Mr. Udha Ram Rajput, Advocate : for the Complainant.
M/s. Saeed Ahmed Siddiqui, Additional Commissioner, Income Tax : for the Respondent.
The complainant, an Individual engaged in export of dry dates (chohara) is aggrieved by the order under section 162 of the Income Tax Ordinance, 2001(hereinafter referred as the Ordinance) passed by the Taxation Officer, Income Tax Department.
2. Brief facts of the case are that the complainant, being an exporter, filed his statement under section 115(4) of the Ordinance for the tax year 2005 in which the export receipts were declared at Rs.32,090,100 on which tax deducted under section 154 of the Ordinance @ 1% was shown at Rs.320,901. The Assessing Officer, however, found that the goods exported by the complainant fell under Part-III of the Seventh Schedule of the Income Tax Ordinance, 2001 and, therefore, the rate of tax deduction for such goods was 1.25% and not 1% as declared by the complainant. He, therefore, held that there was short payment of income tax by an amount of Rs.80,225 for which he issued a show cause notice to the complainant and ultimately passed the impugned order under section 162 of the Ordinance for recovery of short deduction/payment of tax.
3. In this order, the Taxation Officer has stated that in arriving at the conclusion that the goods exported by the complainant were liable to tax rate of 1.25% and not 1%, he has also sought guidance from the Central Board of Revenue’s (CBR) letter No.5(1)M(FATE) dated 24.01.2006 which was issued to another exporter by the name of Five Star Associate Company when the said exporter of the same commodity sought clarification on this issue. It is stated that in the said letter, the CBR has clarified that dry dates fall in Part-III of the Seventh Schedule of Income Tax Ordinance, 2001 in which the rate of withholding tax on its export is 1.25% and that this rate is applicable from the tax year 2003. The complainant has felt aggrieved by such order of the Taxation Officer and hence the present complaint. It is prayed that CBR’s clarification being void, the impugned order passed by the Taxation Officer under section 162 of the Ordinance be declared as being without lawful authority and illegal.
4. The learned A.R of the complainant has contended that chohara is the goods manufactured in Pakistan as it is made of a raw material called doka which is obtained from Date-Palm Trees. It is stated that after picking up of doka from Date Palm Trees, it is put into big pan to which water is added which is boiled and during this boiling, a chemical by the name of Sodium-Formaldehyde Sulphoxylate (locally known as Rang-kaat) is added. This chemical bleaches the colour of the substance and a new product with a changed shape and different name (chuhara) comes into being. It is urged that the process involved in the making of chohara amounts to manufacture which involves making of goods or any material produced by hand or by machinery or by any other process from raw material in large quantities. In regard to the concept and definition of the word “manufacture”, the learned A.R has referred to cases reported as (i) PLD 1991 Supreme Court 992 (ii) 2000 PTD (Trib) 874 and 2003 PTD-2073 as well as CBR’s Circular No.09 of 1992.
5. The learned A.R of the complainant has urged that the order under section 162 of the Ordinance has been passed by the Taxation Officer on the basis of an incorrect and misleading clarification made by the Central Board of Revenue (CBR) which has also been followed by the Regional Commissioner and the Commissioner of Income Tax. It is stated that the relevant version of Seventh Schedule of the Ordinance was one which contains only Part-I, Part-II and Part-III and is applicable for the tax years 2003, 2004 & 2005. It is stated that chohara is goods manufactured in Pakistan and, therefore, the applicable provision is Serial No.1 under Part-II of the said Schedule and there is no scope of application of Part-III. It is, therefore, contended that the treatment given by the CBR through the above clarification and its follow up by the field officer is patently misleading and constitutes maladministration.
6. Replying to the allegations in the complaint, the CIT in his written report, has taken a preliminary objection relating to the jurisdiction of this office on the ground that since the matter relates to the levy of tax under the provisions of Income Tax Ordinance, 2001 and the taxpayer has legal remedy available under the provisions of the said Ordinance, therefore, this case falls within the ambit of section 9(2)(b) of the establishment of the Office of FTO Ordinance, 2000. During the course of hearing, the D.R has also contended that the matter involves interpretation of law as to whether the complainant is a manufacturer or not and, therefore, for this reason also the matter falls outside the jurisdiction of this office. Reliance in this regard is placed on a decision dated 25.05.2006 of the President of Pakistan in complaint No.1096-L/2005.
7. The respondent has further contended that the order under section 162 was passed in view of the clarification issued on the subject by the CBR in the case of another exporter of same commodity and that under the provisions of section 214 of the Ordinance, all income tax authorities are bound to observe and follow the orders, instructions, and directions by the CBR. It is contended that Part-I of the Seventh Schedule deals not only with non-manufactured goods but it also deals with all other goods which are not covered under Part-I & Part-II of the said Schedule. It is urged that chohara is a non-manufactured goods and, therefore, tax rate applicable will be that which is given in Part-III of the Seventh Schedule. It is stated that the order under section 162 has been passed in accordance with law and, therefore, there is no maladministration involved.
8. Responding to the above, the learned A.R of the complainant has stated that so far as the question of jurisdiction is concerned, the matter very much falls in the jurisdiction of this office and in this regard reference has been made to cases reported as 2004 PTD 2895, 2002 PTD 2594, 2003 88 Tax 261 & 2005 91 Tax 363.
9. It is further contended that in cases reported as PLD 1991 SC 992, 2003 PTD 2073, 2000 PTD Trib 874 it has been held that if there is no specific definition provided in the statutes, then dictionary meaning is to be assigned and that since the word “manufacture” is not specifically defined, therefore, the Assessing Officer should have given the dictionary meaning to this word as held in the above cases. It is vehemently contended that since the officer has ignored the principle laid down in the above decided cases, therefore, his decision is contrary to law and is also arbitrary and oppressive which tantamounts to maladministration. It is further stated that in the context of tax holiday package under the repealed Income Tax Ordinance 1979, the CBR in Circular No.09 of 1992, has held that when something is subjected to manufacturing process, the shape and character of the input is changed and output becomes different from the input. It is urged that the Taxation Officer should have taken guidance from this circular while examining the process of the complainant’s goods and since he ignored this circular, therefore, this also constitutes maladministration.
10. Replying to the above, the D.R has contended that the allegation that the decided cases have been ignored by the Taxation Officer is baseless and carries no weight because during the course of proceedings before the Taxation Officer, no such cases were referred by the complainant or brought to his notice. It is stated that none of the cases now being relied upon by the learned A.R of the complainant were ever cited before the Assessing Officer and, therefore, the question of their non-consideration does not arise. It is urged that during the course of proceeding before the Taxation Officer, the complainant did not even bother to comply with the notice issued in this behalf and, therefore, the contention now being raised is irrelevant. As far as the CBR’s circular referred to by the A.R of the complainant is concerned, the D.R contends that the CBR may have defined manufacturing process in a specific context but so far as the present case is concerned, the Assessing Officer in his order has clearly mentioned that while coming to the conclusion that the goods exported by the complainant is liable to tax @ 1.25%, he has relied on CBR’s letter dated 24.01.2006 and thus the findings given by the Taxation Officer is also based on CBR’s instructions and, therefore, no maladministration is involved.
11. The case has been examined in the light of the arguments addressed by the parties. It is a case where in the facts and circumstances thereof, the assessing officer has come to the conclusion that the provisions of the relevant law and rules prescribing rate of tax at 1.25% was applicable and not the other prescribing the rate of tax at 1%, therefore, it is an order of assessment of tax on merits. The complainant may avail remedy provided by law to an assessment order in which he may also raise the question of correctness, validity or otherwise of the circular in question of the CBR.
12. For the foregoing reasons, this complaint is hereby disposed off being not maintainable and premature as well.