' CH. MUHAMMAD ASGHAR PASWAL, (MEMBER (JUDICIAL)).2-This appeal is being directed against Order-in-Original No,27 of 2012 dated 20-11-2012 passed by the Collector of Customs (Adjudication), Model Customs Collectorate, Customs House, Multan.
2. The facts giving rise to this appeal are that Deputy Director, Intelligence and Investigation-FBR, Range Office, Multan received information to the effect that appellant, registered as manufacturer and importer in steel sector with Regional Tax Office, Multan availing the facility of concessionary import of raw material in term of S.R.O.565(I)/2006 dated 5-6-2006 was involved in massive evasion of duty and other taxes through mis-declaration at import stage in connivance with the staff of Model Customs Collectorate of PaCCS, Karachi. Perusal of import authorization certificates did confirm that the certificates were issued for concessionary import of raw material for manufacturing of "Rolled Formed Windows/Doors" and in certain cases for manufacturing of "Choukhats". On further scrutiny, it transpired that serial-27 of the said S.R.O. Provides concessionary import facility. On Electro-galvanized falling under HS code 7210.3010, 7210.4910 and 7210.7020 for manufacturing of composite rolls formed windows and doors in excess of 10% while the aforesaid PCT headings were attracting statutory rate .Of duty at 20%. Since the exemption in custom-duty in excess of 10%, was available to the appellant and as such he was liable to pay customs-duty at the rate of 10% under concessionary regime in term of S.R.O. 565(I)/2006 dated 5- 6-2006 whereas the appellant had been importing the said material by paying customs duty at the rate of zero percent at import stage instead of 10% ad veloram vide Serial-27 of the said S.R.O., thus, evaded Customs duty, Sales Tax and Income Tax to the tune of Rs,59,205,142 at import stage and on the basis thereof the appellant was served with a show cause notice dated 10-9-2012 on the allegation that by evading the aforesaid amount of duty and other taxes, they violated the provisions of S.R.O. In question, condition of provisional import authorization certificates read with sections 18 and 19 and sub-clauses (a) (c) of clause (1) of sections 32(1) and 32(2) read with S.R.O.
565(I)/2006 dated 5-6-2006 punishable under clauses 10(A) and 14 of subsection (1) of section 156 of the Customs Act, 1969. The aforesaid show cause 'notice ultimately culminated in Order-in- Original No, 27 of 2012 dated 20-11-2012 impugned in the instant appeal.
3. The appellant has filed the instant appeal before this Tribunal where the main grounds of appeal are as under:--
(a) That as per the provision of S.R.O. 565(1)/2006 dated the importing collectorate has exclusive jurisdiction to call for record and information and to conduct the audit on the, import of the importer. All the consignments of the importer has been imported as Karachi Port so under the S.R.O. 565(1)/2006 Karachi Collectorate has the exclusive jurisdiction to issue the notice and the learned Collector Customs Multan has no jurisdiction to try and to proceed upon the case. It is therefore the impugned order is corum non judice as the same has been passed by the Collector Customs Multan without lawful authority. The relevant pages of the S.R.O. 565(1)/2006 are enclosed as Annex-D.
(b) That the show cause notice has been issued on the report of the staff of directorate of intelligence and investigation FBR range office Multan who, according to the notice, on the information that the appellant availed the facility of concession in the rate of duty and taxes under S.R.O. 565(1)/2006 dated 5-6-2006 was involved in massive evasion of duty and taxes through misdeclaration at import stage. It has also been reported in the notice that the staff of directorate collected some record and information in this respect from different corners and submitted the report to this honorable office for adjudicating proceedings.
(c) That so the show cause notice was issued to the appellant under clauses (a) and (b) of sections 32(1) and 32(2) read with sections 18 and 19 of the Customs Act, 1969 with the allegation that the appellant evaded the duty and taxes to the tune of Rs,5,92,05,142 without mentioning the period and details of the goods declaration which renders the show cause notice illegal as it is the mandatory requirement that there should be specific and explicit charge in the notice with details of evasion of duties and taxes with the period of its default but the instant show cause notice is totally silent in this regard hence needs to be quashed on this score alone. Reliance in this regard is placed on 2007 PTD 2265, 2010 PTD 1759, 2003 PTD 1257 and 2000 PTD 2388.
(d) That the appellant made no mis-declaration at the time of import on the documents like as goods declaration, invoice and packing list etc as to quantity, value and descriptions of the goods imported. The appellant declared all the details required to be mentioned on the import documents as per the customs law and the appellant sought clearance under S.R.O. 565(1)/2012 on the basis of import Authorization issued by the competent authority and thus it was the duty of assessing officer to apply the proper rate of duty as per the provision of S.R.O. 565(1)/2006. It is therefore clear that the appellant did not made any misdeclaration while submitting the import documents at the port and the staff of directorate has completely failed to brought on record any mis-declaration, false statement and forge documents on the part of appellant so the provision of section 32 cannot be invoked in the instant case so the show cause notice in reply is palpably illegal and requires to be annulled on this account as well.
(e) That the Directorate General of Intelligence and investigation FBR is formed and established under section 3A of the Customs Act, 1969 and the Directorate was assigned the powers, function and jurisdiction under S.R.O. 486(1)/2007 dated 9-6-2007 issued under sections 3E and 4 of the Customs Act, 1969 where under the staff of the directorate was, empowered to perform certain function and duties. The perusal of the said S.R.O. It clearly revealed that the staff of directorate cannot take cognizance and any action under sections 18, 19 and 32 of the Customs Act, 1969 so the action of the Directorate of intelligence and investigation under sections 18,19 and 32 of the Act, 1969 is beyond its power and authority conferred upon them under S.R.O. 486(1)/2007 and so the while subsequent proceedings on the basis of such illegal and without lawful authority act do not have any legal sanctity.. The Honorable Karachi High Court has held in the case of Shehzad Ahmed Corporation reported as 2005 PTD. 23 that no officer of the Directorate had power to detain or seize or re-examine the goods already examined by the assessed by the appropriate officer of the Customs.
(f) That the examination and assessment was made under section 80 of the Customs Act, 1969 and the goods were cleared on the payment of duty and taxes calculated by the assessing officer under S.R.O. 565(1)/2006. The officer of customs examine the goods imported into Pakistan under section 80(1) as to ascertain the correctness of the documents relating to the declaration of particular for the purpose of assessment of duties and taxes. The Officer after such examination assessed the duty and taxes leviable on the goods imported which is required to be paid before the clearance of goods. This sort of assessment is an order of the customs officer passed under section 80, on the receipt of goods declaration under section 79 of the Customs Act, 1969 by the importer. The order passed under section 80 of the Act is an appealable order and appeal lies under section 193 of the Act, 1969. It is appropriate to reproduce the relevant part of the section 193 of the Customs Act, 1969:- "Appeals to Collector (Appeals).---(1) Any person [other than] an officer of customs aggrieved by any decision or order passed under [sections 79, 80 and 179 of this Act by an officer of Customs not below the rank of an Assistant Collector] [**] may prefer appeal to the Collector (Appeals) within thirty days of the date of communication to him of such decision or order"
(g) That as per provision of section 193, the order passed under section 80 is an appealable order and no show cause notice regarding the matter which have been decided through an appealable order can be issued thus the issuance of the instant show cause notice is illegal, without lawful authorities and severely hit by law contains in the Customs Act, 1969. The Honorable Appellate Tribunal of Pakistan has held, in case reported as 2011 PTD 2480 that the goods imported and had been assessed by the competent officer exercising the power under section 79 read with section 80 of the Act, 1969 so the issuance of show cause notice and order passed thereon by the authorities is illegal, unlawful and coram non judice as the only course available to the authority was to reopen the order passed under section 80 as per the provision of section 145 of the Customs Act, 1969. The reliance is also placed on the judgment reported as 2010 PTD 2523.
(h) That it is alleged in the notice in reply that the appellant has evaded the amount of duties and taxes to the tune of Rs,5,92,05,142 by not depositing the customs duty, sales ax and income tax on prescribed rates under the Customs Act, 1969 by making the misdeclaration in import documents.
This observation of the directorate needs to be annulled, withdrawn and quashed on the following grounds as well;
(1) That the directorate did not referred any document which was forged or on the face of that any statement was not correctly declared by the appellant and even the department has miserable failed to establish any mis-declaration as to the origin, quantity of the goods, quality of the goods and even the value of the goods so the charge of mis-declaration cannot be invoked against the appellant. It is the duty of the assessing officer to apply the rate of the duty and other taxes and the same is out-of control of the importer/appellant particularly when the appellant has declared the relevant provision of the customs law and or as the case may be the S.R.O. Issued under the Customs Act, 1969.
(2) That customs duty and sales tax is an indirect form of tax and the same is not born by the appellant/importer but the incidence thereof is made the part of casting of sale value which has been passed to the consumer who being the ultimate consumer bears all the effect of such indirect form of tax. The appellant paid the value of taxes and duties which were required to be paid on the basis of payment challan created by the appropriate officer of customs dry port and supplied the goods manufactured form such raw material on the value so calculated on the basis of paid indirect taxes and duty. The customs duty paid at import stage has been directly made the part of sale value and whereas the sales tax paid on import stage has been collected from the buyers and thus in this way it is liability of the consumer to all such like duty and taxes. There is no allegation in the show cause levelled against the appellant that the appellant collect the extra amount of sales tax and duty etc. From their buyer but did not deposit the same in the government exchequer hence the observation is beyond the spirit and strength of customs and sales tax law and the philosophy/theme applicable in the case of indirect form of taxes.
(3) That determination of the duties and taxes was the duty of the Pakistan Revenue Automation Limited under one customs system and for any wrong calculation or error done by such authority, the importer could not be held responsible. The total consignments of the appellant were assessed and cleared under one customs systems and the responsibility for any fault occurred due to the one customs is on the shoulder of the customs department because the system was under the use and control of the department. The honorable customs Appellate Tribunal has held in the case reported as 2011 PTD 1695 that the importer cannot be held responsible for any fault done by the department under one customs.
(4) That the assessing officer or the appropriate officer of the customs enjoys the powers of adjudicating officer which means while making assessment of the goods of the appellant he was acting as and adjudicating officer the court and it was the duty of the court to ascertain the calculated the due amount of the duty and tax leviable on the goods of the appellant. It is also not out of place to mention here that the appellant did not have any excess to the data of customs and he was bond to pay the duty and taxes which had asked to pay by the department and to apply the rate of duty and taxes is also the sole authority of the assessing officer. It is therefore if there was any short payment was made on the direction of the assessing officer, the same cannot be recovered from the importer/appellant at the belated stage particularly when the goods so produced/manufactured from such material had been sold out in the market.
(5) That similarly the income tax paid at import stage is not a final discharge of the appellant but it is adjustable towards the annual final tax liability of the appellant company as envisaged under subsection (7) of section 148 of the Income Tax Ordinance, 2001 and the appellant has discharged its income tax liability by filing income tax return for the relevant period under section 114 of the Ordinance, 2001, the sales tax is also adjustable under section 7 of the Sales Tax Act, 1990 against the output tax collected from the buyers but the appellant has already paid the whole output tax on supplies for the period in question so the demand of income tax and sales tax is illegal and unwarranted by law as well.
(6) That it is an established principle of practicing statute that no one can be made to suffer on account of act/omission on the part of the court or other statement functionaries and in the instant case the assessm ent was made by the adjudicating authority acting as quasi judicial functions and hence if there was any miss calculation on the part of such functionaries, the appellant cannot be held responsible for that act or omission. The Honorable superior courts of the country while interpreting the legal maxim "Actus curiae neminem gravabit" held that the no person shall make to suffer on the account of the act of court or state functionaries. Reliance in this regard is placed on the judgment Reported as 2002 SCMR 134, 2001 SCMR 424 and 2001 SCMR 1001 and many other.
(7) That it has been held by the courts of the country that even if any fact or law was not brought into the notice of the court by the parties, the courts are duty bound to apply the correct provisions of law in their true and correct perspective and thus it was the duty of the assessing officer to apply the correct rate of duty and taxes but not that of appellant. Reliance in this regard is placed on the judgments reported as 2002 SCMR 134 and 1992 PLD SC 236.
4. The department filed para wise comments on the grounds taken by the appellant in his appeal as under:-
(a) Neither any contravention case was constituted by the Directorate of Post Clearance Audit nor was any order for the recovery of short paid amount of duty/taxes passed by any authority at Karachi. However, the appellant's unit is working in ' the jurisdiction of Intelligence and Investigation-FBR, Range Office, Multan and also registered with RTO, Multan, therefore, the ,contravention was issued as per law and the case of the defrauding the national exchequer was decided by the Collector adjudication MCC Multan and notice for recovery of evaded duty/taxes was issued to the importer by MCC, Multan.
(b) The show cause notice in the instant case was issued with lawful, authority on 10-9-2012 and the reply to the same was submitted by the appellant on 16-10-2012 before the competent authority. Hence, an Order-in-Original No, 27 of 2012 dated 20-11-2012 was passed against the appellant to deposit the evaded duty/taxes.
(c) As per S.R.O. 565(1)/2006 dated 5-6-2006, it is very much clear that the exemption of customs duty is granted to the extent of customs duty in excess of the rate mentioned against each commodity. In the instant case, minimum, customs duty is to be charged a 10% in presence of valid Exemption/Import Authorization certificate issued under the said S.R.O. 565(1)/ 2006. On the other hand the GDs of the appellant cleared through PaCCS on self-declaration were fraudulently filed at the rate of Zero Percent Customs duty. Resultantly no only the Customs Duty was evaded but also the Income Tax and Sales Tax at import stage was also evaded fraudulently. Hence the national exchequer was deprived of the legitimate revenue to the tune of Rs,59,205,142. The tax fraud was detected by the staff of Directorate of Intelligence and Investigation FBR, Range Office Multan and the appellant was called upon to join the investigation but he never joined the investigation deliberately.
(d) It is stated that the PaCCS (Pakistan Automated Customs Clearance System) facilities the confide importers to file GDs electronically for speedy clearance of imports on self-declarations.
The petitioner fraudulently deceived the system and caused a huge revenue loss to the National Exchequer to the tune of Rs,59,205,142.
(e) The Directorate General of Intelligence and Investigation-FBR, is formed and established under Section 3A of the Customs Act, 1969 and the Directorate was assigned the powers, function and jurisdiction under S.R.O. 486(I)/2007 dated 9-6-2007 issued under the Customs Act, 1969 where under the staff of Directorate was empowered to perform certain functions and duties (Copy enclosed). Furthermore, the appellant is working in the jurisdiction of Intelligence and Investigation-FBR, Range Office, Multan and also registered with RTO, Multan and he is evading duty and taxes here in Directorate's jurisdiction (i,e, Multan), therefore, the action of Directorate of Intelligence and Investigation-FBR, is in accordance with the provision of the Customs Act, 1969 as they pointed out the short realization of Government dues amounting to Rs,59,205,142 to the Collectorate accordingly.
(f) It is pointed out that the Deputy Director, Intelligence and Investigation-FBR, Karachi was requested vide this office letter No,923 dated 27-6-2011 to provide the import record of selected units. The said office vides its letter C.No, Misc/01/DCl/ PaCCS/2011/4380 dated 28-6-2011 provided the copies of GD Nos. I-FS1837008 and I-FS-1837005 both dated 28-5-2011 in respect of Jamil Brothers Iron Steel Merchant, Multan. The said record was scrutinized and observed that CD @ 0% was paid by the importer in the said GDs. This fact was also verified from the PRAL data retrieved on 20-6-2011. However, the data retrieved from PRAL data on 16-5-2012 show that the importer in connivance with the Staff of PaCCS Karachi has succeeded to deposit CD @ 10% from the importer in Govt. Exchequer at import stage in respect of their clearance affected during 6-1-2011 to 28-5- 2011. However, the scrutiny. Of data reveals that this act of defrauding the exchequer by way of evasion of Customs duty and other taxes have been taking place since 8-10-2009.. Thus the unit has prima facie tried to hoodwink the detecting agency in connivance with the staff of MCC PaCCS by covering the most recent imports. Furthermore, the deposit of partial amount of evaded CD by the importer at his own, tantamount to admission of mis-declaration conducted at their end.
(g) The contention of the appellant I against the clear enactment o section 32 of the Customs Act, 1969 which provided .That he appropriate officer shall issue show cause notice in case customs duty is not paid or short paid due to any reason i.e misdeclaration, error, omission or due to any audit. And the appropriate officer under subsection (4) of section 32 of the Customs Act, 1969 after considering the representation, if any of such persons has to determine any amount payable by him. This is a clear methodology under which. Customs duty and other taxes if no paid or short paid on the GDs can be recovered after issuance of show cause notice under this section. Show cause notice under section 32 of the Customs Act, 1969 can be for the short or not paid amount of duty and taxes if it was not paid due to misdeclaration, collusion, any error or omission. If the same is not practiced then whole system of revenue collection will collapse.
(h) The show cause notice in the instant case was issued with lawful authority and the reply to the same was submitted by the appellant before the competent authority and the short payment of Rs,59,205,142 has been proved. Hence an Order-in-Original No,30 of 2012 dated 20-11-2012 was passed against the petitioner to deposit the evaded duty/taxes:--
(i) The contention of the appellant is baseless. The contravention of the case was submitted to the Collector (Adj), MCC, Multan along with relevant case papers. The goods were cleared at 0% customs duty with the connivance of appraising staff/clearing agent and deprived the Govt.
Exchequer to the tune of Rs,59,205,142 which is recoverable from the appellant.
(ii) The appellant said that they paid duty and taxes whatsoever assessed and calculated by the assessing officer. Further, they have sold the goods to the consumer accordingly. The short paid amount of duty and taxes' is to be paid by the importers without any question whether it has been passed to the other or not Even if the short payment of duty and taxes is due to some omission or error, the importer is liable to pay this short payment in terms of section 32 of the Customs Act, 1969. Hence, the logic of appellant is not maintainable and sustainable.
(iii) The appellant is trying to escape from the payment of short paid duty and taxes by alleging to PRAL and Customs Department. The goods were cleared at 0% customs duty with the connivance of appraising staff/clearing agent and deprived the Govt. Exchequer to the tune of Rs,59,205,142 which is recoverable .From the appellant. Even if the short payment of duty and taxes is due to some omission or error, the importer is liable to pay this short payment in terms of section 32 of the Customs Act, 1969. Hence, the logic of appellant is not maintainable and sustainable.
(iv) The contention of the appellant is baseless. The goods cleared at 0% customs duty with the connivance of appraising staff/ clearing agent and deprived the Govt. Exchequer to the tune of Rs,59,205,142 which is recoverable from the appellant.
(v) The referred Sections of Income Tax are related to annual income tax returns and the income tax paid at import stage is final stage is final as the importers have to pay all Government dues at import stage not annually.
(vi) The appellant has evaded the payment of duty and taxes to the tune of Rs,59,205,142 with mala fide intention with the connivance of clearing agent and customs appraising staff. To escape from the investigation initiated on 17-1-2012, the petitioner managed somehow an audit from the Regional Tax Office, Multan. As the Sales Tax Audit was not proper remedy to recover the evaded customs duty hence the afterthought planning of the appellant made the direction to be issued to the Customs Authorities at Karachi instead of joining the lawful proceedings at Directorate of Intelligence and Investigation FBR, Multan.
5. The learned counsel appearing on behalf of the. Appellant in addition to aforesaid points has contended that the entire action on the part of respondents Nos.2 and 3 as well as the impugned order are void ab initio, being without jurisdiction. According to him, the Deputy Director, Intelligence and Investigation-FBR, Range Office, Multan has made out the case of mis-declaration for violation of section 32 of the Customs Act, 1969 for which he was never empowered or authorized to take any action under the said provision of law by the FBR while conforming powers under certain sections of the Customs Act, 1969 on officers and staff of the Directorate-General of Intelligence and investigation-FBR vide S.R.O. 486(1)12007 dated 9-6-2007. He further contended that section 32 is not included in the provisions under which the powers were entrusted to the said Directorate General and its officers and staff. In this behalf, he relied upon a judgment dated 24-3- 2010 rendered by this Tribunal in C.A. No 603/LB/2009 titled "Khawaja Waseem v. Superintendent, Intelligence and Investigation-FBR and 2 others". He also relied upon the judgments of the hon'ble High Court of Sindh at Karachi reported as 2004 PTD 2994 and 2005 PTD 23. According to him since no powers for taking any action under section 32 were entrusted to the Directorate General of Intelligence and Investigation-FBR and its officers and staff, thus, the entire action on the part of Deputy Director, Intelligence and Investigation-FBR, Range Office, Multan was without jurisdiction and, thus, of no legal effect. The learned counsel further contented that according to show cause notice as well as impugned order, alleged evasion of duties and taxes took place at import stage in connivance with the staff of Model Customs Collectorate of PaCCS, Karachi where the goods were cleared under the concessionary regime in term of S.R.O. 565(1)/2006 dated 5-6-2006. He further contended that in identical situation a reference was made to FBR by the Model Customs Collectorate, Lahore vide letter dated 10-8-2009 seeking clarification that if the clearance of the goods was made by some other Collectorate and the contravention case was made by different Collectorate which Collectorate would have the powers to adjudicate such cases and in response thereto FBR vide letter dated 1-9-2009 clarified that the importing and clearing Collectorate shall have the lawful jurisdiction to adjudicate such matter. The learned counsel also referred to the ruling of FBR in a recent case given vide letter C. No,2(2)1L&P/89-Pt-A dated 5-10-2012, where-under again FBR has confirmed its earlier views and directed that only the importing and clearing Collectorate shall have powers to adjudicate such matters and none else. According to him, since entire 'action on the part of the reporting agency as well as adjudicating authority was void, illegal being without jurisdiction which also rendered the impugned order nullity in the eyes of law. He relied upon the judgments reported as PLD 1971 SC 124, 2006 SCMR 783, 2007 SCMR 729, 2007 SCMR 1835, 2006 SCMR 1713, PLD 1958 SC 104, PLD 1973 SC 326, PLD 2002 SC 630, 2003 SCMR 59, 2004 SCMR 28 and 2004 SCMR 1798. He also referred the cases of "Messrs Capron Overseas" 2010 PTD 465. He further prayed that the impugned order being without jurisdiction be struck down. While concluding his arguments, the learned counsel for the appellant further contended that the aforesaid issues involved in this case have already been decided by this Tribunal vide judgment dated 15-4-2013 passed in case "Messrs Pioneer Steel Industries (Pvt.) Ltd. v. Collector of Customs, MCC, LMQ Road, Multan and 2 others" 2013 PTD (Trib.) 1375 having identical facts and legal issues.
6. On the other hand, learned Departmental Representative has supported the impugned order mainly on merits. According to him, the appellant has evaded duly and other taxes by importing the raw material under concessionary regime in term of S.R.O. 565(1)/2006 dated 5-6-2006 at import stage. He, however, admitted that the offence of misdeclaration, if any, was committed at Karachi while importing and clearing the goods through Model Customs Collectorate of PaCCS, Karachi where the import document and GD were filed and processed.. The learned DR was unable, to controvert the contention of the learned counsel for the appellant that had there been any complaint of misdeclaration on the part the appellant, the matter would have been reported to the importing and clearing Collectorate at Karachi for initiating action in term of section 32 of the Customs Act, 1969. He also failed to defend the reporting agency with regard to their powers under section 32 as the said provision of law was not figuring in S.R.O. 486(1)/2007, where-under the powers of the officer of Customs under certain provisions of the Customs Act, 1969 were entrusted to the officers and staff of Directorate-General, Intelligence and Investigation FBR by Federal Board of Revenue under sections 3E and 4 of the Customs Act, 1969. He, however, failed to distinguish the facts and issues involved in this case and of Messrs Pioneer Steel Industries (Pvt.) Ltd., already decided by this Tribunal and admitted that both the cases are identical to each other.
7. We have heard the learned counsel for the appellant as well as learned Departmental Representative and carefully perused the record. Most carefully the instant appeal is identical to the case of Messrs Pioneer Steel Industries (Pvt.) Ltd. 2013 PTD (Trib.) 1375 decided ' by this Tribunal vide judgment dated 15-4-2013 and as such keeping in view the law of consistency, it would be most appropriate that the instant appeal may also be disposed of in term of said judgment involving the same factual and legal issues. To understand the rationale of the findings recorded in the said judgment, it is also appropriate to reproduce the relevant passage in the said judgment:-- "As regards the powers of the Deputy Director, Intelligence and Investigation-FBR, Range Office; Multan, this Tribunal in its earlier judgment dated 24-3-2010 has already held that the said department was not competent and authorized to take any action under section 32 of the Customs Act, 1969. The contention of the learned Departmental Representative that Deputy Director, Intelligence and Investigation-FBR, Range Office Multan has only reported the contravention to the Collector of Customs (Adjudication) Multan by rightly exercising his powers is not tenable. Since charging clause/powers in term of section 32 of the Customs Act, 1969 were not vested with the Intelligence and Investigation department, therefore, the action on the part of the said officer was illegal. The judgment of the hon'ble High Court of Sindh at Karachi reported as 2004 PTD 2994 and 2005 PTD 23 are also fully applicable to the said issue. The contention of the learned counsel that the Collector of Customs (Adjudication), Multan was neither competent nor authorized to issue show-cause notice and pass the impugned order for alleged evasion of taxes or for the offences of mis-declaration committed at Karachi is convincing. It is an admitted fact that the import and clearance of the goods took place at Karachi through Model Customs Collectorate of PaCCS Karachi where the import documents and GD were filed. The goods were examined, assessed and cleared by the said Collectorate. The offences of mis-declaration or as the case may be evasion of taxes, if any, also took place at Karachi and as such the Collector of Customs (Adjudication) Multan had no jurisdiction at all either to entertain contravention report or to issue show cause notice or to pass the impugned order. According to the ruling of FBR as contained in its directive dated 1-9-2009 and 5-10-2012, it is only the importing and clearing Collectorate which can take cognizance of such mis-declaration or as the case may be evasion of taxes, if any, made at import stage. Since the initial action of taking cognizance by the Deputy Director as well as Collector (Adjudication) Multan was without jurisdiction, thus, the entire subsequent proceedings including the impugned order would be rendered without jurisdiction, ab initio void and of no legal effect. The hon'ble Supreme Court of Pakistan in case "Mansab All v. Amir"
(PLD 1971 SC 124) was kind enough to hold that "It is an elementary principle that if a mandatory condition was not fulfilled, then the entire proceedings, which follow become illegal and suffer from want of jurisdiction." In 'Faqir Abdul Majeed Khan v. District Returning Officer and others" (2006 SCMR 1713), it was held by their Lordships that. "By now it is well-settled that any order which suffers from patent illegality or is without jurisdiction, deserves to be knocked down". In "Saeed Farooq v.
The State and 2 others" (1996 MLD 434), it was held that "Where a particular Court or forum has exclusive jurisdiction to proceed with a case, any attempt by any other forum to take cognizance of the matter or to institute proceedings would render cognizance and proceedings void ab initio and of no legal effect". The other judgments of the Superior Courts relied upon by the learned counsel for the appellant aforementioned are also applicable in full force in the present case. The learned departmental representative when confronted with the aforesaid situation was unable to controvert the same. Thus, we inclined to hold that the entire action on the part of the respondents was without lawful authority and coram non judice. Hence, in view of our above findings and the authorities (supra) we allow the appeal and set aside this impugned order."
8. In view of above, this appeal is too allowed and the impugned Order-in-Original No,27 of 2012 dated 20-11-2012 passed by respondent No,1 is set aside. The appeal stands disposed of accordingly.
Appeal accepted.
201.3 PTD 2095 [Sindh High Court] Before Ghulam Samar Korai and Munib Akhtar, JJ COMMISSIONER INLAND REVENUE versus Messrs QUALITY TEXTILE MILLS LTD.
I.T.R.A. No,133 of 2011, decided on 31st May, 2013.
Income Tax Ordinance (XLIX of 2001)- ----Ss.4(4)(b), 67, 154 & 169---Income Tax Rules, 2001; Rr.13 & 231---Income derived from export of cotton yarn---Expenses .(i,e, ocean freight, export development surcharge, surcharge, clearing/forwarding expenses and those in relation to bills of exchange), incurred by taxpayer in deriving such income-Taking into account such export related expenses in computing taxable income on local sales of yarn by taxpayer---Scope---Application of R. 231 of Income Tax Rules, 2001 in preference to R. 13 thereof would not be possible as both such Rules had entirely different and separate subjects matters---Rule 13(6)(e) Income Tax of Rules, 2001 pertaining specifically to Pakistan-source of income chargeable under head "income from business" would cover local sales of yarn, thus, expenses attributable thereto would be deductable in lull against local sales to determine income in terms of normal tax regime---Export related expenses could not be taken into consideration in computing taxable income on local sales---Principles. [pp. 2107, 2108, 2109, 2110] A, B, C, D, E & F 1999 PTD (Trib.) 3880; 2003 PTD (Trib.) 1053; Golden Graphics (Pvt.) Ltd. v. Director of Vigilance and others 1993 SCMR 1635; Ch. Pervaiz Elahi v. Province of Punjab and others PLD 1993 Lah. 595 and Bama Charan v. Additional Commissioner of Taxes and others AIR 1964 Calcutta 332 ref. Amjad Javed Hashmi for Applicant. Mushtaq Hussain Kazi for Respondent.
Dates of hearing: 18th April and 14th May, 2013.
' MUNIB AKHTAR, J.---This reference application has been filed by the Department impugning the order of the Tribunal dated 7-1-2011. The question of law said by the Department to arise out of the impugned order (with respect, slightly reformulated) is as follows:-- "Whether in the facts and circumstances of the case the learned. Tribunal has correctly concluded that Rule 231 of the Income Tax Rules, 2002 is applicable to the taxpayer's case?
The- question arises in relation to the tax year 2007 under the Income Tax Ordinance, 2001 ("2001 Ordinance").
2. The taxpayer is a public company that is engaged 'in the manufacture and sale of cotton yarn. It output is partly exported and in part sold locally. Insofar as the exports are concerned, a certain amount is deducted by way of tax under section 154 of the 2001 Ordinance, from the foreign exchange proceeds received from foreign buyers. Section 154 is to be found in Division III of Part V of Chapter X of the 2001 Ordinance. Subsection (4) of section 154 provides that the tax so deducted is a final tax "on the income arising from the transactions referred to in this section". Subsection (1) of section 169 (which is in Division IV of the same Part) makes this section applicable, inter alia, to section 154, and its subsection (2) provides that such income shall not be chargeable to tax under any head of income in computing the taxable income of the exporter (clause (a)), nor shall any deduction be allowable for any expenditure incurred in deriving such income (clause (b)). This manner of taxation is usually referred to as the presumptive tax regime, or PTR. Thus, the export sales of the taxpayer are taxable under PTR. On the other hand, the income earned on its local sales is taxable under the ordinary provisions of the 2001 Ordinance. This is usually referred to as the normal tax regime or NTR.
3. The question that has given rise to this reference application is the manner in which certain expenses incurred by the taxpayer are to be dealt with. The adjudicating authority (the Deputy Commissioner/TO-9, Audit Division, LTU, Karachi) took the position that those expenses were incurred in relation to export sales and could not therefore be taken into account at all in computing the taxable income on the local sales. The Department's case-was, and is, that section 67 read with Rule 13 of the Income Tax Rules, 2002 ("2002 Rules") was applicable. The taxpayer on the other hand contended that matter had to be dealt with in terms of Rule 231 of the 2002 Rules. It had filed its tax return for the tax year 2007 on such basis. The heart of the controversy is therefore whether Rule 231 is applicable to, the facts and circumstances of the present case.
4. Since the adjudicating authority took a view different from that of the taxpayer, he issued notice for amendment of the (deemed) assessment order. He sought to disallow and exclude export related expenses such as ocean freight, export development surcharge, clearing and forwarding expenses and those in relation to bills of exchange. The taxpayer resisted any such amendment, but the adjudicating authority was not satisfied with its answer. He held as follows with regard to the taxpayer's contention that Rule 231 was applicable:-- "Contention of the taxpayer has not been accepted as the learned ITAT in its judgment reported as 1999 PTD (Trib.) 3880; has adjudicated upon the provisions of sections 50(5A) and 80-CC read with CBR's Circular No,20 of 1992, no further deduction is to be made from the deemed income under subsection (1) of section 80-CC. However later on the learned ITAT in another case reported as 2003 PTD (Trib.) 1053 has realized that in their earlier judgment reported as 1999 PTD (Trib.) 3880 the provisions of Rule-216 and CSR's Circular No,5 of 2000 were not considered hence, it recalled their earlier orders in I.T.A. No,332/KB of 1998-99 dated 21-11-1998 reported as 1999 PTD (Trib.) 3880 I.T.A.
No,1693/KB of 1998-99 dated 27-11-1999 and I.T.A. No,547/KB of 1999-2000 dated 10-2-2000 and consequently decided the issue under consideration vide Para-11 of their order dated 17-5-2001 reported as 2003 PTD (Trib.) 1053 as under: 'Referring to the leading judgment in this very case, we find that issue with regard to FOB/C&F value of export was not addressed specifically because Circular No,5 of 2000 had by then been issued.
So in view of this Circular our judgment needs to be modified to the extent that FOB value of export, as per Rule 216, has to be considered for allocation of G.P. And pro-ratio of expenses, we therefore, following principle endorsed in this very case, but also keeping in view our decisions in I.T.A.
No,547/KB of 1999-2000 dated 10-2-2000 and I.T.A. No,1693/KB of 1998-1999 dated as 27-11-1999, direct that at the first instance FOB value of export and ex factory price of local sales has to be worked out then ratio of such exports and local sales has to be determined and then such expenses have to be pro-rated which are otherwise not identical or bi-furcatable. All expenses relatable to export sales should be allocated to exports, all expenses relatable to local sales have to be allocated to local sales, and only expenses which are common or not clearly bifurcated, should be pro-rated in the ratio of FOB export/ex-factory local sales.'
' In view of above cited judgment of the learned ITAT, the contention of taxpayer is not tenable and thus it is rejected."
5. Being aggrieved by the aforesaid treatment, the taxpayer filed an appeal, which was however not accepted by the CIT (Appeals). As presently relevant, the appellate authority held as follows in her order dated 17-2-2009:-- "I have minutely gone through the made by the learned AR viz-a-viz the findings of the assessing officer on the issue of prorating the income/expenses between local sales and export-sales in the manner and method provided under rule 231 of the Income Tax Rules, 2002, it is noted that the computation of export profit were made exactly in the manner laid down in Rule 231 of Income Tax Rules, 2002, and the identifiable export expenses were also disallowed in other identical cases and confirmed by my Predecessor. The same treatment has also been upheld by my predecessor in his Order No,1 dated 7-8-2007, and by me in Order No,369 dated 25-9-2008, therefore, I am of the view that addition of Rs,1262,124, Rs,516348 and Rs,649,640 in respect of commission export (bill of exchange), export development expenses, forwarding expenses respectively being export related expenses clearly relates to FTR income and the same can-not be allowed against normal income which clearly warranted action under section 67 of Income Tax Ordinance, 2001 read with rule 13 of Income Tax Rules, 2002."
6.. The taxpayer preferred a further appeal to the Appellate Tribunal, and finally met with success.
After a hearing at which the Department was not represented, the Tribunal by means of the impugned order observed and held as follows:- "6. The AR was specifically asked to explain the basic difference between the view point of the taxpayer and that of the department. It was explained that the basic difference is in the interpretation of Rule 231... [This Rule was reproduced and the Tribunal then continued;
7. The AR pointed out that as per clause (b) of sub-rule (3) of Rule 231 it is evident that the "total profit" means the "sale proceeds" of exported goods or local sale of goods sold locally. Rule 231 does not speak about any profit, but about allocation/proration of profit between the export and local sales on the ratio of total sales whereas the department on the other had interpreting the same as the profit as computed after disallowance of inadmissible expenses including identifiable export related expenses. The AR to further elaborate his contention drew our attention to para 9 of Circular No,14 of 1992 dated 1-7-1992 relating to "explanation of important provision of Income Tax" while explaining the provision of section 50(5A) which was inserted vide FO 1992. It was explained as under: "A new section '80CC' applicable from assessment year 1993-1994 has also been inserted providing for presumptive tax on income of exporters under which foreign exchange proceeds on account of export of goods by an exporter shall be deemed to be income of such exporter and tax deducted at source under the newly inserted section 50(5A) shall be deemed to be the final discharge of his tax liability on this income."
8. The AR contended that from the above para it is evident that the export proceeds received which had been subjected to WHT has been termed as income of the taxpayer. The AR further stated that in order to remove the ambiguity in Rule 231 which was deleted vide S.R.O. Dated 19-5-2009 was again inserted vide S.R.O. 58(1)/2010 dated 2-2-2010. The expression "total profit" as mentioned in clause (b) of sub-rule (3) in the earlier Rule 231 has been replaced and inserted Rule 231 as per clause (b) of sub-Rule (2) by the expression "total sales".
9. After considering the argument of both side, related circular and annex-IIG of the return we are of the considered opinion that the method of computation of income being adopted/ followed by the department in the presence of Rule 231 of I.T. Rule, 2002 is against the law due to the fact when identifiable export expenses are being disallowed under section 169(2)(b) for being related to export sales covered under section 169 then identifiable expenses related to local sales such as local freight expenses, salaries paid to salesman, advertisement expenses related to goods sold in Pakistan should also be allowed directly against normal law income and should not be prorated between export and local sales as per the practice of the department.
10. In our view Rule 231 does not speak of profit because this practice of disallowing only identifiable export expenses and not allocating identifiable local sales related expenses against normal law would be against natural justice. However, where income is computed after disallowing identifiable export related expenses and allowing identifiable direct expenses related to normal law sales, major expenses would become allowable against normal law income, which we are sure is not the intention of the legislature.
11. In view of the foregoing discussion and keeping in view of our earlier discussion given in I.T.As.
Nos.1705 and 732/KB/10 of tax years 2005 and 2003 dated 4-1-2011 we are of the opinion that Rule 231 of the I.T. Rules, 2002 speak of proration of profit on the basis of export/local sales ratio to total sales without disallowance of any identifiable export related expense or allowance of identifiable locally sale related expenses against normal law income, accordingly the contention of the AR is found to be correct, therefore the Assessing Officer is directed to allow all the expenses on prorate basis. This method has also been adopted in return of income made in Rule 34 read with Second Schedule of the Rules in Annexure-II-G."
' Being aggrieved by the aforesaid decision, the Department has filed the present reference application.
7. Learned counsel for the Department submitted that the Tribunal had seriously erred in law in concluding that Rule 231 was applicable. He submitted that the matter clearly fell within the scope of section 67, and Rule 13, which had been specifically framed to give effect to the provisions of that section. Indeed, subsection (2) thereof expressly empowered the Federal (formerly Central) Board of Revenue ("Board") in this regard. Learned counsel referred in particular to clause (ab) of subsection (1) of section 67, read with section 4(4)(b). Learned counsel submitted that the approach taken by the Tribunal in the impugned order was also contrary to the provisions of section 169(2)(b) since the Tribunal had, in effect, allowed expenditures incurred in relation to foreign sales to be taken into consideration contrary to the statutory provision. He submitted that the adjudicating authority and the CIT (Appeals) had come to the correct conclusions in law and their findings ought to have been sustained. He prayed that the question be answered in favour of the Department, and the impugned order be set aside.
8. Learned counsel for the respondent taxpayer strongly contested The Department's case. He submitted that the Tribunal had come to the correct conclusion in law on the facts of the case.
Learned counsel took a preliminary objection that the question as proposed by the Department was not at all a question of law since no specific provision of the 2001 Ordinance had been identified therein, and the reference ought to be disposed off on this basis alone. Learned counsel submitted that Rule 231 was applicable and had been correctly applied. His case was that Rule 13 was a general provision, whereas Rule 231 was a special provision, which related specifically to export sales. Applying the principle of interpretation that the specific overrides the general, he submitted that Rule 13 could not be applied. Learned counsel took us to various provisions of the 2001 Ordinance, and to Rules 13 and 231. He submitted that it was an accepted position that the taxpayer did not keep separate books of account for export and local sales. Learned counsel further submitted that Rule 231 was in all material respects the same as Rule 216 that had been part of the repealed Income Tax Rules, 1982 ("1982 Rules"), which had been framed under the repealed Income Tax Ordinance, 1979 ("1979 Ordinance"). Reliance was placed on Circular 5/2000 that had been issued by the Board on 6-3-2000. This referred to the Board's earlier Circular 20/1992 dated 1- 7-1992, and then stated in material part as follows:-- "Queries have, however, been raised as to what would be the method of proration of profits between export proceeds falling under section 80CC and local sales. It is clarified that prorating of profits between export sales and local sales in respect of assessee maintaining books of account has to be done in accordance with Rule 216 of the Income Tax Rules, 2002."
' Learned counsel submitted that sections 50(5A) and 80CC of the 1979 Ordinance were in pari materia sections 154 and 169 of the 2001 Ordinance. Therefore, as made clear by the Board itself in relation to Rule 216 of the 1982 Rules, Rule 231 of the 2002 Rules had to be applied in the instant case and all such-like cases. Learned counsel prayed that the reference application be dismissed.
9. Exercising his right of reply, learned counsel for the Department submitted that the approach urged on behalf of the taxpayer would give it what was described as a "double dip" advantage.
Learned counsel submitted that the subject matter of Rule 13 on the one hand and Rule 231 on the other was different and therefore the latter could not be regarded as a specific rule as opposed to the general rule contained in the former. It was submitted that Rule 13 related to expenditures, whereas Rule 231 related to profits earned. There was no equivalence between the two.
10. At the conclusion of the hearing, we allowed learned counsel to file written synopses along with the case-law they wished to rely upon. Learned counsel for the respondent filed a synopsis, referring therein also to certain case-law.
11. We have heard learned counsel as 'above, examined the record with their assistance and considered the case-law relied upon. We first take up the preliminary objection raised by learned counsel for the taxpayer. In our view, it cannot be accepted. The reference application does raise a question of law, and an important one at that. We have only slightly reformulated the proposed question in order to bring out the point in dispute with greater clarity. The issue of law involved was clearly understood and very ably articulated and argued by both learned counsel. We proceed therefore to a consideration of the case on its merits.
' As noted, the heart of the controversy is whether Rule 231 is applicable or not. Learned counsel for the respondent has submitted that this rule is the same as Rule 216 of the 1982 Rules, and has relied on Circular 512000. It will be convenient to set out Rule 231 as applicable in the tax year 2007, and Rule 216, as it stood at the time of the repeal of the 1982 Rules. These rules were as follows:--
231. Computation of export profits and tax attributable to export sales.---(1) Where a taxpayer exports any goods manufactured in Pakistan, the taxpayer's profits attributable to export sales of such goods shall.
216. Computation of export profits and tax attributable to export sales.---(1) Where an assessee exports any goods manufactured in. Pakistan, his profits attributable to export sales of such goods shall be.
12. Clearly, the two rules were essentially identical. To understand Rule 231, one can therefore begin with Rule 216. Why was Rule 216 framed? What purpose did it serve? The answer to this lies in the First Schedule to the 1979 Ordinance. Part I of this Schedule gave the rates of be computed in the manner specified hereunder:-
(b) in other cases, the profits of such business shall be taken to be an amount which bears to the total profits of the business of the assessee from the sale of goods, the same proportion as the export sales of goods manufactured in Pakistan hear to the total sales of goods.
(2) Where the total income of a taxpayer includes any profit from the export of goods manufactured in Pakistan, the tax attributable to such profits shall be an amount which bears to the tax payable on the income the same proportion as such profits bear to the total income.
(3) In this rule, unless there is anything repugnant in the subject or context:-
(a) "export sales" means the f.o.b. Price of the goods exported;
(b) "total profits" means:--
(i) the aggregate of export sales as determined under clause (a); and (ii) the ex-factory price of goods sold in Pakistan, where the goods exported out of Pakistan were manufactured by the exporter; or (iii) the ex-go down price of goods sold in Pakistan, in other-cases computed in the manner specified hereunder:- ...
(b) in other cases, the profits of such business shall be taken to be an amount which bears to the total profits of the business of the assessee from the sale of goods, the same proportion as the export sales of goods manufactured in Pakistan bear to the total sales of goods.
(2) Where total income of an assessee includes any profit from export of goods manufactured in Pakistan, the tax attributable to such profits shall be an amount which bears to the tax payable on the total income the same proportion as such profits bear to the total income.
(3) In this rule, unless there is anything repugnant in the subject or context,--
(a) "export sales" means the f.o.b. Price of the goods exported;
(b) "total" means-- (i), the aggregate of export sales as determined under clause (a); and (ii) the ex-factory price of goods sold in Pakistan, where the goods exported out of Pakistan were manufactured by the exporter, or (iii) the ex-go down price of goods sold in Pakistan, in other cases income tax, while Parts II and III gave the rates of super tax and surcharge respectively. We are concerned with Part IV. This Part underwent significant changes by way of amendments and substitutions during the life of the 1979 Ordinance. For our purposes, it is relevant to consider this Part as it stood from the promulgation of the 1979 Ordinance up to (but before) the Finance Act, 1997. Although amendments were made to this Part from time to time even over this period, the basic structure remained as it was from the beginning, and it is this structure that needs to be examined, because it explains the genesis of Rule 216. (From the Finance Act, 2007 onwards, Part IV took on a significantly different form.) We have chosen to look at Part IV as it stood up to the Finance Act, 1994, but this does not at all affect the substance of the analysis.
14. Part IV comprised of two paragraphs, A and B, of which we are concerned with the former (the latter simply contained certain definitions). Paragraph A, which applied "notwithstanding anything contained in [the First] Schedule", had a number of sub-paragraphs. All of these, in one way or another, gave relief from the income tax or super tax, not by way of an exemption, but by a reduction in the tax payable. For our purposes, it is sub-paragraph (2) that is relevant. This provided in material part as follows:-- "(2) Where the total income of an assessee includes any profit and gains derived from export of goods manufactured in Pakistan,---
(a) income tax and super tax, if any, payable in respect of such profits and gains shall... Be reduced by an amount equal to fifty per cent. Of the amount of income tax and super tax, if any, attributable to the sale proceeds of such goods.
' The Central Board of Revenue may make rules providing for the computation of profits and the tax attributable to export sales for the purposes of sub-clause (a) and for such matters as may be necessary to give effect to the provisions of this clause".
' (We have only reproduced that portion of sub-paragraph (2) as is necessary for explaining the reason why Rule 216 was framed.)
15. It will be seen that sub-paragraph (2) gave substantial relief in respect of any profits derived from the export of goods manufactured in Pakistan. The relief was that the income tax and super tax on profits as were attributable to the sale proceeds of exported goods stood reduced by fifty per cent. Obviously, for an assessee to obtain the benefit of this relief, the amount of profits and gains derived by him from the sale of exported goods had to be computed. For this purpose, the Board was expressly conferred a specific statutory power, in terms of the last portion of sub- paragraph (2), to frame the necessary rules. As it at once clear, Rule 216 was framed in exercise of the power thereby conferred, and specifically for the purposes of sub-paragraph (2) of paragraph A of Part IV of the First Schedule. This is also clear from sub-rule (1) of Rule 216. This provided that the profits to be attributed to the sale of exported goods were to bear the same proportion to the total profits as the export sales bore to the total sales. Once the profits had been computed, sub- rule (2) then provided that the tax attributable to such profits bore the same proportion to the total tax payable, as the said profits bore to the total income of the assessee. Thus (and finally), it was the tax so determined that stood reduced by fifty per cent, in terms as stated in sub-paragraph (2) of paragraph A of Part IV of the First Schedule. (It will be recalled that "total income" was a defined term in the 1979 Ordinance, which was the totality of the income on which tax was payable.)
16. It will be seen from the foregoing that Rule 216 served a specific purpose, and one that was entirely different from the matter at hand. Its inclusions in the 1982 Rules were the exercise of a statutory power expressly conferred on the Board for a specific purposes. In the context of that purposes, no question arose of any need for apportionment of expenditure's between export sales and local sales, for the good reason that such an exercise was simply not required. The purpose was only to identify that portion of the overall profits as were attributable to export sales, in order to enable the assessee to enjoy the benefit of the relief provided.
17. Section 50 of the 1979 Ordinance, which had a number of subsections, dealt with the deduction of tax at source. In 1992, a new subsection (5A) was inserted in this section. This was in part materia section 154 of the 2001 Ordinance, in that it required the deduction of tax at the specified rate from the export sale proceeds received by an exporter from foreign buyers. In the same year, section 80CC was also added to the 1979 Ordinance (with effect from assessment years 1993-94). This was in pari materia section 169 of the 2001 Ordinance. Section 80CC, in its subsection (1), deemed the export sale proceeds on which tax had been deducted under section 50(5A) to be the income of the exporter, and in subsection (2) provided that no deduction or allowance was permissible against the deemed income. Finally, subsection (3) provided than where the exporter had no income other than that from export sale proceeds, the tax deducted under section 50(5A) would be deemed to be the final discharge of his tax liability.
18. Obviously, the question arose as to what would happen in cases where the exporter did have other income, more particularly from local sales. How would matters be prorated between that which came within the ambit of section 80CC (export sales) and that which was not so covered (local sales)? It was to address this issue that the Board issued its Circular 5/2000, relied upon by learned counsel for the respondent. It is pertinent to note that the 1979 Ordinance had no provision equivalent to section 67 of the 2001 Ordinance. There was therefore no specific provision in the 1982 Rules that dealt with this issue. It was in these circumstances that the Board directed that proration would be done in terms as provided in Rule 216. It is crucial to keep in mind that by so applying Rule 216, the Board was making use of a provision that had been designed and intended to serve an entirely different purpose. It is, in our view, unfortunate that the Board chose to do so. The reason is that this tended to conflate two related but nonetheless distinct matters, namely sale proceeds from exports and profits attributable thereto. Section 80CC was concerned only with the former, whereas subparagraph (2) of paragraph A of Part IV of the First, Schedule dealt only with the latter.
By making use of a rule framed solely for purposes of the latter provision, to deal with a situation created by the subsequent insertion of the former provision, the Board created a certain amount of confusion, with rather unfortunate results. This is clear from the two reported decisions of the Appellate noted in the adjudicating authority's order (see the extract reproduced at para 4 above).
19. The two decisions are reported at 1999 PTD (Trib.) 3880 and 2003 PTD (Trib.) 1053. Both were in relation to the 1979 Ordinance and involved different assessment years of the same assessee (1997-98 and 1998-99 respectively). Like the present respondent, that assessee was also engaged in the manufacture and sale of yarn, of which the major portion was exported and the rest sold locally. In the first mentioned decision, the issue was whether certain expenditures incurred in relation to export sales could, be taken into account while determining the income (i,e,, profits and gains) from local sales. The Tribunal held, quite correctly in our view that this was not permissible: "The formula of proration is a law of prudence and has been evolved by taking a pragmatic view of the facts but the basic idea underlying it is that only such expenses are to be allowed which are worked out to be attributable of income sowed under normal law" (pg. 75). By the time the second mentioned case came for hearing before the Tribunal, the Board had already issued Circular 5/2000. The issue was the same. While endorsing its earlier decision, the Tribunal "modified" its application in the appeal before it to the extent "that FOB value of export, as per Rule 216, has to be considered for allocation of GP and proration of expenses" (pg. 387).
20. This brings us to the 2001 Ordinance. The first point to note is that there is no provision in the present law similar to that contained in sub-paragraph (2) of paragraph A of Part IV of the First Schedule of the 1979 Ordinance (i,e,, as that provision stood prior to the Finance Act, 1997). The inclusion of Rule 231 in the 2002 Rules, in exactly the same terms as its predecessor Rule 216 in the 1982 Rules, was therefore somewhat of an anomaly. There was no relief granted in respect of sale proceeds from the export of goods manufactured in Pakistan in the same terms as under the previous law. There was thus now no longer any need (as there had been previously) to work out the profits attributable to export sales (sub-rules (1)(b) of Rule 231) or the tax attributable thereto (sub-rule (2)). Rule 231 was, in our view, simply a somewhat unfortunate holdover from the previous Rules.
21. What the 2001 Ordinance did have was a new provision, section 67, which dealt specifically with the issue of proration. This section is as follows:-- "67. Apportionment of deductions.---(l) Subject to this Ordinance, where an expenditure relates to -
(a) the derivation of More than one head of income; or
(ab) derivation of income comprising of taxable income and any class of income to which subsections (4) and (5) of section 4 apply, or;
(b) the derivation of income chargeable to tax under a head of income and to some other purpose, ' the expenditure shall be apportioned on any reasonable basis taking account of the relative nature and size of the activities to which the amount relates.
(2) The Board may, make rules under section 237 for the purposes of apportioning deductions."
Rule 13 of the 2002 Rules has been framed in exercise of the power conferred by subsection (2). It will be seen that subsection (1) postulates three situations that may require apportionment. We are concerned with that contained in clause (ab). This refers, inter alia, to section 4(4). The latter provision, in its clause (b), applies to deduction of tax under Division III of Part V of Chapter X in which of course section 154 is to be found, with which we, are concerned. It is pertinent to note that while clause (a) of section 67(1) refers to different heads of income, which are listed in section 11, a fact-situation covered by clause (ab) can relate to sources of income that lie within the same head. This is of course the situation at hand. Income from the sale of yarn, whether locally or abroad, comes with the head "income from business". Yet, because of the application and effect of section 154 read with section 169, an apportionment of expenses is necessitated even while remaining within this head of income.
22. When Rule 13 is examined, it is found to cater for precisely such a situation. Sub-rules (1) and (2) provide as follows:-- "13. Apportionment of expenditures.---(1) This rule applies for the purposes of section 67, which provides for apportionment of expenditure incurred for more than one purposes.
(2) Any expenditure that is incurred for a particular class or classes of income shall be allocated to that class or classes, as the case may be."
Sub-rule (1) expressly relates the Rule to section 67. Sub-rule (2) lays down the broad principle that expenditure incurred for a "particular class" of income "shall" be allocated to that class. Sub-rule
(6) (which had previously been erroneously labeled as sub-rule (8)) contains a specific definition of "class of income" for purposes of the Rule. This comprises of a long list of various "classes" into which income is divided for purposes of the Rule. One of these (clause (e)) specifies Pakistan- source income chargeable under the head "income from business" as a particular class of income.
This would of course, cover local sales of yarn. Clause (o) of the definition specifies "amounts to which section 169 applies" as another class of income, and this would cover proceeds from export of yarn. (We may note parenthetically that as originally framed, and up to 2009, Rule 13 contained a number of what were quite obviously typographical errors, some of the more egregious of which appeared in clause (o). These were "cleaned up" by a notification issued on 19-5-2009 by the Board. In our view, these typographical errors cannot stand in the way of the proper application of Rule 13, which is as stated here.)
23. When the foregoing provisions are kept in mind, in our view the position that emerges is that Rule 231 has no application to .a situation where the apportionment of expenditures is being considered or the issue is how expenditures relatable solely to one "class of income" are to be dealt with. For these purposes, it is section 67 read with Rule 13 that is applicable. The genesis of Rule 231 in the predecessor legislation and rules framed thereunder makes it clear that the objective sought to be achieved through this rule was quite different. It has no bearing on the issues at hand. Its predecessor Rule 216 dealt with a matter peculiar to the 1979 Ordinance, and was framed in exercise of a specific statutory power conferred to achieve a specific objective. It is significant that Rule 216 was not invoked before the Tribunal when the appeal in (1999) 79 Tax 69 was heard. As already noted, we endorse the view that was taken by the Tribunal in that decision. Indeed, the essential principle identified in that decision appears (again, quite correctly) to be embodied in sub-rule (2) of Rule 13. It was only when the Board issued Circular 5/2000 that Rule 216 was made applicable. As to the wisdom (and more importantly, legal propriety) of doing so, and the decision of the Tribunal in (2003) 87 Tax 382 to accept such application, we reserve judgment. It is not necessary for us to dilate on this matter because it arose under the 1979 Ordinance, and we are concerned with the 2001 Ordinance. In our view, Rule 231 is, and ought to be regarded as, an unfortunate and unnecessary holdover from the 1982 Rules. It may be noted that learned counsel for the respondent submitted that Rule 231 was omitted in 2009 but reinserted (in somewhat different form) in 2010. Learned counsel submitted on this basis that the Rule ought to be regarded as an exercise of the power conferred on the Board by section 67. With respect, we are unable to agree. We accept the submission by learned counsel for the Department that the two Rules, 13 and 231, have entirely different and separate subject matters. This is so for the reasons given herein above. It also follows that we are unable to E agree with learned counsel for the respondent that Rule 13 embodies a general rule, while Rule 231 is a specific provision and hence has to be applied in preference to the former. That is not so at all.
24. When the impugned decision of the Tribunal is considered in the foregoing perspective, it cannot, subject to what is stated below, be regarded as correct. The conclusion arrived at by the Tribunal may again be reproduced for convenience:-- "In view of the foregoing discussion ... We are of the opinion that Rule 231 of the I.T. Rules, 2002 speak of proration of profit on the basis of export/local sales ratio to total sales without disallowance of any identifiable export related expense or allowance of identifiable locally sale related expenses against normal law income, accordingly the contention, of the AR is found to be correct, therefore, the Assessing Officer is directed to allow all the expenses on prorate basis."
' This conclusion cannot stand for the reasons given above: Rule 231 has no application at all to the issue of proration of expenditures and its application, in whatever form, to a determination of this issue is incorrect. However, in an earlier part of the impugned decision, the Tribunal also noted as follows:-- "... When identifiable export expenses are being disallowed under section 169(2)(b) for being related to export sales covered under section 169 then identifiable expenses related to local sales such as local freight expenses, salaries paid to salesman, advertisement expenses related to goods sold in Pakistan should also be allowed directly against normal law income and should not be prorated between export and local sales as per the practice of the department."
If the Tribunal has correctly identified the departmental practice, then such practice is erroneous and contrary to law. It would, e.g., be directly contrary to sub-rule (2) of Rule 13, which the Department itself wishes to invoke. Expenses attributable solely to local sales must be allowed in full against local sales to determine the income in terms of the normal tax regime. To this extent, the views expressed by the Tribunal must be endorsed. However, this endorsement does not affect the outcome of our decision, which in the end must answer the question raised in this reference application as noted above.
25. In the written synopsis filed by him, learned counsel for the respondent has given the background to and genesis of Rule 216, and has in fact traced it back to the Income Tax Act, 1922.
While we appreciate the assistance provided in this regard, we are, with respect, unable to agree with the conclusions that learned counsel has sought to derive from the same. In our view, the correct position is as stated herein above. The cases relied upon by learned counsel for the respondent may also be considered. Learned counsel relied on Golden Graphics (Pvt.) Ltd. v.
Director of Vigilance and others 1993 SCMR 1635, Ch. Pervaiz Elahi v. Province of Punjab and others PLD 1993 Lah. 595 and Bama Charan v. Additional Commissioner of Taxes and others AIR 1964 Calcutta 332 in support of his submission that a specific provision or rule overrides a general one.
Since we have concluded that is not the situation as between Rules 13 and 231, the cited decisions do not, with respect, provide any assistance to learned counsel. It is therefore not necessary to consider the cases in any detail.
26. In view of the foregoing, the question raised before us is answered in favour of the applicant Department and against the respondent taxpayer. The decision 'of the Tribunal stands modified accordingly. The Registrar is directed to send a copy of this decision to the Tribunal under the seal of the Court.