ZAHID SIKANDAR, JUDICIAL MEMBER. These three appeals filed at the behest of the taxpayer are directed against the order No.951 dated 26.02.2020, Orders Nos. 981 and 982 dated 09.03.2020 (pertaining to tax years 2016, 2017 and 2018 respectively) passed by the Commissioner Inland Revenue (Appeals), Gujranwala. Through the impugned orders, the CIR(A) dismissed the appeals of the taxpayer and confirmed the charge of minimum tax @ 1% of turnover for the tax years 2016 and 2017 and @ 1.25% for the tax year 2018. Since common question of law is involved therefore we intend to dispose of all the titled appeals through this single order.
2. Relevant facts in brief are that the taxpayer deals with electronics goods and filed Income Tax returns by declaring net income of Rs.640,700/-, Rs.655,200/- and Rs.690,500/- for the tax years 2016, 2017 and 2018 respectively which were deemed as assessment orders under section 120 of the Income Tax Ordinance, 2001. Upon scrutiny, the assessing officer found the returns erroneous so far as prejudicial to the interest of revenue for the reason of non-payment of minimum tax. Initially, vide show-cause notice dated 09.02.2017 under section 122(9) read with section 122(5A) for the tax year 2016 the taxpayer was confronted with the charge of minimum tax a 0.2% but during the proceedings it was revealed to the assessing officer that the taxpayer deals with retail business and is liable to pay minimum tax @ 1% of declared turnover. Hence, the assessing officer issued a corrigendum of the show-cause notice on 14.03.2019 to the taxpayer as to the effect that why minimum tax @ 1% of declared turn over might not be recovered from the taxpayer. For the tax year 2017 show-cause notice was also sent by the assessing officer to the taxpayer conveying his intention to amend the assessm ent by way of charging minimum tax @ 1% on the declared turn over. Since the rate of charge of minimum tax was revised in the year 2017 through Finance Act and the legislature amended the rate of minimum tax from 1% to 1.25% therefore a show-cause notice was issued by the Addl'. CIR to the taxpayer for the charge of minimum tax @ 1.25% for the tax year 2018. In response to the said show-cause notices, the taxpayer filed written replies contending to be a distributor of Haier Pakistan (Pvt.) Ltd., Dawlance Electronics (Pvt.) Ltd. and. PEL marketing (Pvt.)
Ltd. and claimed entitlement of 80% reduction in minimum tax liability under Sr.No.2(a) of Division IX of Part I of 1st Schedule of the ITO. The claim of the taxpayer of a distributor was not well supported by any documentary evidence, hence being dissatisfied the Addl.CIR observed that the taxpayer is not a distributor of FMCG rather a retailer of electronic appliances. Therefore, the assessing officer finalized the amendment proceedings by way of charging minimum tax 1% of the declared turn over for the tax years 2016 and 2017 amounting to Rs. 768,759/-, Rs. 733,660/- and I@ 1.25% for the tax year 2018 to the tune of Rs. 1,076,415.
3. Being aggrieved, the taxpayer filed three appeals under' section 127 before the learned CIR (Appeals) against the amended assessment orders passed by the Addl. CIR. The learned commissioner (Appeals), after hearing the parties, upheld, the treatment given to the taxpayer in the amended assessm ent orders. Hence, these second appeals have been filed by the taxpayer against the orders passed by the CIR(A).
4. Mr. Muhammad Ali Awan, advocate appeared on behalf of the appellant taxpayer and submitted that the appellant is a distributor of Fast Moving Consumer Goods (FMCG) and the contention of the appellant is well supported by the documentary evidence hence entitled for reduced rate of minimum tax and the CIR(A) as well as the assessing officer erred in law by charging the minimum tax @ 1% and @ 1.25%. In order to strengthen the arguments, the learned counsel placed reliance on the judgment of the Hon'ble Lahore High Court in a case titled as CIR v.
M/s Haier Pakistan (Pvt.) Ltd. reported in 2018 PTD 1582. On the other hand no one appeared on behalf of the respondent department. Therefore, this case is decided ex-parte on merits and on the basis of available record and arguments advanced by the learned counsel for the appellant.
5. The issue involved in the instant appeals is whether the status of the appellant taxpayer is as of distributor and whether the household electrical appliances fall in the category of Fast Moving Consumer Goods (FMCG). The appellant contends to be the distributor of FMCG and claims reduction in the charging of minimum tax. Whereas both the lower forums below have rejected the claim of the taxpayer as the taxpayer failed to establish his claim of distributor through cogent documentary evidence. There exists no dispute with regards to the declared turn over for the said tax years. Division IX of Part I of 1st Schedule of the ITO provides the table of charging of minimum tax at different rates on different entities. The taxpayer claims to fall in Sr.No. 2(a) as a distributor dealing in FMCG. To claim reduction in minimum tax under this provision, the assesse has to establish the status of a distributor dealing in Fast Moving Consumer Goods. The learned counsel for the appellant provided certificates issued by the companies PEL marketing (Pvt.) Ltd., Dawlance Electronics (Pvt.) Ltd. and Haier Pakistan (Pvt.) Ltd. to prove the claim as of distributor. We are afraid that these certificates issued on a letter pad have no sanctity in the eye of law in the absence of any supporting evidence i.e sales invoices, entries in books of accounts, distribution agreement etc. The assesse has to establish the relationship with the company, through transactions between company and the taxpayer and transactions between taxpayer/assesse with the retailers. Even no agreement has been placed on record by the taxpayer with regards to the relationship of a distributor between the companies and the taxpayer. Without bringing on record or any material pertaining to accounts of business reflecting the nature of transactions, margin as a distributor, relationship as distributor with the company for such and such period, the claim of the appellant taxpayer being a distributor cannot be given any weight. Even from the perusal of the certificates provided by the learned counsel, it transpires that the certificate issued by PEL Marketing (Pvt.) Ltd. certifies the relationship with the appellant as of distributor/dealer with the appellant. It is unclear from the certificate whether the appellant is a distributor or dealer.
Whereas the certificates issued by the other two companies confirm the relationship with the appellant taxpayer as of dealer and not of distributor. These certificates nowhere suggest the relationship between the taxpayer and the companies as of distributor. Even if such certificates confirm the status as of distributor still in the absence of any supporting documentary evidence in shape of accounting entries, books of accounts, sales invoices, agreement of distribution or any other document reflecting the nature of business between the company and the taxpayer, cannot be accepted as a confirmed and cogent piece of evidence to substantiate the claim of the taxpayer as of distributor. Further, the perusal of the table in Division IX of part I of Schedule I of the ITO reflects that both the words 'dealer' and 'distributor' are differently used for different entities hence not interchangeable. Had the legislature intended to treat both the dealers and the distributors as of similar character, it would not have categorized the dealers and distributors in different column% for different entities. Therefore, the words 'dealers' and 'distributors' cannot be interchanged for the purpose of claiming reduced rate of charge in minimum tax given in the table Division IX of Part 1 of 1st Schedule of the ITO. We have noted that the certificates provided by the taxpayer certifies the status of the taxpayer as of authorized dealer and not of distributor, therefore the initial claim of the taxpayer having the status of distributor is not proved hence, rejected.
6. The other question involved in the instant appeals is whether the household electrical appliances like Television, Refrigerator, Air-conditioner etc fall within the definition of Fast Moving Consumer Goods (FMCG). Admittedly the appellant taxpayer deals with these household electrical appliances. Fast Moving Consumer Goods is defined in section 2(22A) of the Income Tax Ordinance, 2001. The said definition was inserted in the ITO through Finance Act, 2015. For the sake of ready reference, section 2(22A) is reproduced below: "Fast Moving Consumer Goods" means consumer goods which are supplied in retail marketing as per daily demand of a consumer [excluding durable goods].
7. From the definition of the FMCG it reflects that fast moving consumer goods are those goods which are in .the daily usage of a consumer. Further reading of the definition stipulates that it ousts those goods from the definition of FMCG which are durable in nature. It means that despite goods of daily demand and usage if are durable in character the same cannot be treated as Fast Moving Consumer Goods under the Income Tax Ordinance. The following are the main characteristics of Fast Moving Consumer goods according to product management in India.
From the consumer perspective:
(i) Frequent purchase.
(ii) Low involvement (little or no effort to choose the item-products with strong brand loyalty are exceptions to this rule) and
(iii) Low price From the marketer's angle:
(i) High Volumes
(ii) Low contribution margins
(iii) Extensive distribution networks
(iv) High stock turn over.
According to Investopedia.com Fast moving consumer goods are products that sell quickly at relatively low cost. These goods are also called consumer packaged goods. FMCGs have a short shelf life because of high consumer demand (e.g soft drinks and confectionaries) or because they are perishable (e.g meat, dairy products or bakery items etc). These goods are purchase frequently, are consumed rapidly, are priced low and are sold in large quantities.
8. The bare reading of the definition of fast moving consumer goods given in the Income Tax Ordinance along with definitions being used in the trading world clearly stipulates that these are those goods which are largely used in daily routine, having a high demand and relatively a low cost. Section 2(22A) further ousts the durable goods even if they fall in the definition of FMCG for the purpose of income tax provisions. Now in the context of the instant appeals, we are of the considered opinion that household electrical appliances e.g Television, Refrigerator, Air conditioners etc do not fall in the definition of 'fast moving consumer goods for the reason that neither they are frequently purchased by the consumer nor their costs are relatively low. Though these appliances are used in almost every house but they are also durable in nature as the consumer does not buy these items on frequent basis.
9. The reliance placed by the learned counsel for the taxpayer on the judgment cited in 2018 PTD 1582 is incorrect as the said judgment is not applicable to the present case. It is stated with utmost respect that there is no second opinion about the fact that judgments of superior courts are binding to the subordinate tribunals/courts and this tribunal being a subordinate functionary is bound to follow the dictums laid down by the Hon'ble High Courts as well as the Hon'ble Supreme Court of Pakistan. In our considered opinion the matter in hand is distinguishable from the case referred by the learned counsel. The case of CIR v. M/s. Haier Pakistan pertains to the tax year 2012. The Hon'ble apex court interpreted the term 'consumer goods' given in clause 8 in Part III of Second Schedule of ITO which reads as under: Part III Reduction in Tax liability Income or classes of income, or classes of person, enumerated below, shall be allowed reduction in tax liability to the extent and subject to such conditions as are specified hereunder:
(8) For the distributors of pharmaceutical products, fertilizers, Consumer goods including fast moving consumer goods, the rate of minimum tax on the amount representing their annual turnover under section 113 shall be reduced by eighty percent.
10. The clause (8) reproduced above was inserted in Part III of Second Schedule in November, 2010 through SRO 1086(1)/2010 and was omitted by Finance Act, 2014. The Hon'ble High Court observed that the phrase 'fast moving consumer goods' is to be read in the term of 'Consumer goods' as it does not matter whether electrical appliances are fast moving consumer goods or not because word 'including' is used right after the term consumer goods and before the phrase 'fast moving consumer goods' therefore the syntax of this clause shows that the term consumer goods is inclusive of fast moving consumer goods. Definition of Section 2(22A) inserted through Finance Act, 2015 was also discussed by the Hon'ble Court but since the matter pertained to the tax year 2012 therefore the said definition was not considered applicable in that case. The Hon'ble Court nowhere observed that the electrical appliances are Fast Moving Consumer Goods. Even the question framed in the case of Haier Pakistan (supra) and decided by the Hon'ble High Court was: "Whether on the facts and circumstances of the case, the household electronic goods can be termed as consumer goods for the purpose of clause 8 of Part III of Second Schedule while actual nature of the goods is consumer durables?"
The answer to this question was given in affirmative by the Hon'ble Court and the electrical appliances were observed as consumer goods for the purpose of clause 8 of Part III of 2nd Schedule.
These appeals pertain to tax years 2016, 2017 and 2018. The provision given in the clause (8) of Part III of Second Schedule which made basis of the decision of case M/s. Haier Pakistan (supra) has been omitted in 2014 and the existing definition of 'fast moving consumer goods' has been provided independently in section 2(22A) through Finance Act, 2015 for the purpose of charging tax.
It is well recognized principle of taxation laws that law existing in a particular tax year or tax period is applicable for the purpose of determining tax liability. Reliance is placed on a judgment in a case titled as CIR v. Three Star Rice Factory cited in 2021 PTD 1. For the reasons stated above the case of M/s. Haier Pakistan referred by the learned counsel for the taxpayer is not applicable in the present appeals.
11. There is also a definition of 'consumer goods' which was inserted in Section 2(13AA) presently re- numbered at Section 2(13AB). It defines goods that are consumed by the end consumer rather than used in the production of another good. This definition was also inserted in the ITO through Finance Act, 2015 along with a separate definition of fast moving consumer goods. Prior to that the term consumer goods was to be considered inclusive and the phrase fast moving consumer goods was to be read in it as per clause 8 of Part III of Second Schedule of ITO. Therefore, the Hon'ble High Court in the case referred supra observed that it does not matter whether the electrical appliances are FMCGs or not as the same are included in the term 'consumer goods'. In the year 2015, the legislature intentionally categorized these two different products for the purpose of charging of tax. Now at best, considering all the definitions of fast moving consumer goods, characteristics of FMCG as understood by the corporate world, and definition of consumer goods electrical appliances can be taken as consumer goods as already held by the Hon'ble High Court.
Hence, we are not fortified with the contentions raised by the learned AR that the household electrical appliances are covered under the definition of Fast Moving Consumer Goods.
12. As a consequence, the claim of the taxpayer of entitlement of reduced rate given' in serial No.2 sub-clause (a) of the table given in Division IX, Part I of 1st schedule of the ITO is not correct as neither he is a distributor nor he deals with fast moving consumer goods.
13. The learned counsel also submitted that the department has accepted similar stance of the taxpayer in the subsequent tax year 2019 wherein the taxpayer was given the benefit of reduced rate in charging minimum tax. Without commenting on the legal correctness of the order we hold that the said order is not binding on this tribunal and we do not agree with the decision.
14. The appellant taxpayer has failed to establish the status as of a distributor dealing in FMCGs with any documentary evidence, therefore, II the assessing officer rightly charged the minimum tax @ 1% for the tax years 2016 and 2017 and @ 1.25% for the tax year 2018.
15. Order No.951 dated 26.02.2020, Orders Nos. 981 and 982 dated 09.03.2020 (pertaining to tax years 2016, 2017 and 2018 respectively) passed by the CIR(A) are neither arbitrary nor fanciful and based on valid reasons therefore the same do not call for any interference by this bench and are accordingly upheld.
16. With the above narrated reasons, these titled appeals filed at the behest of the taxpayer are 'dismissed being devoid of any merit.