CHAWLA RUBBER AND PLASTIC INDUSTRIES (PVT.) LTD. VS CUSTOMS, EXCISE AND SALES TAX APPELLATE TRIBUNAL, 2015 PTD-KARACHI-HIGH-COURT-SINDH 1428 (2015)

Customs Act (IV of 1969)---

----S. 196---Notification SRO 509(I)/2007, dated 9-6-2007 [as amended by Notification SRO 471(I)/2009, dated 14-6-2009]--- Reference to High Court--- Zero rating--- Applicability--- 'Tyre CORD Fabric' was imported and sales tax was exempted by giving benefit of "zero rating" in terms of notification SRO 509(I)/2007, dated 9-6-2007--- Authorities issued show-cause notice to importer on the ground that it was not entitled to exemption of "zero rating"--- Validity--- Held, at the relevant time i.e. upto 13-6-2009, before amendment in notification S.R.O. 509(I)/2007, dated 9-6-2007 through notification SRO 471(I)/2009, dated 14-6-2009, whereby goods in dispute i.e. 'Tyre CORD Fabric' had been specifically excluded, was entitled to exemption/zero rating of sales tax, as the same was fully covered by description "Textiles and Articles thereof" as mentioned in column No.2 of the Table to Notification S.R.O. 509(I)/2007, dated 9-6-2007, and the corresponding entry in PCT headings in column No.3 of that Table--- Finding as recorded by Customs Appellate Tribunal in such regard was erroneous and contrary to material available on record and also based on incorrect interpretation of law and the relevant SRO on the subject--- High Court answered question in negative in favour of importers and against authorities--- Reference was allowed in circumstances.

Messrs Filters Pakistan (Pvt.) Limited v. Federal Board of Revenue through Member Customs and 2 others 2010 PTD 2036 rel.

Central Insurance Company and others v. The Central Board of Revenue and others 1993 SCMR 1232 ref.

Saadat Yar Khan for Applicants.

Dilawar Hussain for Respondent No.1.

Khalid Mehmood Dhoon for Respondent No.2.

S. Mohsin Imam Wasti and Ilyas Ahsan Appraising Officer Legal for Respondent No.3.

Date of hearing: 16th September, 2014.

JUDGMENT

MUHAMMAD JUNAID GHAFFAR, J.---Through this common judgment we will dispose of the aforesaid Special Custom Reference Applications bearing Nos. 315 to 317 of 2011 which have been preferred under Section 196 of the Customs Act, 1969 against a common order dated 18-2-2011 passed in Customs Appeals Nos. K-47, K-60, K-61 and K-62 of 2010 by the Customs Appellate Tribunal at Karachi. The applicant(s) have proposed the following questions which according to the learned Counsel for the applicant(s) are questions of law arising out of the order of Customs Appellate Tribunal dated 18-2-2011:-

"(1)Whether the learned tribunal failed to apply its judicial mind and read the S.R.O. 509(I) dated 9th June 2007, read with PCT Heading No. 5902.1000.?

(2)Whether OPINION of FBR or the subordinate legislation is applicable?

(3)Whether the Opinion of FBR is binding and can be classified as superior legislation as compared to the S.R.O. i.e. S.R.O. 509/2007 dated 9th June 2007 would prevail?

(4)Can the respondents apply and impose the amendments retrospectively upon the applicant(s), in the S.R.O. 509(I)/2007 at Serial No. 2 by S.R.O. 471(I)/2009 w.e.f. 14th June 2009?

(5)That since the learned tribunal has observed that there is no charge of mis-declaration or violation of any provision of Customs Act, 1969 by the applicant(s) as such, in absence of charge of mis-declaration; can the respondent initiate penal action against the applicant(s)?

(6)Whether the order is bad under the law being applied mutatis mutandis to the case of the applicant(s)?

(7)Whether all the adjudicating forums have failed to distinguish between the tyre CORD and the imported and declared goods i.e. tyre cord FABRIC?

2.Briefly, the facts as mentioned in the statement of case are that the applicant(s) had imported various consignment of Tyre CORD Fabric and filed Goods Declaration(s) by claiming assessment under PTC Heading 5902.1000 and had also claimed exemption/Zero Rating of Sales Tax under S.R.O. 509(I)/2007 dated 9-6-2007. It is further stated that the respondent department had processed the Goods Declaration(s) of the applicant(s) and had released/cleared the subject consignments without raising any objection as to the admissibility of S.R.O. 509(I)/2007 dated 9-6-2007. Thereafter, Show-Cause Notice(s) were issued to the applicant(s) through which it was alleged that the applicant(s) were not entitled to exemption/Zero Rating of Sales Tax in terms of under S.R.O.509(I)/2007 dated 9-6-2007. The applicant(s) contested such Show-Cause Notice(s), whereafter, a common Order-in-Original bearing No. 01/2009 dated 18-9-2009 was passed against several Importers as well as the applicant(s), against which the Appeal(s) preferred by the applicant(s) were also dismissed by the Collector of Customs (Appeals) bearing Nos. 3089/2009 to 3091/2009 dated 7-12-2009. The said order of the Collector of Customs (Appeals) was further impugned by the applicant(s) before the Customs Appellate Tribunal which was heard by the Customs Appellate Tribunal along with Appeal No. K-47/2010 and the order dated 18-2-2011 passed on such appeal has also been applied to the case of the applicant(s), whereby the Appeal(s) have been dismissed -against which the applicant(s), through instant Reference Application(s) have now proposed the aforesaid questions of law.

3.Learned counsel for the applicant(s) has contended that the applicant(s) had not made any mis-declaration before the respondent department, hence they were entitled for exemption/Zero Rating of Sales Tax in terms of S.R.O. 509(I)/2007 dated 9-6-2007, as description of goods as well as the HS Code 5902.1000 was specifically mentioned in the Table to the Notification; hence the exemption/Zero rating facility was correctly granted to the applicant(s) at the time of processing of the Goods Declaration. Learned counsel further submits that the respondent department has acted on some opinion of FBR, whereby, it has been directed by FBR that such exemption was not available to the applicant(s), however, according to the learned counsel, such directions are not mandatory, but directory in nature, as FBR is not an appropriate authority to interpret any SRO. Learned counsel further submits that S.R.O. 509(I)/2007 dated 9-6-2007 was subsequently amended by S.R.O. 471(I)/2009 dated 14-6-2009 and the exemption/Zero rating facility in respect of the subject item has been specifically withdrawn. Per learned counsel, such withdrawal of exemption/Zero rating cannot be applied retrospectively, whereas, it further justifies that the exemption/Zero rating till its withdrawal through S.R.O. 471(I)/2009 dated 14-6-2009 was very much available to the applicant(s). Learned Counsel has further contended that a learned Division Bench of this Court has already decided the controversy involved in the instant matter in favour of Importers in the case of Messrs Filters Pakistan (Pvt.) Limited v. Federal Board of Revenue through Member Customs, and 2 others (2010 PTD 2036).

4.Conversely learned counsel for the respondent department has contended that the issue raised in the aforesaid Reference Application(s) is primarily a question of fact, which cannot be decided by this Court in Reference Jurisdiction, hence, the aforesaid Reference Applications are liable to be dismissed.

5.We have heard both the learned counsel and have perused the record. Since a short controversy is involved in the instant matter, by consent of both the learned counsel all the aforesaid Reference Application(s) are being decided finally at Katcha peshi stage.

6.From perusal of the record before us, it appears that the applicant(s) had imported various consignments of Tyre CORD Fabrics and had claimed assessment of the same under the Automated Clearance System under PaCCS by claiming assessment of the subject goods under PCT Heading 5902.1000 by availing Zero rated facility of Sales Tax in terms of S.R.O. 509(I)/2007 dated 9-6-2007. The claim of such exemption was allowed by the respondent department and the goods imported by the applicant(s) were cleared without payment of Sales Tax at the time of release of the consignments. It is the case of the respondent department that on scrutiny of data available in the system it was noticed that various other Importers of identical goods had been consistently paying Sales Tax on the import of Tyre CORD Fabric, during the same period, whereas, the applicant(s) were claiming exemption/zero rating of Sales Tax under S.R.O. 509(I)/2007 dated 9-6-2007, which was not available to them. Accordingly, Show-Cause Notices were issued to the applicant(s), whereafter, Order-in-Original dated 18-9-2009 was passed against the present applicant(s), which were impugned by the applicant(s) before the Collector of Customs (Appeals), who through a common Order-in-Appeal bearing Nos. 3089/2009 to 3091/200.9 dated 7-12-2009 had dismissed the Appeal(s). The applicant(s), thereafter impugned the said order before the Customs Appellate Tribunals who has also dismissed the Appeal(s) of the applicant(s) vide order dated 18-2-2011 impugned through aforesaid Reference Application(s).

7.On perusal of the record before us it appears that the precise controversy in the aforesaid Reference Application(s) is to the effect, that as to whether, the applicant(s) who had imported "Tyre CORD Fabric" as a raw material, for use in further manufacture of finished goods, are entitled to claim Zero rating of Sales Tax in terms of S.R.O. 509(I)/2007 dated 9-6-2007 or not. To have a better understanding of the controversy in hand, it would be advantageous to refer to the relevant applicable provision of S.R.O. 509(I)/2007 dated 9-6-2007 which reads as under:--

Notification No. S.R.O. 509(I)/2007, dated 9th June, 2007.---In exercise of the powers conferred by clause (c) of section 4 of the Sales Tax Act, 1990, and in supersession of the Notification No. S.R.O. 525(I)/2006, dated the 5th June, 2006, the Federal Government is pleased to notify the goods specified in column (2) of the Table below, falling under the PCT Heading No. mentioned in column (3) of the said Table, to be the goods on which sales tax shall be charged at the rate of zero percent on the supply and import thereof, namely:--

TABLE

8.From perusal of the above S.R.O. issued in terms of clause (c) of Section 4 of the Sales Tax Act, 1990 it appears that the Federal. Government has been pleased to notify the goods mentioned in Column 2 of the Table to the SRO, falling under PCT Heading numbers mentioned in column 3 of the said Table, to be the goods on which Sales Tax shall be charged at the rate of Zero percent on the supply or import thereof. It further appears that insofar as the HS Code being claimed by the applicant(s) for assessment in respect of the subject goods is concerned, there appears to be no dispute in this regard nor any such dispute or objection has been raised by the learned Counsel appearing on behalf of the respondent department, that the goods in question do not fall within PCT Heading 5902.1000. The HS Code being claimed by the applicant(s) in the instant matter i.e. 5902.1000 is covered against the Heading at Serial No. 2, wherein the entire Chapter 50 to Chapter 63 of the Pakistan Customs Tariff and other respective headings have been mentioned and are entitled for exemption. Therefore, in so far as PCT Heading 5902.1000 is concerned, the same is covered and entitled for exemption as specified in column 3 of the Table to the S.R.O. 509(I)/2007 dated 9-6-2007, as it covers the entire Chapter 50 to Chapter 63 of Pakistan Customs Tariff. Similarly, insofar as the description of goods in column 2 of the Table to the SRO is concerned, again there appears to be no ambiguity with regard to the description as well, as it covers "Textile and Articles thereof", without any exception or exclusion. This description of "Textile and Articles thereof," mentioned in Column No.2 corresponds to the entire heading/chapter 50 to 63 of Pakistan Customs Tariff, which simply reflects upon the intention of the Federal Government to the effect that the Zero Rating facility is available in respect of all such goods, which pertain to "Textile and Articles thereof' and are classifiable under Chapter 50 to 63 of the Pakistan Customs Tariff, irrespective of its use in the industry. Since the goods in question i.e. "Tyre Cord Fabric" falls within the description of "Textile and Articles thereof" and is classifiable under HS Code 5902.1000, which is covered under Chapter 59 of Pakistan Customs Tariff as mentioned in Column No. 3 of the Table to S.R.O. 509(I)/2007 dated 9-6-2007, therefore, we are of the view that the goods in question i.e. Tyre Cord Fabric, is entitled for exemption/Zero rating as provided in the Table to the said SRO.

9.Insofar as the interpretation and or direction issued by FBR and being relied upon by the respondent department, as well as the Adjudicating authority in this regard is concerned, the same has no legal basis as interpretation of SRO is not the primary function of FBR, and Quasi-judicial and Judicial Officers are not bound to follow such directions/interpretation of FBR in terms of Section 223 of the Customs Act, 1969. If any reference is needed, reliance may be placed on the case of Central Insurance Company and others v. The Central Board of Revenue and others (1993 SCMR 1232) wherein the Hon'ble Supreme Court has held that Board's view as to the interpretation of law do not have the force of law and any interpretation placed by CBR (now FBR) on a statutory provision cannot be treated as a pronouncement by a forum competent to adjudicate upon such a question judicially or quasi-judicially. Therefore, in our view the applicant(s) had correctly claimed exemption/Zero rating of Sales Tax on the subject goods in terms of S.R.O. 509(I)/2007 dated 9-6-2007, which were fully covered by the description of goods as mentioned at Serial No. 2 in Column No. 2 of the Table to the S.R.O. and the respective HS Codes mentioned in Column No. 3 of the Table to the S.R.O. as above.

10.It has been further noted that subsequently the Federal Government has carried out an amendment in S.R.O. 509(I)/2007 dated 9-6-2007 through S.R.O. 471(I)/2009 dated 14-6-2009, whereby, serial No. 2 of the Table to the S.R.O. and the entries relating thereto have been substituted in the following manner:--

11.From perusal of the above amendment, it appears that through amending S.R.O. 47(I)/2009 dated 14-6-2009 the exemption/Zero rating facility of Sales Tax on "Tyre CORD Fabric." has now been specifically withdrawn by excluding the same from the Column of description of goods as mentioned in column 2 of the Table to S.R.O. 509(I)/2007 dated 9-6-2007 with effect from 14-6-2009. It needs not any further discussion that the said amendment which by itself has been made effective from 14-6-2009 can only be made applicable prospectively i.e. from the date of its issuance, and not retrospectively, as is being claimed by the respondent on the instructions and or directions of FBR. Secondly, it further justifies that, prior to introduction of such amendment, the exemption on goods i.e. Tyre CORD Fabric was available against Serial No. 2 of the Table to S.R.O. 509(I)/2007 dated 9-6-2007 as the description of goods mentioned in Column 2 at the relevant time had no exclusion against the heading of "Textile and Articles thereof" which now specifically excludes the subject goods i.e. Tyre CORD Fabric with effect from 14-6-2009. Therefore on this premise also, we are of the view, that during the period when the goods in question were imported by the applicant(s) i.e. before 14-6-2009, they were otherwise entitled for exemption/Zero rating of Sales Tax in terms of S.R.O. 509(I)/2007 dated 9-6-2007.

12.It would also be relevant to refer to the case of Filters Pakistan (Pvt.) Limited Supra wherein, a learned Division Bench of this Court, after an elaborate discussion on the issue, has dealt with the interpretation of S.R.O. 509(I)/2007 dated 9-6-2007, which though was in respect of different goods, however, the precise objection raised in that case was identical to the controversy in hand. In that case the petitioner was engaged in the business of manufacture and export, and had imported Artificial Filament Cellulose Acetate Tow (AFCAT) for manufacturing of cigarette filter rods and had claimed Zero rating of Sales Tax S.R.O. under 509(I)/2007 dated 9-6-2007 claiming assessment under PCT Heading 5502.0090. Such claim of exemption/Zero rating was denied by the Customs Authorities on the ground that the exemption only applies to "Textile and Articles thereof" whereas, the goods imported by the petitioner in that case were being used in manufacturing of cigarette filter rods and had nothing to do with Textile Industry or Articles thereof. It was further objected by the department that FBR vide its letter dated 15-6-2006 and 11-4-2007 had clarified that such exemption was not available to the petitioner as the business of the petitioner was not related to Textile Industry. However, the learned Division Bench had repelled such contention raised on behalf of the department. It would be advantageous to refer to the relevant findings of the learned Division Bench in the aforesaid judgment which reads as under:--

"The above principle of interpretation clearly shows that the language of the statute must not be stained to tax the transaction which other-wise the legislature has not allowed to be taxed as there is no room for any intendment, there is no equity about a tax, there is no presumption as to tax, nothing is to be read in nothing is to be implied but one can only look fairly at the language used.

On these well-recognized and established principles of interpretation of statute, we are unable to read in the said Notification the conditions canvassed by counsel for the respondents to be applying for the purpose of extending benefit of said notification to the petitioner that textile and articles thereof is only for use of textile industry for making of textile cloths and not for cigarette filter rod. Such argument advanced by respondents' counsel is not consistent with the contents of said notification ad amounts to reading in the said notification conditions and things which are not written in it. In the case of Bombay Chemical (Pvt.) Ltd., (supra) relied upon by the counsel for the petitioner, their lordships of the Supreme Court of India has observed as follows:--

"The test of strict construction of exemption notification applies at the entry, that is, whether particular goods is capable of falling in one or the other category but once it falls then the exemption notification has to be construed broadly and widely. Each of the words insecticides, pesticides, fungicides or weedicides are understood both in the technical and common parlance as having broad meaning. Therefore, if any goods or items satisfy the test of being covered in either of the expression, then it is entitled to exemption."

Now the test of strict construction of exemption notification is at the point of entry and once it is found to be falling in one category, then exemption notification is to be construed liberally. In the present case, as a matter of fact AFCAT is textile and falls within PCT Heading No. 5502.0090 under Chapter 55 of the Pakistan Customs Tariff is not in dispute. Thus there is nothing in the said notification on the basis of which Central Board of Revenue/Customs Authority can legally deprive the petitioner of benefit of the said notification merely on imagining or reading words which are not written in the said notification. The interpretation being given to said notification by the Central Board of Revenue/Customs Authorities seems to be based upon purpose and use of the consignment in issue rather than the nature of goods as the basis for its classification. The nature of imported consignment in issue that is AFCAT being clearly textile and falling under PCT Heading No. 5502.0090 of Chapter 55 of Pakistan Customs Tariff, thus seems to be fully covered by the said notification and entitled to zero-rated charge of sales tax on import and supply.

The zero-rated sales tax is charged under section 4 of the Sales Tax Act under which the said notification has been made and therefore note No. 1 to Sixth Schedule of the said Act has no application for the reason that it has been made under section 13(I) of the Act. Even otherwise, reading of said note does not help the cause of respondents."

13.In view of hereinabove facts and circumstances of the instant cases and by respectfully following the decision of the learned Division Bench in the case of Filters Pakistan (Pvt.) Ltd. Supra, we are of the view, that at the relevant time i.e. up to 13-6-2009, before amendment in S.R.O. 509(I)/2007 dated 9-6-2007 through S.R.O. 471(I)/2009 dated 14-6-2009, whereby, the goods in dispute i.e. "Tyre CORD Fabric" had been specifically excluded, was entitled to exemption/Zero rating of Sales Tax, as the same was fully covered by description "Textiles and Articles thereof" as mentioned in Column No. 2 of the Table to S.R.O. 509(I)/2007 dated 9-6-2007, and the corresponding entry of PCT headings in Column No. 3 of the said Table. Resultantly, the finding as recorded by the Customs Appellate Tribunal in this regard is erroneous and contrary to material available on record and also based on incorrect interpretation of law and the relevant SRO, on the, subject.

14.However, before deciding the aforesaid Reference Application, by consent of both the learned counsel, and in view of hereinabove discussion, we would rephrase the question, of law which would decide the actual legal controversy in the following terms:--

"Whether the Customs Appellate Tribunal was justified to hold that the goods imported by the applicant(s) i.e. Tyre CORD Fabric was not entitled to exemption/Zero rating Sales Tax in terms of S.R.O. 509(I)/2007 dated 9-6-2007."

15.The above question is answered in negative, in favour of the applicant(s) and against the respondent/department. Accordingly, all the aforesaid Reference Application(s) are allowed. The Registrar of this Court is directed to send a copy of this order under the seal of this Court to the Customs Appellate Tribunal in terms of section 196(5) of the Customs Act, 1969 for information.

MH/C-2/SindhReference allowed.