' The instant appeal has been filed by the appellant against the order No,01 dated 9-10-2012 passed by the learned CIT (Appeals-II), RTO, Lahore relating to the tax year 2011 under section 129 against the order passed under sections 162/205 of the Income Tax Ordinance, 2001 (Ordinance).
2. Brief facts giving rise to the present appeal is that the appellant, a Private Limited Company, is engaged in the business of commercial import of CNG Kits and CNG Cylinders. At the time of imports of CNG Kits and CNG Cylinders, income tax was deducted under section 148 of the Ordinance @ 1% by the Customs Authorities under the automated PACC System duly clarified/verified by the Federal Board of Revenue (FBR) vide their letter C. No, 1(9) WHT/2006 dated 8-4-2009; C.No,1(9)WHT/2006 dated 21-12-2009 and C.No,1(9)WHT/2006 dated 5-1-2010.
3. The Officer of Inland Revenue (OIR) initiated the proceedings under sections 162/205 of the Ordinance on the ground that the CNG Kits imported should have been subjected to tax deduction @ 4/5% in accordance with the relevant provisions of the Ordinance.
4. It was thus, confronted to the appellant through single notice issued under section 162 of the Ordinance bearing No,51 dated 11-1-2012 regarding chargeability of tax @ 4% for the period of July 2009 to June 2010 and @ 5% from July 2010 onward under section 148 read with Part-II of Second Schedule to the Ordinance. In response to this notice, the appellant submitted his reply stating therein that import of CNG Kits and CNG Cylinders was covered under Zero Rating Sales Tax Regime through S.R.O. No,575(I)/2006 dated 5-6-2006, therefore, withholding tax @ 1% is deductible under section 148 read with clause (9) of Part-II of the Second Schedule to the Ordinance and under the directions of the FBR vide three clarifications vide letter C.No,1(9) WHT/2006 dated 8-4- 2009; C.No,1(9)WHT/2006 dated 21-12-2009 and C.No,1(9)WHT/ 2006 dated 5-1-2010.
5. The Assistant Commissioner Inland. Revenue did not agree with the reply of the appellant and passed order on 12-3-2012 under sections 162/205 of the Ordinance by creating tax demand of Rs, 38,144,873 for the tax year 2011 on the basis of Board's latest letter C.No,1(9)WHT/2006/20425/R dated 7-2-2012 whereby Board's earlier letters C.No,1(9)WHT/2006 dated 8-4-2009, C.No,1 (9)WHT/2006 dated 21-12-2009 and C.No,1(9)WHT/2006 dated 5-1-2010 were withdrawn ab initio. It was also clarified in the said circular that CNG Kits and Cylinders are exempt from sales tax under the Sales Tax Act, 1990 vide S.R.O. No,575(I)/2006 dated 5-6-2006 and these do not fall under the Sales Tax Zero Rated Regime. Further commercial importers of the aforementioned items are liable to pay 5% advance income tax under section 148 of the Ordinance.
6. The above order was challenged in appeal by the appellant before the Commissioner Inland Revenue (Appeals-II) Lahore [CIR(A)] who vide his order bearing No,01 dated 9-10-2012 dismissed the appeal on the ground that the appellants goods did not fall in terms of clause (9) of Part-II of the Second Schedule to the Ordinance being exempt from Sales Tax and not under the category of zero rating. The learned CIR(A) further relied on various judgments from Pakistan and Indian jurisdiction to state that the courts have the authority to declare statutes vide ab-inito, hence, the withdrawal of clarifications by the FBR is valid and correct interpretation of law, hence, this appeal.
7. Mr. Naved A. Andrabi, ASC/AR of the appellant argued the appeal and stated that the goods imported by the appellant were, cleared by the FBR through its limb i,e, the Customs Authorities who are duty bound to follow the directions and instructions issued by the FBR. The importer/ appellant has no excess to maneuver the PACC System; which is the automated clearance system installed for clearance of goods at the port. In support of his claim he presented goods declaration
(GD) for our examination, which clearly stated that the goods fall under clause 9 of Part-II of the Second Schedule to the Ordinance for the purposes of collection of tax @ 1% under section 148 of the Ordinance.
8. It was further argued that the FBR may have been justified to withdraw its clarification issued earlier but by no stream of law he same could have been withdrawn with retrospective effect. He further argued that it is an accepted principle of business that the importer passes on the taxes to the end consumer and any collection now on the basis of change of views by the FBR would result into heavy loss.
9. The learned AR also argued that the OIR and CIR(A) were not justified to ignore the fact that even if it is considered correct that the appellant did not fall within the parameters of S.R.O. 575(I)/2006 yet his case clearly and squarely within Serial No,1 of S.R.O. 549(1)/2008 dated 11-6-2008. The learned AR also argued that even if it is considered that the clarifications were void, yet why did the authorities sleep over the matters for almost three years and goods cleared in July 2009 were not subjected to the same scrutiny earlier, rather they waited for the issuance of directions from the FBR. The AR vehemently argued that such a policy of the FBR is no less than a snare to trap the innocent taxpayers.
10. Lastly, the learned AR argued that an executive direction/notification cannot be withdrawn retrospectively but would have a prospective effect. It was no the directions of the FBR (Regulator) that the goods were cleared after collecting tax @ 1% under section 148 of the Ordinance. In this regard, the relied on judgments of the apex courts cited as (2012 SCM R 965), (2012 SCM R 864), (PLD 1997 SC 582), (PLD 1969 SC 187), (1987 PTD 739 (Kar.)) and (2005 PTD 259 (Kar.))
11. As an alternate legal argument the learned AR stated that the tax year 2011 pertains to income year from July 1, 2010 to June 30, 2011, therefore, any violation or income beyond this period should be dealt separately and has to remain outside the domain of tax year 2011. The default, if any, for prior period should have been identified and adjudicated upon separately. A consolidated order is void and illegal.
12. The learned AR also stated that the similar action was under taken against another similarly placed taxpayer, who challenged the notice before the Honourable Federal Tax Ombudsman (FTO).
The learned FTO while holding that the ruling cannot be withdrawn by the FBR retrospectively as vested rights had accrued to the applicant, therefore, the issuance of notices fall within the term mal-administration. He further stated that the said order has attained finality as no representation against the said order has been made to the Honourable President of Pakistan.
13. On his turn, the learned DR tried to support the orders passed by the two authorities below but candidly accepted the fact that clarification of FBR cannot be withdrawn retrospectively. He further confirmed that representation against the FTO order has not been made.
14. We have heard the learned representatives and examined the evidence and case-law produced at the bar and are convinced that the two authorities below erred in holding that the FBR has an authority to withdraw its clarifications with retrospective effect. It is a trite law that the executive orders which create vested rights cannot operate or be withdrawn retrospectively. We cannot agree with the thought that the FBR would initially would give a benefit and then withdraw the same with retrospective effect. This act itself falls within the parameters of promissory estoppel and hence, we have no hesitation to hold that the clarification issued vide letter dated 11-2-2012 shall be applicable prospectively and the orders passed by the two authorities are illegal, without jurisdiction and hence vacated. In passing this order we are fortified by the views of the learned FTO in Complaint No, 181/LHR/IT (128)/355/2012 dated 19-3-2012 despite the fact that the said order is not binding on us yet the principle followed therein as laid down in Ellahi Cottons judgment reported as ((1997) 76 Tax 5 (SCP)) are the guiding principles. The other legal grounds are not adjudicated as the order is not sustainable on point of law.
15. As a result, the appeal filed by the appellant succeeds to the extent, and in the manner as indicated above.