Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Judicial Members and Shaista Abbas, Accountant Member,Messrs SHELL (PAKISTAN) LTD., KARACHI VS Respondent: C.I.R. ZONE IV, LTU, KARACHI
Court Name: Appellate Tribunal Inland Revenue Judge(s): Muhammad Jawed Zakaria, Jawaid Masood Tahir Bhatti Title:Judicial Members and Shaista Abbas, Accountant Member,Messrs SHELL
(PAKISTAN) LTD., KARACHI vs C.I.R. ZONE IV, LTU, KARACHI Case No.: S.T.A. No.14/KB of 2011 Date of Judgment:2012-03-13 Reported As: 2016 PTD (Trib.) 722 Result: Reference answered Judgment ORDER This appeal was filed on 01.02.2012 with The Tribunal and was heard by that Tribunal against the impugned Order-in-Original No.02/2011 dated 15-12-2011 passed by the Respondent/Commissioner Inland Revenue. 2. The appellant Registered Person (RIP) is a multinational public limited company engaged in the business of manufacture and sale of petroleum products. The Appellant is engaged in the country- wide distribution as well as export of POL products and is registered under the Sales Tax Act, 1990 in the categories of the importer, manufacturer, distributor, wholesaler and exporter. 3. Before discussing merits or demerits of the appeal, it would be pertinent to briefly discuss the background of the case in order to understand the controversy in a clear perspective. The appellant R/P filed their Sales Tax return for the month of September 2008 wherein declared fuel supplies of Rs.1,034,518,563/- to different airlines such as M/s. Air Blue and other non-registered persons/foreign airlines operating from Pakistan and claimed these supplies as zero rated in terms of Section 4 of Sales Tax Act, 1990, meaning thereby that the R/P did not pay any sales tax on these supplies. This quantum of supplies otherwise attract charging of sales tax @ 16% in terms of Section 3 of the Sales Tax Act, 1990 which comes at Rs.165,522,970/- but since the R/P claimed such supplies as zero rated under section 4(b) of the Sales Tax Act, 1990 it did not pay no tax on these supplies. 4. The appellant R/P accordingly thereafter lodged a refund claim for the same month to the tune of Rs. 393,248,183/-. During scrutiny of this refund claim, it was observed by the department that Messrs Shell Pakistan Ltd, had unlawfully claimed its supplies made to Messrs PIA, Messrs Air Blue
---
## Page 2
and other foreign airlines as zero rated as it had not followed the law in terms of Section 4(b) of Sales Tax Act, 1990 and has thus not charged sales tax amounting to Rs.165,522,970/- on these supplies. The sales tax automated refund system STARR also did not validate the refund claim on a number of objections. Accordingly thereafter, the R/P was Show caused on violation of Section 4(b) of the Sales Tax Act, 1990 vide letter C. No.01(10)LTU/ST & FE/REF/BG/SPL/09/1618653 dated 16-11- 2009 wherein the Deputy Commissioner Refund of LTU, Karachi categorically confronted the R/P on its unlawful zero rating claim by violating Section 4(b) read with Section 24 of the Customs Act, 1969 and not filing Export GD and making such supplies only on the basis of delivery notes to the recipients without mentioning their registration numbers and without any receipt of confirmation thereupon. However while passing the consequential Order-in-Original (0-in-0) No. 02/2010 dated 15-02-2010, the DCIR concerned condoned the law i.e. Section 4(b) of the Sales Tax Act, 1990 which he was not empowered to do. As a consequence of that 0-in-O dated 15-02-2010, the R/P was able to get a refund of Rs. 362,858,222/, issued in its favour which also included unlawful zero rating claim of Rs.165,522,970/-. Since, that order of the DC, Inland Revenue, LTU, Karachi suffered defects of propriety as well as legality, the Commissioner Inland Revenue Zone-IV, LTU, Karachi called for that 0-in-0 No. 02/2010 dated 15-02-2010 by passing a fresh Order-in-Original dated 16-12-2011 in terms of Section 45A of the Sales Tax Act, 1990 which is the subject matter of this appeal. 5. In order to understand the controversy further, it would be utterly essential to briefly discuss the relevant provisions of the respective laws here. If we look at chargeability operates under the Sales Tax Act, 1990, Section 3 of the Act provides for charging sales tax on all supplies at the prescribed rate; however if any supplies qualify the requirements of Section 4 of the Sales Tax Act, 1990, zero% sales tax is charged on them and hence such supplies are called zero rated supplies. In the instant situation the R/P claimed its fuel supplies to different airlines as zero rated by claiming these supplies to fall under Section 4(b) of the Sales Tax Act, 1990 and did not charge any tax on such supplies. However during scrutiny, it was noted that the RIP did not fulfill any of the requirements of Section 4(b) of the Sales Tax Act, 1990, hence its zero rating claim was found unlawful. For the sake of understanding, the relevant provision of the Sales Tax Act, 1990 i.e. Section 4(b) is reproduced herewith which provides for goods to be charged at zero per cent. (6) supply of stores and provisions for consumption abroad on a conveyance proceeding to a destination outside Pakistan as specified in Section 24 of the Customs Act, 1969 (IV of 1969). It is evident from above that only such stores and provisions shall qualify as zero rated which fulfill the conditions as specified in Section 24 of the Customs Act, 1969. Section 24 of the Customs Act, 1969 is also reproduced herewith as follows:- Section 24: Provision and Stores may be exported free of duty. "goods produced or manufactured in Pakistan and required as provisions and stores on any conveyance proceeding to any foreign port, airport or station may be exported free of customs duty in such quantities as the appropriate officer may determine having regard to the size of the conveyance, the number of passengers and crew and the length of voyage or journey on which the conveyance is about to depart." A plain reading of above in conjunction with Section 4(b) of the Sales Tax Act, 1990 clarifies that only such quantities of -goods on a conveyance proceeding abroad would constitute zero rated supplies as the appropriate officer of customs may determine with regard to the size of the conveyance, the number of passengers and crew and the length of journey on which the conveyance is about to depart. Through S.R.O. 371(1)/2002 dated June 15, 2002, the FBR had designated an officer having designation of Principal Appraiser/Superintendent as appropriate officer who have been assigned the powers for the purpose of Section 24 of the Customs Act, 1969. Hence, it appears evident .From perusal of above referred provisions of the relevant statutes that any claim of zero rating in terms of Section 4(b) of the Sales Tax Act, 1990 required determination of
---
## Page 3
zero rated quantity by the appropriate officer of Customs which required filing of Export GD (Goods declaration) before that designated appropriate officer for such zero rated quantity determination. The R/P admittedly never filed such Export GDs for zero rated quantity determination as warranted under section 24 of the Customs Act, 1969. Hence, it was contended that since the zero rated quantities claim was never determined as warranted under section 4(b) of the Sales Tax Act, 1990 read in conjunction with Sec4ion 24 of the Customs Act, 1969, the R/P's claim of zero rating was liable to be rejected and was consequently held unlawful. 6. This appeals is filed in this backdrop and against the impugned Order-in-Original dated 16-12- 2011 passed in terms of Section 45A of the Sales Tax Act, 1990 by the Commissioner Inland Revenue (CIR) Zone-IV, LTU, Karachi through which the CIR called for earlier 0-in-O of the Officer of Inland Revenue dated 15-02-2010 in which he unlawfully allowed the claim of zero rating in the subject month by condoning the law i.e. Section 4(b) of the Sales Tax Act, 1990 in conjunction with Section 24 of the Customs Act, 1969 which he was not empowered to do. 7. The appeal was heard on 13-03-2012. Mr. Muhammad Naseem, the learned counsel of the Appellant has assailed the impugned 0-in-O as per Memo of appeal and also as per written arguments. The DR of the department Mr. Shakeel Ahmad Kasana, vehemently argued and rebutted each of the ground of appeal and also filed department's written arguments which have been perused and placed on record. The grounds and the rebuttal are as under:-- GROUND A and B: Lack of Jurisdiction The learned AR of the Appellant argued on the lines that there was no jurisdiction vested with the Commissioner Inland Revenue, LTU, Karachi since the precise authority and jurisdiction to deal with the goods exported as zero rated and awarding clearance was vested with the officers of Customs Department under section 24 of the Customs Act, 1969 and there is no ambiguity in this behalf since the language of Section 24 of the Customs Act, 1969 is plain and simple. Furthermore, the learned AR of the appellant provided the copies of Show Cause Notice (SC N) dated 16-11-2009 and Order-inOriginal No. 02/2010 dated 15-02-2010, a copy of refund application addressed to the Collector Sales Tax (Enforcement), LTU, Karachi etc and claimed in this regard that the then DCIR, LTU, Karachi passed the Order-in-Original (0-in-0) No. 02/2010 dated 15-02-2010 after consultation and approval of the Commissioner Inland Revenue and the Chief Commissioner Inland Revenue. He argued in this regard that perusal of SCN and the 0-in-0 reflect copies of both these documents were sent to the Commissioner and the Chief Commissioner, hence he tried to establish that both the higher authorities were involved in the process of such proceedings. On the basis of that premise, he argued further that the scope of the Section 45A(4) of the Sales Tax Act, 1990 does not permit indulgence in a matter in which Chief Commissioner Inland Revenue and/or the learned Respondent Commissioner themselves have already assumed indulgence. The DR of the department rebutted this argument by clarifying that the impugned order was passed by the Commissioner Inland Revenue under Section 45A of the Sales Tax Act, 1990 and not under the Customs Act, 1969 and she called for an order passed by an officer of Inland Revenue and not that of any Customs authority. The whole controversy revolved around allowance of zero rating in term of Section 4(b) of the Sales Tax Act, 1990 and it was the Inland Revenue department which had the bona fide and lawful right to examine and allow such claim. He explained further that the order passed by the Commissioner Inland Revenue under section 45A of the Sales Tax Act, 1990 was lawful as the subject section empowered the Commissioner Inland Revenue to call' for any order of the Inland Revenue officers which suffer from impropriety and illegality. In the instant case, the Commissioner Inland Revenue passed the impugned Order-in-Original under section 45A of the Sales Tax Act, 1990 through which she called for an earlier Order-in-Original No. 02/2010 dated 15- 02-2010 whichwas passed by an Inland Revenue officer of LTU, Karachi which suffered from
---
## Page 4
impropriety or illegality. On the question of indulgence of higher authorities during the proceedings of first 0-in-0 dated 15-2-2010, the DR of the department vehemently denied any such act on the following basis:-- (i) It is a known fact and common practice that the when a show cause notice is issued, its copies are sent to higher authorities for information from which it simply cannot be construed that the higher authorities were involved in the proceedings. (ii) It is also a known fact and common practice that copies of Order-in-Original are always sent to higher authorities for information from which it simply cannot be construed that the higher authorities were involved in the proceedings. (iii) There is no provision for approval for issuance of refund under the Sales Tax Act, 1990. (iv) Under the law the power to issue SCN and pass an 0-in-0 or issue refund is vested with the Inland Revenue Officer and there is no scope of consultation or involvement of higher authorities in neither the process, nor the law allows so. Mere furnishing of copies for information to higher offices (which is an established norm) does not construe that higher authorities in anyway gave approval of refund. (v) In the light of foregoing, the case laws relied upon by the learned AR of the R/P does not need rebuttal as irrelevant. We have heard the both sides and perused the laws. Section 45A of the Sales Tax Act, 1990 empowers the Commissioner Inland Revenue (CIR) to call for any order of any Inland Revenue Officer suffering from impropriety or illegality. The argument of the learned AR of the Registered Person that it was the duty of Customs department to regulate A all exports is well founded however, the facility of zero rating has to be allowed under the Sales Tax Act, 1990 and we are of the view that it was the right as well as responsibility of the Inland Revenue Department which is governing the Sales Tax Act, 1990 to examine, accept or reject such claim as per law. Regarding communication with the higher authorities during the initial proceedings of sanction of refund, it does not construe or establish that any approval from the higher authorities was sought or granted while passing the 0-in-0 dated 15-02-2010. The learned AR also could not provide any substantive evidence that there was any approval involved in the process. Since the 0-in-0 dated 15-02-2010 was passed by the Officer of Inland Revenue by applying his own mind, it is our view that without prejudice even if any consultations happened, that does not implicate or bar the action of the Commissioner Inland Revenue (CIR) to invoke section 45A under the law. Therefore we are of the view that the order passed by the CIR, Zone-IV, LTU, Karachi was well within her lawful jurisdiction and the appeal accordingly fails on this score. Ground C: Other Defects in The Order (a) In a conflict between Statute and procedure the provision of Statute prevails: (b) Claim of refund could not be refused on some technical and procedural lapse (c) Past and closed transactions The learned AR of the R/P contended that in compliance with Section 4(b) of the Sales Tax Act, 1990 read in conjunction with Section 24 of the Customs Act, 1969 filing of Export GD was merely a procedural lapse under rules and a procedure under rules being a subordinate legislation could not have overruled the dictates and commands of Section 24 of the Customs Act, 1969. Reliance has been placed on the following case laws in this regard. a) PLD 1990 SC 1034 Lah. 316 b) PLD 2001 Karachi 52, c) 2001 SCMR 1806, d) 1993 SCMR 1232 e) 2002 PTD 2959. f) PLD 1989 SC 64 g) 2007 SCMR 729 h) 2005 SCMR 69
---
## Page 5
i) 1996 SCMR 856 The learned AR of the R/P argued further that in that manner the indulgence of the learned CIR for a past and closed transaction and the contemplated remedy in revising the Refund Order on the part of CIR do not contemplate any competent proceedings under law. The learned DR of the department has been heard and written rebuttal to the above ground of appeal has been perused which categorically stated that the learned AR of the R/P misconceived that the procedure of filing of Export GD was a subordinate legislation or was warranted under any rules made in lieu of Section 24 of the Customs Act, 1969. Through written arguments this Tribunal's attention was invited towards the findings of the Commissioner Inland Revenue from Pages 13 to 16 of the impugned order and the same are reproduced as under:-- The above contention of the taxpayer does not hold any ground. Non-compliance of the section 24 of the Customs Act, 1969 is not a procedural lapse but contravention of a substantive law. The procedure of filing goods declaration and getting determined the quantity of provision and stores to be exported free of customs duty (in this case zero rated as warranted under section 4(b) of Sales Tax Act, 1990) having regard to the size of the conveyance, the number of passengers and crew and the length of voyage or journey on which the conveyance is about to depart, is the substantive part of the law as laid down in under section 4(b) of Sales Tax Act, 1990 read with Sections 24 and 131 of the Customs Act, 1969. In this instant case, the procedure is not a subordinate legislation but is made part of the substantive law by the legislature keeping in view its importance and impact on revenue collection. It is pertinent to point out here that the whole superstructure of Customs Act, 1969 is based on this procedure of filing of GDs which is so important that in case of its non compliance or breach, any activity of bringing in or taking out of any goods from Pakistan becomes smuggling. This procedure is the substantive law as its narrated within the Customs Act, 1969 itself and not in rules which usually are made to define procedures otherwise. Therefore this very procedure of filing of GDs is squarely different than any other procedures elsewhere in other laws as it is the only and fundamental basis of Customs Act, 1969. This is the reason that the appropriate officer was specifically designated for the purposes of Section 24 of the Customs Act, 1969 vide S.R.O. 371(1)/2002 dated June 15, 2002. The main obligatory Section under the Customs Act, 1969 is Section 131 which warrants filing of GDs for all type of exports (Duty free/zero rated or otherwise) and the designated Custom's officer could ascertain quantum of zero rated supplies only if goods declarations were filed before him. It was R/P's legal obligation to file GD for ascertainment of zero rated quantity of jet fuel and the criteria to ascertain such zero rated quantum is clearly defined within Section 24 of the Customs Act, 1969 itself. How could the designated Customs officer determine the quantum of jet fuel to be supplied duty free if the goods declaration is not filed before him? Section 4(b) of Sales Tax Act, 1990 warrants that zero rated supplies will be in accordance with Section 24 of the Customs Act, 1969 which spells out the criteria for such determination as the size of conveyance, the number of passengers and crew on board and length of the voyage or journey, whichever is applicable. If the GDs are not filed how could the Customs officer determine such zero rated supplies and how could the Registered Person claim those supplies as zero rated by not paying tax on them? It is obvious that Section 24 of the Customs Act, 1969 which is relevant to duty free exports/zero rating could only be invoked once goods declaration (GD) is filed as Section 131 of the Customs Act, 1969 warrants that in all types of export (duty free or otherwise) a goods declaration (GD) has to be filed. Keeping in view the foregoing discussion, it is abundantly clear that filing of GD is a substantive provision of law and the cases relied upon by the counsel of the taxpayer Company are distinguishable as does not cater the instant situation. Furthermore, if such practice of claiming zero rated supplies/ export is allowed without following the lawful course of filing GD and determination of zero rated quantity by a State Authority, such supplies would tantamount to
---
## Page 6
smuggling as defined under Section 2(s) of the Customs Act, 1969. The same is reproduced herewith for the sake of ready reference. Section 2(s) "Smuggle" means to bring into or take out of Pakistan, in breach of any prohibition or restriction for the time being in force, or evading payment of Custom duties or taxes leviable thereof. (emphasis ours) It is abundantly clear that first and foremost restriction for any exports including duty free export/zero rating is filing of GD as warranted under Section 131 of the Customs Act, 1969. Since the RIP didn't file the same and provided jet fuel to airlines which allegedly proceeded to foreign destinations, the nature of such transaction has changed to taxable supplies. Last but not the least, law requires filing of GDs before the designated State authority prior to export or claiming zero rating hence mere certificates from airlines now can not absolve the RIP from such contravention as only the designated State Authority under the law was authorized to determine the quantum. Of zero rated fuel to be allowed before occurrence of that event. Reliance in this regard is placed on the Honourable Supreme Court of Pakistan's judgment in the case CIT v. Haji Mola Bux Corporation Ltd. Reported as PLD 1990 SC 990 = 1990 PTD 821 and also in the case of Mian Muhammad Saeed and others v. Province of West Pakistan reported as PLD 1964 SC 572 wherein it has been ruled that "no man can take advantage of his own doings". Further to that this departmental contention also derives force from numerous judgments the Honourable Supreme Court of Pakistan as well as High Courts which has clearly held the legal principal that if law requires something to be done in a certain manner, it has to be done that way or not at all. Reliance in this regard is placed on following judgments: i) 2001 SCMR 838 [Supreme Court of Pakistan] In the case of Assistant Collector Customs v. Messrs Khyber Electric Lamps: the Apex Court held in the case as follows: "It is well settled proposition of law that a thing required by law to be done in a certain manner must be done in the manner as prescribed by law or not at all." ii) 2010 SCMR 1437 [Supreme Court of Pakistan] The Apex Court held as follows: " It is a settled proposition of law that when a thing is to be done in a particular manner it must be done in that way and not otherwise." iii) Reliance is also placed on Atta Muhammad Qureshi's case PLD 1971 SC 61 iv) Reliance is also placed on Mughal Surgical's case 2005 PLC 634 v) PLD 2002 Karachi 60: In the case of Muhammad IdreesPetitioner v. Collector of Customs and others: The Honourable Court held as follows: "It is established principal of law that the things should be done as they are required to be done or not at all. Nobody can be allowed to contravene, flout or violate the statutes or the rules framed thereunder in the name of national interest or any other so-called high or sublime idea or ideal. The rule of law requires that every person in execution of law should follow strictly the law as laid down and should not exceed the limit of law for any reason whatsoever." In the light of foregoing it is evident that the taxpayer has not followed the procedure as laid down under the law and willfully contravened it, hence RIP 's contention in this regard is rejected. On the ground of past and closed transaction, the DR of the department vehemently contested that the instant situation does not fall into the definition of past and closed transaction as the legislature provided for calling for any order of any Officer of Inland Revenue in terms of Section 45A(3) of the Sales Tax Act, 1990 within (05) years of passing of such order. In the light of foregoing it was pleaded that the appeal of the appellant RIP be rejected being without any merit. We have heard the both sides, perused the ground pressed and rebuttal filed by the department as mentioned supra and are of the considered view that the objections raised by the learned AR of the appellant hold no ground hence appeal on these grounds accordingly fails. Ground D. Invalidity of Show Cause Notice Dated 20.06.2011
---
## Page 7
The learned AR of the appellant contested that the Show Cause Notice No. CIR-Zone-IV/SCN-Shell Pakistan/45A/LTU/83 dated 20.06.2011 was invalid since suffering from defects such as no mention of Section under which it was issued, and being vague, obscure, incomplete, non-speaking and totally blind for a reply and could not have been reckoned and treated as a proper show cause notice and it was barred by time limitation. Case laws relied upon on the above contention are mentioned as follows:-- a) 2001 SCMR 83 b) 2003 PTD 1257 c) . 2003 PTD 1797 d) 2005 PTD 480 (e) 2003 PTD 1593 f) 2002 MLD 180 g) PTCL 2001 CL 558 h) 1992 SCMR 1898 i) 2003 PTD 1047 j) 2003 PTD 1354 k) 2004 PTD 714 l) 2000 PTD 1798 m) 2004 PTD 3020 The department filed its written rebuttal to this ground which has been perused and examined in the light of produced record/ copy of subject show cause notice dated 20-06-2011. The department's contention in response has been that the subject SCN dated 20-06-2011 was issued in terms of Section 45A of the Sales Tax Act, 1990 as the provisions of Section 45A within itself provide for issuance of a show cause notice and that section i.e. Section 45A was accordingly mentioned in the subject SCN. Hence the contention of the AR of the R/P is misplaced and is merely a misstatement of facts. The department further asserted through its written rebuttal to the above ground that the SCN was not barred by time limitation as Section 45A(3) of the Sales Tax Act, 1990 permitted to invoke this Section within (05) years of passing of the 0-in-0 being called for. The department also filed written rebuttal to…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.