PIRANI ENGINEERING through Chief Financial Officer VS FEDERAL BOARD OF REVENUE, 2009 PTD-KARACHI-HIGH-COURT-SINDH 809 (2009)

(a) Income Tax Ordinance (XLIX of 2001)---

----Ss. 122-B, 153(4) & Second Sched., Part-IV, Cl.(46-A)---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Maintainability---Auto parts, manufacturer of---Refusal of Commissioner to issue to petitioner exemption certificate under S.153(4) of Income Tax Ordinance, 2001 for not falling such parts within ambit of Cl. (46-A) of Part-IV of Second Schedule., therefore---Plea of Revenue was that alternate remedy of filing review before Director-General against such refusal was available to petitioner---Validity---Director-General being a Reviewing Authority had already expressed his opinion in form of an administrative order---Appeal/revision/review before Director General would be mere illusionary in nature and would not be efficacious remedy---Constitutional petition was, held to be maintainable in circumstances.

(b) Interpretation of statutes---

----Fiscal statute---Language of such law in its natural meaning would be applicable---Controversy in case of doubt would be resolved in favour of taxpayer and not Revenue Department.

(c) Interpretation of statutes---

----Interpretation of words used in a statute---Duty of Court stated.

Court should look at the words of statute and interpret them in the light of the words clearly expressed and not import what is not expressed to support assumed deficiency.

No words should be added or deleted from a statute to arrive at exact meaning and it should be interpreted as a whole on the basis of its plain language.

Collector of Customs (Appraisement), Karachi and others v. Messrs Abdul Majeed Khan and another 1977 SCMR 371 fol.

(d) Income Tax Ordinance (XLIX of 2001)---

----S. 153(4)(6-A) & Second Sched., Part-IV, Cl. (46-A)---Constitution of Pakistan (1973), Art. 199---Constitutional petition---Income from business of manufacture of auto parts---Refusal of Commissioner to issue exemption certificate to petitioner under S.153(4) of Income Tax Ordinance, 2001 for not falling such parts within the ambit of Cl. (46-A) of Part-IV of Second Sched., thereof---Plea of petitioner was that such parts were iron and steel products for being manufactured from iron and steel---Plea of Revenue was that petitioner was not a member of Iron and Steel Dealers Association, but was a member of Auto Parts Manufacturer Association, thus, manufacturer of auto parts would not fall in category of iron and steel manufacturers and auto parts for not being, iron and steel products would not fall within ambit of Cl. 46-A of Part-IV of Second Sched., of Income Tax Ordinance, 2001---Validity---Iron and steel products had not been defined in Ordinance, 2001---Exclusion from purview of S.153(6-A) of Income Tax Ordinance, 2001 had been restricted to manufacturers of iron and steel products, which, in common parlance, could be called iron and steel products and not to all products in which iron and steel being used as raw material including products manufactured by petitioner---Had words "products of iron and steel" been used, then same could have wider connotation encompassing all products manufactured by using iron and steel as raw material---Products manufactured by petitioner under common parlance could not be categorized under head "iron and steel products", but would always be categorized under auto parts or car or vehicle products---High Court dismissed constitutional petition in circumstances.

Central Insurance Co. and others v. Central Board of Revenue, Islamabad, and others 1993 PTD 766 = 1993 SCMR 1232; Collector of Customs (Appraisement), Karachi and others v. Messrs Abdul Majeed Khan and another 1977 SCMR 371; Tahir Mahmood and 3 others v. Khalid Sharif and 9 others PLD 2007 SC (AJ&K) 119; Orient Straw Board and Paper Mills Limited v. Commissioner of Income-Tax, Hyderabad 1993 PTD 306; Messrs Habib Sugar Mills Ltd. v. Additional Collector, Sales Tax, Customs House, Site Hyderabad and 2 others 2007 PTD 171; Commissioner of Income/Wealth Tax v. Messrs Ravi Plastic Industries (Pvt.) Ltd. 2007 PTD 1227; Commissioner of Income Tax v. Krudsons Limited, Karachi (1966) 14 Tax 293 (H.C. Kar.); Commis sioner of Sales Tax, Lahore v. General Equipment Merchants, Lahore PLD 1982 SC 107; C.A. 1891 Unwin v. Hanson At page 115; Kawther Grain (Pvt.) Limited v. DCIT Guraranwala 80 Tax 262; Collector of Central Excise, Bombay-I and another v. Messrs Parle Exports (P) Ltd. AIR 1989 Supreme Court 644; Messrs Hindustan Aluminum Corporation Ltd., Appellants v. The State of U.P. and another AIR 1981 Supreme Court 1649; Messrs Indian Cable Company Ltd. Calcutta v. Collector of Central AIR 1995 SC 64; Usmania Glass Sheet Factory Limited, Chittogang v. Sales Tax Officers, Chittagong PLD 1971 SC 205; Two Hundred Chests of Tea (1) US 6 Lywer's Edn 430; Messrs Indian Cable Co. Ltd., Calcutta v. Collector of Central Excise AIR 1995 SC 64; Collector of C.E. Bombay v. M.S. Parle Exports (P) Ltd. AIR 1989 Sc 644; Hindustan Aluminium Corpn. V. State of U.P. AIR 1981 SC 1649 and Messrs Premier Mercantile Services (Pvt.) Ltd. v. Commissioner of Income Tax, Karachi 2007 PTD 2521 ref.

(e) Income Tax Ordinance (XLIX of 2001)---

----S.207---Fiscal statute, interpretation of---Power of Central Board of Revenue or its functionaries---Scope---Correct interpretation of statutes given by Board or its functionaries could not be rejected merely on ground for not having been invested with such powers---Principles.

Central Insurance Co. and others v. Central Board of Revenue, Islamabad, and others 1993 PTD 766 1993 SCMR 1232 ref.

Rehanul Hassan Naqvi along with Ms. Lubna Perwaiz for Petitioners.

Altaf Mun for Respondents along with Dr. Tariq Masood Additional Commissioner of Income Tax.

ORDER

MUHAMMAD ATHAR SAEED, J.---This petition has been filed by a registered Partnership Firm/Association of Persons (AOP) who is aggrieved by the refusal of the respondents Nos.2 and 3 for non-issuance of exemption certificate under section 153(4) of the Income Tax Ordinance, by holding that the auto part manufactured by petitioners do not fall within the ambit of clause 46-A of Part-IV of the Second Schedule of the Income Tax Ordinance, 2001 which was inserted in the Income Tax Ordinance, 2001 vide S.R.O., No. 847(1)/2007.

2. The brief facts of the case are that vide S.R.O. 847(I)/2007, dated 22-8-2007 clause 46-A was inserted in Part-IV of the Second Schedule to the Income Tax Ordinance, 2001. This clause is reproduced below for the sake of convenience:

"46-A the provisions of subsection (6-B) of section 153 shall not apply to any payment received by a manufacturer of iron and steel product relating to sale of goods manufactured by him."

3. The petitioner carrying on the business of manufacture of auto parts, being of the opinion that they fall within the provisions of the above clause applied vide their Letter No.786/TP-35/280, dated 13-2-2008 for issuance of exemption certificate under section 153 of the-Income Tax Ordinance, 2001, because according to the applicant subsection (6-B) of section 153 was not applicable to them, being a manufacturer of iron and steel products which had been excluded from the provisions of subsection (6-B) of section 153. The Commissioner of Income Tax respondent No.2 vide his letter No.CIT/Judicial/E&C/2007-8/591, dated 14-3-2008 refused to issue the exemption certificate as according to him the petitioner was engaged in the manufacture of auto parts of motorcycle etc. and, therefore, does not fall under clause 46-A of Part-IV of the Second Schedule of the Income Tax Ordinance, 2001.

4. The petitioner being aggrieved by the above refusal applied to the Director General Respondent No.3 vide their counsel-letter No.786/TP-35-292, dated 5th March, 2008 requesting him to consider their case for exempting them under the provisions of subsection (6-B) of section 153 as auto parts were iron and steel products as they were being manufactured from iron and steel. The Director-General i.e. respondent No.3 through his Additional Commissioner Headquarter vide his letter No.SO-I/DG/RTO/KHI/2007-08/5167, dated 9-5-2008 informed the petitioner that the provisions of clause 46-A of Part-IV of the Second Schedule were not applicable in case of. all manufacturers of iron and steel products but were only applicable in the case of manufacturers/foundries engaged in re-rolling of steels, T-guarders, steel billets, steel sheets etc.

5. Being aggrieved by the above, the petitioner filed this petition before this Court on 29-5-2008 with the following prayers:--

(i) Declare the impugned order of the learned Director General, Regional Tax Office, Karachi issued through Additional Commissioner (HQs) bearing No. SO-I/DG/RTO/KHI/2007-08/5169, dated 9-5-2008 is without jurisdiction and not sustainable in law.

(ii) Declare that the learned Director-General, Regional Tax Office, Karachi has no jurisdiction to interpret the provisions of cause (46A) of Part-IV of the Second Schedule to the Income Tax Ordinance, 2001 by reading words in the said provision for excluding the petitioner from the purview of said clause.

(iii) Declare that the petitioner is entitled to the concessions allowed vide clause (46A) of Part IV of the Second Schedule to the Income Tax Ordinance, 2001 which consequently allows the petitioner to file their return in normal tax regime.

(iv) Direct the respondents to issue the petitioner the exemption certificate under section 153(4) of the Ordinance, 2001, from deduction of withholding tax under section 153(1) read with section 153(B) on account of payment received by petitioner relating to sale of goods manufactured by them.

(v) Declare that the petitioner being a manufacturer is also covered under the provisions of section 153(6A) of the Ordinance, 2001; hence cannot be refused exemption certificate under section 153(4) of the Ordinance, 2001.

(vi) Quash the impugned order of the learned Director General, Regional Tax Office, Karachi issued through Additional Commissioner (HQs) bearing No. SO-/DG/RTO/KHI/2007-2008/ 5167, dated 9-5-2008.

(vii) Pass any order this Honourable Court may deem fit and proper in the facts and circumstances of the case.

(viii) Grant cost of the petition."

6. Preadmission notice was issued to the respondents filed para wise comments on the constitutional petition in which they took the preliminary legal objection that the petition was not maintainable as a remedy under section 122-B of the Income Tax Ordinance, 2001 had been provided for filing a review before the Director General against the order of refusal by the Commissioner of Income Tax and, therefore, it was argued that the petition is not maintainable without exhausting that remedy.

7. On 30-10-2008 this preliminary objection was rejected by the order passed in Court on that date for the reason that the Director-General who was a reviewing authority had already expressed his opinion in the form of an administrative order, therefore, filing of an appeal or revision/review before such authority was mere illusionary in nature and was not efficacious remedy and it was held that the petition was maintainable.

8. On the same date, a report was requisitioned from the respondents directing them to examine whether the products manufactured by the petitioner were manufactured from iron and steel or not and highlight the reasons as to why they do not fall within the ambit of clause 46-A. On 2-12-2008, a statement was filed by the respondents in which it was stated that the petitioner was not a member of Iron and Steel Dealers Association but was a member of Auto Parts Manufacturer Association of Pakistan and, therefore, according to the respondents a manufacturer of auto parts does not fall in the category of iron and steel manufacturers and his products cannot be said to be iron and steel products and, therefore, they do not fall within the ambit of clause 46-A of Part-IV of Second Schedule.

9. We have heard Mr. Rehan-ul-Hassan Naqvi and Ms. Lubna Pervaiz Advocates for the petitioner and Mr. Altaf Moon Advocate for respondents accompanied by Mr. Tariq Masood representative of the department.

10. The learned counsel for petitioner argued that clause 46-A was general in nature and sought to provide the benefit of exclusion of subsection (6-B) of section 153 (which provides that the tax deducted on all payments falling under section 153, shall be the final tax liability on such payments) in the case of all category of taxpayers involved in the manufacture of iron and steel products and the auto parts manufactured by the petitioner are iron and steel products. In support of their contention and on directions of this Court they had also filed a statement in which they had declared as to what are the ingredients of the auto-parts manufactured by them and on examination of this statement it is seen that the most of auto parts manufactured by them comprise of more than 90% products of iron and steel. The learned counsel further went on to argue that there was no basis for the Federal Board of Revenue to restrict the application of clause 46-A only to the products of re-rolling mills/foundries and it should be interpreted in a wider sense to include all the products manufactured by using iron and steel as raw material. The learned counsel once again submitted that the major raw material used by them for the manufacture of auto parts are iron and steel and therefore their products can rightly be called iron and steel products. He further argued that the Federal Board of Revenue and its employees including the Director-General and the Commissioner have not been included in the hierarchy of forums which have been entrusted with the powers of interpreting the statute and no credence can be given to their interpretation which is also not binding. In support of this contention they relied on the judgment of the Honourable Supreme Court of Pakistan in the case of Central Insurance Co. and others v. Central Board of Revenue, Islamabad and others 1993 PTD 766 = 1993 SCMR 1232. In support of their contention that whenever exemption is allowed to iron and steel products then all products manufactured by using iron and steel as raw material would be entitled to such exemption, the learned counsel relied on the following judgments:--

(1) Collector of Customs (Appraisement), Karachi and others v. Messrs Abdul Majeed Khan and another (1977 SCMR 371)

(2) Tahir Mahmood and 3 others v. Khalid Sharif and 9 others (PLD 2007 Supreme Court (AJ&K) 119).

(3) Orient Straw Board and Paper Mills Limited v. Commissioner of Income-Tax, Hyderabad (1993 PTD 306).

(4) Messrs Habib Sugar Mills Ltd. v. Additional Collector, Sales Tax, Customs House, Site Hyderabad and 2 others (2007 PTD 171).

(5) Commissioner of Income/Wealth Tax v. Messrs Ravi Plastic Industries (Pvt.) Ltd. (2008 PTD 1227)

(6) Commissioner of Income Tax v. Krudsons Limited, Karachi (1966) 14 Tax 293 (H.C. Kar.).

(7) Commissioner of Sales Tax, Lahore v. General Equipment Merchants, Lahore PLD 1982 SC 107.

11. On the basis of these judgments the learned counsel submitted that the Courts have always given a wider meaning and connotation to the words used in a statute and since they have conclusively proved that the auto parts manufactured by them have been manufactured from iron and steel and, .therefore, are products of iron and steel, therefore, their case should be excluded from subsection (6-B) of section 153 of the Income Tax Ordinance, 2001 and should be assessed under normal law.

12. Strongly rebutting the arguments of the learned counsel for the petitioner, Dr. Tariq Masood the learned representative of the respondent submitted that the petitioners are not manufacturers of iron and steel products but are manufacturer of auto parts which are used in the auto industry and as such they are not rightly, registered as members of iron and steel dealers, but are registered as members of auto dealers association. He further submitted that on then website also the name of the petitioner does not appear in the names of manufacturers of iron and steel producers and citing an hypothetical example he said that if partners/members of the petitioner AOP want to participate elections to EPPCI .he will have to be nominated by Auto Parts Manufacturer Association of Pakistan and not by the Iron and Steel Dealers Association. The learned representative said that it is logical the words used in the statute should be interpreted in the meaning which is attributable to them in common parlance and should not be interpreted in general terms. He submitted that this principle has been regularly applied in the interpretation of the words and phrases. In support of his contentions he relied on the following judgments:--

(1) C.A. 1891 Unwin v. Hanson At page 115

(2) Kawther Grain (Pvt.) Limited v. DCIT Guararnwala (80 Tax 262).

(3) Collector of Central Excise, Bombay-I and another v. Messrs Parle Exports (P) Ltd. (AIR 1989 Supreme Court 644).

(4) Messrs Hindustan Aluminum Corporation Ltd., Appellants v. The State of U.P. and another (AIR 1981 Supreme Court 1649).

(5) Messrs Indian Cable Company Ltd. Calcutta v. Collector of Central (AIR 1995 Supreme Court 64)

13. The learned counsel for the respondents, therefore, submitted that the respondents Nos. 2 and 3 have rightly refused to issue the exemption certificate and hold that clause 46-A of part IV of the Second Schedule applies to the products manufactured by the applicant and he, therefore, prayed that this constitutional petition may be dismissed.

14. We have examined the case in the light of the arguments made by the learned counsel. The majority of the judgments on which the learned counsel for the petitioner has relied pertain to the principles of interpretation of statute in which it has been held that while interpreting fiscal statute only the language of law in its natural meaning is applicable and that while interpreting fiscal interpretation, in case of doubt, the controversy is to be resolved in favour of the taxpayer and not the Revenue Department. In this case reference may be made to the case of CIT v. Messrs Ravi Plastic Industries (Pvt.) Ltd. quoted supra and Messrs Habib Sugar Mills Ltd. quoted supra. The learned counsel for the petitioner have also relied on the judgment of the Honourable Supreme Court in the case of Abdul Majeed Khan quoted supra on the principle of interpretation of statute where it has been held that the Court should look at the words of statute and interpret them in the light of the words clearly expressed and not import what is not expressed, to support assumed deficiency. There can be no cavil to the principles of interpretation laid down in the above judgments and we will follow the same when interpreting the provisions of clause 46-A.

15. We have again read the provisions of section 46-A and find that the iron and steel products have not been defined either in the clause itself or anywhere else in the Income Tax Ordinance. Due to the fact that this terns has not been defined anywhere in the Income Tax Ordinance we are required to decide as to what meaning has to be attached to these words appearing in clause 46-A. As pointed out above, the learned counsel for the petitioner have relied on the principles of interpretation that no words should be added or deleted from a statute to arrive on exact meaning and it should be interpreted as a whole on the basis of its plain language. Examining clause 46-A, We find that the exclusion from the provisions of subsection (6-A) of section 153 has been provided to manufacturers of iron and steel product and not to products of iron and steel. We are of the opinion that if the words used were `products of iron and steel' then it would have had a wider connotation and meaning and would have encompassed all the products manufactured by using iron and steel as raw material irrespective of the ratio of the iron and steel in the ingredients present in these products and would, therefore, extend and encompass a very wide category of products within its ambit. However, the words which have been used are iron and steel product and it is our considered opinion that by use of this word the exclusion is restricted only to those product which is common parlance can be categorized as iron and steel products and cannot be categorized under the category of any other product. As rightly pointed out by the learned representative of the respondent Dr. Tariq Masood, the products manufactured by the petitioner under common parlance can never be categorized under the head iron and steel products but will always be categorized under auto parts or car or vehicle products.

16. In the light of the above opinion we have examined the cases relied on by both the learned counsel.

17. The learned counsel for the petitioner have relied on the judgment of the Honourable Supreme Court of Pakistan .in the case of Abdul Majeed Khan quoted supra. After perusal of this judgment we are of the opinion that this case instead of helping the petitioners' case supports the respondents' case. Brief facts of the case are that the black pipes were prohibited from being imported whereas the respondent before the Honourable Supreme Court had imported black/zinc coated "steel tubes" and Collector of Customs the applicant bid held that since tubes and pipes are the same the import of black tubes were prohibited. The plea of the Collector was not sustained by the High Court and therefore they came before the Supreme Court wherein Honourable Supreme Court held that tubes and pipes were different items which are manufactured in accordance with their separate specifications and, therefore, black steel pipes cannot be equated with black tubes and dismissed the appeal of the Collector. In this judgment their lordships also relied on their own observations made in the case of Messrs Usmania Glass Sheet Factory Limited, Chittagang v. Sales Tax Officers, Chittagang (PLD 1971 SC 205) where the Honourable Apex Court observed first rule is that general statute will prima facie be presumed to use words in their popular sense and the second rule is that if a statute is one passed with reference to a particular trade, business or transaction, words are used therein which everybody conversant with that trade, business or transaction knows and understands to have a particular meaning in it, then the words are to be construed as having that particular meaning which may differ from the ordinary or popular meaning.

18. They also relied on the following observations in the reported case of Two Hundred Chests of Tea (1) reported in US 6 Layer's Edn. 430.

"The object of the duty laws is to raise revenue, and for this purpose to class substances according to the general usage and known determinations of trade. Whether a particular article were designated by one name or another, in the country of its origin, or whether it were a simple or mixed substance, was of no importance in the view of the Legislature. It did not suppose our merchants to be naturalists or geologists, or botanists. It applied its attention to the description of articles as they derived their appellations in our own markets, in our domestic as well as our foreign traffic. And it would have been as dangerous as useless, to attempt any other classification than that derived from the actual business of human life."

19. We are of the considered opinion that this case supports the interpretation of clause (46-A) placed by the respondents. At this juncture. It will also be relevant to reproduce extract from the judgment relied on by the learned representative of the respondents:--

Messrs Indian Cable Co. Ltd., Calcutta v. Collector of Central Excise (AIR 1995 Supreme Court 64).

"(A) Interpretation of Statute---Fiscal statute---Item or entry of every day use---To be construed normally, as understood in common parlance.

In construing the relevant item or entry, in fiscal statutes, if it is one of everyday use, the concerned authority must normally, construe it, as to how it is understood in common parlance or in the commercial world of trade circles. It must be given its popular meaning. The meaning given in the dictionary must not prevail. Nor should the entry be understood in any technical or botanical or scientific, sense. In the case of technical words, it may call for a different approach."

Collector of E.C. Bombay v. M.S. Parle Exports (Pvt.) Ltd. (AIR 1989 SC 644)

"The words used in the provision, imposing taxes or granting exemption should be understood in the same way in which they are understood in ordinary parlance in the area in which the law is in force or by the people who ordinarily deal with them."

Hindustan Aluminium Corpn. v. State of U.P. (AIR 1981 Supreme Court 1649).

"Aluminium rolled products and extrusions cannot be described as "metal" for the purposes of the notifications, dated 1-12-1975 issued under section 3-A (2) of the U.P. Sales Tax Act, 1948. In the notification issued from time to time the expression 'metal' has been generally employed to refer to the metal in its primary sense. The reference is to be metal in the form in which it is marketable as a primary commodity. Subsequent forms evolved from the primary form and constituting distinct commodities marketable as such must be regarded as new commercial commodities. When such a notification refers to a metal. It refers to the metal in the primary or original form in which it is saleable and not to any subsequently fabricated form. (Paras 9, 10).

When aluminium ingots and billets are converted into aluminium rolled products and extrusion products, they go through a process of manufacture which brings into existence a new marketable commodity. Hence, aluminium rolled products and extrusions are regarded as distinct commercial items from aluminium ingots and billets in the above notifications issues under U.P. Sales Tax Act, (1969) 23 STC 288 and AIR 1976 SC 800 fol. AIR 1961 SC 412 and AIR 1966 SC 1546"

20. We may at this stage also observe that although there can be no cavil to the proposition as held by the Honourable Supreme Court in the case of Central Insurance Co. quoted supra that the Central Board of Revenue or its functionaries do not figure in the hierarchy of the forums which have been entrusted with the powers for interpretation of statutes, therefore, such interpretation is not binding. However, if correct interpretation is given by Central Board of Revenue or its functionaries, such interpretation cannot be rejected merely for the above reason. The underlined principle has already been upheld by us in the judgment of Messrs Premier Mercantile Services (Pvt.) Ltd. v. Commissioner of Income Tax, Karachi (2007 PTD 2521).

21. On the basis of our above discussion we are of the considered opinion that the only interpretation of clause (46-A) which can be arrived at in accordance with the principles of interpretation settled by the Honourable Supreme Court and other High Courts, is that the exclusion from the purview of subsection (6-B) of section 153 of the Income Tax Ordinance, 2001 is restricted to the iron and steel products which is common parlance can be called iron and steel products and not to all products in which iron and steel has been used as raw material including the products manufactured by the petitioner.

22. We, therefore, hold that the respondent No.2 had rightly refused to issue the exemption certificate and respondent No.3 had rightly refused to hold that the products manufactured by the petitioner do not fall within the ambit of section 46-A and, therefore, their case cannot be excluded from presumptive tax regime.

23. On the basis of our above opinion this constitutional petition is dismissed in limine along with pending applications.

S.A.K./P-4/KPetition dismissed.