MUHAMMAD SAJID MEHMOOD SETHI, J. Through instant Reference Application under section 47 of the Sales Tax Act, 1990 ("the Act of 1990"), following questions of law, asserted to have arisen out of impugned order dated 29.11.2021, passed by learned Appellate Tribunal Inland Revenue, Lahore Bench, Lahore ("Appellate Tribunal"), have been proposed for our opinion:-
1. Whether on the facts and circumstances of the case, the Appellate Tribunal Inland Revenue was justified to interpret expression "owns or has his own manufacturing facility" contained in proviso to section 2(17) by allowing manufacturing facility acquired on lease basis?
2. Whether on the facts and circumstances of the case, the Appellate Tribunal Inland Revenue has gone against the intent of the legislature as emerging through combined reading of proviso to section 2(17) and Rule 29(1)(b) of the Sales Tax Rules, 2006, which places certain restrictions on getting sales tax refund processed through online system Expeditious Refund System (ERS)?"
3. Whether on the facts and circumstances of the case, the Appellate Tribunal Inland Revenue has misconstrued the provision of section 14 read with proviso to section 2(17) and Rule 7(4) of the Sales Tax Rules, 2006 to the effect that Commissioner has no jurisdiction to modify the registration status as "Commercial Exporter" by disallowing sales tax registration as "Manufacturer"?
2. Brief facts of the case are that respondent is an entity, engaged in the business of manufacturing and export of Food/Bakery items, duly registered with the Sales Tax Department. A show-cause notice dated 19.07.2021 was issued to respondent confronting that as per proviso to section 2(17) of the Act, it did not qualify to be a "Manufacturer-cumExporter" for the purpose of refund, therefore, its sales tax registration was liable to be modified as "Commercial Exporter", which culminated in passing of order dated 03.08.2021 by Commissioner (Enforcement), Multan. Feeling aggrieved, registered person filed appeal before learned Appellate Tribunal, which was accepted vide order dated 29.11.2021 and aforesaid order was set aside. Hence, instant Reference Application.
3. Learned Legal Advisor for applicant-department submits that in order to get status of "Manufacture-cum-Exporter" for the purpose of refund, the registered person must be owner of the manufacturing facility being used to produce goods for export, however, the respondent is using the manufacturing facility under a lease agreement on certain terms and conditions imposed by the owner, therefore, refund is not permissible, hence, its registration was rightly modified as "Commercial Exporter" for the purpose of refund.
4. Contrarily, learned counsel for the respondent submits that the Commissioner has no authority under the law to change the status from "Manufacturer" or "Exporter" to "Commercial Exporter". He adds that in order to meet its manufacturing requirements, registered person raised constructions on rented premises and installed its personal machinery by expending a huge amount, which were duly incorporated in schedule of fixed assets in its income tax returns and audited accounts thus, it cannot be refused the benefit of refund. He further submits that respondent being manufacturer and exporter had been regularly filing its sales tax returns by claiming refund of input tax on its exported goods under Section 10 of the Act of 1990, which was being processed under the Expeditious Refund System (ERS) in terms of Rule 29 of the Sales Tax Rules, 2006 ("the Rules of 2006").
5. We have heard the arguments of learned counsel for the parties at length and perused the record with their able assistance.
6. The respondent before us has been held disentitled by the Commissioner (Enforcement) to get refund on the ground that it did not have its own manufacturing facility, being not a "Manufacturer- cum-Exporter" within the meaning of clause (17) of Section 2 of the Act of 1990, however the order was reversed by learned Appellate Tribunal.
The questions Nos.1 and 2 are regarding our determination as to whether aforesaid provision is worded in such a manner or is actually meant as understood by the Commissioner Inland Revenue or as appreciated by learned Appellate Tribunal in the impugned order. In order to analyze the meaning and scope of term "manufacturer", clause (17) of section 2 of the Act of 1990 is reproduced hereunder:-
(17) "manufacturer" or "producer" means a person who engages, whether exclusively or not, in the production or manufacture of goods whether or not the raw material of which the goods are produced or manufactured are owned by him; and shall include --
(a) a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages, repackages or prepares goods by any other manner;
(b) an assignee or trustee in bankruptcy, liquidator, executor, or curator or any manufacturer or producer and any person who disposes of his assets in any fiduciary capacity; and
(c) any person, firm or company which owns, holds, claims or uses any patent, proprietary, or other right to goods being manufactured, whether in his or its name, or on his or its behalf, as the case may be, whether or not such person, firm or company sells, distributes, consigns or otherwise disposes of the goods.
Provided that for the purpose of refund under this Act, only such shall be treated as manufacturer- cum-exporter who owns or has his own manufacturing facility to manufacture or produce the goods exported or to be exported.
7. It evinces from appraisal of the afore-referred provision that "manufacturer" is a person who is employed, wholly or partially, in producing or manufacturing the goods, irrespective of the raw material being owned by him and inter alia, includes any person, firm or company which owns, holds, claims or uses any patent, proprietary, or other rights to goods being manufactured, whether in his or its name, or on his or its behalf, notwithstanding that such person, firm or company sells, distributes, consigns or otherwise disposes of the goods. Section 2(17) of the Act of 1990 has given a broader meaning to the word "manufacturer" by including those who owned, held, claimed, or used any patent, proprietary or other rights to the goods being manufactured whether in their name or on their behalf. Reference can be made to Commissioner Inland Revenuer Zone-I. Large Taxpayer Unit-II Karachi v. Messrs ORI Tech Oil (Pvt.) Ltd. (2019 SCMR 875) and ORI-Tech-Oil (Pvt.) Ltd. through CEO v. Manager Registration, Central Registration Office and 3 others (2017 PTD 1497).
8. Next comes the proviso to clause (17) of Section 2 of the Act of 1990, which envisages that the "Manufacturer-cum-Exporter" who owns or has his own manufacturing facility is entitled to refund under the Act of 1990. To our understanding, words owns and has his own manufacturing facility are not expressing one and same meaning. It is cardinal principle of interpretation that in legislative instruments/provisions, the word "or" is employed in the disjunctive sense (means it separates things) and word "and" in, conjunctive sense (means it combines things). Though in certain cases, the words "and" and "or" may be interchangeable, however course of action is only permissible in order to give effect to the clear and obvious intention of the legislature or to avoid s absurdity, unreasonableness or redundancy. It is also established that while construing a statute/legal provision, no part of same or word used therein shall be superfluous. Every word has to be taken into account and meaning is to be given to the same. The Courts always presume that every word and expression used by legislature has a purpose and intent. No provision of an enactment can be treated as redundant or surplus and has to be given its meaning and effect. It is well-settled that while interpreting taxing statutes, if there is any doubt or ambiguity, in the language used in the statute which rendered same capable of several interpretations, then the interpretation favourable to the assessee is to be adopted.
9. We are of the considered view that the word or appearing in the proviso is used in disjunctive sense, which means that words owns and has his own manufacturing facility have been used to convey different meanings. Reference can be made to Suo Motu Case No.8 of 2018 and Civil Misc.
Application No.649-L of 2018 (PLD 2019 Suprem e Court 201), Commissioner of Income Tax v.
Muhammad Kassim (2000 PTD 280), CM Pak Limited v. Pakistan Telecommunication Authority (PLD 2018 Islamabad 243), Inam-ul-Rahiem v. Chairman, National Accountability Bureau Islamabad and another (PLD 2018 Islamabad 251) and Sheikh Kashif Imtiaz v. Faysal Bank Limited and another (2020 CLD 904).
10. The words owns and has his own manufacturing facility both do not connote exclusive ownership over the manufacturing facility in stricto sensu, rather includes persons who have legal hold, command, possession, belonging, dominion, authority etc. The dictionary meaning of word "own" can also be helpful to understand the spirit of aforesaid expression.
Black's Law Dictionary, Bryan A. Garner, 11th Edition.
To rightfully have or possess as property; to have legal title to.
Cambridge Advanced Learner's Dictionary, Fourth Edition Belonging to or done by a particular person Chambers Concise Dictionary Belonging to or for oneself or itself.
Oxford Advanced Learner's Dictionary, International Student's Edition, New 9th Edition
1. Used to emphasize that something belongs to or is connected with somebody,
2. Done or produced by and for yourself.
Admittedly, respondent obtained the premises/manufacturing facility on lease, however it is established from record that it also raised some constructions over there and installed some personal machinery as well to effectively regulate the manufacturing process.
Moreover, definition of "Commercial Exporter" as provided in sub-clause (xi) of Rule 2 of the Rules of 2006, needs to be visited in order to evaluate the status of respondent, which for convenience is reproduced as under:-
(xi) "commercial exporter" means a person registered as an exporter, who does not have his own manufacturing facility and is exporting the goods, whether in the same state or after getting them processed or manufactured from one or more registered persons, and holds a valid sales tax invoice for such processing, manufacturing or conversion; [emphasis added] It is visible from the above that in order to announce a registered person as "Commercial Exporter", one of the basic conditions is that due to lack of manufacturing facility, it is exporting the goods after receiving the same from other registered person(s), irrespective of the fact that the goods were in the same state or processed or manufactured. No doubt, the respondent is itself manufacturing the goods, therefore, from this angle also, respondent could not have been declared as "Commercial Exporter" instead of "manufacturer".
All this is sufficient to bring respondent within the expression has his own manufacturing facility and thus is Manufacturer-cumExporter duly entitled to claim refund under the Act of 1990, which is to be processed under the Expeditious Refund System (ERS), provided in Rule 29(1)(b) of the Rules of 2006.
In view of the above, our answer to proposed question No.1 is in affirmative and that of question No.2 is in negative i.e. against applicant-department and in favour of respondent-taxpayer.
11. As regards third question, which is regarding legality of change of category of registration of respondent by the Commissioner Inland Revenue, Section 14 of the Act of 1990 and Rule 5 of the Rules of 2006, are dealing with the mechanism to apply for registration. Both these provisions are reproduced hereunder for ready reference:- Section 14 of Sales Tax Act, 1990
14. Registration.----(1) Every person engaged in making taxable supplies in Pakistan, including zero-rated supplies, in the course or furtherance of any taxable activity carried on by him, falling in any of the following categories, if not already registered, is required to be registered under this Act, namely:-
(a) a manufacturer who is not running a cottage industry;
(b) a retailer who is liable to pay sales tax under the Act or rules made thereunder, excluding such retailer required to pay sales tax through his electricity bill under subsection (9) of section 3;
(c) an importer;
(d) an exporter who intends to obtain sales tax refund against his zero-rated supplies;
(e) a wholesaler, dealer or distributor; and
(f) a person who is required, under any other Federal law or Provincial law, to be registered for the purpose of any duty or tax collected or paid as if it were a levy of sales tax to be collected under the Act.
(2) Persons not engaged in making of taxable supplies in Pakistan, if required to be registered for making imports or exports, or under any provisions of the Act, or any other Federal law, may apply for registration.
(3) The registration under this Act shall be regulated in such manner as the Board may, by notification in the official Gazette, prescribe."
Rule 5 of Sales Tax Rules, 2006
5. Application for registration.---(1) A person required to be registered under the Act shall, before making any taxable supplies, apply on the computerized system through owner, authorized member or partner or authorized director, as the case may be, in the Form STR-1, as annexed to these rules. Such application shall specify the RTO in whose jurisdiction the registration is sought, as per criteria given below, namely:--
(a) in case of listed or unlisted public limited company, the place where the registered office is located;
(b) in case of other companies-
(i) if the company is primarily engaged in manufacture or processing, the place where the factory is situated; and
(ii) if the company is primarily engaged in business other than manufacture or processing the place where main business activities are actually carried on;
(c) in case of a person not incorporated, the jurisdiction where the business is actually carried on; and
(d) in case of a person not incorporated, having a single manufacturing unit and whose business premises and manufacturing unit are located in different areas, the jurisdiction where the manufacturing unit is located: Provided that the jurisdiction of Large Taxpayers Units shall remain as specified by the Board: Provided further that the Board may transfer the registration of any registered person to a jurisdiction where the place of business or registered office or manufacturing unit is located.
(2) The applicant having NTN or income tax registration shall, using his login credentials, upload following information and documents.--
(a) bank account certificate issued by the bank in the name of the business;
(b) registration or consumer number with the gas and electricity supplier;
(c) particulars of all branches in case of multiple branches at various locations;
(d) GPS-tagged photographs of the business premises; and
(e) in case of manufacturer, also the GPS-tagged photographs of machinery and industrial electricity or gas meter installed.
(3) On furnishing above documents, the system shall register the applicant for sales tax.
(4) After registration, the applicant or his authorized person shall visit Sahulat Centre of NADRA within a month for bio-metric verification. In case of failure to visit or failure of verification, the registered person's name shall be taken off the sales tax Active Taxpayer List.
(5) In case of manufacturer, the Board may require post-verification through field offices or a third party authorized by the Board.
(6) In case, the field office, during scrutiny after the registration, finds that any document provided is non-genuine or fake or wrong, it may request through the system, to provide the missing document, in fifteen days, failing which the registered person shall be taken off from the sales Active Taxpayer List, subject to approval of the Member (IR-Operations), FBR.] Section 14(1). provides various categories of persons engaged in making taxable supplies or carrying out taxable activity [clauses (a) to (1)], which are required to be registered with the Sales Tax Department and subsection (2) gives option to persons who are not employed in making taxable supplies to apply for registration if it is necessary for imports or exports. The category "Commercial Exporter" is not provided in Section 14 ibid. Rule 5 of the Rules of 2006, is also providing an online procedure to apply for registration, whereby after incorporating required information and furnishing of requisite documents, the system registers the applicant for sales tax. Sub-Rule (4) envisages that after registration, the applicant or his authorized person shall visit e-Sahulat Centre, of NADRA for bio-metric verification. Sub-Rule (5) provides that in case of manufacturer, the Board may require post-verification through field offices or a third party authorized by the Board. As per sub-Rule (6) the field office may require any missing document. It is not the case of applicant-department that either there was any lapse on part of respondent while applying and getting registration under the provisions of the Act of 1990 as well as the Rules of 2006 or the prescribed procedure was bye-passed.
The Commissioner has also relied upon Rule 7 of the Rules of 2006 while changing status of the respondent, which reads as under:- Rule 7 of Sales Tax Rules. 2006
7. Change in the particulars of registration.-- (1) In case there is a change in the name, address or other particulars as stated in the registration certificate, the registered person shall notify the change in the Form STR-I to the computerized system , within fourteen days of such change.
(2) The change of business category as 'manufacturer' shall be allowed subject to fulfillment of all applicable requirements as specified in rule 5.
(3) In case of approval of the change applied for, a revised registration certificate shall be issued through computerized system, which shall be effective from the date the person applied for the change.
(4) The Commissioner may, based on available information or . particulars and after making such inquiry as he may deem necessary and after providing reasonable opportunity of being heard to a person, by an order in writing, make modifications in registration of the person. Rule 7 is explicitly providing procedure for change in particulars of registration, on the application of a registered person and under sub-Rule (4), the Commissioner, after scrutiny of available information, necessary inquiry and providing opportunity of hearing to registered person, may pass an order regarding modification(s) in the particulars of registration. This Rule is not bestowing any power upon the Commissioner Inland Revenue to suo motu make any change in the particulars of registration.
We are afraid that both the afore-referred provisions are not describing any procedure or authorizing the Commissioner Inland Revenue to pass an order for changing the status of a "manufacturer" or "exporter" into "Commercial Exporter".
Resultantly, our answer to proposed question No.3 is in negative i.e. against applicant- department and in favour of respondent-taxpayer.
12. As a sequel to above discussion, this Reference Application is decided against applicant- department.
13. Office shall send a copy of this judgment seal of the Court to learned Appellate Tribunal as per section 47(5) of the Sales Tax Act, 1990.