Collector of Custom FBR and another vs M/s Filtters Pakistan (Pvt) Ltd
This matter concerns a tax dispute regarding the eligibility of 'Artificial Filament Tow' for a sales tax exemption under S.R.O. 509(1)/2007. The respondent imported the item and sought exemption under the notification, which grants zero-rated sales tax to 'Textile and articles thereof' falling under Chapters 50 to 63 of the Pakistan Customs Tariff. The core legal question was whether the imported item, used for filter rods in cigarettes, qualified as a 'textile or article thereof' merely by falling within the specified PCT chapters. The Supreme Court held that the exemption is conditional upon the item being a textile or an article thereof, not merely falling within the listed chapters. The Court found that the imported item, used for cigarette filters, did not meet this description. Consequently, the Court set aside the High Court's judgment, emphasizing that tax exemptions must be construed strictly, and where an exempting provision is susceptible to two interpretations, the one against the taxpayer is preferred. The burden lies on the assessee to bring their case within the strict terms of the exemption.
- Does an item falling within the PCT chapters listed in an exemption notification automatically qualify for the exemption if it does not meet the descriptive criteria of the goods specified?
- How should an exemption notification be interpreted when it is susceptible to two different interpretations?
- Is 'Artificial Filament Tow' used for cigarette filter rods considered a 'textile or article thereof' for the purposes of sales tax exemption under S.R.O. 509(1)/2007?
- Does the burden of proof lie with the taxpayer to bring their case within the strict terms of a tax exemption?
- Section 4, Sales Tax Act 1990
- S.R.O. 509(1)/2007, Sales Tax Act 1990
ORDER
UMAR ATA BANDIAL, J. The respondent imported Artificial Filame nt Tow falling under PCT Heading 5502.009p of the Pakistan Customs Tariff ("PCT") . The said imported item has an abbreviat ed name of AFCA T. In the year 2008- 09 when the import was made by the respondent, the items falling under Chapters, 55 to 63 of the PCT were exempt under the provision Of SRO 509(1)/2007 dated 0.9.06.2007. The item imported key the respondent was sought to be cleared under the exemption granted by the afore-mentioned notification. This was declined and the respondent challenged the assessment order before the departmental authorities up to the stage of order in appeal which was passed on 18.09.2009 (at page 43 of Civil Appeal No. 1078 of 2011). During the pendency of his appeal, the respondent also thought it appropriate to approach the High Court for relief on 14.02.2009 by filing a constitution petition. That petition was allowed vide the impugned judgment dated 26.07.2010 whereby the respondent was granted relief of exemption under the claimed notification.
2. Being a,, case for exemption from a taxing provision, the rule laid down is that the assessee/taxpayer must bring his case within the terms of the exemption, which are to be read strictly because the exemption operates as an exception from the general rule regarding the burden of taxes. For that reason, the terms of the exemption are relevant, which are reproduced below:- "GOVERNMENT OF P AKIST AN MINISTR Y OF FINANCE, ECONOMIC AFFAIRS, ST ATISTICS AND REVENUE (REVENUE DIVISION)
Islamabad, the 8th June, 2007 NOTIFICA TION (SALES T AX)
S.R.O. 509(1)12007. -- 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. 625(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 per cent on the supply and import thereof, namely:- TABLE Sr.No Description of goods PCT Heading No.
(1) (2) (3)
1. Leather and articles thereof including artificial leather footwear41.01 to 41.15, 64.03, 64.04, 6405.1000, 6405.2000 and other respective headings
2. Textile and articles thereof Chapter 50 to Chapter 63, and other respective headings
3. Carpets 57.01 to 57.05
3. It is clear from the language of the notification that goods specified in column (2) of the notification have been exempted from sales tax. Column (2) of the notification provides the primary condition for exemption of such, goods to be their generic description as "textiles and articles thereof" . The third column provides the different chapters whereunder the exempted articles of various descriptions fall; but the conditions in column (2) confines the exemption to those articles that are either "textiles and articles thereof" . We asked the learned counsel for the respondent to explain whether the impor ted goods fall under the afore-noted description. He explained that the imported goods are Artificial Filament Tow and such item has different application s. He urged that so long as the imported goods fall within the classification heading under the PCT namely from Chapters 55 to 63 thereof, the exemption remains available to the respondent.
4. It is a condition of the exempting provision that the imported item must be "textiles or an article thereof" . It is clear that the Artificial Filament Tow may be used in a textile but it is not a textile item itself. This is the factual finding given in the order in appeal dated 18.09.2009 which the respondent did not challenge before the learned Appellate Tribunal. In the present case, the Artificial Filament Tow has been imported by the respondent for filter rods in cigarettes. That application of the Artificial Filament Tow makes it different from textiles or from being an article thereof. Exemptions ate an exception to the general liability imposed by a tax. Therefore when an exempting provision is susceptible to two interpretations, the one going against the tax payer is preferred. Reliance is placed on Messrs Army Welfare Sugar Mills Ltd. and others Vs. Federation of Pakistan and others (1992 SCMR 1652 ) and Messrs Bisvil Spinners Ltd. Vs. Superintendent, Central Excise & Land Customs Circle Sheikhupura and others (PLD 1988 SC 370). We consider that in the facts of the present case adopting a literal construction of the description given in the present exemption is called for. The learned High Court has applied the correct principles whilst interpreting the exemption notification but has assumed that the Artificial Filament Tow is a textile item. In fact the departmental fora have held that it is neither a textile item nor in the present case, it is an item that is used as an article of textile. Given that perspective, we firid that the impugned judgment of the learned High Court has committed an error . Accordingly , we set aside the same and allow these appeals.