CENTRAL BOARD OF REVENUE (F.B.R.) VS RECKITT BENCHKISER PAKISTAN LTD., 2011 PTD-SUPREME-COURT 1232 (2011)

(On appeal from the judgment of the High Court of Sindh dated 24-2-2009 passed in C.P: No.D-608 of 2007).

(a) Sales Tax Act (VII of 1990)---

---Ss.2(18), 30, 45-A & 47-A---General Clauses Act (X of 1897), S.21--Alternative Dispute Resolution Committee, recommendations of---Disposal of assessee's appeal by Appellate Tribunal in terms of such recommendations already accepted by Board of Revenue---Issuance of show-cause notice to assessee by Board of Revenue in exercise of its powers under S. 45-A of Sales Tax Act, 1990 read with S. 21 of General Clauses Act, 1897 to re-examine its order accepting such recommendations---Validity---Board had power to examine decision or order of an officer of Inland Revenue, which according to S. 2(18) read with S. 30 of Sales Tax Act, 1990 would not include Board itself---Board had no authority to examine legality or propriety of its own orders---Powers under S. 21 of General Clauses Act, 1897 for being general in nature could not be exercised by an authority for recalling orders passed in quasi judicial capacity---Provisions of S.21 of General Clauses Act, 1897 could not be invoked in presence of S.45-A of Sales Tax Act, 1990---Board under S. 47-A of Sales Tax Act, 1990 had discretion not to appoint such Committee and could withhold its approval---Board had consciously appointed such Committee and accepted its recommendations, which had been duly incorporated in order of Tribunal---Board after such exercise could not re-open entire issue---Impugned show-cause was set aside in circumstances.

(b) General Clauses Act (X of 1897)---

----S.21---Order passed by an authority in quasi judicial capacity---Powers of authority to recall such order under S.21 of General Clauses Act,' 1897---Scope---Provisions of S.21 of General Clauses Act, 1897 for being general in nature could not be invoked for recalling such order.

Asif Wardag, Advocate Supreme Court and Raja Abdul Ghafoor, Advocate-on-Record for Petitioner.

Makhdoom Ali Khan, Senior Advocate Supreme Court for Respondent.

Date of hearing: 30th March, 2011.

JUDGMENT

NASIR-UL-MULK, J.-Respondent No.1, Messrs Reckitt Benckiser Pakistan, a public limited company, is engaged in the sales of pharmaceutical and household products. Based on an audit report, the Assistant Collector Sales Tax issued a show-cause notice to the respondent, requiring it to explain as to why sales tax amounting to Rs.26.792 million for the period 1-7-1981 to 16-10-1989 leviable on the 'Dettol' supplied be not charged and paid by the respondent. The show-cause notice explained that the respondent had wrongfully not paid the said tax by classifying it under PCT Heading 38.08, claiming that the product was a medicinal preparation and registered as drug under section 7 of the Drugs Act, 1976 and thus exempted from sales tax under S.R.O. No.598(I)/90 dated 7-6-1990 read with S.R.O. No. 553(I)/94 dated 9-6-1994. The respondent contested the show-cause notice and on 26-1-1992 the Assistant Collector, after holding that the respondent was liable to pay the tax for reasons mentioned in the show-cause notice, directed the respondent to pay the same along with Rs.100,000 as penalty. This order of the Assistant Collector was upheld in appeal by the Collector (Appeals). The respondent assailed the levy before the Customs Federal Excise and Sales Tax Appellate Tribunal. During the pendency of the appeal the respondent approached the Federal Board of Revenue for appointment of an Alternative Dispute Resolution (ADR) Committee, under section 47-A of the Seals Tax Act, 1990, for resolution of the dispute. The Committee so constituted made the following recommendations:

(i)"the applicant rightly cleared the product Dettol without charging sales tax during the period of 3-5-1982 to 29-9-1987 and therefore, the demand of sales tax amounting to Rs.16.556 million covering the period 3-5-1982 to 29-9-1987 should be waived.

(ii)The demand of sales tax Rs.0.500 million and Rs.9.189 million levied on the clearance of the Dettol made during the period February 1982 to April, 1982 and 30-9-1987 to 16-10-1989 respectively stands recoverable from the applicant."

2. The Federal Board of Revenue (F.B.R.) on 6-7-2006 passed an order under section 47-A of the Sales Tax Act accepting the recommendations of the ADR Committee. Consequently the Appellate Tribunal disposed of the respondent's appeal on 23-9-2006 in terms of the recommendations.

3. After conclusions of the above proceedings initiated by the Assistant Collector Sales Tax and culminating in the order of the Appellate Tribunal, the-Federal Board of Revenue (F.B.R.) again issued notice to the respondent on 18-1-2007, exercising powers under section 45-A of the Sales Act read with section 21 of the General Clauses Act, 1897, to re-examine the Board's order dated 6-7-2006, accepting the recommendations of the ADR Committee. Though the show-cause notice mentioned five grounds for the issuance of the notice, in essence it asserted that 'Dettol' was not medicine and thus the supplies made during the relevant period were not exempted from payment of sales tax. The respondent assailed this notice before the High Court of Sinn in a Constitution petition. The Court allowed the petition and struck down the notice dated 18-1-2007 as unlawful. This judgment has now been challenged by the F.B.R. through this petition for leave to appeal.

4. Mr. Asif Wardag, Advocate Supreme Court, appeared for the petitioners and Mr. Makhdoom Ali Khan, Senior Advocate Supreme Court, represented respondent No.1.

5. In order to appreciate the arguments addressed by the learned counsel it is necessary to take a look at section 45-A of the Sales Tax Act, under which the F.B.R. had issued show-cause notice on 17-1-2007 to the respondent:--

"45-A. Powers of the Board and Commissioner to call for records.---(1) The Board may, of its own motion, call for and examine the record of any departmental proceedings under this Act or the rules made thereunder for the purpose of satisfying itself as to the legality or propriety of any decision or order passed therein by an Officer of Inland Revenue, it may pass such order as it may think fit:

Provided that no order imposing or enhancing any penalty or fine requiring payment of a greater amount of sales tax than the originally levied shall be passed unless the person affected by such order has been given an opportunity of showing cause and of being heard.

(2) No proceeding under this section shall be initiated in a case where an appeal under section 45B or section 46 is pending.

(3) No order shall be made under this section after the expiry of five years from the date of original decision or order of the subordinate officer referred to in subsection (1).

(4) The Commissioner may, suo motu, call for and examine the record of any proceeding under this Act or the rules made thereunder for the purpose of satisfying himself as to the legality or propriety of any decision or order passed by an officer of Inland Revenue subordinate to him, and pass such order as he may deem fit."

6. Defending the said notice before the High Court it was argued on behalf of the Board of Revenue that the same was lawfully issued in exercise of specific powers conferred upon the Board under the above provision read with section 21 of the General Clauses Act, generally empowering an authority to rescind any notification or orders issued by it. The High Court rejected this argument by holding that section 45-A of the Sales Tax Act did not empower the F.B.R. to review its orders. That section 21 of the General Clauses Act could not be invoked by an authority exercising judicial or quasi judicial powers; that the acceptance of the recommendations of the ADR Committee by the F.B.R. by order dated 6-7-2006 was quasi judicial in nature. On the question as to whether 'Dettol' was medicinal or not, the High Court held that the show-cause notice could not be issued on this ground as the recommendations of the ADR Committee did not give any finding thereon and found the respondent entitled to make supplies during the relevant period without payment of the sales tax in the light of the view on the issue prevailing in the Department during that period.

7. The learned counsel appearing for the petitioners (F.B.R.) reiterated the arguments advanced before the High Court in defending the issuance of the show-cause notice. Elaborating he contended that the power exercised by the Board under section 47-A was in a different capacity than that conferred upon it by section 45-A of the Sales Tax Act, to examine the legality or propriety of any decision by an officer of the Inland Revenue.

8. This argument was aptly met by Mr. Makhdoom Ali Khan, Sr. Advocate Supreme Court, who pointed out that the Board, under section 45-A of the Sales Tax Act, is empowered to examine the decision or order of an officer of the Inland Revenue, which according to section 2(18) read with section 30 of the Sales Tax Act does not include the Board itself. The officer of the Inland Revenue' is defined as an officer appointed under section 30. The latter gives a list of such officers. They are appointed in relation to a particular area by the Board of Revenue. For obvious reason the list does not include the Board. On the plain reading of section 45-A of the Sales Tax Act read with other relevant provisions, there can be no two opinions that the Board does not, under the said provision, possess any authority to examine the legality or propriety of its own orders.

9. Invoking the provisions of section 21 of the General Clauses Act by the Board was also misconceived. Apart from holding by the High Court that such powers cannot be exercised by an authority recalling orders passed in quasi judicial capacity, such powers are general in nature and cannot be invoked in the presence of section 45-A of the Sales Tax Act. To hold otherwise would enlarge the scope of the said provision and confer upon the Board the power of Review. Additionally the issue raised in the show-cause notice already stood resolved in the earlier litigation culminating in the decision of the Appellate Tribunal. That decision was passed on the recommendations of the ADR Committee after it was duly endorsed by the Board.

10. The learned counsel for the respondent rightly drew our attention to the provisions of section 47-A of the Sales Tax that the Board initially had the discretion not to appoint committee for resolution of the dispute. That under subsection (4) of section 47-A of the Sales Tax Act, the Board was empowered to pass any order as it deemed appropriate on the recommendations of the Committee. It could have f withheld its approval. Again under subsection (5) it was for the Appellate Tribunal to pass any order it considered appropriate upon the orders of the Board. It follows that the Board had consciously appointed the Committee and thereafter upon due consideration accepted its recommendations and the same were duly incorporated in the order of the Appellate Tribunal. We therefore fail to understand as to how the Board could after such exercise reopen the entire issue.

11. The show-cause notice, as observed above, is based on the stand point of the Board that 'Dettol' was not medicinal and therefore the respondent could not claim exemption from sales tax during the relevant period. As a matter of fact the recommendations of the ADR Committee do not go against the stand of the Board on merits of the issue, as the following observations would clarify:

"The Committee while reviewing the ruling given about classification of the product Dettol vide letter C. No.11/2. Sales Tax/82 dated 3-5-1982 issued by the then Collectorate of Central Excise and Land Customs, Karachi which clarified the product as exempt from sales tax in terms of S.R.O. 666(I)/81, agreed with the applicant's view point. Moreover, since the said ruling was even not challenged by the office who later on instituted this very case after lapse of eight years, on 16th October, 1989 the Committee concluded that the applicant rightly claimed exemption as per advice of the then Collectorate."

12. The Committee went on to clarify that such exemption was not available to the respondent after 30-9-1987 as the ruling mentioned in the above paragraph had lost its validity when the authority superior to the Collector declared the 'Dettol' as non-medicine and non-disinfectant. No exception can be taken to the above recommendations.

13. For the foregoing reasons, this petition lacks merits and therefore dismissed and leave refused.

S.A.K./C-1/SCLeave refused.