Instant Sales Tax Reference Application is directed against order of 07.12.2020, whereby Appellate Tribunal Inland Revenue "Appellate Tribunal", proceeded to allow the appeal of the registered person, declaring claim of credit of input tax qua the supplies admissible.
2. To contextualize the controversy, it is essential to understand the context thereof.
Registered person, at the relevant time - July 2009 to June 2013 -, made taxable supplies of dairy products ("taxable goods") and claimed credit of input sales tax, paid for the relevant time on the premise that supplies made were covered under the zero-rated tax regime - chargeable to tax at zero percent. The claim of credit of input tax was denied by the department, based on the text of SRO.549(1)/2008 of June 11, 2008 ('SRO.549(1)/2008') - precisely in the context of column (3) of Sr. 4, thereof - on the ground that registered taxpayer was not the importer but the manufacturer / producer and supplier of taxable goods. In this context the claim of credit of input tax was denied.
Appellate Tribunal allowed the appeal.
3. Following questions of law, statedly arisen out of the decision under reference, are pleaded before us for determination, "1. Whether in facts and under circumstances of the case, the learned Tribunal Inland Revenue was justified to direct that the refund claim should be issued on the basis of credit of input sales tax whereas the said claim was rejected on the ground that registered person was entitled for zero- rated tax Regime on the condition of "Import and supplies thereof"?
2. Whether in facts and under circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified to allow credit of input sales tax which was disallowed on the basis of entry at serial No.4 of SRO 549(1)/2008 dated 11.06.2008 which restricted admissibility of credit of said tax to dairy products?
3. Whether in facts and under circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified to allow credit of input sales tax due to reason that sale of dairy products was exempt from levy of sales tax vide SRO 501(1)/2013, dated 12.06.2013?"
4. Learned counsel for the applicant department largely emphasized two points, firstly, that benefit of SRO.549(1)/2008 of June 11, 2008, could not be claimed or extendable to the registered person, which was not the importer-cum-supplier of the goods under reference - eligibility of the registered person was questioned in wake of conditions prescribed in column (3), of Sr.4, of the SRO.549(1)/2008. Adds that goods specified in column (2), of Sr.4, of the SRO.549(1)/2008, were chargeable to tax at the rate of zero percent, provided same were imported and supplied, and benefit whereof cannot be claimed by the respondent, which was not the importer-cum-supplier but supplies locally manufactured goods. In brief, applicants' case is that expression 'Import and supplies thereof' in column (3), of Sr.4, of the SRO.549(1)/2008, be read and construed conjunctively, and not disjunctively, due to use of expression 'and' in-between the import and supplies. These submissions cover question 1 & 2. Second submission is that no benefit of SRO 501(1)/2013 dated 12th June, 2013 could be claimed, which SRO was introduced after the relevant tax period, hence, not attracted - SRO 501(1)/2013 was issued in exercise of powers under section 13 of the Sales Tax Act, 1990. Learned counsel referred to the decision in the case of "Collector of Custom FBR and another Vs. Messrs Fitter Pakistan (Pvt) Ltd" (2020 SCMR 1157), to iterate the principle that where exemption(s) are claimed, relevant enactment must be construed strictly / narrowly and in case of any ambiguity same be interpreted against the registered person.
5. Conversely, learned counsel appearing for respondent submits that no illegality was committed by the Appellate Tribunal, while allowing claim of credit of input tax.
Learned counsel relied upon ratio laid down in the case of "Collector of Customs, Lahore Vs. NESTLE Milk Pak Limited, Sheikhupura" [(2007) 95 Tax 360 (H.C. Lahore)].
6. Submissions heard. Record perused.
7. Before proceeding to interpret the scope and effect of SRO 549(1)/2008, it is expedient to reproduce relevant text of the SRO in question - entry at Sr.4 is relevant and same reads as; Sr.
No.Description of goodsConditions and restrictions 1.
2.
3.
4.(ii) Milk (PCT Headings 04.01)
(iii) Flavored Milk (PCT headings 0402.9900 and 22.02).
(iv) Cream (PCT Heading 04.01 and 04.02);
(v) Milk and cream concentrated or containing added sugar or other sweetening matter (PCT Headings) 0402.1000, 0402.2100, 0402.2900,0402.9100 and 0402.9900)
(vi) Yogurt (PCT Heading 0403.1000);
(vii) Whey (PCT Heading 04.04); and
(viii) Butter (PCT Heading 0405.1000);
(ix) Desi ghee (PCT Heading 0405.9000);
(x) Cheese (PCT Heading 0406.1010);
(xi) Processed cheese not grated or powered (PCT Heading 0406.3000)Import and supplies thereof
(xiv) Preparations for infant use, put up for retail sale (PCT Heading 1901.1000)
(xv) Fat filled milk (PCT Heading 1901.9090). .........................
8. There is no disagreement that the goods produced / manufactured by the registered person, locally, and supplied were qualified as taxable goods - in terms of section 2(39) of the Act, 1990, which were not exempted in terms of section 13 of the Sales Tax Act 1990 during relevant tax period.
Taxable goods supplied formed part of the taxable supplies, made in course or furtherance of a taxable activity carried in terms of section 2(41) of the Sales Tax Act, 1990 - which goods were otherwise chargeable to tax in terms of section 3 of the Act, 1990, subject to the section 4 of the Sales Tax Act, 1990. Registered person claimed credit of input tax based on section 4 of Act, 1990, claiming that taxable supplies made were chargeable to tax at the rate of zero per cent. It is expedient to reproduce relevant sections 2(39), 2(41), 2(48) & section 3 of the Act, 1990, for sake of convenience; 2(39) "taxable goods" means all goods other than those which have been exempted under section 13; 2(41) "taxable supply" means a supply of taxable goods made by an importer, manufacturer, wholesaler (including dealer), distributor or retailer other than a supply of goods which is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent under section 4; 2(48) "zero-rated supply" means a taxable supply which is charged to tax at the rate of zero per cent under section 4.
3. Scope of tax. - (1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of [seventeen] per cent of the value of -
(a) taxable supplies made by a registered person in the course or furtherance of any taxable activity carried on by him; and
(b) goods imported into Pakistan, irrespective of their final destination in territories of Pakistan.
9. Pivotal issue is whether the expression "Import and supplies thereof" be read and construed conjunctively, as claimed by the counsel for the applicant or disjunctively. For the sake of simplification, if, the expression "Import and supplies thereof" is read and construed conjunctively, it implies that registered persons, not being classified as importer of the dairy products stood excluded - since registered person was engaged in supply of dairy goods, locally produced.
10. The construction advocated by the applicant is misconceived and contrary to the mandate of the law. The expression "Import and supplies thereof" has had to be construed in the context of the definition of taxable supplies - which inter alia includes supply of taxable goods made by an importer or manufacturer, as the case may be. The expression "Import and supplies thereof" covers the incidence of import and supplies, in the context of the goods and separately amenable to chargeability of tax and zero-rated regime. Bracketing import and supplies together and conjunctive reading thereof is contrary to the spirit and scheme of the enactment, besides being irrational and inherently defective. Learned counsel for the applicant overlooked the significance and effect of SRO No.548(I)/2006 dated 05.06.2006, in terms whereof goods in question were made chargeable to tax at the rate of zero percent, and SRO.549(1)/2008 was mere reiteration of the concession extended under section 4 of the Sales Tax Act 1990. Nothing is shown to establish that supplies of imported goods is only subject to the benefit of zero percent tax in terms of section 4 of the Sales Tax Act, 1990. We hold that disjunctive reading of column (3) of Sr.4, of the SRO.549(1)/2008, conveys more meaningful, natural, rational and practical meaning to the expression "Import and supplies thereof", whereof the evident intent was to cover the goods, either subject of import-cum-supplies or supplies made of locally produced / manufactured goods.
Likewise, the expression 'thereof' - a qualifying expression - suggests reference to the goods described in column (2) of Sr.4, of the SRO.549(1)/2008, which cannot be read to refer to the supply of imported goods exclusively, to the exclusion of supplies of locally produced / manufactured goods - source of origin of the goods, in the context of Sr.4 of the SRO.549(1)/2008, will not determine eligibility for the purposes of qualifying for the zero-rated regime but factum of taxable supply of taxable goods - dairy products in this case. Appellate Tribunal had relied upon the ratio of decision and reasoning in the case of "Messrs Nestle Pakistan Ltd, Lahore Vs. C.I.R., Zone-II, L.T.U., Lahore" (2013 PTD 420), which seems fair and correct interpretation of the expression "Import and supplies thereof". Appellate Tribunal had made reference to the clarification by FBR, factum whereof was not disputed. In view of the facts of the case, the doctrine of Ejusdem Generis is not attracted, and the expression 'supplies" cannot be bracketed / clubbed with the incidence of Imports - which two expressions cannot be construed of same kind / class, nor the expression 'supplies' be contextualized in limited / narrower sense, in the company of the expression 'import' but to be read independent thereof, where the context relates to taxable supplies of locally produced / manufactured goods in terms of Sr.4 of SRO.549(1)/2008. Learned counsel for the applicant has not disputed observations recorded by the Appellate Tribunal regarding the dismissal of the sales tax reference by this court, filed by the department to question the determination made in case of "Messrs Nestle Pakistan Ltd, Lahore, (supra).
11. We hereby hold that expression 'Import and supplies thereof' in column (3) of Sr.4, of the SRO.549(1)/2008, covers imports-cum-supplies and supplies of locally produced / manufactured goods. No qualification / limitation was imposed nor intended to exclude the taxable supplies of goods, locally produced / manufactured, from seeking the benefit of SRO.549(1)/2008. Judgments referred are distinguishable on facts and dicta laid therein not attracted to the case at hand.
12. In view of the aforesaid, questions 1 & 2 are answered in the affirmative. Since we affirmed the decision of the Appellate Tribunal on the questions 1 & 2, there is no need to interpret the SRO.501(1)/2013 dated 12.06.2013 and express opinion regarding question 3 - statutory order was otherwise issued in exercise of powers under section 13 of the Act, 1990 - which question lost its relevance, efficacy and has no bearing qua the determination undertaken.
13. This Reference Application is decided against the department in terms of the questions 1 and 2 answered.
14. Office shall send a copy of this order, under seal of the Court, to learned Appellate Tribunal, in terms of sub- section (5) of section 47 of the Ordinance.