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Petitioner: F M Textile Mills & others VS Respondent: Federal Board of Revenue & others
Court Name: Lahore High Court Judge(s): Shahid Karim Title: F M Textile Mills & others vs Federal Board of Revenue & others Case No.: W.P No.37358 of 2016 Date of Judgment:2017-07-06 Reported As: 2017 PTD 1875, 2017 LHC 2656 Result: Petition allowed
Judgment Shahid Karim, J:- Introduction: This judgment shall also decide connected constitutional petitions W.P No.29474 of 2015, W.P No.28698 of 2015, W.P No.16866 of 2015, W.P No. 30331 of 2017 and W.P No.21988 of 2017. A summary of the facts of each petition will be given in the later part of the judgment as the facts will have to be necessarily connected to the resolution of the issues of law which arise in these petitions. These petitions are woven into a unified fabric by the challenge in these petitions to SRO 116(I)/2015 issued by the Federal Board of Revenue (FBR) on 9.2.2015 (SRO 116) in exercise of the powers conferred by sections 30, 30A and 30E of the Sales Tax Act, 1990 ("the Act, 1990"). It is the case of the counsels for the petitioners that SRO 116 is outwith the authority of FBR and must be struck down. As a consequence, the prayer is for the proceedin gs set in motion on the basis of SRO 1 16 to be quashed as being without lawful authority and of no legal ef fect. The Issues: 2. The challenge to SRO 1 16 has its genesis in two separate but related arguments: i. Whether the provisions of section 30 read with section 30A of the Sales Tax Act, 1990 (Act, 1990 ) require the setting up and formation of a Directorate General (Intelligence & Investigation) [Inland Revenue] (D.G I & I)IR prior to the declaration of those officers as officers of Inland Revenue and the conferment of powers under the Act, 1990 in terms of section 30E. ii. Whether the powers conferred on the officers of D.G I & I under SRO 116 can validly be conferred as such powers are beyond the remit of the authority of officers appointed to D.G (I & I)IR ? 3. It is not necessary to reproduce, in extenso , the entire SRO 116. However , in order to comprehend and lay the foundation for the discussion that follows, some portion of SRO 116 will have to be reproduced which will be sufficient to give an insight in the character of SRO 1 16. SRO 1 16 is to the following ef fect:-
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GOVERNMENT OF P AKIST AN REVENUE DIVISION FEDERAL BOARD OF REVENUE Islamabad, the 9 February, 2015 NOTIFICATION (SALES T AX) S.R.O. 116(I)/2015.- In exercise of the powers conferred by sections 30,30A and 30E of the Sales Tax Act, 1990, and in supersession of all existing Notifications issued in this behalf, the Federal Board of Revenue is pleased to appoint the officers of the Directorate General Intelligence and Investigation, Inland Revenue, specified in column (2) of the Table below, to be the officers of Inland Revenue and exercise such powers and perform functions of officers of Inland Revenue as mentioned in column (3) of the said Table, under the provisions of the said Act specified in column (4) thereof, and having jurisdiction over persons specified in column (5) of that Table, namely:- TABLE S. No.Designation of Officer of Intelligence and Investigation (IR)Designation of Officer of Inland RevenuePowers and Functions conferredJurisdiction (1) (2) (3) (4) (5) 1. Director General Intelligence Investigation (IR)& Chief Commissioner (Inland Revenue)Sections 21(4), 25(1), 25(2) 25A, 25AA, 31, 32, 33, 37, 37A, 37B, 37I, 38, 38A, 38B, 40, 46, 47 and 57Persons or classes of persons carrying on business in areas or residing, within the territorial jurisdiction of Pakistan. 2. Director , Intelligence & Investigation (IR), Headquarter , IslamabadCommissioner (Inland Revenue)Sections 21(4), 25(1), 25(2) 25A, 25AA, 31, 32, 33, 37, 37A, 37B, 37I, 38, 38A, 38B, 40, 46, 47 and 57Persons or classes of persons carrying on business in areas or residing, within the territorial jurisdiction of Pakistan as authorized by Director General Intelligence & Investigation (IR) 3. Director , Intelligence & Investigation (IR), IslamabadCommissioner (Inland Revenue)Sections 21(4), 25(1), 25(2) 25A, 25AA, 31, 33, 37, 37A, 37B, 37I, 38, 38A, 38B, 40, 46, 47 and 57I. All cases assigned to Large Taxpayers Unit, Islamabad & All persons or classes of persons carrying on business, falling within the territorial jurisdiction of the Regional Tax Offices Rawalpindi and Regional Tax Office Islamabad II. All persons or classes of persons not otherwise specified if the personth
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resides in areas mentioned at (I) above. 4. Director , Intelligence & Investigation (IR), Karachi.Commissioner (Inland Revenue)Sections 21(4), 25(1), 25(2) 25A, 25AA, 31, 33, 37, 37A, 37B, 37I, 38, 38A, 38B, 40, 46, 47 and 57I. All cases assigned to Large Taxpayers Unit, Islamabad & All persons or classes of persons carrying on business, falling within the territorial jurisdiction of the Regional Tax Of fices Karachi, Regional Tax Offices, II & III Karachi II. All persons or classes of persons not otherwise specified if the person resides in areas mentioned at (I) above 5. Director , Intelligence & Investigation (IR), LahoreCommissioner (Inland Revenue)Sections 21(4), 25(1), 25(2) 25A, 25AA, 31, 33, 37, 37A, 37B, 37I, 38, 38A, 38B, 40, 46, 47 and 57I. All cases assigned to Large Taxpayers Unit, Lahore & All persons or classes of persons carrying on business, falling within the territorial jurisdiction of the Regional Tax Of fices Lahore, Regional Tax Offices, II, Lahore, Regional Tax Of fices, Sialkot and Gujranwala. II. All persons or classes of persons not otherwise specified if the person resides in areas mentioned at (I) above
SHC Judgment: 4. SRO 116 has its provenance in a judgment of the Sindh High Court, Karachi reported as Wasim Ahmad v. Federation of Pakistan (2014 PTD 1733 ). The challenge, amongst others, in that judgment was to SRO 775(I)/201 1 and the following extract of the judgment while holding the said notification to be ultra vires would be relevant:- "21. The foregoing discussion takes us to 30-6-2011. The changes made by the Finance Act, 2011 must now be considered, as well as the other two notifications to which we were referred, S.R.O. 775/2011 and S.R.O. 776/2011. The Finance Act made no changes to section 3A of the Customs Act. That section therefore, as before, continued to refer to the DG (I&I)-FBR. In section 30A of the Sales Tax Act however, the acronym "CBR" was substituted with the words "Inland Revenue". Thus, section 30A now referred to DG (I&I)-IR. In our view, learned counsel for the petitioners correctly contended that this now referred to a wholly different Directorate General. In other words, there were now two separate Directorates General in existence: DG (I&I)-FBR and DG (I&I)-IR. While this is clear from a bare reading of the two sections, it is also confirmed, inter alia, by a visit to the website of the FBR; accessed 13-3-2014). There, the two Directorates-General are listed and referred to
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separately. Each has its own webpage and is headed by a different officer. The "core functions" listed for the DG (I&I)-IR are distinct from the "charter of functions" that the DG (I&I)-FBR is to perform. (It may however be noted that the "charter of functions" of the latter includes the function "to investigate cases of Sales Tax and Federal Excise made out by the Directorate General prior to 30th June, 2011"-the very point in issue in these petitions.) 22. S.R.O. 775/2011 and S.R.O. 776/2011 were issued on 19-8-2011 by the FBR in this changed statutory framework (for text, see Annex II). S.R.O. 775/2011 was issued with reference to sections 30 and 31, of which the latter is not relevant for present purposes. As noted above, this notification purported to appoint the officers of the DG (I&I)-FBR "to be" officers of Inland Revenue retroactively to 1-7-2011, and to exercise the powers in respect of the sections set out in the notification, though only in relation to cases already initiated as on 30-6-2011 till the finalization of the proceedings. Tellingly, in S.R.O. 775/2011 FBR did not invoke the powers conferred by section 30E. This was so for good reason. Section 30E only empowered the FBR to determine the jurisdiction, etc. of the Directorates General specified in the "preceding sections", and none of those now referred to the DG (I&I)- FBR/CBR. The question is whether the FBR could, in the changed statutory framework, still appoint the officers of the DG (I&I)-FBR "to be" officers of Inland Revenue by directly invoking section 30? In our view, the answer must be in the negative. The FBR had no such power. To recapitulate our conclusions with regard to the "person" who could be appointed an officer of Inland Revenue under section 30: such person could either be (a) an individual (either named directly or by reference to or virtue of his appointment as an officer of Inland Revenue under any other fiscal statute), or (b) a designated officer of any of the Directorates General referred to in sections 30A to 30DD. No other "person" could or can, in our view, be appointed as an officer of Inland Revenue. Since the officers of the DG (I&I)-FBR no longer fell in any of these categories post-Finance Act, 2011, it necessarily followed that their appointment as such by directly invoking section 30 was invalid. S.R.O. 775/2011 was therefore ultra vires the Sales Tax Act, being beyond the powers of the FBR." "25. It will be convenient to pause here and summarize the conclusions arrived at so far. In our view:-- (a) S.R.O. 48/2008 was validly issued and effective accordingly . (b) S.R.O. 56/2010 was invalid, but its invalidity merely meant that S.R.O. 48/2008 continued to hold the field. It remained effective. (c) S.R.O. 775/2011 is ultra vires the Sales Tax Act. (d) S.R.O. 776/201 1 was invalid, but its invalidity merely meant that, as before, S.R.O. 48/2008 continued to hold the field. It remained effective. (e) Notwithstanding the changes in sections 30 and 30A, S.R.O. 48/2008 continued to remain effective for all purposes since on a proper interpretation of the various provisions referred to above, (i) the reference therein to officers of Sales Tax subsequently becam e a reference to officers of Inland Revenue, and (ii) the reference to the DG (I&I)-FBR subsequently became a reference to the DG (I&I)-IR. (f) Notwithstanding (e) above, it would be appropriate if FBR, in supersession of previous notifications, issues a fresh notification under sections 30 and 30E that complies with both the required conditions, i.e., declares the officers of the DG (I&I)-IR "to be" officers of Inland Revenue (section 30) and establishes their jurisdiction, etc. in relation to specified provisions (section 30E)." 5. Thus, the Sindh High Court directed the FBR to issue a fresh notification in terms of Secti on 30 and 30E to comply with the requirements of a pre-condition, that is, to declare the officers of D.G (I & I)-IR to be the officers of Inland Revenue and thereby to establish their jurisdiction in terms of section 30E. The FBR says that SRO 116 has been issued in compliance of the judgment of Sindh High Court and cannot be doubted for its efficacy and sufficiency in law. Without dissecting the merits of the judgment rendered by the Sindh High Court, it does not preclude this Court from entering upon the controversy regarding the legality of SRO 116 and as to whether it comports with the provisions of the Act, 1990. Any direction issued by the Sindh High Court did not at all clothe the FBR with the authority to issue a notification which lacked proper legal basis. Discussion: 6. The controversy revolves around the true interpretation of sections 30, 30A and 30E of the Act, 1990. For facility , these provisions are being reproduced as under:-
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"30. Appointment of Authorities. - (1) For the purposes of this Act, the Board may, appoint in relation to any area, person or class of persons, any person to be - (a) a Chief Commissioner Inland Revenue; (b) a Commissioner Inland Revenue ; (c) a Commissioner Inland Revenue (Appeals); (d) an Additional Commissioner Inland Revenue ; (e) a Deputy Commissioner of Inland Revenue; (f) an Assistant Commissioner of Inland Revenue; (g) an Inland Revenue Officer; (h) a Superintendent Inland Revenue; (i) an Inland Revenue Auditor Officer (ia) an Inspector Inland Revenue; and (j) an officer of Inland Revenue with any other designation. (2) The Chief Commissioner Inland Reven ue and Commissioner Inland Revenue (Appeals) shall be sub ordinate to the Board and Commissioner Inland Revenue shall be sub-ordinate to the Chief Commissioner Inland Revenue. (3) Additional Commissioner Inland Revenue, Deputy Commissioners Inland Revenue, Assistant Commissioner Inland Revenue, Superintendent Inland Revenue, Inland Revenue Audit Officer , Inland Revenue Officer , Inspector Inland Revenue, and officer of Inland Revenue with any other designation shall be sub-ordinate to the Commissioner Inland Revenue and shall perform their functions in respect of such persons or classes of persons or such areas as the Commissioners, to whom they are subordinate, may direct. (4) Deputy Commissioner Inland Revenue, Assistant Commissioner Inland Revenue, Superintendent Inland Revenue, Inland Revenue Audit Officer , Inland Revenue Officer Inspector Inland Revenue Officer an officer of Inland Revenue with any other designation shall be sub ordinate to the Additional Commissioner Inland Revenue. 30A. Directorate General, (Intelligence and Investigation) [Inland Revenue] - The Directorate General (Intelligence and Investigation) [Inland Revenue] shall consist of a Director General and as many Directors, Additional Directors, Deputy Directors and Assistant Directors and such other officers as the Board, may by notification in the official Gazette, appoint. 30E. Powers and Functions of Directorate, etc.- The Board may, by notification in the official Gazette, specify the functions, jurisdiction and powers of the Directorates General as specified in the preceding sections and their officers by notification in the official Gazette. 7. There is another provision which will have an important bearing on the question which arises in these petitions. It is the definition of 'of ficer of Inland Revenue' as given in section 2(18) of the Act, 1990, which reads as under:- "2 (18) "Officer of Inland Revenue" means an officer appointed under section 30;" 8. The true construction to be put on the tenor of SRO 116 must begin with the consideration of the definition of an officer of Inland Revenue as given in section 2(18) and brought forth above. An officer of Inland Revenue simply means an officer appointed under Section 30 of the Act, 1990. Therefore, the term 'an officer of Inland Revenue' is a term having a precise connotation and refers exclusively to officers appointed under Section 30. The use of the word 'means' would lend it a restrictive meaning and no other officer can be included within the definition of an officer of Inland Revenue. This fact will assume significance while juxtaposing with the term 'employees' used in Federal Board of Revenue Act, 2007 (Act, 2007) to which we shall revert at a later stage. Therefore, not every employee shall be an officer of Inland Revenue, while an officer of Inland Revenue shall also be an employee of FBR. Section 30 gives the power to the FBR to appoint any person to be an officer of Inland Revenue as defined in that provision in relation to any area, person or class of persons. The various categories of officers of Inland Revenue have been delineated in section 30. Section 30A, on the other hand, prescribes that D.G (I & I) shall consists of a Director General and as many Directors etc. as the FBR by notification in the official gazette appoint. The learned counsel for the petitioners invite this Court to hold that the appointment to D.G (I & I) of any officer has to be separately done and that officer shall be appointed to a separate cadre designated as D.G (I & I) and who may thereafter be conferred the powers of officers of Inland Revenue by appointing them as such under Section 30 of the Act, 1990. This submission of the learned counsel is nuanced and will have to be considered by
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a holistic reading of the provisions of the Act, 1990 as also the Act, 2007. This stance is controverted by the FBR by reference to notifications by which officers were appointed to D.G (I & I). Ideally perhaps, the course suggested by the petitioners' counsel ought to be the preferred course adopted by FBR. We will revert to this aspect presently. 9. From a reading of SRO 116, the ineluctable inference is that prior to the issuance of SRO 116, the FBR had, in fact, appointed certain officers to the D.G (I & I) who were then appointed as officers of Inland Revenue and conferred powers to be exercised as specified in column 4 of SRO 116. Therefore, SRO 116, in fact, presupposes the appointment of employees and officers to D.G (I & I). The documents of FBR, on the contrary, which have been brought on record do not comport with the meaning culled out from a reading of SRO 116. The entire stance of the learned counsel for FBR during the arguments was that there was no requirements for the setting up of a separate D.G (I & I) or for specific officers to be appointed to the said Directorate General and it was enough that certain officers of the FBR were transferred and posted to the D.G (I & I). This stance is also borne out from the documents relied upon by the learned counsel for FBR and filed through C.M No.1484 of 2017. The first document is an office order dated 25.3.2011 by which the existing Director General Tax Base FBR was renamed as D.G, Directorate General (Intelligence & Investigation) Inland Revenue. The office order thereafter proceeded to enunciate the core functions of the Directorate of the Organizational Structure. Subsequent thereto, the FBR issued another office order which purports to have been issued with the approval of the Chairman FBR and the subject matter of the office order is the transfer of posts. It has been mentioned in the office order dated 7.12.2011 that the order has been sanctioned by the President of Pakistan and transfers certain posts of different cadres along with budget/ establishment charges with immediate effect. From its reading, the office order dated 7.12.2011 merely transfers certain officers from their posts held in different cadres to the D.G (I & I) of Islamabad, Lahore, Karachi and Faisalabad. Lastly, the notification dated 29.07.2016 ("the Transfer Notification") has been relied upon by the learned counsel which too has been issued by FBR and once again relates to the transfers/ posting of certain officers of Inland Revenue from their respective posting to, inter alia, D.G (I & I). Thus, the documents which have been relied upon by the counsel for the FBR show without any manner of doubt that the officers of Inland Revenue currently holding posts in the FBR have been transferred and posted to the D.G (I & I). Relying upon the documents and the case set up by the FBR, it follows ineluctably that existing officers of Inland Revenue were transferred to the D.G (I & I) and this runs counter to the contents of SRO 116 which conveys a different meaning from the stance set up by the FBR in these petitions. For, if the posting to the D.G (I & I) was made in respect of employees who were already officers of Inland Revenue, there was no need to declare those officers as officers of Inland Revenue once again through SRO 116 as the entire exercise will be a contradiction in terms. An officer will need to be declared as officer of Inland Revenue only when he is not already such an officer in terms of section 30 of the Act, 1990 and if he was already such an officer, no need arises for him to be declared as such by the provisions of SRO 116. The notifications relating to the appointment and posting to D.G (I & I) and SRO 116 will have to be reconciled as in my opinion these are mutually contradictory. To reiterate, the learned counsel for the petitioners contends that appointment under Section 30A has to be an appointment separately to the directorate consisting of D.G (I & I) and the FBR has shown no notification by which such a cadre has been created and officers posted. The contents of SRO 116 indeed support the argument advanced by the learned counsel for the petitioners, in that, it was otiose for the officers of D.G (I & I) to be named as officers of Inland Revenue if they were already such officers and were merely transferred to an attached department of FBR, viz. D.G (I & I). It is the case of FBR that D.G (I & I) is without doubt an attached department of FBR and does not require exclusive and separate appointment and posting to that department and any officer and employee of the FBR can be posted to the D.G (I & I). The complexity of the situation has given rise to the cause of action for these petitions. To lend actuality to the analysis, one will have to resort to the provisions of the Act, 2007 which will given an inkling into the functioning of the FBR and the powers of the Board set up under the Act, 2007. 10. Section 3 of the Act, 2007 establishes a Board to be called "the Federal Board of Revenue (FBR)". Some of the powers and functions of the Board are given in section 4(e), (i) & (k) which read as under:
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"(e) to identify and select through Internal Job Posting process the employees for designated jobs". (i) to direct or advise, where necessary , investigation or inquiry into suspected duty tax evasion, tax and commercial fraud, money-laundering, financial crimes cases and to coordinate with the relevant law enforcement agencies; (k) to implement the provisions of all the fiscal laws for the time being in force and to exercise all powers provided under the provisions of the fiscal laws and to take any action, make policy , issue rules or guidelines for the purpose to make the implementation of the fiscal laws clearer , transparent, effective and convenient; 11. Section 5 relates to the human resource management and describes the powers of the Board in respect of its employees. The following powers are relevant for our purposes:- (c) power to lay down qualifications and criteria for the posting of employees against specialized or available posts; (d) power to implement a transparent evaluation process to assess if the official is qualified for posting against a specialized or available post; (e) power to make assessment of integrity of the employees for the purpose of evaluation process or for the purpose of posting, promotion or transfer; "(f) power to transfer, select or post the official or employees against any post on the basis of transparent criteria of selection for internal job postings or transfers; (g) power to transfer any official to any post in any entity owned by the Board; 12. A cumulative reading of these provisions would show that the powers and functions of the Board include the power to identify and select employees for designated jobs as also to direct or advise where necessary, investigation or inquiry into suspected duty tax evasion, tax and commercial fraud, money laundering, financial crime cases and to coordinate with the relevant law enforcement agencies. The powers also include the power to transfer the officials or employees of the Board against any post or entity controlled by the Board. It is not the case of the petitioners that D.G (I & I) is not an entity controlled by the Board. If that be so, then the Board has the power to transfer any officer of Inland Revenue Service to any post in the entire FBR which includes the D.G (I & I). It goes without saying that section 5 of the Act, 2007 also confers power on the Board to select an official or employee against any post on the basis of transparent criteria of selection for internal job postings or transfers. That power of selection may also be exercised by the Board. However , the fact remains that the FBR in the instant case has in all cases transferred its officers of Inland Revenue to be the officers of D.G (I & I). Therefore, in essence, what the FBR did through SRO 116 combined with the Transfer Notification was to appoint "an officer of Inland Revenue with any other designation" [S.30(1)(j)]. By the transfer orders which have been produced before this Court through C.M No.1484 of 2017, the officers of Inland Revenue have been posted as officers of D.G (I & I) against the designation given in section 30A of the Act, 1990. However , it requires to be emphasized once again that any such officer will be "an officer of Inland Revenue with any other designation" within the meaning of section 30(1)(j) of the Act, 1990. Thus what SRO 116 intends to achieve is to appoint officers of Inland Revenue to be transferred and posted as officers of D.G (I & I) and thereby confer powers which they shall exercise in terms of section 30E of the…
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