COLLECTOR OF CUSTOMS, LAHORE VS NESTLE MILK PACK LIMITED, SHEIKHUPURA, 2007 PTD-LAHORE-HIGH-COURT-LAHORE 921 (2007)

Sales Tax Act (VII of 1990)---

---Ss. 13, Sixth Sched. VI, (3)(iv), 32(2), 36(2), 47, 55, 65 & 72---Exemption---Claim for---Appeal to High Court---Respondent/importer, imported various consignments of `Nan Lactogen' A 1 110' and sought its clearance under PCT heading 1901.1010 claiming exemption of Sales Tax per Sched. VI of Sales Tax Act, 1990 in the light of opinion expressed by Central Board of Revenue on 27-6-1996 through letter No.1/42-STT/96 addressed to the Collectors and Deputy Collectors---Consignments of importer were accordingly released oil basis of opinion expressed by Central Board of Revenue---Adjudication proceedings were subsequently initiated on the ground of the audit paras made by Revenue Receipt alleging that exemption of sales tax was admissible to fresh and dried milk of all sorts covered by PCT heading 0401 only and not the milk-based food preparations classified under PCT heading 1990.1010---Audit para went on to say that clarification issued by Central Board of Revenue by way of said letter, was improper inasmuch as Central Board of Revenue was not empowered to amend or modify Schedule VI of Sales Tax Act, 1990 through a letter---Excise and Sales Tax Appellate Tribunal had agreed that clarification issued by Central Board of Revenue by its letter on 27-6-1996 extended/enlarged scope of exemption available in Serial No.3(iv) of Sixth Schedule to Sales Tax Act, 1990 and found that said letter having remained in the field till initiation and completion of adjudication proceedings, orders-in-original were bad both on fact as well as in law---Validity---Held, no case for interference had been made out for the reasons; that Tribunal had rightly observed that interpretation/clarification made by Central Board of Revenue by way of said letter dated 27-6-1996, which could not be brushed aside merely on the ground that earlier to the issuance of S.R.O. 198(I)/98 dated 28-3-1998, exemption was relatable only to milk products contemplated in Chapter 4 of the First Schedule to Customs Act, 1969; that Central Board of Revenue being the apex body to collect revenue was the most relevant official agency to place an .interpretation upon a particular provision-appearing in a fiscal statute---Mere fact that a subsequent change in law by way of issuance of said S.R.O. was more particular and specific in extending the exemption would not derogate from the interpretation of C.B.R. already made in that regard; that concession of exemption having been allowed to respondent/importer on the bases of said letter of C.B.R., initiation of adjudication proceedings on the opinion expressed by the auditors, amounted to re-opening of the case, which was improper and illegal; that though S.55 of Sales Tax Act, 1990 as it existed, was not in the field at the relevant time when C.B.R. letter was issued on 27-6-1996, but in view of provisions of S.72 of Sales Tax Act, 1990, reference of the matter to adjudication Authority by the Executive Wing of the Revenue, was legally improper; that even if equal interpretations were possible, the one in favour of the taxpayer, was needed to be adopted.

A. Karim Malik for Appellant.

Nasar Ahmad for Respondent.

Date of hearing: 4th December, 2006.

JUDGMENT

NASIM SIKANDAR, J.---Through this single judgment we intend to dispose of C.As. Nos. 260, 261, 262 and 263 of 2002.

2. The respondent imported various consignments of Nan Lactogen A1 110 and sought its clearance under PCT heading 1901.1010 claiming exemption of sales tax per Sched. VI of Sales Tax Act, 1990. It appears that on its application as to the availability of exemption to the consignments the Central Board of Revenue on 27-6-1996 through letter No. 1/42-STT/96 addressed to the Collectors of Karachi, Lahore and Deputy Collectors at Multan, Hyderabad, Peshawar, Quetta, Rawalpindi, Gujranwala and Faisalabad expressed the following opinion on the subject "fresh and dried milk".

"Attention is invited to the fourth paragraph of S. No.3 of the Sixth Schedule to the Sales Tax Act wherein exemption has been envisaged for "fresh and dried milk". A question has arisen regarding admissibility of exemption from payment of sales tax to the categories of milk classifiable under PCT heading 19.01. It is clarified for information of all that milk based preparations classifiable under PCT heading 19.01 are included therein along with the milk classifiable under Chapter 4 of Pakistan Customs Tariff. This, however, does not include any substance classifiable under Chapter 21 of Pakistan Customs Tariff."

3. The consigmnents were accordingly released on the basis of the aforesaid opinion expressed by the Central Board of Revenue. Subsequently adjudication proceedings were initiated on the ground of the audit paras made by Revenue Receipt Audit alleging that exemption of sales tax was admissible to fresh and dried milk of all sorts covering by PCT heading 0401 only and not to milk based food preparations classifiable under PCT heading 1990.1010. The audit para went on to say that the clarification issued by the Board by way of aforesaid letter was improper inasmuch as the Board was not empowered to amend or modify Sched. VI merely through a letter.

4. In the adjudication proceedings that followed the Collector (Adjudication) Lahore recorded two orders-in-original on 30-10-2000 pertaining to two different periods. Subsequently two other orders-in -original were recorded on 30-12-2000 which related to the other two periods in which the consignments imported by the appellant were cleared. Para.4(i) of the order recorded on 30-10-2000 epitomizes the view of the adjudication authority in the following words:---

"In the first place there are no two opinions about the fact that the very wording of the description as contained in serial number 3(iv) i.e., "fresh and dried milk, yogurt, of all sorts, whether or not packed for retail sale" is covered under Chapter 4 of the First Schedule to the Customs Act, 1969 whereas milk based food preparations are distinctly classifiable under Chapter 19 ibid. It is an established fact that at the time the bill of entry in the instant case was filed in terms of section 30 of the Customs Act, 1969 the exemption of sales tax was available only to the aforesaid description of the goods as mentioned against serial number 3(iv) of the Sixth Schedule. It was much after the instant import that milk based food preparations of the PCT heading 19.01 were exempted from sales tax vide Notification No. S.R.O. 198(I)/98 dated 28-3-1998. This exemption was made a part of the Sixth Schedule to the Sales Tax Act, 1990 through amendment vide Finance Act, 1998. As a result of this amendment now a separate, distinct category existed against serial number 3(xi) of the Sixth Schedule to the Sales Tax Act, 1990 with the description "milk based food preparations of heading 19.01 of the First Schedule to the Customs Act, 1969". The line of distinction between the milk covered under Chapter 4 and milk based food preparation with respect to applicability of exemption became further clear in view of the fact that the category of milk covered under Chapter 4 still appeared independently and separately at its original place i.e., serial number 3(iv) of the Sixth Schedule to the Sales Tax Act, 1990. The exemption of sales tax to the milk based food preparations of PCT heading 19.01 was withdrawn vide Notification No.S.R.O. 922(I)/99, dated 16-8-1999, however the exemption to fresh and dried milk remained intact at serial number 3(iv) of the Sixth Schedule to the Sales Tax Act, 1990. The aforesaid history of extension and withdrawal of exemption to the milk based food preparations as elaborated above makes it crystal clear that the Government took a distinct and discreet view about the fresh and dried milk as covered under Chapter 4 of the First Schedule to the Customs Act, 1969 and milk based food preparations of PCT heading 19.01 with respect to exemption of Sales Tax. In other words when the Government intended to grant exemption to the milk based food preparations, it categorically incorporated the same in the Sixth Schedule in addition to the fresh and dried milk, and likewise when the Government intended otherwise, the said category was deleted from the Sixth Schedule with fresh and dried milk remaining intact therein. The aforesaid point of view is further strengthened by the fact that when Messrs Nestle Milk Pak Ltd. approached the Central Board of Revenue for the extension of benefit of Notification No. S.R.O. 198(I)/98 dated 28-3-1998, retrospectively for the period from 27-6-1996 to 27-3-1998, the Board rejected the request holding that the said S.R.O. is prospective in nature and cannot be given retrospection."

5. The first two orders-in-original were successfully assailed by the importer/respondent. A Division Bench of the Excise and Sales Tax Appellate Tribunal (for short the Tribunal) on 14-11-2001 set aside both orders-in-original dated 30-10-2000. The learned members agreed that the aforesaid clarification issued by the Central Board of Revenue on 27-6-1996 extended/enlarged scope of exemptions available in serial 3(iv) of the 6th Schedule to the Sales Tax Act, 1990; that the letter in question having remained in the field till initiation and completion of adjudication proceedings the orders-in-original were bad both in fact as well as in law inasmuch as both the taxpayer as well as the tax collecting machinery at the relevant time acted upon the said letter under which a large number of consignments were cleared; that the issuance of the aforesaid letter consciously intended exemption to milk based food preparations of PCT heading 1901 First Schedule of the Customs Act, 1969 which was subsequently regularized through S.R.O. 198(I)/98 dated 28-3-1998 amending the Sixth Schedule to the Sales Tax Act, 1990 a legal position which continued till amendment made through Finance Ordinance, 2000 that the show-cause notices issued to the importer which finally culminated in passing of orders-in-original dated 30-10-2000 were legally improper inasmuch as the notices issued under section 32(3) of the Customs Act, 1969 read with section 36(2) of the Sales Tax Act, 1990 related to collusion, false statement and misdeclaration which was clearly not the case in hand.

6. Subsequently the two orders-in-original dated 30-12-2000 for other periods were also set aside by the learned members of the Tribunal through their second order recorded on 12-3-2002 in which they simply made a reference to their findings, earlier recorded 011 14-11-2001 while setting aside the first two orders-in-original dated 30-10-2000.

7. These four appeals by the Revenue seek to challenge said two consolidated orders recorded by the Tribunal setting aside four orders-in -original, as noted above.

8. Having heard the learned counsel for the parties and on going through the impugned orders we have concluded that no case for interference for the Revenue is made out. Following are our reasons:---

(i) Learned members of the Tribunal rightly observed that the interpretation/clarification made by the Central Board of Revenue by way of the aforesaid letter dated 27-6-1996 could D not be brushed aside merely on the ground that earlier to the issuance of the S.R.O. 198(I)/98 dated 28-3-1998 the exemption was relatable only to the milk products contemplated in Chapter 4 of the First Schedule to the Customs Act, 1969. They are also correct in observing that the interpretation of the C.B.R. needed to be followed inasmuch as a large number of consignments were cleared on the basis of aforesaid C.B.R. letter issued on 27-6-1996 till 28-3-1998 when the S.R.O. 198(I)/98 was issued.

(ii) The Central Board of Revenue being the apex body to collect revenue is the most relevant official agency to place an interpretation upon a particular provision appearing in a fiscal statute. Mere fact that a subsequent change in law by way of issuance of the aforesaid S.R.O. was more particular and specific in extending the exemption does not derogate from the interpretation of the C.B.R. already made in that regard. All the moreso when the subsequent amendment in law is not in contradiction of the earlier interpretation made by the Board of Revenue.

(iii) The concession of exemption having been allowed to the respondent/importer on the basis of the aforesaid letter of the C.B.R. the initiation of adjudication proceedings on the opinion expressed by the auditors amounted to re-opening of the case. It was clearly improper and illegal. It is an established preposition of law that in fiscal matters the case of a taxpayer cannot be re-opened merely on account of change in opinion on the part of the Revenue authorities. In the situation in hand in all fairness the matter ought to have been taken up with the Federal Government to proceed under section 65 of the Sales Tax Act, 1990 for issuance of a notification instead of burdening a particular importer with the tax liability. The concerned Collectorate acted with undue haste in commencing the adjudication proceedings. It needs to be noted that the aforesaid letter of the C.B.R. was issued to all Collectorates then in existence in Pakistan. However, as claimed by the respondent/ importer no other case involving import of the consigmnent in question was re-opened in any other Collectorate except the one in hand. We are also of the view that the Adjudicating Authority accepted the view point of the auditors in a mechanical manner without considering the fact that the C.B.R. letter, as rightly observed by the learned members of the Tribunal, was in the field even on the date the order-in-original was passed. The approach adopted by the Adjudicating Authority was pedantic and certainly created an uncertainty both for the importers as well as the subordinate functionaries of the Revenue.

(iv) Although section 55 (Removal of Difficulties) of the Sales Tax Act, 1990 as it exists today was not in the field at the relevant time when the C.B.R. letter was issued yet in view of the provisions of section 72 (Officers of sales tax to follow Board's Orders, etc.) the reference of the matter to the Adjudication Authority by the Executive Wing of Revenue was legally improper. The contention of the learned counsel for the Revenue that an Adjudicating Authority cannot be issued a direction by the C.B.R. to influence adjudication proceedings is certainly correct in view of the proviso to section 72 of the Act. However, it may be noted that the letter in hand was issued much earlier to the commencement of adjudication proceedings or the reference of the matter for adjudication. Therefore, it cannot be said that the aforesaid letter interfered with the discretion of the Adjudicating Authority. In any case, as observed earlier, the interpretation by the letter being in nature of an order or direction made by the Board was binding upon the officers of the sales tax. Accordingly the reference by them of the matter to the Adjudicating Authority was against the provisions of section 72 of the Act.

(v) Even if two equal interpretations were possible the one in favour of the taxpayer was needed to be adopted. The interpretation made by the C.B.R. by way of the aforesaid letter could not be said to be either against any express provision of law or any authoritative pronouncement made by the Court. It was, therefore, an interpretation equally possible with the one made by the auditors which in turn formed basis of the order-in -original.

9. Accordingly all four departmental appeals shall be dismissed.

H.B.T./C-4/LAppeals dismisse