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Petitioner: Muhammad Measum and others VS Respondent: Federation of Pakistan and others
Court Name: Sindh High Court Judge(s): Aqeel Ahmed Abbasi, Muhammad Junaid Ghaffar Title: Muhammad Measum and others vs Federation of Pakistan and others Case No.:Constitutional Petitions Nos. D-3830, D-3629, D-3630, D-3950 and D-3693
of 2014 Date of Judgment:2014-11-22 Reported As: 2015 P.C.T.L.R. 965, 2015 PTD 702, PTCL 2015 CL.704 Result: Petitions allowed Judgment JUDGEMENT: MR. JUSTICE MUHAMMAD JUNAID GHAFFAR.-- (1). Through this common judgment we will dispose of the aforesaid petitions at Katcha Peshi as these involve common questions of fact and law except the facts of Constitutional Petition No. 3950 of 2014 which has been filed by the tax consultant of the petitioners who has been implicated in the FIR alongwith importers, however, has sought similar relief. For the sake of brevity and to avoid duplication, we would be referring to the facts as stated in Constitutional Petition No. D-3830 of 2014, wherein, following relief has been sought:-- "(a) Declare that the FIR dated 29-6-2014 - lodged by sixth respondent, an officer subordinate to the fourth and the fifth respondent - to the extent that it affects the petitioner and those connected and associated with his business, is outright illegal, without jurisdiction and mala fide and to quash/strike down the same; (b) Declare that the letter dated 8-7-2014 whereby the petitioner's Provisional Certificate 30-1-2014 has been cancelled retrospective by the second respondent has been illegally issued in a mala fide manner and without the application of mind and without affording the petitioner an opportunity to be heard and to set aside/strike down the same; (c) Declare that the Provisional Certificate dated 30-1-2014 as issued by the second respondent to the petitioner's business concern RELIABLE ASSOCIATES in terms of S.R.O. 670(I)/2013 dated 18-7-2013 is a valid and legal document issued under lawful authority; (d) Declare that the third, fourth, fifth and sixth respondents do not have the jurisdiction to initiate any recovery and/or penal proceedings in respect of the goods imported under S.R.O. 670(1)/2013
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dated 18-7-2013 and to direct them to release the petitioner's held consignment forthwith under Delay and Detention Certificate without impeding the future clearance his consignments otherwise than in due course of law; (e) Restrain the respondents form taking any coercive action-including effecting and/or causing the arrest/restrain, blocking of the NTN/User-ID and/or commencing penal/recovery proceedings- against the petitioner emanating from or as a consequence of the FIR dated 29-6-2014;" 2. Briefly, the facts as stated in the Memo. of Petition are, that the petitioner is a supplier of Milk dealing under the name and style of "REAL MILK" and is also a manufacturer of plastic products comprising of disposable bottles used for the purposes of ' packaging of milk for supply and retail sale thereof. The petitioner imports raw material namely Plastic Moulding Compounds of various types used in the manufacture of Plastic Bottles which is exempt/zero rated from payment of Sales Tax under S.R.O. 670(1)/2013 dated 18-7-2013. The petitioner has been issued a Provisional Certificate dated 30-1-2014 by the respondent No. 2 in terms of the said S.R.O. for Zero rating of Sales Tax, whereas another Exemption Certificate dated 2-5-2014 has been issued to the petitioner from payment of advance Income Tax at the import stage. It is further stated that the petitioner had been regularly importing its raw material since February 2014 which was cleared by the respondents Nos. 3 and 4 (Collector of Customs, Appraisement, Karachi, East and West) without any hindrance, whereas, suddenly seven consignments of the petitioner were put to hold on the directions of respondent No. 4 without any justification and lawful authority against which the petitioner filed a petition bearing No. D-3031/2014 before this Court. It is further stated that during pendency of the said petition, various letters dated 12-6-2014 and 16-6-2014 were issued by the respondents Nos. 3 and 4, whereby, the petitioner was required to furnish certain documents in respect of the manufacturing facilities available with the petitioner. However, on 29-6-2014 respondents Nos. 4 and 5 registered an FIR, whereby it was alleged that the consignment which had been shipped in the name of the petitioner, was attempted to be cleared by Messrs Winsome Packages vide GD dated 23-6-2014. It is further stated that simultaneously a letter was also addressed to the respondent No. 2, whereby, certain queries were made and it was also requested that the Provisional Certificate dated 30-1-2014 issued in favour of the petitioner, be withdrawn retrospectively. The respondent No. 2 thereafter vide its letter dated 8-7-2014 informed the petitioner that the Provisional Certificate dated 30-1-2014 stands cancelled retrospectively. It is further stated that since the earlier petition bearing No. 3031/2014 was filed against the unlawful detention of consignments, during the pendency of the which an FIR was also lodged against the petitioner, the said petition was withdrawn by the petitioner vide order dated 15-7-2014 whereby, the petitioner was allowed to file a fresh petition challenging the fresh cause of action including the registration of the FIR. Through instant petition the petitioner has sought quashment of the FIR as being without jurisdiction and lawful authority, and has further prayed for setting aside the letter dated 8-7-2014 issued by respondent No. 2, whereby, the Provisional Certificate of the petitioner has been cancelled with retrospective effect. The petitioner also seeks release of the consignments which have been detained by the respondents during pendency of such proceedings. 3. Mr. Zain A. Jatoi learned counsel appearing on behalf of the petitioners, vehemently argued that the registration of the impugned FIR by the Customs Authorities in the instant matters, besides being mala fide and vexatious, is without any lawful authority and jurisdiction, as according to learned counsel, the matter pertains to the alleged short levy of Sales Tax and Income Tax, which does not fall within the domain of the Customs Authorities. Per learned counsel, at the most, action if any could be initiated by the Commissioner Inland Revenue, having jurisdiction in respect of Sales Tax and Income Tax and not by the Customs Authorities, which cannot take cognizance in respect of allegations of evasion of Sales Tax or Income Tax. Learned counsel submitted that the petitioners were issued Provisional Certificates by the Commissioner Inland Revenue, concerned in
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terms of S.R.O. 670(1)/2013 dated 18-7-2013, after fulfilment of the requisite conditions as stipulated in the said S.R.O., whereas, according to the learned counsel, the said S.R.O. itself provides a mechanism and the manner in which the exemption of Sales Tax is to be regulated. Per learned counsel in the entire scheme of the said S.R.O., it is only the Commissioner Inland Revenue, who has been authorized to conduct and monitor the affairs of the petitioners with regard to fact that as to whether the raw material imported under zero rating facility of Sales Tax has been used in the manufacture of the products or not. In support of such contention the learned counsel has referred to clause 'c' and clause 'k' of S.R.O. 670(I)/2013 dated 18-7-2013. Per learned counsel, once the goods have been cleared by the Custom Authorities after grant of zero rating facility in terms of S.R.O. 670(1)/2013 dated 18-7-2013; they become functus officio in so far as any alleged short recovery of the Sales Tax is concerned. Learned counsel further contended that the Customs Authorities can only inform or intimate the respondent No. 2 for any such alleged act and for this reason they had themselves written a letter dated 29-6-2014 hence any further action initiated by them, including registration of the FIR and or any adjudication proceedings are without jurisdiction and any lawful authority. Learned counsel also referred to the contents of the FIR as well as the Interim Challan and has contended that the only alleged violation which has been pointed out by the Customs Authorities is to the effect, that the petitioner has availed the exemption of Sales Tax without, having any manufacturing facilities. According to the learned counsel such exercise cannot be undertaken by the Customs Authorities in respect of Sales Tax matters, as the same falls within the exclusive jurisdiction of Commissioner Inland Revenue; therefore, the FIR which has been lodged/registered by the Customs Authorities is without lawful authority and jurisdiction; hence, liable to be quashed. Learned counsel further contended that in so far as the letter of cancellation of exemption dated 8-7-2014 issued by the Commissioner Inland Revenue Zone-I RTO, Sukkur, is concerned, the same is also not sustainable in law, as it has been issued on the directives of the Customs Authorities, without affording any opportunity of being heard to the petitioner, and even without issuance of a Show-Cause Notice before arriving at such a decision. Learned counsel further contended that even otherwise, the cancellation letter/order dated 8-7-2014 cannot be applied retrospectively, whereby; the vested rights accrued to the petitioners are being impinged and infringed. Learned counsel also referred to Inspection Report dated 18-6-2014 issued by the Officers of respondent No. 3, which reflects that in compliance with the order dated 12-6-2014, the Factory premises of the petitioner was inspected and on physical verification, various machineries were found to be installed and were being used in the production activities for manufacturing of plastic bottles. Learned counsel also referred to a survey report dated 14-7-2014 issued by the Director IOCO (Input Output Coefficient Organization), whereby, it has been confirmed that after verification of the factory premises and the manufacturing facilities, the input output ratio and the wastage has been determined by the Survey team. Per learned courisel the petitioner is very much in existence at the given address and has referred to a courier receipt and the envelope, whereby certain letters/notices were dispatched by the Regional Tax Office of FBR Sukkur, and were received on the same address by the petitioners which has been disputed by the Customs Authorities. While concluding his submissions, the learned counsel has prayed that the impugned FIR dated 29-6- 2014 as well as letter dated 8-7-2014 may be quashed/set aside and the consignments of the petitioners lying at the Port for which the goods declarations have already been filed by the petitioners may be ordered to be processed and released forthwith in accordance with law. 4. Conversely Mr. Kashif Nazeer learned counsel appearing on behalf of the respondent No. 4 has contended that any short levy of Sales Tax can be recovered in terms of section 32 of the Customs Act, 1969; hence, the impugned FIR was registered with lawful authority and jurisdiction and cannot be quashed on this ground alone by this Court. Learned counsel further contended that the petitioners at the very outset are not entitled for any zero rating exemption in terms of S.R.O.
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670(1)/2013 dated 18-7-2013 as the zero rating facility is not admissible on the raw material for the packing material. Learned counsel further contended that such short recovery of Sales Tax can be recovered in terms of section 32 of the Customs Act, 1969 and violation of this section entails punishment under Clause 14 of Section 156(1) of the Customs Act, 1969, under which the adjudicating authority can impose penalty or fine, whereas the Special Judge, Customs and Taxation, can take cognizance of the FIR registered on behalf of the respondent No. 4. Ashiq Ali Anwar Rana learned counsel appearing for respondent No. 2 in Constitutional Petition No. 3950/2014 contended that since FIR has been registered, the petitioners may approach the trial Court for quashment of the FIR in accordance with law. The other learned counsel appearing on behalf of the respondents have adopted the arguments advanced by Kashi Nazeer and Mr. Ashiq Ali Anwar Rana. 5. We have heard all the learned counsel and perused the record. By consent of the learned counsel appearing for the parties, the aforesaid petitions are being heard and disposed of at Katcha Peshi stage through this common judgment. 6.It appears that pursuant to Notification S.R.O. 670(1)/2013 dated 18-7-2013 issued in terms of section 4 of the Sales Tax Act, 1990 the petitioners who claim to be manufacturers of various products as notified in the Table to the S.R.O., applied for obtaining the requisite entitlement prescribed in Annex-A to this notification, by providing the complete list of their annual requirements of the inputs, intended to be imported or purchased locally by them for the manufacture of goods specified in column (2) of the said Table, to the concerned Commissioner Inland Revenue, having jurisdiction in respect of the petitioners. The Commissioner Inland Revenue Zone-I RTO, Sukkur, has issued a Provisional Certificate dated 30-1-2014 in respect of zero rating/exemption from Sales Tax, whereas, another certificate dated 2-5-2014 was also issued in terms of section 159 of the Income Tax Ordinance, 2001 for exemption from deduction of advance tax at import stage under Section 148(1) of the Income Tax Ordinance, 2001. It further appears from the record that after issuance of the Provisional Certificate dated 30-1-2014, the petitioner imported various consignments of raw material for the manufacture of disposal plastic bottles used in the packing of milk by the petitioner. Subsequently, in the month of May 2014, seven consignments of the petitioner were put to hold by the officers of respondent No. 4, on the ground that the petitioner allegedly did not possess any manufacturing facility, and was involved in the misuse of zero rating/exemption of Sales Tax under the said Notification. The petitioner thereafter filed Constitutional Petition bearing No. D-3031/2014 and during pendency of the petition, an FIR dated 29-6-2014 was registered against the petitioners, whereafter, the said petition was withdrawn by the petitioner and this Court vide order dated 15-7-2014 allowed the withdrawal of said petition with a permission to file a fresh petition. Thereafter, instant petitions have been filed by all the petitioners who have been nominated in the FIR dated 29-6-2014 and Interim challan dated 14-7- 2014. 7. Record further reveals that after registration of the FIR at the request of respondent No. 4, the respondent No. 2 vide letter dated 8-7-2014 has also cancelled the Provisional Certificate dated 30-1-2014, retrospectively, without issuance of any Show-Cause Notice, and opportunity of being heard to the petitioners. Through instant petitions all the petitioners have impugned the FIR dated 29-6-2014 and Interim challan dated 14-7-2014, as well as the retrospective cancellation of Provisional Certificates issued to them by seeking quashment of the FIR as well as setting aside of the retrospective cancellation of the Provisional Certificates by the Commissioner Inland Revenue. 8. There are two basic legal issues before us in so far as the aforesaid petitions are concerned which are required to be examined and adjudicated upon by this Court. The first is, whether or not the Customs Authorities working under the Customs Act, 1969 specially the respondent No. 4 and its subordinate officers who have registered the impugned FIR dated 29-6-2014, had any authority or
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jurisdiction to do so in respect of the alleged evasion and or misuse of Sales Tax zero rating/exemption under S.R.O. 670(1)/2013 dated 18-7-2013. The Second is, that as to whether, respondent No. 2 i.e. the Commissioner Inland Revenue was justified in cancelling the Provisional Certificates issued to the petitioners under S.R.O. 670(I)/2013 dated 18-7-2013, retrospectively and that too without issuing any Show-Cause Notice or affording any opportunity of hearing to the petitioners. We would like to deal with the second issue first. In this regard it would be advantageous to refer to the Provisional Certificate dated 30-1-2014 which reads as follows:-- "OFFICE OF THE COMMISSIONER INLAND REVENUE ZONE-I, RTO SUKKUR No. JUD/CIR/ZONE-I/RTO/Suk/2013-14/535 Dated 30-1-2014 PROVISIONAL CERTIFICATE (1) Messrs Reliable Associates, Head office at C-345, Frere Road, Sukkur and Factory at Plot No. DP- 45, Sector 12-D, North Karachi Industrial Area, Karachi having NTN 3615453-9 have applied to the Commissioner Inland Revenue, Zone-I, RTO, Sukkur for issuance of zero rate/low rate certificate in respect of concessionary import of raw material in terms of S.R.O. 670(1)/2013 dated 18-7-2013 for use in the manufacturing of disposable Plastic Bottles for Milk and Dairy Products. Their application alongwith undertaking on stamp paper has been examined and Provisional Quota of requested/applied quantities for concessionary import of raw materials is being allowed for the financial year 2013-14 in respect of following raw material falling at Serial Nos. 9 to 13 of the Table of Concessionary Notification vide S.R.O. 670(I)/2013 dated 18-7-2013. The Provisional Certificate shall be enforced to the input Output Co-efficient Organization (IOCO) for determination of input output ratio and wastage percentage, in respect of concessionary raw materials used/applied by the registered person and after such determination alongwith ascertainment of In-house facility, the quota shall be finalized in respect of manufacturing of the applied Dairy Products i.e. Milk under the brand name and style of Real Milk. 2. The following table shows the provisionally allowed quantity of requested raw material in terms of S.R.O. 670(1)/2013 dated 18-7-2013. [Mr. Justice Muhammad Junaid Ghaffar) S. No.ARTICLES DESCRIPTION OF RAW MATERIALH.S. QUANTITY REQUESTEDQUANTITY ALLOWED D (50%) 1 DAIRY MILK UNDER THE BRAND NAME OF "REAL MILK"POLYPROPYLENE , PROPYLENE, LLD/LOW DENSITY POLETHYELENE, HIGH DENSITY POLYETHYLENE AND ACRYLONITRILE SUADIENE-STYRENE3902.1000 3902.3000 3901.1000 3901.2000 and 3903.30007200 MT 4200 MT 3. The above Provisional Certificate is admissible subject to the following conditions:-- (i) The raw materials, parts and sub-component be released against post dated cheques/indemnity at the time of clearance before concerned Collector of Customs to the concessionary amount of Sales Tax and other tax/duties shall be recovered in cash, in case of any violation. The post dated cheques/indemnity Bonds shall released on receipt of written confirmation regarding consumption of goods of the manufacturer for the satisfaction of the Collector of Customs as covered under S.R.O. 670(1)/2013 dated 18-7-2013. (ii) The manufacturer shall maintain record of imports/local purchase and the goods manufactured from imported and local inputs.
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(iii)Local suppliers of inputs shall issue zero rated invoices under section 23 of Sales Tax Act, 1990 mentioning the names, STRN/NTN and approval No. of buyers under S.R.O. 670(1)/2013. (iv) Issuance of Provisional Certificate does not entitle for concession, if such is either not covered under S.R.O. 670(1)/2013 or is barred under any other instructions, directives issued by the Commissioner Inland Revenue, Zone RTO, Sukkur or FBR in this behalf. (v) In case of withdrawal of concession, the unutilized raw material shall be charged subject to the statutory rate of duties/taxes. (vi) The Provisional Certificate shall be cancelled retrospectively, if it is found that the manufacturer cum importer/beneficiary has misdeclared or concealed any material facts or submitted fake/forge documents. (vii) All conditions of S.R.O. 670(1)/2013 dated 18-7-2013 shall be met and requirements are required to be fulfilled by the applicant for claiming said requirements are required to be fulfilled by the applicant for claiming said concession. (viii) Clearance from Custom House and Port Muhammad Bin Qasim, Karachi. Sd/- (ABDUL BULLO) COMMISSIONER" 9. The aforesaid Provisional Certificate dated 30-1-2014 was issued by the respondent No. 2, on the application of the petitioner, in terms of Clause 2(a) of S.R.O. 670(1)/2013 dated 18-7-2013, and while issuing the said certificate, it was observed by the respondent No. 2, that the application alongwith undertaking submitted by the petitioner has been examined and provisional quota of requested/ applied quantities for concessionary import of raw material is being allowed for the year 2013-14 in respect of the raw material listed at serial Nos. 9 to 13 of the Table to S.R.O. 670(I)/2013 dated 18-7- 2013. It was further observed that the Provisional Certificate will be endorsed to the Input Out-put Co-efficient Organisation (IOCO), for determination of the input output ratio and wastage in respect of concessionary raw material, and after such determination alongwith ascertainment of In-house facility, the quota shall be finalized in respect of manufacturing of milk under the brand name and style of "Real Milk". In Para 2 of the Provisional Certificate, the details of raw material and the quantity applied for and the quantity allowed provisionally, have been stated. On perusal of the same it appears that of petitioner had applied for a total quantity of 7200 metric tons of various types of Plastic Moulding Compounds, whereas a provisional quantity of - 4200 metric tons was allowed to the petitioner. In addition to various other conditions attached, the Provisional Certificate further provides, that it shall be cancelled retrospectively, if it is found that the manufacturer has mis-declared or concealed any material facts or submitted any forged/fake documents. The said certificate has been issued in terms of S.R.O. 670(1)/2013 dated 18-7-2013 and for convenience the relevant portion of the S.R.O. is Islamabad, the 18th July, 2013 "GOVERNMENT OF PAKISTAN MINISTRY OF FINANCE, ECONOMIC AFFAIRS STATISTICS AND REVENUE (REVENUE DIVISION) Islamabad, the 18th July, 2013. NOTIFICATION (SALES TAX) S.R.O. 670(I)/2013.--In exercise of powers conferred by clause (c) of section 4 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that the import and supply of goods mentioned in column (2) of the Table below and the raw materials, packing materials, sub-components, components, sub-assemblies and assemblies imported or purchased locally for the manufacture
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of the said goods shall be charged to sales tax at the rate of zero percent subject to the conditions specified below the Table, namely:-- S. No.Description of goods PCT Heading (1) (2) (3) 1. 2. 3. 4. 5. 6. 7. 8. 9. Milk including favored milk04.01 and 0402.9900 10. Yogurt 0403.1000 11. Cheese 0406.1010 12. Butter 0405.1000 13. Cream 04.01 and 04.02 14. 15. 16. 17. 18 19. CONDITIONS (i) The zero-rating under this notification shall be available subject to determination of input/output ratios by the Input-Output Co-efficient Organization ( hereinafter referred to as "IOCO"), if not already determined under an earlier concessionary notification issued for such goods: Provided that this condition shall not be applicable in case of import of finished goods and their supply in same state; and (i) For import and local procurement of raw materials, packing materials, sub-components, components, sub-assemblies and assemblies for the manufacture of the goods specified in "column (2) of the said Table, the following conditions and procedure shall be followed, namely:-- (a) A sales tax registered manufacturer of the goods specified in the said Table having suitable in- house facilities shall submit, in the format prescribed in Annex-A to this notification, the complete list of his annual requirement of the inputs he intends to import or purchase locally for the manufacture of goods specified in column (2) of the said Table, to the Commissioner Inland Revenue having jurisdiction; (b) The Commissioner shall approve the declaration of input-output ratio of the manufacturer without physical verification in case the declared input-output ratio and input requirement is iii accordance with the prevailing industry average or the inputs consumption pattern of the applicant manufacturer or as already determined by IOCO under an earlier notification issued for such goods, in the format of approval prescribed as Annex-B to this notification. (c) In case the Commissioner is not satisfied with the declared input-output ratios of the goods to be manufactured because of their being, prima facie not in accordance with the prevalent average of the relevant industry or in case the input-output ratios are not already determined by
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IOCO, he,…
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