' The subject appeal, filed by a public limited listed company, impugns the appellate order dated 11-10-2012 passed by the learned first appellate authority in connection with registered person's earlier appeal against the order in original dated 26-5-2012 wherein the appellant was held liable to deposit an amount of Rs,260.345 million, being the amount earlier allowed as refund of input tax relating to supply of certain zero-rated products imported/manufactured by the appellant. The appellant in this case is engaged in the business of manufacture and sale of food products inter alia including purified drinking water, milk-based products, juices and other food stuff. The appellant impugns the order of the first appellate authority on following grounds:-- "(1) That the order dated October 11, 2012 passed by the learned Commissioner Inland Revenue (Appeals-1), Lahore (TIR(A)') is bad in law and against the facts of the case.
(2) That the CIR(A) has erred in upholding (though partly) the order of Deputy Commissioner of Inland Revenue, Audit Division-03, Zone-II, Large Taxpayers Unit, Lahore ('DCIR'), which was passed beyond the jurisdiction assigned to him under the law and is, thus, illegal, void and of no legal effect.
(3) That without prejudice to Ground No, 2 above, the CIR(A) has erred in upholding the disallowance of aggregate input sales tax of Rs,260,345,353 relating to taxable supplies of `Cerelac', `Lactogen', `Nan' Nido 1 + Milk' and 'Nido Instant Milk' in utter disregard of Notifications S.R.O.
548(1)/2006 dated June 5, 2006 and S.R.O. 549(1)/2008 dated June 11, 2008 (under which these products remained chargeable to sales tax at zero percent ) on the plea that these goods are exempt from sales tax under Entry 25 of the Sixth Schedule to the Sales Tax Act, 1990 (`Ace) and thus zero percent regime was not, applicable.
(4) That without prejudice to grounds Nos. 2 and 3 above, the CIR(A) has erred in maintaining that the supplies of' .`Nido Instant Milk' are covered under Entry 25 of the Sixth Schedule to the Act and hence, exempt from sales tax whereas the product is not covered under this entry.
(5) That without prejudice to the above grounds, the CIR(A) has erred in upholding the levy of default surcharge and penalty under sections 34 and 33 of the Act.
2. Besides arguing on factual grounds as well as the merits of the case, the learned AR, by reference to ground of Appeal No, 2, submitted that in this case the show cause notice was issued by the adjudicating authority under the then prevailing provision of section 36(1) of the Sales Tax Act, 1990 the invocation of which, even if considered proper, did not authorize the officer to issue notice for a period beyond five years. In this case, the learned AR submitted, that the show cause notice was admittedly issued on 28-4-2012, therefore, demand adjudged against the appellant for period prior to 28-4-2007 was hit by limitation in view of the expressed provision of law. The learned DR could not rebut this position, consequently, we agree with the submission of the learned AR and hold that default adjudged against the appellant for tax periods prior to 28-4-2007 remains illegal and unjustified. It is now well settled that time limitation in fiscal statutes, wherever provided, is mandatory and hence, cannot be ignored or by-passed on any basis. Accordingly, the order of the authorities below is vacated to this extent and demand adjudged is annulled being hit by limitation.
3. Brief facts relevant for disposal of appeal regarding the default adjudged against the appellant for the remaining period, as have been gathered from record available before us, are that during the period the appellant remained engaged inter alia in manufacture / import and supply of infant food items which marketed under the brand names `Cerelac', `Lactogen', 'Nan', `Nido 1+ milk' and 'Nido instant milk'. The supply of these items was treated as chargeable to tax at zero percent by reference to (i) S.R.O. 548(1)/2006 dated 5-6-2006 for period upto 11-6-2008; (ii) S.R.O. 549(1)/2008 dated 11-6-2008 for the remaining period. The effect of claim of the registered person with regard to supply of the aforesaid items vis-a-vis, the said notifications was that the registered person was allied refund of input tax relatable to these supplies/goods. Both these notifications were issued in exercise of power conferred upon the Federal Government under section 4 of the Sales Tax Act, 1990.
4. In the context of aforesaid facts, post issuance of refunds a case was made out against registered person/appellant that supply of subject goods remained exempt under Serial No, 25 of the Sixth Schedule to the Sales Tax Act, 1990. Therefore, these items could not be validly treated as chargeable to sales tax at zero percent under the notifications referred supra. In this respect, the fundamental thrust of the revenue remained on the argument that under the principle of statute interpretation, primary legislation prevails over a subordinate legislation in cases where there occurs a conflict between the two. In this connection, the stance of the revenue remained that since the exemption has been prescribed in the sixth Schedule which forms part of the primary legislation i,e, Sales Tax, 1990 and since rate of zero percent is provided for in the notifications, a piece of sub-ordinate legislation, therefore, the exemption would prevail over zero-rating meaning thereby that the refund, accruing by virtue of zero-rated supplies under the notifications, was not legally admissible to the appellant. It is on the aforesaid basis that the appellant was served with a show cause notice dated 28-4-2012 in which the appellant was required to explain its position as to why the refund earlier allowed may not be recovered. The appellant duly responded to the show cause, notice and submitted the defense, however, the adjudicating authority feeling not convinced by the submissions of the appellant enforced the show cause notice as intended and while dealing with the matter of 'conflict', the adjudicating authority relied upon 2001 SCM R 1806, 2003 SCM R 370, PLD 2011 Supreme Court 619 and PLD 2007 Supreme Court 517.
5. Feeling aggrieved, the appellant filed appeal before the first appellate authority who did not accept the appeal and decided the matter in favour of the revenue. It is important to note that a similar case was earlier made out against the appellant, however, the first appellate authority then dealing with the the contention of the appellant and vacated the order of adjudicating authority. In this case, both the orders-in-original have been passed by the same adjudicating authority on the same ground and both the orders-in-appeal, including one impugned before us, have been passed by the same authority. In the latest order of the first appellate authority, which is impugned before us, the learned first appellate authority has overruled his earlier decision by analyzing the scheme of legislation with reference to decisio'n of honorable Lahore High Court in PLD 1977 Lahore 1327 and has opined that this decision was not considered by him at the time when he decided the appellant's first appeal on the issue. In the impugned order, the learned first appellate authority has relied upon para 6 of the order of the honorable Lahore High Court in which it has been observed as under:-- "As for the first question it is to be noted that a tax or a duty can only be imposed under the authority of an Act of Parliament in view of Article 77 of the Constitution. This being essentially a legislative power cannot be delegated to a sub-ordinate authority empowering it to levy a tax or duty. There is, however, no objection in delegating a power to a subordinate authority for allowing exemption. There is much difference in 'taxability or liability' and its `payability'. The taxability or liability is created by the Legislature while payability follows to be enforced by the executive authority after quantification. The exemption concerns not the liability but only the payability. It means that though an assessee is liable to pay he can be excused payment on account of a power conferred on the subordinate legislative authority. This distinction was considered and accepted by this Court in other cases. The same opinion was expressed by the Privy Council in Australian Mutual Provident Society v. Inland Revenue Commissioner (3)."
6. By placing reliance on the aforesaid observation in the order of the honorable Lahore High Court, the learned first appellate authority opined:-- "The taxability/liability is created by the legislature. In other words, to create charge under a fiscal statute, is the sole domain of legislature and any other organ of the state including Federal Government cannot create the charge. It is, therefore, obvious that through S.R.Os., the Federal Government has encroached upon the domain of legislature by bringing the goods sold by appellant within the purview of charging section that obviously, cannot be viewed with favour in view of the rule laid down in the above referred judgment of the Honorable Lahore High Court. It is also obvious from the rule laid down by the Honourable Court that chargeability and payability are two different and independent concepts and they are not alternative concepts. Therefore, it would not be correct to hold that there is no conflict between Statute and S.R.O. Because what statute has consciously excluded from charging provision the S.R.O. Has tried to include it in it through executive order, wittingly or unwittingly.
' Perusal of section 4 shows that it overrides the provisions of section 3 to the extent of the rate of tax only. In other words, it has reduced the rate of tax to zero percent, but in no way intends to bring into the ambit of charging section what has expressly excluded by section 13 read with Sixth Schedule. Therefore, it is clear that the legislature has given the power to the Federal Government to reduce the rate of Sales Tax to zero but no power has been given to the Federal Government to create charge on the goods sold by a person/ appellant..................................................... "
7. In the background of the aforesaid observations contained' n the impugned order and the conclusion arrived at in the order-in-original, the learned AR submitted as under:--
(a) There is no disagreement of the appellant with the proposition that in case of conflict between a primary legislation and subordinate legislation the former prevails over the latter.
' Likewise, the appellant has no disagreement with the decision relied upon by the department on this proposition referred supra. The learned AR categorically admitted that there is no other view than the one concluded by the courts on the proposition, however, in this case what needs to be determined is whether there exist any conflict thus leading to invocation of the aforesaid principle.
In this respect, the learned AR submitted that section 4 and section 13 are independent of each other, thus, the question of conflict does not arise ab initio. Any possible conflict could have only arisen if the legislature had expressly provided a bar either in section 4 or in section 13 to an effect that goods covered by section 13 would not be entitled to zero-rating in terms of section 4 or any notification issued thereunder;
(b) The learned first appellate authority clearly misdirected when on the basis of the order of the honorable Lahore High Court in PLD 1977 Lahore 1327, referred supra, he erroneously concluded that in consequence of issuance of notifications --S.R.O. 548(1)/2006 and S.R.O. 549(1)/2008, the Federal Government brought the impugned goods within the purview of charging section which was in the domain of legislature exclusively and which power could not be delegated or vested or conferred on any subordinate legislative authority. In this respect, the learned AR relied upon the decision of the Supreme Court in A1-Samrez Enterprise v. The Federation of Pakistan, reported as PTCL 1987 CL. 99 in which the apex court held in unequivocal terms that even if an exemption is extended the goods still remain subject of charging section and as such the effect of exemption is that the tax or duty no more remains payable. By reference to the aforesaid principle laid down by the apex court, the learned AR added that the first appellate authority clearly erred in concluding (i) the goods covered by the Sixth Schedule were not chargeable to tax; and (ii) the effect of issuance of notifications is that these were brought in the ambit of charging section;
(c) The principle of conflict predominantly is attracted in case where a primary legislation authorizes a subordinate legislative authority to issue notification/rule etc. To give effect to the primary legislation and in this respect, it needs to be determined that the subordinate legislative authority does not increase or decrease the mandate available under the primary legislation. The learned AR submitted that the Federal Government has validly issued the subject notifications under section 4 and which does not bypass the mandate available under section 4 (an aspect which revenue does not dispute), therefore, the exercise of powers do not offend the primary legislation i,e, section 4 in this case. In this respect, the learned AR relied upon 2006 PTD 2821 and 2010 PTD 1717 (H.C. Kar.) in which the principles regarding mandate for exercising the authority of issuing notification under an enabling provision of a statute are discussed. On the basis of these decisions, the learned AR submitted that the issuance of notifications was a valid act and as such notifications remained valid legislation, thus, this did not authorize the revenue to disregard the same on one pretext or the other;
(d) In this case, the impugned goods are the subject matter of both section 4 (chargeable to sales tax at zero percent) and section 13 (exempt under Entry 25 of the Sixth Schedule), therefore, the principle of beneficial legislation would be applicable where under it is a consistent view of the courts, including the apex court of Pakistan, that where two interpretations are possible one favorable to the taxpayer would prevail. In this respect, reliance was placed on 2002 PTD 877 (S.C.
Pak) and 1993 SCM R 274 = 1993 PTD 69;
(e) In this case, the revenue by not giving effect to the subject notifications has, in fact, treated these notifications as illegal, ineffective and ultra vires which could not have been done by an adjudicating authority or for that matter, the first appellate authority. In this respect, reliance was placed on 2002 PTD 632 wherein the honorable Lahore High Court, while dealing with cases of sugar mills, observed that revenue authorities or for that matter appellate authorities including tribunal could not examine the vires of a notification and could not treat them ultra vires the provision of statute. According to learned AR, it was held in the aforesaid judgment that the vires of a notification could only be examined by a High Court or Supreme Court while exercising constitutional jurisdiction. The learned AR submitted that this decision of the honorable High Court was confirmed by the apex court in 2005 PTD 2139;
(f) The proposition that whether exempt goods could be subject to tax at zero percent under section 4 of the Sales Tax Act, 1990 is a matter that had already been clarified by the FBR in Ruling No, 49 of 2002 dated 11-7-2002 and it has been stated that the provision of section 13 are not applicable on goods subjected to zero rate of tax under section 4. On the validity of the clarification and its force vis-a-vis adjudication procedure, the learned AR relied upon 2007 PTD 921 in which the honorable Lahore High Court, by reference to section 72 of the Sales Tax Act, 1990, has held that directions issued by the FBR carry binding force and these could not be disregarded by the field formations while implementing the law:
(g) The observation of the first appellate authority, though he did not deal with this matter in detail and only made a passing comment, that the subject notifications applied only where supply of imported goods is made is erroneous as a reading of the notifications, in totality, shows that these cover both 'imports' and 'supply' and that too independently; and
(h) In any case, the taxable supplies of `Nido Instant Milk' were wrongly treated as covered by the Sixth Schedule as this product is not a subject matter of Chapter 19 of the Pakistan Customs Tariff.
This issue was agitated in the order-in-original however, the adjudicating authority did not assign any reason for not agreeing with the appellant.
8. The learned DR, on his turn, supported the orders of the authority below and reiterated that in this case there is a conflict between Entry 25 of the Sixth Schedule read with section 13 of the Sales Tax Act, 1990 and notifications referred supra. This, according to him, by reference to well settled principles of law, was to be resolved in a manner that exemption would prevail over zero-rated regime, the latter being part of subordinate legislation. The learned DR also submitted that in this case, by virtue of exemption, there did not exist any charge on the goods and hence, the notifications had an effect of introducing charge on the subject goods which was in the domain of legislature only. It was the assertion of the learned DR that the only possible way whereby zero- rated regime could have been extended to the subject goods was that section 4 had overridden section 13 in addition to section 3 of the Sales Tax Act, 1990. In relation to the argument of the learned AR that the action of the revenue had, in fact, treated the subject notifications ultra vires to the extent of subject goods, the learned DR submitted that the revenue treated the relevant entry as ineffective and this is not the case of declaring or treating the notifications ultra vires of the statute. On the matter of resolving the controversy by reference to beneficial legislation, the learned DR argued that since the matter involves exemption and concessions, therefore, the controversy needs to be resolved in the favour of the revenue.
9. We have heard the rival parties, perused the available record, considered the arguments and have gone through the decisions relied upon by the respective parties. There is no cavil to the proposition that in case of conflict between a primary legislation and a subordinate legislation, it is the primary legislation which shall prevail. No exception could be taken from what has been resolved by the apex court in the decisions relied upon by the revenue. The view of the higher judiciary on the matter is consistent, clear and unequivocal. The learned AR is correct in pointing out that in this case what needs to be ascertained is whether there exists any conflict between a primary legislation and a subordinate legislation.
10. A plain reading of the provision contained in sections 4 and 13 of the Sales Tax Act, 1990 reveals that: (i) these are independent provisions dealing with independent transactions; and (ii) these do not make cross reference to each other though both of these override section 3. The provisions of section 3 of the Sales Tax Act, 1990 create a charge of tax, while the provisions of section 4 override these provisions to prescribe payment of tax at zero percent, which is in accordance with the scheme embodied in the statute, is a valid and existent rate applicable to certain transactions. The provisions of section 13 again override section 3, however, in this case, the charge remains there on the goods but the qualifying transactions are excused from payment of tax as held by apex court in 1986 SCM R 1917, the decision heavily relied upon by the appellant. The learned first appellate authority clearly misdirected in concluding that the effect of notifying the subject goods in the S.R.Os. Was that the same created a charge on these goods which was not there by virtue of exemption contained in the Sixth Schedule. The decision of the apex court is unambiguous on this point and even at the cost of repetition, it is clarified that no matter there was applicable an exemption the subject goods were already chargeable to tax. It was only the payment against that charge which was done away with by virtue extending the exemption. The whole case built on by the first appellate authority on this premise suffers from serious infirmity as the conclusion arrived at by him is contrary to the principles laid down by the apex court. We note that even the judgment relied upon by the first appellate authority supports this proposition. We are also not fortified with analysis made by the first appellate authority with reference to the definition of 'taxable supply' provided for in section 2(41) of the Sales Tax Act, 1990 that since supply of goods that are exempt from sales tax under section 13 are excluded from the ambit of 'taxable supply' and hence are beyond the scope of charging section 3 that creates charge on taxable supplies. This is not the case as the aforesaid provisions have neutral effect as far as the zero-rated goods are concerned because of their specific inclusion in the definition of 'taxable supply' as provided for in section 2(41) and that again supply of zero-rated goods has categorically been declared by the legislature as 'taxable supply' in section 2(48) of the Sales Tax Act, 1990.
11. Examining the provisions of law vis-a-vis the identification of any conflict, we note that interestingly, neither section 4 puts a bar on inclusion of goods covered by neither section 13 nor section 13 overrides section 4 which clearly shows that there is no conflict between the two provisions. These are two independent provisions dealing with independent schemes, thus, there is no question of conflict. We are persuaded by the submissions of the learned AR that the determination of fact that whether there was any conflict or not it was to be ascertained as to whether the notifications exceeded or reduced the mandate provided in section 4, the enabling provision. It is not the case of the department, and rightly so, that the notifications did not offend the provisions of section 4 that being the case we conclude that in this case the principles of resolving the conflict are not attracted. The conflict possibly could have been there if section 4 had placed a bar on inclusion of goods covered by section 13 and yet the Federal Government had notified the goods in a subordinate legislation. This is admittedly not the case, Thus there is no conflict so as to attract the applicability of primary legislation over the subordinate legislation.
Although we do not find any conflict in this case but in the absence of cross reference one could arguably say that there is a conflict between section 4 and section 13 both being part of the primary legislation. Had this been the case, again the principles of beneficial interpretation would have favored the case of the appellant. In such a case, only such interpretation would have to be adopted that favors the case of taxpayer, a proposition that stands well settled in innumerable decisions, few of which have been relied upon by the appellant before us. Further, it is a trite law that no omission can be attributed to the legislature and this principle,. If followed, leads to the irrefutable conclusion that the cross reference was purposefully not made by the legislature both in section 4 and section 13 so as to allow zero rating to the qualifying goods which even otherwise are exempt from sales tax under section 13.
12. We also find force in the arguments of the learned AR that the authorities below did not possess the power of treating a notification ineffective or ultra vires. By doing so, they have transgressed their jurisdiction which cannot be endorsed under any circumstances. The decisions relied upon by the learned AR on this point are clear and uncontroversial. Treating the notifications ineffective tantamount to declaring the same ultra vires indirectly. It is a well settled principle of law, also enumerated in the decision of the honorable Karachi High Court, in 2003 PTD 1276, relied upon by the learned AR that what an authority cannot do directly it cannot be done indirectly. The officers of the revenue were not mandated with the power of not following the notification and by doing this they have acted not in accordance with law and hence, their action cannot be approved.
13. The reliance of the appellant on the FBR's clarification supplemented by the decision of the honorable Lahore High Court vis-a-vis its binding nature in 2007 PTD 921 does not leave much to deliberate. The ruling of the FBR not only spelled out proper scheme of law but also carried a binding force on the authorities below under section 72 of the Sales Tax Act, 1990 and hence, passing the order in disregard to the same is clearly unlawful. We are also persuaded with the submissions of the learned AR that the applicability of notifications was not restricted only to supply of imported goods rather these notifications are applicable to import transactions, and, as well as, to supply transactions (whether in relation to imported goods or otherwise to goods procured or manufactured locally) in relation to the qualifying goods. A perusal of notifications, as a whole, clearly supports this position.
14. The upshot of the above discussions is that the authorities below clearly erred in denying input tax claimed by the appellant in relation to the impugned goods as these were properly chargeable to sales tax at zero percent. There was neither any conflict in the two provisions (i,e, section 4 and section 13) nor was there any conflict between the Sixth Schedule and the subject notifications and the claim of the registered person / appellant was thus fully in accordance with the law.
Resultantly, both the orders are vacated and appeal is accepted.