2011 PTD (Trib (PLP)

The appellant through this appeal has objected against the impugned order of the learned CIR(A) dated 31-1-2011 on the following grounds:-- "(2) That the learned Commissioner Inland Revenue (Appeals-II) erred in not appreciating the fact that the appellant is engaged in the export of goods which are covered under category of goods specified in Part-II of the Seventh Schedule to the Income Tax Ordinance, 2001. (3) That the learned Commissioner Inland Revenue (Appeals-II) erred in not appreciating the fact that the goods exported by the appellant fall under Final Tax Regime under section 154 of the Ordinance, 2001 and the applicable tax rate on export of the said goods is specified in the Division-IV of Part-III of the First Schedule. (4) That the learned Commissioner Inland Revenue (Appeals-II) erred in law by presuming that the appellant was subject to taxation on exports @ 1.25% instead of flat rate of 1%. (5) That the learned Commissioner Inland Revenue (Appeals-II) erred in law by holding that "textile made ups" as re-appreciated and re-adjudicated by the ACIR is within the scope of section 221 of the Income Tax Ordinance, 2001. (6) That the learned Commissioner Inland Revenue (Appeals-II) erred in -law by ignoring the principles laid down in, the judgment reported as 1999 PTD 4138 (HC). (7) That the learned Commissioner Inland Revenue (Appeals-II) erred in not appreciating the fact that the woven fabrics fall within the definition of textile made ups. (8) That the learned Commissioner Inland Revenue (Appeals-II) erred in not appreciating the fact that the action of ACIR to impose default surcharge under section 205(1)(a) is arbitrary, unjustified and without assigning any cogent reasons."

2. We have heard the learned representatives from both the sides and have also perused the impugned order of the learned CIR(A) and the order passed by the Taxation Officer under section 122(1), of the Ordinance, 2001 the case-law referred and relevant provisions of law. Facts in brief of the instant case are that the appellant/taxpayer is a Public Limited Company and is carrying on its business in export after cloth manufacturing and dyeing. Woven cloth including terry towels is manufactured and exported and Tax @ 1% is being charged on the export proceeds. It is in the Tax Year under review i.e. 2007 that the tax charged and collected @ 1% was taken as rectifiable for enhancing the rate of tax to 1.5 %. A Show Cause Notice was served for proceeding under section 221 so as to rectify the mistake of determining the deduction and collection of tax @ 1% instead of charging @ 1.5% so as to work out increase tax demand on passing an order under section

221. The reason given in the notice is that the goods exported are woven cloth (Textile/Fabric) which are liable to be charged @ 1.5% being the textile falling under Part-III of the 7th Schedule inserted by Finance Act, 2005. In reply to the Show-Cause Notice the appellant/taxpayer contended that goods exported are the own manufactured finished goods ready to be used which would be named as Gray Cloth, Terry Towels and bath robs so can be named as "Textile made ups" thus are liable to be taxed @ ,1% on export proceeds. In support of it the orders of This Tribunal cited at 2009 PTD 2163 referred. The Taxation Officer did not find the contention of the appellant/taxpayer as acceptable and created the tax demand by charging to tax the export proceeds @ 1.25%, thus created further demand as taxable under section

221. Resultantly, the tax already deducted and collected On export proceed was increased on making liable the export proceed @ 1.5% by an order under section 221 by taking it as a correction of mistake. The appellant/ taxpayer filed first appeal before the learned CIR(A) who with the following findings has rejected the appeal of the appellant/ taxpayer. "After giving due consideration to the rival arguments and having gone through the. record. and case law on which the appellant relied upon, I am of the view that the contention of the learned A.R. does not hold force. Bare reading of the case law stipulate as under: "Cotton yarn does not fall within the category of "textile made 'ups." These words as used in Part II of the Seventh Schedule certainly refers to the items of dressing, bed spreads or household clothing etc. The appellant is engaged in export of textile goods manufactured in Pakistan, in my view, which fall under the category of goods specified in Part-III of the Seventh Schedule (inserted through finance Act, 2005) and the rate of tax chargeable specified therein is 1.25%. The claim of appellant that the said exported goods come under the category of textiles made ups against which rate of tax chargeable is 1% is not correct because the finished goods which cannot be further processed for value addition can be categorized as made ups. The products manufactured by the appellant fall in the category "textile articles" as described in Part-III of Seventh Schedule and tax rate chargeable at export stage is 1.25%. The case-law referred by the appellant has no relevancy to the appellant's case because the issue settled therein related to the categorization of raw cotton and yarn. Hence, the action of 'the Taxation Officer in rectifying the original assessment by invoking provisions of section 21 is legally justified and the appeal does not merit acceptance hence, rejected". To agitate such findings the appellant/taxpayer came in appeal before the Tribunal. Firstly it was argued that there is a defect in jurisdiction as there is no mistake apparent from record requiring rectification by invoking the provisions of section 221, for the reason that there is no mistake in calculation of tax practically/factually/legally but it amounts revisit the earlier order, that is, changing the entire shape of assessment treated to have been framed. Secondly according to learned counsel of. the appellant it is the Taxation Officer's attempt to create controversy on the tax rates to be applied to export proceeds by ignoring the irrefutable evidence in form of export documents duly specifying the goods exported which is rectifiable under section 221 Thirdly it is contended that the entire matter has been dealt one sidedly with an arbitrary authority. In support of arguments that action under section 221 is suffering from defect in jurisdiction the learned counsel has read out para 7 from judgment in case of Commissioner of Income Tax, Karachi v. Messrs Shadman Cotton Mills (Pvt.) Karachi through Director cited as 2009 PTD 253 (Supreme Court of Pakistan). The learned counsel has also referred following judgments to prove that proceedings under section 221 of the issues involved are illegal void ab-initio:-- (1)? 2007 PTD 967 Supreme Court of Pakistan, Commissioner of Income Tax, Karachi v. Abdul Ghani. (2)? 1992 SCMR 687 1992 PTD 570 Commissioner of Income Tax, Companies-II, Karachi v. National Foods Laboratories, Civil Petition No.380 of 1991. It has been held by the Hon'ble Apex Court through its judgment cited at 1992 SCMR 687 = 1992 PTD 570 that:-- "Section 35 of the repealed Income Tax Act, 1922, hereinafter referred to as 'The Act' confers a power to rectify any mistake in the order which is apparent from the record. Such power can be exercised suo motu or if it is brought to the notice by an assessee. Therefore, essential condition for exercise of such power is that the mistake should be apparent on the face of record; mistake which may be seen floating on the surface and does not require investigation or further evidence. The mistake should be so obvious that on mere reading the order it may immediately strike on the face of it. Where an officer exercising power under section 35 enters into the controversy, investigates into the matter, reassess the evidence or takes into consideration additional evidence and on that basis of interprets the provision of law and forms an opinion different from the order, then it will not amount to 'rectification' of the order. Any mistake which is not patent and obvious on the record, cannot be turned to be an order which can be corrected by exercising power under section 35." It has further been held by the Hon'ble Apex Court in its judgment cited at 2007 PTD 967 (SC Pak):-- "Rectification under section 156 of the Ordinance is permissible if the error is apparent, obvious and floating on the face of the judgment and can be rectified without long drawn argument and proceedings for appreciating facts and interpretation ' or application of any provision of law." On merit it has been pointed out that the goods exported are own manufactured terry towels, bath robs falling in the category "textile made ups" and are ready for use where 1% is to be charged as income to -on export proceeds and in its support the judgments of the honourable High Court cited as 1999 PTD 4138 has been referred. It is contended that this Tribunal has already held in exactly identical issue that goods as manufactured by the appellant are "textile make "ups" liable to tax deduction and collection @ 1% on export proceeds. Thus it is a ratio decidendi to be followed as a binding precedent. Therefore no deviation could be possible. The learned counsel of the appellant reiterated that the Learned CIR(A) without considering the judgments as whole cited at 1999 PTD 4138 has passed the order. The Hon'ble High Court in the above referred judgment has directed to discontinue deduction of Income Tax at source on the export proceeds of cotton yarn holding that the cotton yarn did not fall within category of "textile made ups". These words as used in Part I of the Eighth Schedule certainly refer to items of dressings, bed spreads 'or household etc. Cotton yarn in all textile made-up could be one or more of the contents. But regarding the manufactured items as are in the instant case the honourable High Court has held that:- "In its simpler form it cannot be treated as a textile made-ups which clearly is the next stage or converted form of yarn into something which amongst other characteristics is available for aforesaid uses. The item, however, being placed between raw cotton and the textile made-ups can conveniently be taken as a "goods manufactured" as it travels from various stages to acquire that form. The term manufacturing as a general rule is applied to conversion or process of a material or materials into refiners forms of the raw material or the making of an altogether different thing An other principal applied in this regard is the change in nature and use of the items which had travelled from one stage of material to another or stood converted even by simple flux of time and preservation with or without making any human effort to affect the change." Keeping in view the above observations of the honourable High Court we are of the considered view that the goods manufactured r exported by the appellant are the textile made ups. Although the learned D.R is supporting the impugned orders of the officers below but is unable to rebut the above referred legal position. We have found that the contention made on behalf of the appellant on legal issue that there is defect in jurisdiction as well as on the facts of the case has proved as correct beyond shadow of any doubt by the above referred judgments of the Hon'ble Superior Courts wherein it has categorically been held exactly in identical situations that the proceedings are not covered under section

221. The judgment cited as 2007 PTD 967 and 1992 SCMR 687 = 1992 PTD 570 have further strengthened the existence of this fatal lacuna of defective jurisdiction, which is incurable and. has rendered the order passed under section 221 as illegal void-ab-initio, accordingly it is declared so by us. Likewise on the facts of the case it is established that the goods exported are "textile made ups" as has been held by the Hon'ble High Court in the above referred decision and this Tribunal in the case of the appellant has already held that goods manufactured/exported in case of the appellant are "textile made ups" liable to tax @1% which fact was also accepted by the Department. Appeal of the appellant/taxpayer is therefore accepted on both the grounds. C.M.A./189/Tax(Trib.)???????????????????????????????????????????????????????????? Appeal accepted.