WIQAR AHMAD, J.---Petitioners are aggrieved of Consolidated judgment dated 30.09.2015 of Appellate Tribunal, Inland Revenue, Islamabad, through which it has accepted three appeals of respondents bearing No. STA No. 381/IB/2015, STA No. 382/IB/2015 and STA No. 383/IB/2015.
Accordingly, three separate references have been filed by petitioners bearing TR No. 08-A/2016, 9- A/2016 and TR No. 10-A/2016. Through this consolidated judgment, all the three tax references are intended to be disposed of.
2. For knowing brief facts of these cases, first two paras of order in original framed by Deputy Commissioner, Inland Revenue, RTO, Abbottabad, are hereby reproduced: "Whereas it has been reported to the undersigned by the Dirtector, Directorate General of Intelligence and Investigation-IR, 4th Floor, Customs House, Jehangirabad, University Road, Peshawar vide Contravention Report C. No. 46/1&1/1R/Saim T. /2014/226 dated 24-10-2014, that you Messrs SAIM Traders, 2nd Floor, Faisal Shopping Arcade, Punjab Chowk, Dub No. 1, Mansehra, has supplied goods worth million of rupees which were liable to Sale Tax at the prevailing rates under section 3 of the Sales Tax Act, 1990. The buyers M/s Norwegian Refugee Council has withheld 1/5th of the Sales Tax involved form your payments against the supplied made to them. But M/s SAIM Traders fails to deposit the remaining 4/5th of the Sales Tax involved in the Government exchequer with monthly sales tax returns. They have failed to file monthly Sales Tax Returns which means that you have deliberately avoid to pay the collected sales tax amount into the Government exchequer and have committed tax fraud as defined under Section 2(37) of the Sales Tax Act, 1990.
I. On the basis of above stated facts and scrutiny of record, it is established that M/s SAIM Traders, 2nd Floor, Fiasal Shopping Arcade, Punjab Chowk, Dub' No. 1, Mansehra has supplied goods worth to Rs.12,712.072/- to M/s Norwegian Refugee Council and principal amount of Sales Tax of Rs.
1,950,528/-stands recoverable along with additional tax of Rs.375,652/- (Calculated up-to October-2014) aggregating to Rs.2,308,181/- and have thus violated the provisions of sections 3, 6, 7 and 26 of the Sales Tax Act, 1990, committed the tax fraud as defined under section 2(37) of the Act ibid, and offences punishable under sections 33(1), (2)(5)(6)(1I)(b)(c)(13) (19) (21) and 37A of the Sales Tax Act, 1990."
3. In reply submitted by contesting respondents, they mainly claimed exemption from payment of Tax for Norwegian Refugee Council (hereinafter referred to as NRC) for the reason that supplies were supposed to be made by NRC to the internally displaced persons (IDPs), therefore, such supplies were claimed to be exempt from payment of Sales Tax under Article 247 of the Constitution of Islamic Republic of Pakistan, 1973 (hereinafter referred to as Constitution). they also raised an additional ground that they had not included the amount of Tax in their invoices and had not passed it to NRC, therefore, recovering said Tax from them has not been justified. Both the grounds were turned down in the order in original. While pursuing their appeals before the Commissioner inland Revenue, another ground was also raised by learned counsel representing appellants before the appellate. forum that NRC was a privileged person and therefore, was exempt from payment of Sales Tax under 5th Schedule of Sales Tax Act, 1990 when read with United Nations (Privileges and Immunities) Act, 1948 (hereinafter referred to as UN Privileges Act). All the three grounds had been turned down by the Commissioner Inland Revenue. The matter had then been agitated before Appellate Tribunal Inland Revenue, (Headquarters Bench), Islamabad, where all the three grounds had been found well placed and accepted. Resultantly, their appeals had also been allowed where-against petitioners have filed these references.
4. We have heard arguments of learned counsel for petitioners as well as learned counsel representing respondents/taxpayers and perused the record.
5. Perusal of the record revealed that the following two questions of law have been requiring answers in these cases; A. Whether Norwegian Refugees Council was a privileged person and exempt from payment of Sales Tax under 5th Schedule of the Sales Tax Act, 1990?
B. Whether supplies made by the respondents were exempt from levy of Sales Tax under Article 247 of the Constitution, for the reason that the subject goods had ultimately been distributed among Internally Displaced Persons of erstwhile tribal areas.
Resolution of Question "A"
6. In this regard learned counsel for respondents has vehemently been arguing that NRC being nonprofit international organization, working under umbrella of UNHCR had been entitled to be treated as privileged person under Article 7 of the UN Privileges Act, 1948. NRC was therefore, claimed to be exempt from levy of the tax under 5th Schedule of Sales Tax Act, 1990. Regarding his contention that NRC had been working under Umbrella of UNHCR, the learned counsel has referred to ememorandum of Association, copy of which is available as Annexure "H" of TR No. 09-A of 2016 and on the basis thereof, he claimed that NRC has been working in partnership with UNHCR and therefore, required to be treated as privileged person. We are afraid, we would not be able to agree with learned counsel for the respondent in this regard. Section 7 of the UN Privileges Act, 1948 has provided as; "The United Nations, its assets, income and other property shall be:--
(a) Exempt from all direct taxes; it is understood, however, that the United Nations will not claim exemption from taxes which are, in fact, no more than charges for public utility services;
(b) Exempt form customs duties and prohibitions and restrictions on imports and exports in respect of articles imported or exported by the United Nations for its official use. It is understood,. however, ghat articles imported under such exemption will not be sold in the country into which they were imported except under conditions agreed with the Government of that country;
(c) Exempt from customs duties and prohibitions and restrictions on imports and exports in respect of its publications."
7. United Nations has six main organs i.e. General Assembly, a Security Council, an Economic and Social Council, a Trusteeship Council, International Court of Justice and U.N Secretariat. There can't be two opinions that NRC cannot be termed as United Nations. Mere fact that it had been working with UNHCR, in some areas of providing aid to IDPs, would be sufficient to treat it as United Nations as mentioned in Section 7 of the UN Privileges -Act, 1948. So far as the MOU relied upon by learned counsel for petitioner, is concerned, it is important that UNHCR works in collaboration with a number of governmental and non-governmental organizations but mere fact that UNHCR enters into certain relationship with another body, is not sufficient for the other body to claim same privileges and immunities which are allowable to UNHCR itself.
8. Regarding other international organizations, Federal Government of Pakistan has also been possessing the authority to confer similar privileges and immunities on such organizations under Section 3 of the UN Privileges Act, 1948, but no such privilege has been granted to NRC by the Federal Government in tax matters. The above referred provision is reproduced hereunder for ready reference; "3. Power to confer certain privileges and immunities on other international organizations and their representatives and officers. Where in pursuance of any international Agreement, convention or other instrument it is necessary to accord to any international organization and its representatives and officers privileges and immunities in Pakistan similar to those contained in the provisions set out in the Schedule, the Federal Government may, by notification in the official Gazette, declare that the provisions set out in the Schedule shall, subject to such modifications, if any, as it may consider necessary or expedient for giving effect to the said agreement, convention or other instrument apply mutatis .mutandis to the international organization specified in the notification and its representatives and officers, and hereupon the said provision shall apply accordingly and notwithstanding anything to the contrary contained in any other law, shall in such application have the force of law in Pakistan."
9. It is air admitted fact that the mentioned privileges and immunities have not been conferred by Government of Pakistan on NRC. Appellate Tribunal below has therefore, wrongly held NRC to be a privileged person.
10. So far as exemption under Sales Tax Act, is concerned, 5th Schedule of Sales Tax Act, 1990 under Item No. 2 has provided exemption from payment of Sales Tax in the following cases; "Supply to diplomats, diplomatic missions, privileged persons and privileged organizations which are covered under various Acts, Orders, Rules, Regulations and Agreements passed by the Parliament or issued or agreed by the Government of Pakistan."
11. NRC cannot be treated to be included in the connotation, Diplomats, Diplomatic Mission, Privileged Person or a Privileged Organization. No Act, Orders, Rules or any agreement of the Government of Pakistan have been giving immunity to NRC in the matter of sales tax. Besides, the agreement earlier executed between NRC and respondent, also contains a clause indicating that NRC as well as the contract were subject to laws of Pakistan. Said clause is also reproduced herein for ready reference;- "NRC is not exempted under Pakistan Taxation Laws."
NRC has never claimed exemption from the tax liability. There were rather the respondents who had taken the burden on themselves and claiming exemptions for NRC. In fact they were grinding their own axes in the matter.
'In light of what has been discussed above, we can safely answer question "A" in terms that NRC was neither a privileged person nor exempt form sale tax under 5th Schedule of Sale Tax Act, 1990.
Resolution of question "B"
12. One of the grounds raised by petitioner was that the supplies made by him were supposed to be provided to internally displaced persons (IDPs) of the tribal territory, therefore, the subject goods had been exempt from levy of sales tax under repealed Article 247 of the Constitution. The supplies had been made at a time when Article 247 of the constitution had not been repealed. It therefore, requires consideration whether the Tribunal has rightly accepted this plea of the respondent that the supplies made in the tax year 2013-2014 had been exempt from levy of sale Tax under Article 247 of the constitution. In this respect it is important to be noted that under Article 247 (repealed) of the constitution immunity from payment of sales tax could have been claimed for the tribal territory and not for the persons belonging to tribal areas, wherever they might be. Persons living there had only been exempt from levy and imposition of sales tax in the relevant time when they used to reside or carry on business in the tribal territory. It could not be claimed that persons belonging to FATA were exempt from sales Tax even when they were residing in settled area or carrying on business there. The matter of exemption from payment of sales tax in the territory of FATA had been rooted in the fact that any legislative enactment in order to be given effect in erstwhile PATA or FATA, had to be separately extended to such areas under sub-Article (3) of Article 247 (repealed) of the Constitution. Unless so extended, such laws were not supposed to take effect and have operation in the tribal areas, even if they were prevalent in rest of the country. Since Sales Tax Act, 1990 and Income Tax Ordinance had not been extended to areas of FATA and PATA under sub-Article (3) of repealed Article 247 of the constitution, therefore, those territories were being treated exempt from operations of Income Tax and Sales Tax Laws.
13. The matter of exemption of tribal territory from levy and imposition of income tax had first come before this Court in the case of "Gul Cooking Oil (WP No. 1278 of 1999)", wherein raw material distend for Malakand Division had been found exempt from 2% withholding tax at import stage. Said judgment of this Court had also been upheld by the august Supreme Court of Pakistan, while giving its judgment in the case of "Commissioner of Income-Tax Peshawar v. Messrs Gul Cooking Oil and Vegetable Ghee (Pvt.) Ltd. Through the Chief Executive and 6 others" reported as 2003 PTD 1913. In review judgment of august Supreme Court of Pakistan, given in the case of Gul Cooking Oil reported as 2008 PTD 169, some modification had been made in the earlier given judgment but the exemption of tribal areas from levy and imposition of income tax had been maintained. It is important, for the sake of present discussion, to note that in the review judgment it was clarified that if a company or person derived certain part of its income form tribal area and rest from settled area, then such person or association of persons would be liable to pay tax on his income from the settled area. It was also clarified therein that same was a factual question and was supposed to be dealt with by the department. A part of said judgment, being directly relevant to controversy in hand, is also reproduced hereunder for ready reference: "There is no cavil to the legal position that exemption under the law from payment of income tax is available to a person or company carrying its business in tribal areas and income tax cannot be collected from such person or company by the tax collecting authorities of the Government unless the law relating to the collection of Income Tax is extended to the tribal areas by virtue of Article 247 of the Constitution. However, the question whether a company or a person derives income from business being carried out in taxable or non-taxable area is a pure question of fact which cannot be decided without holding proper inquiry for determination of controversial facts regarding the tax liability. The business of a person or Company may or may not be confined to a particular place or are rather it may be expended beyond the local limits of the area in which Income Tax Ordinance is not applicable and thus if the income tax is derived from the sale or products which are manufactured in the factory situated in non-taxable area both from taxable and non-taxable area, the question relating to the tax liability of such a business concern cannot be determined only on the basis of location of factory or its registered office rather the requirement of law in such case is to hold a proper inquiry and ascertain the correct factual position for determination of tax liability. The exemption from payment of tax is certainly available on the business being carried in tribal area in which income tax law is not applicable but the real question for determination in the present case would be that a company with its manufacturing unit and registered office is non-taxable area, if is also carrying business in taxable area is exempted from payment of income tax on its income as a whole or only on the income being derived from non-taxable area.
The careful examination of the record would suggest that no material was brought before the High Court or this Court on the basis of which a positive opinion could be formed about the business activities of the company and its tax liability for the purpose of exemption of income tax.
It is apparent on record that this essential aspect of the case escaped the notice of this Court and instead the question of taxability was decided only on the basis of consideration that the registered office of the company was situated in tribal areas in which the Income Tax Ordinance, 1979, was not applicable.
In the light of the factual position narrated above, the controversial question as to whether the company was carrying business only in the tribal area or it was also operating in the settled area and was liable to pay income tax, requiring determination has not been attended. It is thus manifest on the record that this essential aspect of the case was overlooked in the judgment, which has caused serious prejudice to the case of petitioner on merits. In view thereof, we are of the considered opinion that review of the judgment in the present case is fully justified as it is crystal clear that immunity from payment of Income Tax could not be claimed without establishing the fact that taxable income was not being derived from the area where the Income Tax Ordinance, 1979 is applicable.
The upshot of the above discussion is that this review petition succeeds and in consequence thereto the Income Tax Department is competent to proceed in the matter in accordance with law."
14. It was clarified beyond doubt that a person would be exempt from levy and imposition of income tax if he had earned income from business inside tribal area but if his income was found to have been earned from business in settled area, then same person would be liable to tax. The immunity provided in Article 247 (repealed) of the Constitution was treated territory specific and not persons specific. In the case of "Messrs Taj Packages Company (Pvt.) Ltd. Through Manager v. The Government of Pakistan through Federal Secretary Finance and Revenue Division and 6 others" reported as 2016 PTD 203, this Court has also declared; "(i) Declare that advance tax charged on import under section, 148 of the Income Tax Ordinance, 2001, is not payable by petitioners importing goods for its utilization or consumption in Federally Administered Tribal Area or Provincially Administered Tribal Area;
(ii) Declare that Sales Tax charged under section 3(1)(b) of the Sales Tax Act, 1990, is not payable by the petitioners importing goods for its utilization or consumption in Federally Administered Tribal Area or Provincially Administered Tribal Area;
(iii) Direct the Federal Government to take appropriate steps to ensure that persons carrying on business in FATA or PATA are rendered immunity from the payment of taxes under Income Tax Ordinance, 2001, and the Sales Tax Act, 1990, as the said statutes have not been extended to the said areas within the contemplation of Article 247(3) of the Constitution;
(iv) Direct the Federal Government to take necessary steps to formulate a uniform policy for seeking securities from the persons importing goods for its consumption and utilization in FATA or PATA, so that the immunity provided under the Constitution is not abused and in case the imported goods are utilized or sold out side the said area, then the revenue of the State is recoverable from the securities, so provided.
(v) Direct that till the decision is taken by the Federal Government regarding the security mechanism stated hereinabove, the Board shall obtain from the petitioners postdated cheques for the payment of taxes at import stage under the Act and the Ordinance, as security, for goods destined for utilization and consumption in FATA or PATA. The postdated cheques shall be returned to the petitioners upon production of consumption certificates duly issued by the concerned commissioners, as specified in Notification dated 28.2.2011. It will be the liability of the petitioners to approach the respondents for the issuance of consumption certificates.
These petitions are disposed of in the above terms."
The decision recorded in Part-IV of concluding part of judgment, reproduce above also indicate that immunity provided under the Constitution had not been held valid in those cases where goods imported for erstwhile tribal area was utilized or sold in settled area. Said judgment of this Court has also been upheld by the honourable Supreme Court of Pakistan, while giving its judgment in the case of "Pakistan through Chairman FBR and others v. Hazrat Hussain and others" reported as 2018 SCMR 939.
16. There thus remains no doubt that the immunity from payment of sales tax under Article 247 (repealed) had been area specific. Article 247, by its letter as well as intent, was also territory specific. The learned Tribunal has, therefore, wrongly held supplies made to IDPs in settled area as exempt from levy of sales tax under Article 247 (repealed) of the constitution. Question "B" is therefore resolved in negative.
17. When both above mentioned questions of law are answered in terms that NRC was neither found privileged person nor exempt from payment of tax under 5th Schedule of Sale Tax Act, 1990 and exemption under Article 247 (repealed) of Constitution was also not found available in the subject case, then such resolution of the questions are sufficient for setting aside impugned judgment of the Tribunal. So far as controversy whether or not respondent No. 1 had passed on sales tax to the end consumer (i.e. NRC) is concerned, said question has differently been answered by the forums below. In the order in original, it had been found that said burden had already been shifted to the end consumer. While deciding appeal, the Commissioner Inland Revenue, had also maintained said findings. The Tribunal has, however, held that the sales tax had not been passed on to NRC. Leaned counsel for the petitioner/Commissioner Inland Revenue, has drawn our attention to sales tax invoice available at page-47 which dully reflected sales tax at the rate of 17%: Besides, it is also an admitted fact that NRC had withheld 1/5th of the sales tax amount form payments made against supplies to them while 415th of said amount was supposed to have been paid by the supplier. We do not agree with the Tribunal even on the factual aspect of the case also but we would not venture into said factual aspect of the case for the reason that re-determination of question of law in above terms were sufficient for the purpose of adjudication on the instant reference. We are also conscious of our limited domain in matters of facts and therefore, leave said aspect as it is. Besides, ignorance of law in tax matters cannot be pleaded as good ground of defense, more so when 1/5th amount of the sale tax had admittedly been retained by NRC, which fact was itself sufficient for cautioning the supplier about payment of the sales tax.
18. In light of what has been discussed above, all the three tax references are allowed. Impugned judgments of Appellate Tribunal, Inland Revenue, (Headquarters Bench), Islamabad dated 30.09.2015 are set aside and orders in original of The Deputy. Commissioner as well as judgments in appeal of Commissioner Inland Revenue are restored in all the connected cases.