AHMED STEEL (PVT.) LIMITED VS THE GOVERNMENT OF BALOCHISTAN, 1998 PTD-QUETTA-HIGH-COURT-BALOCHISTAN 3050 (1998)

West Pakistan Octroi Rules, 1964------

----R.2(3)---Income Tax Ordinance (XXXI of 1979), Ss.2(24) & 50-- Customs Act (IV of 1969), S.25---Demand of octroi on ad valorem cost of imported goods including advance income-tax---Legality---Advance income tax was to be recovered over value of imported goods and for purpose of collecting Customs duty, advance income-tax was not added considering it to be one of component of value like others namely, surcharge, regulatory duty, etc. ---Provisions of S.50(5) (a)(b) of Income Tax Ordinance, 1979, had clarified that advance payment of income-tax at specified rate had to be credited in the count of taxpayers in any financial year---Subject to different provisions of Income Tax Ordinance, 1979 adjustment whereof would take place at the time of final determination of income by concerned Department, for purpose of assessing ad valorem cost for charging octroi, advance paid income-tax could not be deemed to be one of components of value because that amount, m fact, was to be retained by Income-tax Department till final adjustment of Income Tax Account of Importer subject to filing of statement of income-tax by importer indicating profits, losses at the end of financial year---Payment of advance income-tax under S.50(5) of Income Tax Ordinance, 1979 could, thus, not be added on the value of goods for recovery of octroi.

AIR 1977 SC 965; AIR 1965 SC 1107; AIR 1968 SC 1232; M/s. Al-Hamza Ship Breaking Company and 12 others v. Government of Pakistan through Secretary, Finance and Economic Affairs 1996 CLC 608 = 1996 PTD 347 and AIR 1977 SC 968 ref.

Muhammad Ali Saeed, Zahid Alvi anti H. Shakeel Ahmad for Petitioner.

Malik Sikandar Khan, A.-G. for Respondent No. 1.

Ashraf Khan Tanoli for and Pervaiz Khan Tanoli for Respondents Nos.2 and 3.

JUDGMENT

IFTIKHAR MUHAMMAD CHAUDHARY, J.---The petitioner Ahmed Steel (Pvt.) Limited deals in the business of imparting of unserviceable ships for breaking and scraping. Statedly following three ships were imported for dismantling/scraping by them:

1.T.T. SANADAJ-2

2.M.T. Krivbas

3.Eastern Lion.

On arrival of above ships at Gaddani Beach, bill of entries were respectively submitted by the petitioner for clearance of customs duty etc. A perusal of one of the bill of entry filed alongwith counter-affidavit by respondent No.3 reveals that 2% Advance Income Tax was also paid on ad varlorem value.

The grievance of petitioner is that respondent M/s. Ziarat Enterprises Octroi Contractor vide demand notices, dated Ist March, 1997 and 4th April, 1997 respectively demanded octroi on ad valorem cost of the ships including Advance Income tax, which according to them is not permissible under Octroi Rules.

Mr. Muhammad Ali Saeed assisted by Mr. Zahid Alvi learned Advocate argued on behalf of the petitioner as under:

(1) Whether amount of advance payment of income-tax under section 50(5) of the Income Tax Ordinance, 1979 at the time of submitting of bill of entry can be added on the value of goods for the purpose of recovery of octroi;

(2) The 'Ship' being goods not intended for consumption and sale within the limits of Town Committee, Gaddani, therefore, no octroi can be charged on it.

(3) The goods despatched/transported from the Province of Balochistan to the Province of Sindh cannot be subjected to Local Tax.

On the other hand Mr. Sikandar Khan learned Advocate-General argued that in view of rule 48 read with 216 of the West Pakistan Octroi Rules, 1964 petitioner -has got an alternate remedy, therefore, without availing the same petition is not maintainable.

On merits he contended that the Octroi Contractor respondent No.3 has rightly demanded Octroi Tax on ad valorem value of the ships, which also include the income-tax paid by the petitioner at the time of clearance of Customs duty.

Mr. Ashraf Khan Tanoli learned counsel for respondent No.3 Ziarat Enterprises (Octroi Contractor) who was also holding brief of counsel for respondent No.2 (Town Committee, Gaddani) contended that:

(1) The petition is not maintainable as it suffers from laches because the demand notices were issued to petitioner in the months of March and April, 1997 whereas petition has been filed on 22nd October, 1997.

(2) The ad vanlorem valuation of the goods has to be calculated in terms of Notification No.5-182/81 (PLGB) AOIV, dated 8th April, 1982 for the purpose of levying octroi tax on the basis of ad valorem value of the goods, which includes the income-tax paid by importer at the time of clearance by the Collector, Customs Department.

(3) The octroi duty is to be charged as per the Notification, dated 8th April, 1982 on the import of ships, boats and floating structure, no sooner they arrive within the limits of Town Committee, Gaddani, therefore, notwithstanding the fact whether after dismantling the ships the scrap is taken to a destination situated outside Gaddani, But the octroi will be charged because the ship has been imported for the process of dismantling.

We heard parties counsel at length and have also perused the relevant previsions of West Pakistan Octroi Rules, 1964 and the Notification relied upon by Mr. Ashraf Khan Tanoli Advocate.

Learned counsel Mr. Muhammad Ali Saeed. in support of his first contention referred definition of the word 'value' from rule 2(s) of the Octroi Rules, 1964. For convenience it is reproduced below:

"'Value means the price which shall include cost, insurance, freight, custom, duty, sales tax and any other levy determined by the Custom Authorities."

We submitted that so far advance income-tax paid by the Importer at the time of clearance of the ships by the Customs Department, it does not find mention in above definition to determine value of goods, therefore, respondents are not authorised to determine ad valorem cost of goods/ship by adding advance income-tax, with other duties.

To elaborate his stand, he further stated that the statute or the instrument which has conferred powers upon the agency appointed to collect the tax cannot be allowed to stretch its meaning arbitrarily and contrary to the spirit of such law for the purpose of recovery of tax, unauthorisedly. We placed reliance on AIR 1977 SC 965, AIR 1965 SC 1107, AIR 1968 SC 1232.

It is to be observed that the definition of the word 'value' under Rule 2(s) of the Octroi Rules, 1964 is not applicable as far as the Province of Balochistan is concerned because this definition in the rules was added by Government of Sindh vide Notification, dated 7t1: November, 1973.

As far as the Province of Balochistan is concerned it has provided its own definition in the Notification, dated the Quetta 8th April, 1982 which is reproduced hereinbelow:

"NOTIFICATION.

No.5-182/81(PLGB) AO-IV.---In exercise of the powers conferred by subsection (2) of section 137 of the Balochistan Local Government Ordinance, 1980 (II of 1980) read with section 70 of the said Ordinance, the Government of Balochistan is pleased to direct that the Town Committee, Gaddani shall impose a tax on the import of ships, boats and floating structure, on the basis of ad valorem at the rate of Rs.1.50 (Rupees one and paisas fifty) per import of Rs.100 value, under the West Pakistan (Town Committee) Ortroi Rules, 1964 with immediate effect.

2. The Government of Balochistan is further pleased to direct that ad valorem cost shall also include taxes, duties, freight charges and, penalties

Thus the definition clause of the word 'value' referred to by learned counsel for petitioner will not be relevant for the disposal of instant case. In our opinion to clinch the issue, it would be appropriate to reproduce hereinbelow section-50(5) of the Income Tax Ordinance, 1979:

"Section 50.---(1) .

(2)........................................

(3)........................................

(4)........................................

(5) Notwithstanding anything contained in any law for the time being in force,---

(a) the Collector of Customs shall, in the case of every importer of goods, collect advance tax computed, on the basis of the value of such goods as increased by the customs duty and sales tax, if any (levied) thereon, at the rates specified in the First Schedule, and credit for the tax so collected in any financial year shall, subject to the provisions of section 53, be given in computing the tax payable by such importer for the assessment year commencing on the first day of July next following the said financial year, or in the case of an assessee to whom section 72 of section 81 applies, the assessment year, in which the 'said date', as referred to therein, falls, whichever is the later;

(b) the tax under clause (a) shall be collected in the same manner and at the same time as the customs duty, as if such goods (even though exempt from such duty) were liable to such duty, and all the provisions of the Customs Act, 1969 (IV of 1969) shall, so far as may be, apply accordingly.

Explanation. -.--As used in this subsection:

(i) Value', in relating to any goods, means the value as determined under section 25 of the Customs Act, 1969 (IV of 1969), as if the goods were subject to ad valorem duty; and

(ii) 'Collector of Customs' means a person appointed as Collector of Customs under section 3 of the Customs Act, 1969 (IV of 1969) and includes a Deputy Collector of Customs, and Assistant Collector of Customs or an officer of Customs appointed as such under the aforesaid section. "

A bare perusal of clause (a) of subsection (5) indicates that Collector of Customs has been authorised to collect advance tax in the case of Importer of every goods on the basis of the value of such goods as increased by the customs duty and sales tax, if any levied thereon at the rates specified in the First Schedule and the advance income-tax so collected shall be credited in the count of importer in any financial year subject to the provisions of section 53 etc. As far as its clause-(b) is concerned it provides procedure/manner and the time when advance income-tax is to be collected at the time when customs duty is recovered from the Importer on such goods in accordance with the provisions of Customs Act. So far the word 'value' is concerned it has also been defined in explanation reproduced hereinabove according to which the value is determined under section 25 of the Customs Act, 1969 as if the goods were subject to ad valorem duty.

At this juncture it would also be relevant to make reference to the definition of the word 'income' under section 2(24) of the Income Tax Ordinance, 1979. It includes any income, profits or gains from whatever source derived, chargeable to tax under any provision of this Ordinance, under any head specified in section 15, in loss of such income, profits or gains and any sum deemed to be income or income accruing or arising or received in Pakistan under any provision of this Ordinance, but does not include in the case of a shareholder of a domestic company the amount representing the face value of any bonus shares or the amount of any bonus declared, issued or paid by the Company to its shareholders with a view of increasing its paid-up share capital. In the case of M/s. Al-Hamza Ship- Breaking Company and 12 others v. Government of Pakistan through Secretary, Finance and Economic Affairs 1996 CLC 608 = 1996 PTD 347 implications of section 50(5) of the Ordinance were examined for the purpose of determining the stage when 2 % advance income-tax will be recovered from the Importer. Relevant para. from the judgment reads as under:---

"In view of above discussion it is held that Advance Income Tax shall be computed according to the method, prescribed under section 50(5)(a)(b) of the Ordinance of 1979 and collection of the tax shall be made on the amount of duty which actually had been paid by Importer under the sanction of tax levying Authority i.e., Collector Customs at the rate prevailing the time when such amount is paid and there is no concept of self-execution of above provisions. Under the circumstances, official respondents were within their lawful right to demand Advance Income Tax, at the rate of difference of 2 % from petitioners after 1st July, 1995 on promulgation of Finance Act, 1995. Because petitioners have not fully discharged the liability to pay advance Income Tax under the provisions of section 50(5)(a)(b) of the Ordinance of 1979, therefore, no vested right had accrued to them, and the judgments cited at bar on behalf of petitioners are of no help to them."

Taking into consideration the provisions of section 50(5)(a)(b) it can safely be held that Advance Income Tax is recovered over the value of imported goods and for the purpose of collecting customs duty Advance Income Tax is not added considering it to be one of the component of the value like others namely, surcharge, regulatory duty etc. This provision also clarifies that advance payment of income-tax at specified rate has to be credited in the count of the taxpayers in any financial year. However, subject to different provisions of the Income Tax Ordinance, 1979 adjustment whereof of course will take place at the time of final determination of the income by the concerned Department, therefore, so being the position so for the purpose of assessing ad valorem cost for charging octroi advance paid income-tai cannot be deemed to be one of the component of the value because this amount, in fact, is to be retained by the Income Tax Department till final adjustment of the Income Tax Account of the Importer subject to filling of statement of income-tax by Importer indicating profits, losses etc., on the end of the financial year.

Mr. Muhammad Ali Saeed, Advocate referred a para from AIR 1977 SC 968 to highlight the principle that it is the duty of the Court to understand intention of the Legislature and not to interpret a law without exploring that for what purpose it was promulgated. Relevant para from said judgment is reproduced hereinbelow:

"Unfortunately, the High Court surrendered to narrowness of interpretation of Regulation 26 by accepting the submission of the respondent. To be literal in meaning is to see the skin and miss the soul of the Regulation. The judicial key to construction is the composite perception of the Delia and the Dehi of the provision. So, viewed Regulation 26 is easy of comprehension."

We are quite in agreement with the principle referred to hereinabove, therefore, following the same we have endeavoured to explore the intention of the law-givers to charge advance income-tax on the imported goods at the time when it reaches at the port/station where its clearance takes place after making payment of duties.

Learned counsel for respondents Nos.2 and 3 contended that previously there had been a dispute on determining ad valorem cost by the Contractor wherein the excise duty was also included as one of the component of the value of the goods and in this behalf C.P. No.86 of 1996 (Al-Hamza Ship-Breaking v. Government of Balochistan and 2 others) was instituted before this Court. The petition was dismissed considering that as 5 % ad valorem excise duty was added in the value of ship which was paid alongwith other duties, as such Octroi Contractor is legally entitled to assess the ad valorem cost of the goods/ship adding the excise duty in its value for the purpose of charging the Octroi. He stated that said petition was dismissed on 28-8-1996. Against said order Civil Petition No.348-K of 1996 was preferred before Honorable Supreme Court, which too was dismissed on 14-11-1997. Thus, he prayed that in the same manner the advance income tax paid by the Importer can be added in the customs duty for determining the gross value of the goods to charge octroi in term of the Notification dated 8-4-1982 which speaks that the ad valorem cost shall include taxes, duties, freight charges and penalties, therefore, the income-tax being one of the tax duty a component for determining ad valorem cost. It is true that in the judgment referred by the learned counsel the excise duty was considered to be a tax which can be added for determining ad valorem cost, but distinction is that the Central Excise Duty is charged on excisable goods specification whereof has been given in the First Schedule annexed with the Central Excises Act, 1944 and it also includes goods manufactured or produced in non-tariff area and brought for consumption to tariff area; whereas income-tax is not to be charged on the goods but from the personal income of the Importer who makes profit or loss, therefore, income-tax cannot he brought within the compass of taxes mentioned in para. 2 of the Notification dated 8-4-1992. Thus the argument put forth in this behalf by the learned counsel has no substance.

As such the above conclusions lead us to hold that payment of Advance Income Tax under section 50(5) of the Ordinance, 1979 cannot be added on the value of goods for recovery of octroi.

As far as objection raised by the respondents counsel on the non maintainability of the petition due to non-availing alternate remedy of appeal is concerned in this behalf it is suffice it to observe that under rules 48 and 216 of the West Pakistan Octroi Rules, 1964, appeals are competent which the department or its staff is collecting the octroi, but when contract has beer given for the collection of the octroi to a Contractor then both these provisions would not be applicable as it has been provided under Rule 226 Clause (d)(1), therefore, we are of the considered opinion that petitioner had no alternate remedy except by filing instant petition.

As far as objection raised by Mr. Ashraf Khan Tanoli, Advocate for respondents Nos.2 and 3 to the fact that petition suffers from laches is concerned, it is also not worthy of consideration because petitioner has got recurring cause of action, therefore, under such circumstances the petitioner cannot be dismissed on this technical reason alone.

Now adverting towards the next contention of learned counsel for petitioner that goods remain in transit, therefore, no octroi can be charged on it. In this behalf reference has to be made to Notification, dated 8th April,1982 which in unambiguous terms provides that octroi shall be levied on the ships, boats, and floating structure. It is to be borne in mind that, no sooner ships are beached at Gaddani and after getting clearance from the Customs Department, its dismantling started then, it would be deemed that it has to be consumed/sold within the Gaddani Town, therefore, the goods do not remain in transit. In addition to it there is no evidence available on record to establish that after scrapping/dismantling whether it is consumed within the Town Committee, Gaddani or are taken out of its limits, therefore, in absence of definite evidence no positive finding can be given in this behalf.

Learned counsel did not press the point enlisted at Serial No.3 of his contentions and requested to allow him to raise it subsequently at any appropriate stage, in some other matter. We order accordingly.

For the foregoing reasons petition is allowed declaring that respondent No.3 Contractor is not authorised/entitled under the law to add the advance paid income-tax being one of the component to determine ad valorem cost of the goods/ships for the purpose of charging octroi. Thus, the writ is accordingly issued, leaving the parties to bear their own costs.

H. B.T-711 /QPetition allowed.