ASIM HAFEEZ, J. This consolidated judgment shall decide subject matter appeals and constitutio nal petitions, details whereof are listed in attached Appendix-A. Appeals are directed against judgment dated 06.07.2020, passed by learned Single Judge in Chambers in the case of Majeed Fabrics Private Limited etc. v. Federation of Pakistan etc. (W.P.No.4865/2020), whereby challenge thrown qua applicability of section 235 of Income Ordinance 2001 ('Ordinance') in terms of clause 66 of part-IV of the second schedule to the Ordinance ('clause 66'), was dismissed, while upholding requirement of procuring exemption certificate, before claiming exemption against collection of advance income tax on the amount of electricity bills under section 235, ibid. Listed constitutional petitions, wherein declarati on against applicability of section 235 of the Ordinance, on the premise that operation of said section was effectively vetoed by clause 66, came up for hearing before learned Single Judge(s) in Chambers but lately referr ed to this Division Bench for determination of the questions, having commonness to the questions subject matter of appeals.
2. Fundamentally , the necessity of procuring exemption certificate, as a condition for claiming exemption against collection of advance income tax under section 235 of the Ordinance, or absence of such requirement is the epicenter of controversy . Counsels on both side of the aisle vividly argued.
3. Appellants / petitioners are taxpayers, which claim that being registered with the Sales Tax as exporters or manufacturers - as the case may be - in one of the industrial sectors identi fied under clause 66, they are exempted from the applicability of section 235 of the Ordinance. It is argued that section 53(1)(d) of the Ordinance, read with clause 66, provided exemption from the operations of provision of section 235, in particular , which exempted appellants / petitioners from the necessity of procuring certificate(s), either under sub-section (3) of section 235 or Section 159 of the Ordinance. Adds that requirement of certificate, in these circumstances, actually negates legislative intent. Support from the ratio of the decision in the case of "Usman Hassan and another Vs. Federation of Pakistan and others" (2017 PTD 2340 ) is claimed. Further submits that registered status of the appellants / petitioners can be affirmed by electricity distribution companies (DISCO' s), prior to the issuance of electricity bill, upon checking consumer 's identity - specific / distinctive NTN issued to each registered person by the Federal Board of Revenue - which verification is otherwise mandatory in terms of Consumer 's Manual.
4. On the contrary , learned counsels representing the Respondent' s department insisted on the requirement of certificate, as pre-condition for claiming exemption under section 235 of the Ordinance. Adds that condition of filing application for seeking exemption certificate is mandatory , reference is made to sub-section (1) of section 159 of the Ordinance. Lastly submits that exemption allowed under section 53(1)(d) was subjected to certain conditionalities, and unless said conditions are fulfilled and evidenced through issuance of certificate by the Commissioner , no exemption is allowable. Learned counsels supported the judgment impugned.
5. We heard the learned counsels and browsed the relevant provisions of law. Before determining the controversy , it is appropriate to reproduce the sections having relevance thereto, which read as; Section 53. Exemptions and tax concessions in the Second Schedule. -- (1) The income or classes of income, or persons or classes of persons specified in the Second Schedule shall be --
(a) exempt from tax under this Ordinance, subject to any conditions and to the extent specified therein;
(b) subject to tax under this Ordinance at such rates, which are less than the rates specified in the First Schedule, as are specified therein;
(c) allowed a reduction in tax liability under this Ordinance, subject to any condit ions and to the extent specified therein; or
(d) exempted from the operation of any provision of this Ordinance, subject to any conditions and to the extent specified therein.
(2) The [Federal Government may] whenever circumstances exist to take immediate action for the purposes of national security , natural disaster , national food security in emergency situations, protection of national economic interests in situations arising out of abnormal fluctuation in international commodity prices, implementation of bilateral and multilateral agreements [or granting an exemption from any tax imposed under this Ordinance including a reduction in the rate of tax imposed under this Ordinance or a reduction in tax liability under this Ordinance or an exemption from the operation of any provision of this Ordinance to any international financial institution or foreign Government owned financial institution operating under an agreement, memorandum of understanding or any other arrangement with the Government of Pakistan], by notification in the official Gazette, make such amendment in the Second Schedule by --
(a) adding any clause or condition therein;
(b) omitting any clause or condition therein; or
(c) making any change in any clause or condition therein, as the Government may think fit, and all such amendments shall have effect in respect of any tax year beginning on any date before or after the commencement of the financial year in which the notification is issued.
Section 159. Exemption or lower rate certificate.-- (1) Where the Commissioner is satisfied that an amount [ ] to which Division II or III of this Part 2 [or Chapter XII] applies is -
(a) exempt from tax under this Ordinance; or
(b) subject to tax at a rate lower than that specified in the First Schedule; or
(c) is subject to hundred percent tax credit under section 100C, the Commissioner shall, upon application in writing by the person, issue the person with an exemption or lower rate certificate.
(1A) The Commissioner shall, upon application from a person whose income is not likely to be chargeable to tax under [ ] this Ordinance, issue exemption certificate for the profit on debt referred to in clause (c) of sub-section (1) of section 151.
(2) A person required to collect advance tax under Division II of this Part or deduct tax from a payment under Division III of this Part [or deduct or collect tax under Chapter XII] shall collect or deduct the full amount of tax specified in Division II or III [or Chapter XII], as the case may be, unless there is in force a certificate issued under sub-section (1) relating to the collection or deduction of such tax, in which case the person shall comply with the certificate.
Section 235. Electricity consumption. - (1) There shall be collected advance tax at the rates specified in Part-IV of the First Schedule on the amount of electricity bill of a commercial or industrial consumer .
(2) The person preparing electricity consumption bill shall charge advance tax under sub-section (1) in the manner electricity consumption charges are charged.
[Explanation.-- For removal of doubt, it is clarified that for the purposes of this section electricity consumption bill referred to in sub-section (2) means electricity bill inclusive of sales tax and all incidental charges.
(3) Advance tax under this section shall not be collected from a person who produces a certificate from the Commissioner that his income during tax year is exempt from tax [or that he has discharged advance tax liability for the tax year].
(4) Under this section, --
(a) in the case of a taxpayer other than a company , tax collected upto bill amount of [three hundred and sixty thousand Rupees per annum] shall be treated as minimum tax on the income of such persons and no refund shall be allowed;
(b) in the case of a taxpayer other than a company , tax collected on monthly bill over and above thirty thousand rupees per month shall be adjustable; and
(c) in the case of a company , tax collected shall be adjustable against tax liability .] Clause 66 of Part-IV of Second Schedule of the Ordinance.
Clause (66): Provisions of section 235, shall not be applicable to the taxpayers, registered with sales tax as exporters or manufacturers of --
(a) carpets;
(b) leather and articles thereof including artificial leather footwear;
(c) surgical goods;
(d) sports goods; and
(e) textile and articles thereof.
6. Exemption in question claimed has its roots in section 53 of the Ordinance, which extends various kinds of exemptions and tax concessions with respect to the income(s) / person(s), as specified in the Second Schedule.
Second Schedule is segregated in four parts, each of which provides for diverse kinds of exemptions and tax concessions - each category is separately accommodated through clauses (a) to (d) of section 53, ibid. The controversy herein essentially engages clause (d) of sub-section (1) of section 53 of the Ordinance. It is highlighted that appellants / petitioners are not claiming exemption from tax under clause (a) of sub-section (1) of section 53 of the Ordinance, but exemption from the operation of provision of the Ordinance, i.e., section 235 of the Ordinance, by virtue of clause 66 of Part-IV of Second Schedule, situation catered under clause (d) of sub-section (1) of section 53 of the Ordinance. It is pertinen t to mention that commercial or industrial consumers can claim exemption from advance tax, at the rates specified, on the amount of electricity bills - other than taxpayers invoking clause 66 - under sub-section (3) of section 235 of the Ordinance upon producing certificate from the Commissioner in terms of sub-section (1) of section 159 of the Ordinance provided such person' s income, during the tax year, is exempt from tax or that liability for the advance tax for relevant tax year stood discharged. There is no dispute that mechanism for procuring certificate for the purposes of section 235(3), ibid, is provided under sub-section (1) of section 159 of the Ordinance. Consumers claiming invocation of clause 66 are a different category , when examined in the context of tax payers claiming exemption in terms of sub-section (3) of section 235 or section 236O of the Ordinance as the case may be.
7. Section 235 of the Ordinance is at the heart of the controversy . Learned counsel for the appellants / petitioners emphasized that by virtue of clause (d) of sub-section (1) of section 53 of the Ordinance, read conjunctively with clause 66, section 235, in its entirety , is inapplicable. Argument is untenable and misconceived, which primarily undermines the scope, object and purpose of section 53(1)(d) of the Ordinance and conspicuously ignored legal principles circumambulating tax exemptio ns. A perusal of section 53(1)(d), in the context of present controversy , suggests that operation of section 235 is exempted subject to the conditions, and to the extent, specified in clause 66 of Part-IV of Second Schedule. A litera l reading of clause 66, in the context of controlling provision, i.e., section 53(1)(d), manifests that mere insertion of clause 66 would not outrightly dismiss / efface legal existence of section 235 of the Ordinance but it ceases to be operative once conditions specified are fully met. At the expense of stating the obvious, section 235 will not cease to exist, per-se, in the wake of clause 66, which continues to remain effective and operational unless conditions prescribed in clause 66 are fulfilled. The question is at what point in time section 235 of the Ordinance will become non-operational, non-functional or ineffective? Answer is simple. When the conditionalities of clause 66 are fully met, at that point in time, operability of section 235 of the Ordinance is eclipsed or held in abeyance, to be in state of hibernation as long as taxpayer is compliant - having active / functional registration with sales tax, as exporter or manufacturers and in one of the industrial sectors mentioned in clause 66. It is clearly discernable that exemption from the operations of section 235 of the Ordinance is not available, per-se, merely by operation of law, but claimable only upon compliance of conditions specified in clause
66. It is essential that such compliant status is verifiable, at all material times. It goes without saying that registration with the sales tax as exporter or manufacturer , in one of the industries specified in clause 66, is condition-precedent for claiming exemption from operability of clause 66. The question arises is that how and who would make declaration qua the fulfilment of the conditions of clause 66?
8. On deeper appreciation of the submissions made, it appears that actually factum of accrual of liability is denied, on the premise that exemption directed exclusion of the applicability of section 235 of the Ordinance. The character of section 235 of the Ordinance has also some relevance in the context of controversy . On examination, it appears that diverse treatment, particularly with respect to the collection of tax [payment of liability] and determination of liability [assessment], has been extended to the companies and persons, other than the companies.
Notwithstanding the categorization of taxpayers into a company and persons, other than a company , subject matter of the tax is the tax on income, though the mechanism for recovery of such tax and assessment mechanism showed notable diversity . Irrespective of diversity in the mode of collection - through electricity bills in the cases at hand - subject matter of the tax is tax on income. As observed in the case of 'Indus Jute Mills Ltd. Through Chief Executive Vs. Federation of Pakistan through secretary Finance, Islamabad and 3 others' (2009 PTD 1473 ), .... 'mode of recovery of tax is not the determining factor in ascertaining the subject matter of tax'. It is not alleged that appellants / petitioners are not engaged in economic activity , resulting in generation of income. Section 235 of the Ordinance is not per se a charging section, as subject matter of the tax, in pith and substance, is the income of the taxpayer . Section 235, ibid, merely provides a mechanism for collection of tax - though assessment of the liability may vary in the context of the company and persons other than a comp any, which determination is not subject of adjudication. Chargeability / levy of tax and its collection are two sides of the coin. While placing reliance on the judgment in the case of "Assistant of Central Excise, Calcutta v. National Tobacco Co. of India Ltd [(1972) 2 SCC 560] Hon'ble Supreme Court of India in the case of "M/s Peekay Re-rolling Mills (p) Ltd v. the Assistant Commissioner and another [(2007) 6 VST 541 (SC)] observed that '.... levy and collection are not synonymous and that collection of the tax is not necessary facet of a levy'. Chargeability often indicates subject matter of tax and conversely collection constitute physical realization of the tax, levied or imposed. While referring to the case of M/s Somaiya Organics (India) Ltd. v. State of U.P [(2001) 5 SCC 519], it was observed in the case of M/s Peekay Re rolling Mills (p) Ltd (supra) , that .....'Collection of tax is normally a stage subsequent to the levy of the same' . Accrual of liability cannot be equated with the collection thereof, and mere exemption from the collection of tax would not efface the existence of liability or levy. Reference is made to the observations in the case of M/s Peekay Re-rolling Mills (p) Ltd (supra) - wherein ratio in the case of Associated Cement Companies Ltd v.
State of Bihar and Others [(2004) 7 SCC 642] was reproduced in following terms: '........ The question of exemption arises only when there is a liability . Exigibility to tax is not the same as liability to pay tax. The former depends on charge created by the Statute and later on computation in accordance with the with the provisions of the Statute and rules framed thereunder , if any. It is to be noted that liability to pay tax chargeable under section 3 of the Act is different from the quantification of the tax payable on assessment. Liability to pay tax and actual payment of tax are conceptually different. But for the exemption the dealer would be required to pay tax in terms of Section 3. In other words, exemption presupposes a liability . Unless there is liability question of exemption does not arise' .
It was further observed in the case of M/s Peekay Re-rolling Mills (p) Ltd (supra) that "...exemption does not negate a levy of tax altogether . Despite an exemption, liability to tax remains unaffected, only the subsequent requirement of payment of tax to fulfil the liability is done away with".
9. To elaborate the applicability of exemption, from our jurisdiction, guidance is solicited from the ratio of decision in the case of "H.M. Extraction Ghee and Oil Industries (Pvt) Ltd and another Vs. Federal Board of Revenue and another" (2019 PTD 1479 ), wherein it was held that '.......it is well established that an exemption inserts itself between the first two stages, i.e., between what is leviable and what is payable...'.
10. Principles governing tax exemption(s) and onus to substantiate eligibility theret o rests with the person claiming exemption. It is for the taxpayer , who is claiming exemption, to establish its entitlement to the exemption, by producing an exemption certificate. Reference is made to decisions in the cases of "Liaquat National Hospital Vs. Province of Sindh and others" (2019 SCMR 865), and "Collector of Custom FBR and another Vs. Messrs Fitter Pakistan (Pvt) Ltd" (2020 SCMR 1157). Now the question is how factum of fulfilm ent of conditions under clause 66 would be verified and which authority is competent to affirm availability of conditions to hold operation of section 235 of the Ordinance in abeyance? The mode of such verificat ion and eligibility of the authority to affirm registration status as compliant is provided under relevant enactment, reference is made to sub-section (1) of section 159 of the Ordinance, a procedural provision. Once certificate is procured and provided to the DISCO' s, same are obligated to act accordingly in terms of sub-section (2) of section 159 of the Ordinance. The question is that whether certificate is required to be procured, in terms of section 159(1) of the Ordinance, on monthly basis or once granted same shall be valid unless such registration is suspended or cancelled, as the case may be. It is absurd to hold that exemption certificate is required to be procured on monthly basis, before the issuance of electricity bill. Sub-section (2) of section 159 used expression 'unless there is in force a certificate issued under sub-section (1) of section 159 relating to the collection or deduction of such tax', which rationally convey that as long as certificate is in force, DISCO' s are obligated to act comply with the mandate of the Certificate. Hence, certificate procured under sub-section (1) of section 159 of the Ordinance shall remain valid / in force, unless factum of inactive status, suspension or cancellation of registration, as the case may be, is communicated by the Commissioner concerned to the relevant DISCO' s. The submission that relevant DISCO' s shall ascertain the factum of active status of registration - applicability of clause 66 and state of fulfilment of conditions - on its own, acting in terms of the directions of Consumer manual - through browsing consumer 's identity - specific / distinctive NTN issued by the Board -, for the purposes of section 235 of the Ordinance, is fallacious. Commissioner is entrusted with the duty under sub-section (1) of section 159 of the Ordinance, who after ensuring that requirements of clause 66 are fully performed and upon being satisfied, are required to issue certificate(s) accordingly . Where law recognizes a mechanism for claiming exemption, in terms of sub-section (1) of section 159 of the Ordinance, such mechanism cannot be replaced, substituted or rendered ineffective through judicial interference. It is pertinent to mention that mechanism for issuance of certificate is not hit by clause 66. The mechanism provided is otherwise aligned with the scheme of law. Sub-section (2) of section 159 of the Ordinance obligates the person collecting advance income tax to comply with the certificate - refrain from charging advance tax on the amount of electricity bills. Procurement of exemption certificate under sub-section (1) of section 159 of the Ordinance shall also extend protection to the collectors of tax from any incidence of default qua requirements of section 161 of the Ordinance.
11. In view of the aforesaid, we hold that appellants / petitioners are exempted from the operation of section 235 of the Ordinance upon fulfilment of the conditions prescribed in terms of clause 66, provided such fulfilment is evidenced / affirmed by certificate, issued in terms of sub-section (1) of section 159 of the Ordinance, and not otherwise.
12. Learned Single Judge in Chambers, while dismissing constitutional petition(s) made reference to section 236O - holding that 'Section 235 read with Section 236O of the Ordinance provide the manner to claim exemption from payment of advance tax and Clause 66 of Part-IV of the Second Schedule of the Ordinance merely provides the conditions are availing the tax exemption' . We tend to differ with said findings. There is no cavil that sub-section (3) of section 235 of the Ordinance is applica ble to the commercial or industrial consumers, other than those who claim exemption in terms of clause 66. Section 236O, being a general provision of law, envisaging collection of advance income tax with respect to entire Chapter XII, however , section 235 caters for advance tax on the amount of electricity bills, which for all intent and purposes is a special provision. Even otherwise, reference to section 236O of the Ordinance is conspicuous by its absence in clause 66, which only mentione d section 235, in totality , without referring to any specific clause thereof. If section 236O is enforced or read as an alternate to or in conjunction with section 235, the very existence, effect and purpose of clause 66 would be rendered superfluous, ineffective and meaningless. Section 236O has no application to the cases at hand, wherein clause 66 is invoked for claiming exemption from the operation of section 235, ibid. For convenience, section 236O is reproduced hereunder; 236(O). Advance tax under this chap ter.--The advance tax under this chapter shall not be collected ["or deducted from"]
(a) the Federal Government or a Provincial Government;
(b) a foreign diplomat or a diplomatic mission in Pakistan; or
(c) a person who produces a certificate from the Commissioner that his income during the tax year is exempt."
13. We have gone through the judgment in the case of Usman Hassan and another (supra), which is distinguishable, and ratio thereof is not applicable to the cases at hand. In the case of Usman Hassan and another , scope of Clause 47B of Part-IV of the Second Schedule of the Ordinance was subject matter of adjudication, having no bearing for the clause 66, its scope, effect and enforceability . It is noted that findings returned, and law enunciated in noted case was in the context of clause 47B, which is markedly distinctive, when read in juxtaposition to clause 66.
14. In view of the above, we hold that operation of section 235 of the Ordinance shall effectively remain in abeyance, dormant or non-operative once conditions prescribed in clause 66 are fulfilled, and which compliance is evidence / affirmed in terms of certificate issued in terms of sub section (1) of section 159 of the Ordinance. And in cases where registration is inactive, suspended or canceled the operability of section 235 of the Ordinance will become ef fective, applicable and no exemption is claimable.
15. Consequently , the appeals and constitutional petitions are dismissed, in the light of the findings returned. No order as to the costs.