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Official Citation: 2025 PTD 399
Court / Jurisdiction: Peshawar High Court
Year of Decision: 2024
Decision Date: 2024-12-31
Parties: Messrs Taj Vegetable Oil Processing Unit (Pvt.) Ltd. and others vs JUDGMENT
Ruling Summary: This decision was rendered by the Peshawar High Court on 2024-12-31, officially reported as 2025 PTD 399. In this matter between Messrs Taj Vegetable Oil Processing Unit (Pvt.) Ltd. and others and JUDGMENT, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
Case cited as 2025 PTD 399
Court Name: Peshawar High Court Judge(s): Ijaz Anwar, Syed Arshad Ali Title:Messrs Taj Vegetable Oil Processing Unit (Pvt.) Ltd. and others vs
JUDGMENT
Reported As: 2025 PTD 399 Result: Order accordingly Judgment
JUDGMENT SYED ARSHAD ALI, J. This consolidated judgment is aimed at deciding the instant petition as well as connected petitions, the detail whereof has been provided in Annexure 'A' to this judgment, challenging the amendment in Entry No. 151 of the Sixth Scheduled to the Sales Tax Act, 1990 through Finance Act, 2024. 2. Mr. Isaac Ali Qazi, Advocate, learned counsel appearing on behalf of the petitioner has referred to the history of extension of laws to the erstwhile Federally Administered Tribal Area/Provincially Administered Tribal Area ("FATA/PATA") and has argued that the fiscal laws i.e. Income Tax Ordinance, 2001 ("Ordinance, 2001") as well as the Sales Tax Act, 1990 ("Act, 1990") were never extended to FATA/PATA as there has been a dispute between the persons, carrying business in the erstwhile FATA/PATA and the Revenue. He next argued that even after the omission of Article 247 from the Constitution of the Islamic Republic of Pakistan, 1973 ("Constitution") through Act No. XXXVII dated 04.06.2018 when the normal law of taxation stood extended to the aforesaid area, the Federal Government had allowed the said exemption to the residents of erstwhile FATA/PATA The petitioners stilt enjoy the said exemption in form of Entry No. 151 of the Sixth Schedule to the Act, 1990, however, in the past as a security against the import of raw material, the petitioners would provide post-dated cheque equivalent to the amount of leviable duties and taxes to ensure that the raw material imported for consumption in the erstwhile tribal area is consumed in the tribal area. Through the impugned order, the petitioners are required to provide pay order instead of
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post-dated cheque. The learned counsel has maintained that for providing a pay order from a scheduled Bank, the petitioners' are required to pay the leviable taxes and duties at the import stage, despite the fact, that the said imports are exempt from leviable taxes and duties. He next contended and referred to the judgment of this Court in the case of Messrs Taj Packages Company (Pvt.) Ltd. through Manager v. The Government of Pakistan through Federal Secretary Finance and Revenue Division and 6 others (2016 PTD 203) as well as the judgment passed by the Apex Court in the case of Pakistan through Chairman, FBR and others v. Hazrat Hussain (2018 SCMR 939) approving the ratio of Messrs Taj Packages case and has argued that both the said judgments refer to a good number of exemption in terms of section 13 of the Act, 1990 nowhere the Revenue had demanded the cash security in form of pay order, therefore, the exemption provided to the petitioners despite special background has been made contingent with the cash security which is not only discriminatory but offends Articles 9, 14, 18, 23, 24 and 25 of the Constitution. 3. Mr. Shuman Ahmad Butt, Advocate, learned counsel also appearing on behalf of the petitioner, while referring to the scheme of charging section, input adjustment under section 7 of the Act, 1990, has argued that in cases when the person deals in taxable supplies is not exempt from payment of sales tax can adjust the input tax at the time of making supply; whereas when the respondents are demanding the pay order which means that the entire tax is paid to the respondents in advance with no option to the petitioners to adjust the input tax. He next contended that the condition imposed through Entry No. 151 is ultra vires because under section 13 of the Act, 1990, it is only the Federal Government to impose a condition on any form of exemption.; whereas through Entry No. 151 the Parliament has imposed the said condition and it is settled law that when there is a conflict between schedule and the main statute/charging section then in such circumstances, the schedule will yield to the charging section. He has also stated that the impugned legislation is discriminatory and is an unreasonable restriction on the business activities of the petitioners. The learned counsel has also argued that the impugned legislation through the Finance Bill was not permissible as it does not relate to imposition of any taxes but rather regulates the imports by substituting the condition of post-dated cheque to that of pay order which is beyond the scope of a money bill as provided under Article 73 of the Constitutions. 4. The learned Deputy Attorney General along with the learned counsel for the Revenue and Customs have argued that the impugned legislation has been passed by the competent legislation, therefore, cannot be struck down. They next argued that pursuant to the Finance Act, 2024, the import to the tribal area has been rationalized. 5. Pakistan Vanaspati Manufacturer Association (PVMA) and Pakistan Association of Large Steel Producers (PALSP)/the intervenors have filed applications seeking their impleadment in the writ petitions on the ground that if any order has been passed in favour of the petitioners then their business concerns/activities would be adversely affected. The said contention was opposed by the learned counsel for the petitioners on the ground that neither the said industrial concerns have any business activities in the tribal area not the petitioners are their competitors, therefore, they are not necessary party to the proceedings. Irrespective of the contentions of the parties, in the interest of justice, we deem it appropriate to provide an opportunity to the intervenors to argue their case, therefore, the said applications are allowed and they be accordingly impleaded as respondents in the writ petitions with red ink. 6. The learned counsel representing on behalf of intervenors has argued that the petitions filed by all the petitioners are defective as it does not challenge the vires of the law. The impugned law has been legislated by the competent legislature in order to ensure that the State revenue is protected, besides, the intervenors are competitors of the petitioners and very often the goods manufactured in the tribal area are freely transported to the settled area, which has adversely affected the business of all the intervenors.
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7. Arguments heard and record perused. 8. In order to appreciate the respective arguments of the learned counsel for the parties, we would like to provide a brief background of the exemption to the tribal area. 9. Prior to the 25th Amendment in the Constitution there was a separate dispensation for the extension of laws to the erstwhile tribal areas both Provincial as well as Federal as provided under Article 247(3)[1] of the Constitution. There has been a judicial consensus that the income-tax as well as sales tax laws were never extended to the FATA/PATA prior to the promulgation of 25th Amendment in the Constitution[2]. Therefore, the goods imported for consumption in the tribal area have never remained subject to the impost of the aforesaid taxes provided that the importers of the goods shall ensure that the goods would be consumed within the tribal area. Since it has always been the concern of the Revenue that since the business community is not regulated through any fiscal regime, therefore, there is every likelihood of leakage of state revenue. This Court, while dealing with the said issue in the case of Messrs Taj Packages (supra), directed the Federal Government to devise a mechanism to regulate the said import and till the time that the said mechanism is evolved by the Federal Government, the then Board now Federal Board of Revenue (FBR) shall obtain from the importers post-dated cheque for the payment of taxes at import stage as a security for goods destined for utilization and consumption in FATA/PATA. The said post-dated cheques shall be returned to the petitioners upon production of consumption certificate only issued by the concerned Commissioner as specified in the notification dated 28.02.2011. 10. After the 25th amendment in the Constitution, the trade community raised its voice for continuance of the said exemption from imposition of income tax and sales tax. The Federal Government through SRO 1212(I)/2018 dated 05.10.2018 and SRO 1213(I)/2018 dated 05.10.20218 had allowed the said exemption to the resident/domicile of the erstwhile FATA/PATA. Similarly, by inserting entries Nos. 151 and 152 in the Sixth Schedule of the Act, 1990, a mechanism was provided for availing exemption of the sale tax on the import of goods which were meant for consumption in tribal areas. The said entries reads as under:- "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 not issued thereunder, would have not applied had Article 247 of the Constitution not been omitted under the Constitution (Twenty-fifth Amendment) Act, 2018 (XLVII 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, 1990, 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: Provided further that if plant, machinery and equipment, on which exemption is availed under this serial number, is transferred or supplied outside the tribal areas, the tar exempted shall be paid at applicable rate on residual value. 152. Supplies of electricity, as made from the day of assent to the Constitution (Twenty-fifth Amendment) Act, 2018, till 30th June, 2023, to all residential and commercial consumers in tribal areas, and to such industries in the tribal areas which were set and started their industrial production before 31st May, 2018, but excluding steel and ghee or cooking oil industries". 11. One of the salient features of the omission of Article 247 of the Constitution is that the provision of the sales tax stood applicable to the tribal area and it is under section 13 of the Act, 1990 that the
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importation of goods, which are destined for consumption in the tribal area, are now exempt from the payment of sales tax; whereas prior to the 25th amendment in the Constitution, the imports were immune from the operation of Act, 1990, meaning thereby that the other provisions of the Act, 1990 are applicable to all the persons, who are located in the erstwhile tribal area and they are required to be registered with the Revenue. The effect of such registration would be that the petitioners would maintain the record as provided under section 32 of the Act, 1990; to file their returns under self-assessm ent scheme provided under section 26 of the Act, 1990; the revenue can access to the said record and conduct an audit of the petitioners under section 25 of the Act, 1990; any discrepancy relating to the short levy of the sales tax can be assessed under section 11 of the Act, 1990 under the adjudicating schemes provided ibid. It would be important to note that when the goods are imported under the concessionary regime, stated above, for consumption in the tribal area after the manufacturing process in their units established in the tribal area, there is no bar on its transportation/supply to the non-exempt area; the mechanism whereof has been provided under section 40D(1)[3] of the Act, 1990 against the leviable duties as per entry No. 74 of fill Sixth Schedule to the Act, 1990. The import of raw material regulated by the FBR. 12. After the 25th amendment in the Constitution, that taxation laws were extended to the erstwhile FATA/PATA and keeping in view the demand of the local people were under the provisions of Ordinance, 2001 and Act, 1990 the business activities solely carried in the erstwhile FATA/PATA were exempt from the imposition of taxes, the detail whereof has been explained above, since then the Federal Board of Revenue (FBR) has been issuing various instructions/circulars to regulate the import of raw material machinery destined to the tribal area through various instruments. 13. On 25.02.2021 Custom General Order No.01 of 2021 was issued, which prescribed procedure for clearance of goods imported by industrial unit of erstwhile FATA/PATA. According to the said procedure, on importation of goods/raw material intended for use in industrial units availing the exemption, TP will be filed at Karachi and the goods will be transported through bonded carrier only to the final destination at Aza Khel Dry port for clearance. The said carrier of goods shall be monitored in terms of Tracking and Monitoring of Cargo Rules, 2012 from Karachi to Peshawar and then to factory premises.[4] 14. However, through Circular No. 09 of 2021, the consignment which was already stuck up at Karachi for transportation to FATA/PATA was given one time concession and the said consignments were to be released against post-dated cheques and sent to their destination under standard tracker mechanism.[5] 15. Through Circular No. 13 of 2021 issued on 26.03.2021 procedure was provided for the issuance of Exemption Certificate for the import of industrial inputs/machinery by FATA/PATA. According to the said circular, the obtaining of an exemption certificate was regulated in terms of section 181A of Ordinance, 2001.[6] 16. On 16.04.2022, Sales Tax General Order No. 14 of 2022 was issued, which, inter alia, envisages that in order to ensure further transparency and prevent leakage of revenue, it has been decided that the industrial units located in erstwhile FATA/PATA shall be allocated import quota of raw material as determined by Directorate General IOCO-IR in consultation with the RTO, Peshawar on the basis of installed capacity of these units. The annual import quota assigned to any particular industry shall be apportioned equally in 12 equal parts on monthly basis and that shall be duly entered in the WeBOC against each manufacturer/industrial unit. After each updation, the balance available quota for the remaining year shall also be clearly mentioned[7]. 17. On 10.08.2021, Circular No. 3 of 2022 was issued by the FBR to regulate the establishment of check-posts to oversee the transportation of goods manufactured in the tribal area to the settled
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area in terms pf section 40D of the Act, 1990 so that at the said check-post the applicable taxes are recovered from the persons taking the goods to the settled areas[8]. 18. On 25.11.2022, 05.09.2023, 28.11.2022 different points were identified as check-posts under Rule- 69F of Chapter-XK of the Sales Tax Rules, 2006 for the aforesaid purposes. 19. It is evident from the aforesaid Circulars that a comprehensive mechanism has been devised by the FBR to oversee the transportation of imported goods right from the stage of its import till it reaches to the manufacturing unit and if any person, who intends to sell the goods outside the territorial limits of FATA/PATA, the same is being it not only through a legal dispensation (section 40D of Act. 1990) but the check-posts have also been established for the said purpose. Needless to mention that a person, who imports raw material, shall ensure that it has the capacity to consume the said raw material in its/his industrial unit and in this regard after the verification of installed machinery, a particular quota is assigned/granted to the importer for the consumption. 20. Having discussed the aforesaid legal and factual aspect of the case, we will now move on to the present issue. The dispute between the parties is an amendment in Entry No. 151 through the Finance Act, 2024, therefore, at this juncture, we would like to reproduce the said Entry. Prior to Amendment After Amendment 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 of Pakistan.- as made 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 not been omitted under the Constitution (Tewenty- 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 Sales151. (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 of Pakistan.- as made till 30th June, 2025, 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 not been omitted under the Constitution (Tewenty- 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, 1990, and the
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Tax Act, 1990, and the same shall be returned to the importer after presentation of a consumption case or installation certificate, as the case may be, in respect of goods imported as issued by the Commissioner Inland Revenue having jurisdiction: Provided further that if plant, machinery and equipment, on which exemption is availed under this serial number, is transferred or supplied outside the tribal areas, the tax exempted shall be paid at applicable rate on residual value.same shall be returned to the importer after presentation within six months 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: Provided further that if plant, machinery and equipment, on which exemption is availed under this serial number, is transferred or supplied outside the tribal areas, the tax exempted shall be paid at applicable rate on residual value.
Tax Regime 21. The Sales Tax Act introduces an indirect tax to be levied, charged and collected on imported goods or on taxable supplies of goods, and the same is collected by the supplier on behalf of the Government, while the incidence of the tax is finally borne by the consumer of the imported goods or of the taxable supplies of the goods. The charging section 3 of the Sales Tax Act lays down the foundational parameters of the sales tax, which are: firstly, the quantum of the tax is based on the value of the goods imported into Pakistan or the taxable supplies made in Pakistan by a registered person; secondly, the incidence of the tax is triggered or made chargeable when the goods are imported into Pakistan or when the registered person makes taxable supplies in the course or furtherance of any taxable activity carried out by him; and finally, the liability to pay the tax is on the person importing the goods in respect of the imported goods, or on the person making the supplies in respect of taxable supplies made in Pakistan.[9] 22. Section 13 of the Act, 1990, which starts with a non-obstante clause, stipulates that the supply of goods or import of goods specified in the Sixth Schedule shall, subject to such conditions as may be specified by the Federal Government, be exempt from tax under the Act[10]. 23. Lord Dunedin, a known jurist in the case of Whitney v. IR Commissioners (1926) 10 TC 88[11], spelt out the three stages of a tax (at the broadest plane) in the following terms: "Now, there are three stages in the imposition of a tax: there is the declaration of liability, that is the part of the statute which determines what persons in respect of what property are liable. Next, there is the assessm ent. Liability does not depend on assessment. That, ex hypothesi, has already been fixed. But assessm ent particularizes the exact sum which a person liable has to pay. Lastly, come the methods of recovery, if the person taxed does not voluntarily pay." 24. Not only exemption and immunity from taxation finds itself in various modern taxation jurisdictions, but section 13 of the Act, 1990, as stated above, also deals with the exemption of any registered person from taxation. Therefore, if there is an exemption in the field, then the second
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stage in the scheme of taxation, as identified by Lord Dunedin (i.e., assessment of' tax liability), may not be reached at all in particular circumstances when the exemption is allowed as a whole, However, if the exemption is subject to certain conditions as in the present case that the supplies/import of the present petitioners under entry 151 ibid is exempt from the sales tax only to the extent of its consumption in a specific territory and in case of its sale/consumption to the normal tariff area, then the same is subject to the impost of sale tax at a specified rate. (Section 40D of the Act, 1990). 25. In the present case, the supplies and the import of plant, machinery and equipment are exempt from impost of sale tax in the manner as stated above; however, the proviso added to Entry No.151 ibid prior to the Finance Act, 2024 had put a condition that the clearance of goods at any port for onward destination to the erstwhile tribal areas is subject to the presentation of a post-dated cheque equal of the amount of sales tax payable under the Act, 1990 which (post-dated cheque) shall be returned to the importer after presentation of consumption or installation certificate as the case may be. Through the Finance Act, 2024, the requirement of a post-dated cheque has been changed to pay order and further the obtaining of the consumption or installation certificate has been made time bound (to be provided within a period of six months). 26. Payment order is a cheque like instrument issued by a bank on request of its customers or against payment of its own expenses or dues, drawn on itself, to pay a specified sum of money to the order of specified person. Payment orders are usually issued by the banks on receipt of full amounts involved, which means that it would not be returned unpaid due to lack of funds; it is also called banker's cheque.[12] 27. The consequence/effect of providing pay order would be that the petitioners shall be required to arrange for the amount of sales tax on the import of goods which shall be deposited with the bank, upon the said sum the petitioners would have no control and can be demanded by the revenue without adjudication of the tax liability of the petitioners. No doubt the petitioners/importers of the goods are entitled to its (payment order) return after presentation of the consumption certificate to the sales tax authorities; however, the entire scheme of the Act, 1990 is completely silent about the procedure for providing a consumption certificate. The Government of Pakistan Revenue Division Federal Board of Revenue Inland Revenue through Circular No.05 of 2021 has provided guidelines for issuance of 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/IR/2020 Islamabad, March 26, 2021 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 rakes 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 FATA/PATA-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
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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…
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