1. The above titled two further appeals pertaining to tax years 2010 and 2011 have been filed at the instance of the taxpayer against the consolidated appellate order dated 16-10-2012 recorded by CIR(Appeals) Gujranwala.
2. The facts of the case briefly stated are that the taxpayer being a commercial importer tax deducted at import stage as income tax @ 1% under section 148 of the Income Tax Ordinance, 2001 (hereinafter called the Ordinance') for both the years under consideration. It was observed by the taxation officer that the taxpayer had deducted short tax by misapplying clause 9 Part-II of the second schedule to the Ordinance read with S.R.O. 575(1)/2006, which provides reduced rate to those goods covered by zero rating regime of the Sales Tax. Therefore, the taxpayer was confronted by the taxation officer in this regard and finding no compliance from taxpayer's side, passed order under sections 162/205 of the Ordinance by working out tax demand at Rs,1569514 and Rs,1893275 for the tax years 2010 and 2011 respectively. Feeling aggrieved, the taxpayer preferred appeal before CIR(Appeals) Gujranwala, who also upheld the action of the taxation officer. Still discontented, the taxpayer has come up in appeal before this Tribunal on the strength of the following common grounds:--
(1) That the order passed under section 162 of the Income Tax Ordinance, 2001 by the learned Inland' Revenue Officer (MAC-02), Zone-II; RTO, Gujranwala and confirmed by the CIT(Appeals)
3. RTO, GRW are arbitrary, contrary to the facts, without jurisdiction and without legal implication of the provision of the Income Tax Ordinance.
(2) That the orders passed by the respondent No,2 is illegal, infractuous, illegitimate and contradicting to the facts of this case, as the charge which was not framed in show-cause notice could not be adjudged through an adjudication. The reliance is placed on 2010 PTD 451. Thus, the confirmation order of the learned respondent No,1 and the impugned order of respondent No,2 are purely illegal, unjustified and liable to be annulled.
(3) That the learned respondent No,1 passed the impugned order without assigning any solid reason and he illegally rejected all the grounds of appeal taken by the appellant.
(4) That both the learned respondents had failed to understand the difference between the Sales Tax S.R.O. 549(1)/2008 dad 11-6-2008 which declared all type of machinery zero rate so from the levy of Sales Tax Act, 1990 and S.R.O. 575(1)/2006 dated 5-6-2006 is about the Customs duty exemption on the import of the machinery imported by the appellant. Therefore, the tax deducted on import stage of the appellant's machinery @ of 1% is purely correct and as per law as the machinery of the appellant has been declared zero rated in sales tax regime and exempt in Customs regime. So the impugned orders of the learned respondents are contrary to the statutory provisions of law and must be declared annulled.
(5) That the learned respondent No,2 had no jurisdiction in this case as he has issued the notices to the appellant on the basis of Customs GD. The subject GD was an assessment order for all purposes of collection of duty/taxes on the import stage by the Customs authorities. The said GD is a final assessm ent under section 25 of the Customs Act, 1969, unless reopened in special circumstances by the respective Collector of Customs. Therefore, the learned respondent as in the capacity of Inland Revenue Officer RTO Gujranwala (Zone-II), had no legal jurisdiction to adjudicate the matters relating to the Custom authorities and thus the impugned orders of learned respondent are illegal and void-ab-initio.
(6) That the learned respondent No,2 did not consider his on show-cause notice while passing the impugned order under section 162 as the department cannot go beyond the allegation mentioned in the Show-Cause Notice. The same reliance i placed on 2010 PTD 451 (c).
(7) That the learned respondent No,2 had not confronted about the issue of capital goods read with Clause 13(G) which is against the most quoted principle of natural justice, Justice audi alteram partem. Reliance is placed on 2009 PTD 1978(c).
(8) That the respondent No,2 was unjustified to pass the order by jumping into Clause 13(G) of Part- II of the 2nd Schedule of the Ordinance, 2001 which is not the claim of taxpayer (one should remain within the mandatory of law and cannot go beyond its language). 2009 PTD 774(b).
(9) That both the learned respondents did not rebut the instance of taxpayer under clause 9 of Part-II of 2nd Schedule of the Ordinance, 2001 read with S.R.O. 549(1)/2008 deals with zero rating regime and then after passing the adverse impugned orders against the appellant which is totally illegal and unjustified do the impugned orders are liable to be annulled.
4. In addition to above, the learned counsel appearing on behalf of the taxpayer has vehemently argued that Messrs Essa Enterprises, Gujranwala is registered with the Tax Department in the category of Commercial Importer/Exporter. The appellant during the tax years under consideration imported the goods (mostly agricultural machinery) after the payment of all leviable duty/taxes at the import stage and sold out this machinery in the local market. He contends that the appellant imported the subject agricultural machinery and filed Good Declaration (GD of Import) electronically to the Custom authorities for the purpose of the assessment of duty/taxes. The computer data of Customs authorities and assessment of duty/taxes are under the supervision and jurisdiction of Customs authorities and nothing is in the hands of the appellant. The Customs Authorities itself assessed the declaration of the appellant and cleared the goods after the payment of all duty/taxes. He further submits that the FBR vide S.R.O. 549(1)/2008, dated 11-6-2008, had declared all the machinery zero, rated/exempt from the payment of sales tax whether imported or on local supply. The rate of income tax at import stage on the items declared zero rated in sales tax is 1% under clause 9 of the second schedule of the Ordinance. Therefore in the case of the appellant, the tax rate under section 148 of the Ordinance was rightly charged @ 1% under clause 9 of the second schedule (Part II) of the Ordinance. He submits that both the authorities below have failed to understand the difference between the Sales Tax S.R.O 549(1)/2008 dated 11-6-2008 which declared all type of machinery zero rated from the levy of Sales Tax Act, 1990 (hereinafter called the Act') and S.R.O. 575(1)/2006 dated 5-6-2006 which is about the Customs duty exemption and Sales Tax exemption on the import of the machinery.
5. On the other hand, learned DR appearing on behalf of the department has fully supported the orders passed by both authorities below, simply reiterating that the reduced rate did not apply in this case as the goods are not zero rated under Sales Tax regime but were exempt from the payment of Sales Tax. According to her, the rate of tax should be charged a 4% or 5% as the case may.
6. We have heard the arguments advanced by representatives of both the parties and also carefully gone through the relevant record available on file along with relevant S.R.O. as well as Clause 9 of second schedule to the Ordinance, which are reproduced as under for the sake of convenience:-- Second Schedule of the Income Tax Ordinance, 2001 "clause [(9)/ Tax under section 148 shall be collected at rate of 1% on the import of all fibers, yarns and fabrics and the goods covered by the Zero Rating Regime of the Sales Tax notified by Board.
7. The appellant also declared all the imports in it's Sales tax return as "zero rated import" and the same have not been objected by the department.
8. S.R.O. 549(1)/2008 dated 11-6-2008 "S.R.O 549(I) 2008.---In exercise of the powers conferred by clause (c) of section 4 of the Act, the Federal Government is please to direct that the goods mentioned in column (2) of the table below shall be charged to tax at the rate of zero percent subject to the conditions and restrictions specified in column (3) of that table, namely:-- Sr.
9. No,Description of Goads Condition and restrictions 3.i. Plant, machinery and equipment (whether or not manufactured locally) include- ing parts thereof ii. Plant, machinery and equipment, weather locally manufactured or importedI. Import thereof.
10. II. Supplies thereof: Provided that the expression "Plant "machinery" and "equipment" mentioned in this serial number do not include the consumer durable and office machines ---The perusal of above two provisions in ex-juxta position transpires that all types of machinery comes under the S.R.O 549(1)/2008 dated 11-6-2008 which has been declared zero rated in Sales Tax regime.
11. The S.R.O. 575(1)/2006, dated 5-6-2006 determines whether the imported machinery was exempt or zero rated under the Sales Tax Act, 1990 does not apply to the case in hand for the purpose of levy of Income tax at import stage. The rate of tax under section 148 of the Ordinance at import stage of machinery remained 1% also before the proclamation of S.R.O. 549(1)/2008 dated 11-6- 2008, under clause 13G of the second Schedule of the Ordinance. The said sub-clauses (13 G(i,ii,iii)) were omitted from statute vide S.R.O. 567(1)/ 2008, dated 11-6-2008. The Board on the same date issued S.R.O. 549(1)/2008 under section 4 of the Act and declared all the machinery zero rated.
12. Therefore, all the machinery without any classification qualified to clause 9 of the second schedule of the Ordinance for the purpose of charging the income tax @ 1% under section 148 at the import stage. The intention of the legislature on the issue is quite clear, that to promote the business and industry, the rate of sales tax on the import of machinery was maintained @ zero % and the rate of Income tax was to be charged @ 1%.
13. The S.R.O. 575(1)/2006, dated 5-6-2006 is basically about the Customs exemptions and provides the exemptions of sales tax under section 13 of Act on limited items. The issue of exemption under section 13 011ie At and zero rating under section 4 of the Act has been F clearly differentiated and elaborated by the FBR, vide Sales Tax Ruling/Instructions No,49/2002, Letter C.No,3 (15)STP/99/VOL-I, dated 11-7-2002, the relevant Para of which is as under: "4. Under the Sales Tax Act, 1990, the charging sections 3 (sections 3,3-A, 4) are independent of each other. The Federal Government can grant exemption from the tax under section 13 of the Sales Tax Act, 1990 on the supply and import of the' goods, notwithstanding the provisions of section 13 of the Act. Thus the provisions of section 13 are not applicable on the goods subject to zero rate of tax under section 4."
14. So the above clarification of the FBR sufficiently clarifies the issue that S.R.O. 575(1)/2006 issued under the provisions of Customs Act 1969 and section 13 of the Act (exemption of goods) do not apply on the imported goods (machinery) of the appellant which were declared zero rated under S.R.O. 549(1)/2008 issued under section 4 of the Act. Thus, according to the Boards own clarification, the zero rated machinery cannot be treated as exempt therefore, the rate of income tax will be charged @ 1 % as per clause 9 of second schedule of the Ordinance.
15. Furthermore, the Honorable Lahore High Court on the clarification of F.B.R in a reported judgment 2007 PTD 921, has held as under:-- "---Mere fact that a subsequent change in law by way of issuance of said S.R.O. was more particular and specific in extending the exemption would not derogate from interpretation of C.B.R, already made in that regard"
16. On the basis of above clarification of F.B.R vide Sales Tax Ruling/Instruction No,49/2002, Letter C.No,3 (15)STP/99/VOL-I, dated 11-7-2002, the Appellate Tribunal Inland Revenue vide reported judgment cited as 2013 PTD 420 also decided the similar issue of "sales tax exemption" under section 13 of the Act and "sales tax zero rating" under section 4 of the Act in favour of the appellant.
17. The issue involved in said reported judgment was the refund received by Messrs Nestle Pakistan on the basis of supply of infant milk at the rate of zero% of sales tax under S.R.O. 548(I)/2006 and S.R.O.
18. 549(1)/2008 whereas the departmental view was that the refund was inadmissible for the reason that the subject supply was exempt under sixth schedule of the Sales Tax Act and cannot be treated zero rated under S.R.O. 548(I)/2006 and S.R.O. 549(I)/2008. The learned Tribunal in the said decision by accepting appeal of the registered person/appellant held that the goods qualify under zero fating regime as per Board's clarification and consequently refund received by registered person under zero rating was declared lawful and admissible.
19. Even otherwise, sole dispute in the instant case is that whether the goods (import of machinery) are covered under zero rating regime vide S.R.O. 549(I)/2008 or exempt under S.R.O. 575(1)/2006.
20. The Apex Court of the country has held that while interpreting a fiscal statute:-- "when two interpretation are possible in relation to any provision in the discipline of taxation the favorable to the assessee would prevail"
21. In view of above, it is obvious that the tax deducted on appellant's machinery at import stage @ 1% by considering the zero rated sales tax regime as per S.R.O. 549(1)/2008 is absolutely correct and in accordance with law. The orders passed under sections 162/205 of the Ordinance for the tax years under consideration as well as impugned order being illegal, arbitrary against the law and void ab