COMMISSIONER INLAND REVENUE VS MADINA ENTERPRISES LIMITED, 2017 PTD-KARACHI-HIGH-COURT-SINDH 1001 (2017)

Income Tax Ordinance (XLIX of 2001)---

----Ss. 133 & 148(9) [as inserted by Finance Act (III of 2006)]---Reference---Withholding tax at import stage---Explanation inserted in S.148(9) of Income Tax Ordinance, 2001, prospective effect---Scope---Authorities were aggrieved of the order passed by Appellate Tribunal Inland Revenue declaring that Explanation inserted in S. 148(9) of Income Tax Ordinance, 2001, was prospective in nature---Validity---Explanation in question was not clarifactory or procedural in nature, as substantial change had been introduced by including "Crude Palm Oil" within the definition of "Edible Oil", whereby importers of "Crude Palm Oil" were denied claim of adjustment of withholding tax paid at import stage during two years, prior to the year in which such Explanation was introduced through Finance Act, 2006---If such Explanation was made applicable retrospectively i.e. prior to 30-6-2006, it would violate principles as enunciated by superior Courts in earlier cases---No person could be saddled with responsibility or any liability for non-compliance of law to be enacted in future---Requirement of deduction of tax on import stage in respect of "Crude Palm Oil" would apply from the date of insertion of such Explanation prospectively i.e. after 30-6-2006 and not retrospectively for the previous years---High Court declined to interfere in order passed by Appellate Tribunal Inland Revenue as it did not suffer from any error or illegality---Reference was dismissed in circumstances.

Adnan Afzal v. Capt. Sher Afzal PLD 1969 SC 187; Ghulam Mustafa and others v. Omaid Ali and 9 others 1984 SCMR 1126; Molasses Trading and Export (Pvt.) Limited v. Federation of Pakistan and others 1993 SCMR 1905; The Collector, Customs and Central Excise, Peshawar and others v. Messrs Rais Khan Limited 1996 SCMR 83; Messrs Star Textile Ltd. and 5 others v. Government of Sindh through Secretary, Excise and Taxation Department, Sindh Secretariat, Karachi and 3 others 2002 SCMR 356; Ehsanullah Tarar v. Messrs Hafizabad Straw Board Mills Ltd. and 3 others PLD 2010 Lah. 160; Commissioner of Income-Tax, Karachi v. Messrs Nazir Ahmed and Sons (Pvt.) Ltd. 2004 PTD 921; Commissioner, Sindh Employees Social Securities Institution and another v. Messrs E.M. Oil Mills and Industries Ltd. and 2 others 2002 SCMR 39; Ali Murad v. The State PLD 1995 Kar. 137; Noor Muhammad v. Additional District Judge, Chakwal and 7 others PLD 1994 Lah. 170; Messrs Ihsan Yousaf Textile (Pvt.) Ltd. v. Collector of Sales Tax (Adjudication), Faisalabad and 2 others 2003 PTD 1747; Ahmed Shuja, Superintendent and 160 others v. Government of Punjab through Secretary, Finance Department, Civil Secretariat, Lahore and another 2000 PLC (CS) 1148; Mst. Fazal Bibi v. Habibullah PLD 1951 Baghdad Ul Jadid 47; Messrs Allied Engineering Services Ltd. v. Commissioner of Income Tax and another PLD 2016 SC 545 = 2016 PTD 1393; Commissioner Income Tax v. Messrs Eli Lily Pakistan (Pvt.) Ltd. 2009 SCMR 1279 = 2009 RID 1392 and Messrs Kurdistan Trading Company v. Commissioner Inland Revenue 2014 PTD 339 ref.

Javaid Farooqi for Applicant.

Khalid Mehmood Siddiqui for Respondents.

Date of hearing: 18th November, 2016.

JUDGMENT

AQEEL AHMED ABBASI, J.---Since the common questions have been agitated through above reference applications, which arise from the combined order dated 03.07.2011 passed by the Appellate Tribunal Inland Revenue of Pakistan, Karachi, in I.T.A. No.529/KB/ 2011 (Tax Year 2005) under section 122(5A) I.T.A. No.530/KB/2011 (Tax Year 2006) under section 122(1), therefore, both the aforesaid Reference Applications are being decided through this common judgment by consent of the learned counsel for the parties.

2.The applicant department has proposed following two (02) questions, which according to learned counsel for the applicant, are questions of law arising from the impugned order passed by the Appellate Tribunal in the instant reference applications:--

1)"Whether under the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified to hold that the explanation inserted in section 148(9) through Finance Act, 2006 was applicable prospectively.

2)Whether under the facts and circumstances of the case, the learned Appellate Tribunal Inland Revenue was justified to hold that the appellant was entitled to adjustment of withholding tax at import stage in spite of insertion of explanation in the section 148(9) of the Income Tax Ordinance, 2001."

3.Learned counsel for the applicant after having readout the impugned order passed by the Appellate Tribunal Inland Revenue as well as the orders of the two authorities below, submits that the Appellate Tribunal Inland Revenue Pakistan Karachi, has erred by holding that the explanation added to section 148(9) of the Income Tax Ordinance, 2001, through Finance Act, 2006 is prospective in nature, and would not apply to the case of the respondent for the tax years 2005 and 2006. Per learned counsel, explanation added to any provision of law applies retrospectively as it clarifies and explains the existing provision of such section of the Statute to which it is added through Finance Act, therefore, it has to be given retrospective effect. It has been prayed by the learned counsel for the applicant that the impugned order passed by the Appellate Tribunal Inland Revenue in the above Reference Applications may be set-aside and the question proposed through instant Reference Application may be answered in negative in favour of the applicant and against the respondent.

4.Conversely, learned counsel for the respondent has vehemently opposed the above submissions of the learned counsel for the applicant and submits that the amendment made through Finance Act, 2006 by inserting explanation to section 148(9) of the Income Tax Ordinance, 2001, are substantial in nature and cannot be treated as procedural amendment, as according to learned counsel, the explanation inserted through Finance Act, 2006, does not explain or clarifies the existing provisions of the Statute, on the contrary, through such amendment, an additional liability has been created, whereby, the respondent has been disentitled from seeking adjustment of withholding tax paid on import stage during the two tax years, prior to the year in which the explanation has been inserted, through Finance Act, 2006. Per learned counsel, respondent imported the Crude Palm Oil during the year 2005 (ending on 30.06.2005) and 2006 (ending on 30.06.2006), whereafter, such raw material was utilized in manufacturing activity and was converted into Refined Bleached and Deodorized (RBD) Palm to be used for further activity pertaining to preparation of vegetable ghee. Per learned counsel, it has not been disputed by the department that the Crude Palm Oil has been imported from Malaysia and Brazil for manufacturing through manufacturing process in their Refinery/ Mill. However, according to learned counsel, the applicant department has applied the explanation added through Finance Act, 2006 to the past and closed transactions pertaining to the tax year 2005-2006 i.e. prior to 30.06.2006, whereas, subject explanation has been inserted after 30.06.2006. Per learned counsel, instead of applying the said amendment prospectively to the imports made during the tax year 2007 i.e. after insertion or explanation by Finance Act, 2006, the applicant department has applied the same retrospectively to past and closed transactions i.e. imports made prior to such amendments. It has been contended by the learned counsel for the respondent that any amendment, including explanation, which creates additional burden and liability against a taxpayer has to be given prospective effect and cannot be applied retrospectively to the disadvantage of the taxpayer, who is required to be dealt in accordance with the law as prevailing during the particular year in which such imports were made by the taxpayer. In support of his contention, learned counsel for the respondent has placed reliance in the following cases:--

(1)Adnan Afzal v. Capt. Sher Afzal PLD 1969 SC 187

(2)Ghulam Mustafa and others v. Omaid Ali and 9 others 1984 SCMR 1126.

(3)Molasses Trading and Export (Pvt.) Limited v. Federation of Pakistan and others 1993 SCMR 1905.

(4)The Collector, Customs and Central Excise, Peshawar and others v. Messrs Rais Khan Limited 1996 SCMR 83

(5)Messrs Star Textile Ltd. and 5 others v. Government of Sindh through Secretary, Excise and Taxation Department, Sindh Secretariat, Karachi and 3 others 2002 SCMR 356.

(6)Ehsanullah Tarar v. Messrs Hafizabad Straw Board Mills Ltd. and 3 others PLD 2010 Lahore 160

(7)Commissioner of Income-Tax, Karachi v. Messrs Nazir Ahmed and Sons (Pvt.) Ltd. 2004 PTD 921

(8)Commissioner, Sindh Employees' Social Securities Institution and another v. Messrs E.M. Oil Mills and Industries Ltd. and 2 others 2002 SCMR 39

(9)Ali Murad v. The State PLD 1995 Karachi 137

(10)Noor Muhammad v. Additional District Judge, Chakwal and 7 others PLD 1994 Lahore 170

(11)Messrs Ihsan Yousaf Textile (Pvt.) Ltd. v. Collector of Sales Tax (Adjudication), Faisalabad and 2 others 2003 PTD 1747.

(12)Ahmed Shuja, Superintendent and 160 others v. Government of Punjab through Secretary, Finance Department, Civil Secretariat, Lahore and another 2000 PLC (CS) 1148

(13)Mst. Fazal Bibi v. Habibullah PLD 1951 Baghdad Ul Jadid 47

5.In addition to hereinabove cited cases, the learned counsel for the respondent has also relied in a recent decision of a divisional bench of this Court in the case of Messrs Allied Engineering Services Ltd. v. Commissioner of Income Tax and another reported as [PLD 2016 SC 545 = 2016 PTD 1393], and submits that through above cited judgment, which has been authored by one of us, namely, Aqeel Ahmed Abbasi, J, it has been held that any amendment, which is not procedural in nature and has the potentiality to increase the liability of an assessee cannot be given retrospective effect unless such intention is expressed by the legislature in clear words. While concluding his arguments, learned counsel for the respondent has prayed that the above Reference Applications may be dismissed, whereas, questions proposed may be answered in affirmative against the applicant department and in favour of the respondent.

6.We have heard the learned counsel for the parties, perused the record and the relevant provisions of section 148(9) of the Income Tax Ordinance, 2001, as well as the explanation added through Finance Act, 2006, and the case law relied upon by the learned counsel. From perusal of the record and the impugned order passed by the Appellate Tribunal in the instant case, it appears that the facts relating to import of Crude Palm Oil (CPO) by the respondent during the tax years 2005 and 2006 i.e. prior to 30.06.2006, when subject explanation was added through Finance Act, 2006 to section 148(9) of the Income Tax Ordinance, 2001, are not disputed, nor it has been disputed by the applicant department that the respondent is not entitled to claim adjustment of withholding tax paid at import stage during the two years under reference in this account. However, in view of explanation added by Finance Act, 2006, such adjustment of withholding tax has been denied by the department on the pretext that the explanation added to section 148(9) of the Income Tax Ordinance, 2001, is applicable retrospectively, and resultantly, it was held that the tax collected during two years under reference on the import of Crude Palm Oil (not the edible oil) could not be adjusted, and was to be treated as final tax liability (i.e. like in the case of edible oil) in view of explanation added to section 148(9) of the Income Tax Ordinance, 2001, through Finance Act, 2006. It will be advantageous to reproduce hereunder the relevant provisions of sections 148(8) and 148(9) of the Income Tax Ordinance, 2001:--

"Section 148(8) The tax [required to be] collected from a person under this section on the import of edible oil [and packing material] for a tax year shall be [minimum] tax.]

(8A) The tax collected under this section at the time of import of ships by ship-breakers shall be final tax.]

(9) In this section -

"Collector of Customs" means the person appointed as Collector of Customs under section 3 of the Customs Act, 1969 (IV of 1969), and includes a Deputy Collector of Customs an Additional Collector of Customs, or an officer of customs appointed as such under the aforesaid section;

"value of goods" means the value of the goods as determined under the Customs Act, 1969 (IV of 1969), as if the goods were subject to ad valorem duty increased by the customs-duty, federal excise duty and sales tax, if any, payable in respect of the import of the goods.]

Explanation.---For the purpose of this section the expression "edible" "edible oils" includes crude oil, imported as raw material for manufacture of ghee or cooking oil.]

(Inserted through Finance Act, 2006)"

7.From perusal of hereinabove provisions of sections 148(8) and 148(9) of the Income Tax Ordinance, 2001, it is clear that the tax required to be collected from a person under this section on the import of Edible Oil for a tax year was to be treated as minimum tax, hence not entitled to any tax adjustment. However, through Finance Act, 2006, the aforesaid explanation has been inserted, whereby for the purposes of section 148. "Crude Oil" imported as raw material for manufacturing of ghee or cooking oil has been included to the expression "Edible Oil". Record shows that the department recognizes the clear distinction between the crude palm oil which is not fit for human consumption and requires the process of refining, bleaching and deodorizing, and further processing to be converted into Edible Oil, and the Edible Oil, which can be directly used as raw material for manufacturing ghee and cooking oil. This aspect of the matter has been duly examined by the Appellate Tribunal Inland Revenue in the impugned order in the following terms:--

"7. I have heard the learned representatives from both the sides and have perused both the impugned orders of the learned CIT(A), the amended orders passed by the Taxation Officer under section 122 of the Ordinance and other relevant available record of the case. I have also perused the above referred decisions of the Honourable Superior Courts. I am of the view that the appellant in this case has applied for exemption of withholding tax on raw material imported as Crude Palm Oil for use in its own industrial under taking and paid the tax at custom stage at that time which is to be treated as adjustable. I find no justification for not allowing the tax adjustment, keeping in view the above referred orders of the Superior Courts. The appellant is entitled to adjustment of withholding tax paid at imported stage during the two years under review. The appellant has started importing Crude Palm Oil in these two years under review as raw material which after performing manufacturing activity has been converted into RBD Palm oil to be used as raw material for further manufacturing activity pertaining to vegetable Ghee. I have observed that the Crude Palm Oil is not edible oil being in poisonous form and injurious to health being not fit for human consumption. I find force in the arguments of the learned A.R. that the Crude Palm Oil is to be refined, bleached and deodorized for converting it into edible oil which is then to be used for manufacturing of cooking oil and vegetable ghee and according to the appellant machinery for the purpose of refining the Crude Palm Oil has also been installed. It is not disputed that the Crude Palm Oil have been imported from Malaysia and Brazil for manufacturing of edible oil through manufacturing process in their refinery. I am of the view that the amendment in section 148(9) of the Ordinance introducing the explanation includes Crude Palm Oil imported as raw material has been inserted through Finance Ordinance, 2006 which is applicable prospectively and not retrospectively being a fiscal statute as it was not merely clarificatory but as attempted to make a substantial change in the meaning of the word and has expended its scope. I am of the view that the appellant is entitled to adjustment of withholding tax paid at imported stage during the tax years 2005 and 2006. The Department is therefore directed to allow the adjustment"

8.While reaching to above conclusion, the learned Appellate Tribunal has placed reliance, amongst other cases, in the case of Commissioner of Income-Tax, Karachi v. Messrs Nazir Ahmed and Sons (Pvt.) Ltd. reported as 2004 PTD 921, in which case, a divisional bench of this Court, while examining the scope of explanation added through Finance Act in section 50(4) of the Income Tax Ordinance, 1979 has held as under:--

"With the insertion of explanation under consideration the sale was also held to be supply of goods and thus, it is a substantive piece of legislation whereby a sale, by a fiction of law has been deemed to be supply of goods. It is also pertinent to note that it has enlarged and extended the scope of section 50(4) of the Ordinance and because of the provisions contained in section 80-C of the Ordinance, has the effect of enhancing the liability whereby the tax deducted under section 50(4) is to be held as full and final discharge of liability and the tax so deducted shall not be allowed adjustment as originally envisaged in subsection (4) of section 50, whereby the credit of tax so deducted in any financial year was subject to the provisions of section 53, because of non-obstante clause contained in section 80-C, thus, looking to the effect of the explanation it cannot be held that it is merely declaratory or clarifactory in nature or has been inserted for the purpose of removal of doubt."

9.Similarly, a Divisional Bench of this Court, in the case of Messrs Allied Engineering Services Ltd. v. Commissioner of Income Tax and another reported as PLD 2016 SC 545 = 2016 PTD 1393, while examining the nature and scope of the amendment introduced through Finance Act, 2003, after having placed reliance in various decisions of this Court as well as of the Hon'ble Supreme Court has been pleased to hold as under:-

"8. From perusal of the provisions of section 122(5A) of the Income Tax Ordinance, 2001, it may be seen that Tax Authorities have been empowered to make an amended assessment with a view to enhance the income or tax liability of an assessee whose assessment had already been finalized under section 120 or 122 of the Income Tax Ordinance, 2001. The very nature of the proceedings under section 122(5A) are aimed towards enhancement of tax liability of an assessee or to create additional burden of a tax upon an assessee, therefore, such amendment cannot be termed as a procedural amendment, therefore, we are also of the considered opinion that the provisions of section 122(5A) of the Income Tax Ordinance, 2001 are substantive in nature, therefore, unless it has been specifically defined by the legislature to apply the same retrospectively, the said amendment is to be applied prospectively for the tax year in which, it has been introduced through Finance Act. In the famous case of Commissioner Income Tax v. Messrs Eli Lily Pakistan (Pvt.) Ltd. 2009 SCMR 1279 = 2009 PTD 1392, the Hon'ble Supreme Court while examining the scope and application of the amendment introduced through Finance Act, 2003 i.e. 122(5A) has held that the section 122 had the potentiality to increase the liability of an assessee, therefore, it cannot be treated as procedural. It has been further held that the provision of section 122(5A) will not apply retrospectively in respect of tax year ending on 30th June, 2003 and will be applicable prospectively to the tax year beginning with effect from July 2003 and ending on 30.06.2004 i.e. tax year 2004. In anther reported judgment of this Court in the case of Messrs Kurdistan Trading Company v. Commissioner Inland Revenue reported as 2014 PTD 339, a Division Bench of this Court after having placed reliance on various decision of this Court as well as Hon'ble Supreme Court on a controversy relating to application of an amendment introduced through Finance Act, has held that normally amendment introduced in a fiscal Statute through Finance Act, apply prospectively in the year in which it is inserted, unless some retrospective effect is given by the legislature through express words. In the instant case, admittedly the amendment i.e. insertion of subsection (5A) in section 122 of the Income Tax Ordinance, 2001 was made through Finance Act, 2003 in the month of July, 2003, which ends on 30th June, 2004, whereas, there is no retrospective effect given by the legislature either expressly or through intendment, therefore, the said amendment i.e. 122(5A) in the Income Tax Ordinance, 2001 through Finance Act, 2003 is to apply prospectively for tax year 2004 and onwards and cannot be invoked for a tax year prior to the year ending on 30 June, 2003. "

10.In view of hereinabove facts and circumstances of this case and by respectfully following the ratio of the aforesaid decisions, we are of the considered opinion that the explanation added through Finance Act, 2006, to section 148(9) of the Income Tax Ordinance, 2001, is not clarifactory or procedural in nature, as substantial change has been introduced by including the Crude Palm Oil within the definition of Edible Oil, whereby the importers of Crude Palm Oil have been denied the claim of adjustment of withholding tax paid at import stage during the two years, prior to the year in which such explanation has been introduced through Finance Act, 2006. If such explanation is made applicable retrospectively i.e. prior to 30.06.2006, it would violate the principle as enunciated by this Court as well as the Hon'ble Supreme Court in the aforesaid cited decision, according to which, no person could be saddled with responsibility or any liability for non-compliance of law to be enacted in future. Resultantly, requirement of deduction of tax on import stage in respect of crude palm oil would apply from the date of insertion of such explanation prospectively i.e. after 30th June, 2006 and not retrospectively for the previous years as suggested by the learned counsel for the applicant. Accordingly, we are of the opinion that the impugned order passed by the Appellate Tribunal Inland Revenue in the aforesaid Reference Applications does not suffer from any error or illegality, hence does not require any interference by this Court. Whereas, the questions proposed by the applicant department are answered in affirmative against the applicant and in favour of the respondent.

The above Reference Applications stand dismissed in the aforesaid terms.

MH/C-1/Sindh Reference dismissed.