amended SRO 546/94. Effect: imposed a 5% excise duty on the manufacture of PSF SRO 515(I)/95 dated 14.06.1995 [challenged in ICA 82/97, the subject matter of CA 1089/2015]SRO 515/95 Issued under the 1990 Act: reduced the sales tax on the supply of locally produced PSF to 10% 5. Learned counsel for the company (who, in the event, ended up arguing first) submitted that when it was incorporated (in 1989) the fiscal regime applicable in the country was that on the sale of locally produced PSF, there was a sales tax of 15% under the 1951 Act. There was no excise duty on the manufacture of PSF, by virtue of SRO 531/88. There was also no customs duty or sales tax on the import or supply of the raw materials for the manufacture of PSF, i.e., MEG and PTA. This was by reason of SRO 462/88. Thus, looking at the matter commercially and holistically, in the whole of the
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country the total indirect taxes applicable (as presently relevant) were 15%, and this was wholly in the shape of a sales tax on PSF. At the same time, there was an exemption notification available in respect of sales tax, SRO 529/88. In terms of this notification an industrial unit set up (inter alia) in the NWFP and compliant with the conditions thereof (in particular, that it be set up between 01.07.1988 to 30.06.1991) was entitled to exemption from sales tax on the goods manufactured and sold by it, for a period of eight years from 01.07.1988 (i.e., up to 30.06.1996). (We pause to note that as far we have been able to make out, the rate of sales tax under the 1951 Act was in fact 12.5%, from 1981 till its replacement by the 1990 Act. It appears that even under the latter statute the rate did not become 15% till 1993.) 6. From the submissions made by learned counsel the grievances of the company can be regarded as falling into two distinct categories. Firstly, learned counsel submitted that the benefit of SRO 580/91 was wrongly denied to the company in relation to Unit II, on the purported basis that that notification had been superseded and replaced by SRO 561/94. Learned counsel submitted that Unit II had started commercial production by 15.06.1995 as, inter alia, confirmed by the Director of Industries Commercial and Mineral Development, Government of NWFP. This was well within the range stipulated by SRO 580/91 for the setting up of a unit, the last date for which was 30.06.1996. The right to take the benefit of the notification had become vested in the company, and could not be defeated or taken away by SRO 561/94. The latter notification not only purported to reduce the period (making the cut off date to be 30.06.1994) but also imposed certain other conditions (as contained in its two provisos) which were not to be found in SRO 580/91. It was contended that the learned High Court had correctly held that SRO 561/94 could not defeat the rights of the company under SRO 580/91. 7. The second category of grievances, learned counsel submitted, was regarding the impairment of the benefit conferred by SRO 580/91. This applied in relation to both Unit I and Unit II (on the basis that the latter also came within the scope of the notification). Learned counsel submitted that the company's competitors, i.e., the other manufacturers of PSF, could not abide by or accept the sales tax benefit that the company had obtained by setting up its production facilities in District Hattar, NWFP. Learned counsel emphasized that the company could easily have set up its unit elsewhere, in a more developed part of the country, but relying on the representation and promise contained in SRO 529/88, and continued by SRO 581/91, made a huge investment in an under- developed area. In this regard, it was submitted that an additional amount of Rs. 800 million had to be spent by the company. This was over and above the investment of USD 100 million in the plant and facilities itself. Learned counsel submitted that at the behest of its competitors, the Federal Government and/or CBR, acting in bad faith and a mala fide manner and in flagrant misuse and abuse of the statutory powers conferred to issue exemption notifications and to modify, vary and rescind the same, altered the indirect tax regime such that the position for the competitors remained essentially unchanged but the company suffered material deterioration in its financial and commercial situation. This submission constituted the core of the second category of grievances aired by the company. 8. Expanding on his submissions in this regard, learned counsel again drew attention to the indirect tax regime as prevailing at the time of the company's incorporation, referred to in para 5 above. Learned counsel submitted that there was a deliberate, mala fide and unlawful stage-wise move to alter this regime in a manner that impinged (wholly negatively) only on the company. For its competitors the position essentially remained the same: they were, as before and throughout, exposed to a 15% indirect tax levy. However, the company's position was altered dramatically, and to its manifest disadvantage and detriment. Explaining this point, learned counsel submitted that in 1992, by SRO 482/92 (which was issued on 14.05.1992, i.e., within a few months of Unit I going into production), the exemption regarding the
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import/supply of PTA and MEG was removed. By then, the 1951 Act had been replaced by the 1990 Act. The sales tax regime had moved into the VAT mode (i.e., had become a value added tax). Learned counsel submitted that at the heart of the VAT mode lay the output-input tax adjustment mechanism. Now, the company's competitors were already paying sales tax on their sale of PSF. This became their output tax under the VAT regime. So, when sales tax was imposed on the raw materials (PTA and MEG) by removal of the exemption that simply became the input tax for them. They could adjust the latter against the former and were liable only to pay the net amount. The position for the company was however materially different. Since its sales of PSF were exempt, it could not charge any sales tax on the same, i.e., it had no output tax. At the same time, it now had to face an input tax on account of the removal of the exemption on sale/supply of PTA and MEG. This tax perforce had to be absorbed by the company itself. Thus, there was a material deterioration in its position, and the benefit of the exemption granted by SRO 580/91 was adversely impacted. Learned counsel emphasized that all of this was done by the Federal Government/CBR (i.e., the predecessor of the present FBR) at the behest of the competitors, and in an unlawful and colorable exercise of the statutory powers conferred by the 1969 Act and the 1990 Act. 9. This however, was not all. Sometime later two notifications, SRO 477/95 and SRO 515/95, were issued on the same day, 14.06.1995. The first notification, under the 1944 Act, imposed an excise duty of 5% on the manufacture of PSF by altering the relevant exemption notification. The second notification, under the 1990 Act, reduced the sales tax on the supply of locally manufactured PSF to 10% from 15%. For the company's competitors, there was no overall change in the fiscal regime: viewed commercially, it remained at the same rate as before, though now bifurcated into a sales tax and an excise duty. For the company however, there was a material alteration. It enjoyed a complete exemption from sales tax. However, by imposing the 5% excise duty, there was an immediate and material impairment of the sales tax exemption: 5% (or one-third of the benefit) was now "lost" on account of the imposition of the excise duty. 10. Learned counsel emphasized that these changes were discriminatory and person-specific in that they applied to only one PSF manufacturer in the country, i.e., the company. It was submitted that the record amply demonstrated that all of this was orchestrated by the company's competitors in a flagrant breach of law and a complete failure by the Federal Government/CBR to properly and effectively exercise their powers in accordance with law. 11. Learned counsel also placed strong reliance on the Protection of Economic Reforms Act, 1992. It was submitted that the changes made to the company's manifest disadvantage were in breach thereof and reliance was placed on s. 6. This could not therefore have been done. In this context, it was also submitted that when the sales tax was imposed on the raw materials (PEG and PTA) the company remonstrated with the Federal Government and eventually an arbitration committee was set up to consider and resolve the issues between the company and its competitors. This committee was constituted by SRO 1040(I)/92 dated 28.10.1992. Three members were empanelled of whom one was nominated by the company, one by its competitors (who was also the Chairman) and one was the concerned member CBR. The notification also specified the committee's terms of reference. (The notification can be found at PTCL 1993 St. 177(i).) Learned counsel relied on the committee's report and the recommendations made therein. We pause here to note that without as such referring to the arbitration committee it is clear from the impugned judgment that the learned Division Bench has been strongly influenced by its report. 12. On the foregoing basis, learned counsel submitted that the impugned judgment was correct in granting relief to the company, and that the appeals presently under consideration ought to be dismissed. 13. Learned counsel for the appellant (FBR) on the other hand submitted that the learned High Court had erred materially in holding for the company, and that the appeals ought to be allowed.
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Learned counsel essentially made and reiterated the submissions made before the learned High Court, and recorded in paras 8 and 9 of the impugned judgment (at pp. 2310-11). We intend no disrespect in not reproducing the same in extenso herein. It was prayed accordingly. 14. We have heard learned counsel as above, and considered the record and material as made available. We begin with the first issue, as to whether the company was entitled to the benefit of SRO 580/91 in respect of Unit II, notwithstanding that the notification had already been superseded, and replaced with SRO 561/94 by the time that the said unit went into production (on 15.06.1995). It is necessary to set out the two notifications, which provided in material part as under (as originally issued): SRO 580(I)/91 dated 27.06.1991 SRO 561(I)/94 dated 09.06.1994 In exercise of the powers conferred by sub-section (1) of section 13 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that all goods produced or manufactured by such industries which are set up in the North-West Frontier Province between the 1st July, 1991, and the 30th June, 1996, shall be exempt from the tax payable under the said Act for a period of five years from the date the industry is set up. Explanation.- For the purpose of this Notification, the expression "set-up" shall mean the date on which the industry goes into production including trial production, which date shall be intimated, in writing, by an intending manufacturer to the Assistant Collector of Sales Tax having jurisdiction in the area at least fifteen days before commencing such production.In exercise of the powers conferred by sub-section (1) of section 13 of the Sales Tax Act, 1990, and in supersession of this Ministry's Notification No. S.R.O. 580(I)/91, dated the 27th June, 1991, the Federal Government is pleased to direct that all supplies made by manufacturers or producers of industrial units which are set up in the North- West Frontier Province...between the 1st July, 1991, and the 30th June, 1994, shall be exempt from the tax payable under the said Act for a period of five years from the date the industry is set up: Provided that thisexemption shall also be available to such units which have opened letters of credit before the 30th June, 1994, for import of machinery or have firmed up financial arrangements with the banks or financial institutions before the said date for the new unit to be set up upto the 30th June, 1995: Provided further that these letters of credit or firmed up financial arrangements with the banks or financial institutions are registered with the Central Board of Revenue before the 15th July, 1994 by such units and the Board, after verifying the facts, will intimate to the applicant in writing whether he is entitled to enjoy exemption under this Notification or otherwise: Explanation. --For the purpose of this Notification, the expression "set up" shall mean the date on which the industrial unit commences its production including trial production, which date shall be intimated, in writing, by manufacturer to the Assistant Collector of Sales Tax having jurisdiction in the area at least fifteen days before commencing such production but shall not include the date of expansion, balancing, modernization or replacement of such industry.
We may note that within a few days of its issuance SRO 561/94 was amended vide SRO 612(I)/94 dated 14.06.1994, such that for "1995" as appearing in the first proviso, "1996" was substituted. SRO 561/94 was subsequently again twice amended, vide notifications dated 22.11.1994 and 13.06.1996. However, those amendments need not detain us. We will consider SRO 561/94 as amended up to the first time.
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15. It is clear from a comparison of the two notifications that there were material differences between them. Thus, SRO 580/91 provided that if an industry were set up within the period 01.07.1991 to 30.06.1996, then it was entitled to exemption from sales tax for a period of five years from the date of being set up. In this, the notification can be regarded as the natural successor of SRO 529/88, which required the industry to be set up within the period 01.07.1988 to 30.06.1991: as is obvious, the periods provided in the two notifications were "back-to-back". The period of exemption granted by SRO 529/88 was fixed at eight years from 01.07.1988, i.e., did not relate to the date of the setting up of the industry. This eight year period ended on 30.06.1996, which again co- relates with SRO 580/91. By contrast, SRO 561/94 reduced the period within which the industry had to be set up to 30.06.1994. It is true that the first proviso purported to provide a window for the setting up of the industry up to 30.06.1996. However, this "additional" period (i.e., from 01.07.1994 till 30.06.1996) was highly conditional, as is clear from the two provisos. Thus, quite unlike the situation under SRO 580/91, to avail of this "additional" period, the letters of credit etc. had to be in place by 30.06.1994 and registered with the CBR by 15.07.1994. Even then, there was in terms of the second proviso not just a power but also discretion vested in the CBR, to decide whether the industry was entitled to the benefit of the notification. Such requirements were wholly absent in SRO 580/91. Furthermore, the last part of the Explanation to SRO 561/94 ("but shall not include the date of expansion, balancing, modernization or replacement of such industry") was intended to exclude certain situations from the benefit thereof. The Explanation to SRO 580/91 had no such restrictions. 16. As the review just undertaken indicates, the supersession of SRO 580/91 by SRO 561/94 had negative consequences for the company's Unit II. It is in this context that the submissions by learned counsel for the company, that Unit II continued to enjoy the benefit of SRO 580/91 by reason of the Protection of Economic Reforms Act, 1992 ("1992 Act"), are to be considered. We turn therefore to the said Act. 17. Section 6 of the 1992 Act provided as follows: "6. Protection of fiscal incentives for setting up of industries. The fiscal incentives for investment provided by the Government through the statutory orders listed in the Schedule or otherwise notified shall continue in force for the term specified therein and shall not be altered to the disadvantage of the investors." The 1992 Act also defined "economic reforms" in s. 2(b), in the following terms: ""economic reforms" means economic policies and programmes, laws and regulations announced, promulgated or implemented by the Government on and after the seventh day of November, 1990, relating to privatization of public sector enterprises, and nationalized banks, promotion of savings and investments, introduction of, fiscal incentives for industrialization and deregulation of investment, banking, finance, exchange and payments systems, holding and transfer of currencies;". It is interesting to note that although the term "economic reforms" is defined in the substantive part of the statute, it does not appear at any place therein other than the preambles. None of the sections, as such, use it or refer to it. An obvious question is whether the definition is to be disregarded as redundant, or does it have some role to play in respect of the substantive provisions? Since redundancy is not to be lightly imputed to any part of a statute (including any term specifically defined therein), in our view the benefit conferred by s. 6 of the 1992 Act is to be measured against the definition of "economic reforms". It will be noted that s. 6 speaks of "fiscal incentives for investment". The definition of "economic reforms" makes express reference to "fiscal incentives for industrialization". When there is a combined reading of s. 2(b) and s. 6, in our view, two points emerge. Firstly, s. 6 applied only to those laws, regulations etc. as were announced, promulgated or implemented on and after 07.11.1990. As presently relevant, this meant that it applied to those notifications as were issued on or after the said date. Secondly, s. 6 applied only to
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such notifications as contained time-bound provisions. This is clear not merely from the words "for the term specified therein" as used in the section, but also on an examination of the two notifications specifically listed in the Schedule. One was under the Income Tax Ordinance, 1979, i.e., related to direct taxation whereas the other was under the 1969 Act, i.e., was in respect of an indirect tax. Both had a specific (and the same) period, 01.12.1990 to 30.06.1995, for the setting up of the industry. The notification under the 1969 Act applied also to "expansion or balancing, modernization and replacement of existing units". 18. If a notification complied with the…
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