CENTRAL BOARD OF REVENUE (now F.B.R.

) and another---Petitioners Versus Messrs RECKITT

BENCKISER PAKISTAN LTD. and another---Respondents

Citation: 2011 SCMR 977

Result: Leave Refused
Court: Supreme Court of Pakistan
Date of Decision: 30.3.2011
Judge(s): Nasir-ul-Mulk and Mahmood Akhtar Shahid Siddiqui, JJ
Case Number: Civil Petition No. 869 of 2009
JUDGMENT

JUDGMENT

NASIR-UL-MULK, J.---Respondent No.1, Messrs Reckitt Benckiser

Pakistan, a public limited company, is engaged in the sales of
pharmaceutical and household products. Based on an audit report, the
Assistant Collector Sales Tax issued a show-cause notice to the
respondent, requiring it to explain as to why sales tax amounting to
Rs.26.792 million for the period 1-7-1981 to 16-10-1989 leviable on the
'Dettol' supplied be not charged and paid by the respondent. The show-
cause notice explained that the respondent had wrongfully not paid the
said tax by classifying it under PCT Heading 38.08, claiming that the
product was a medicinal preparation and registered as drug under section
7 of the Drugs Act, 1976 and thus exempted from sales tax under S.R.O.
No.598(I)/90 dated 7-6-1990 read with S.R.O. No. 553(1)/94 dated
9-6-1994. The respondent contested the show-cause notice and on
26-1-1992 the Assistant Collector, after holding that the respondent was
liable to pay the tax for reasons mentioned in the show-cause notice,
directed the respondent to pay the same along with Rs.100,000 as
penalty. This order of the Assistant Collector was upheld in appeal by the
Collector (Appeals). The respondent assailed the levy before the Customs
Federal Excise and Sales Tax Appellate Tribunal. During the pendency of
the appeal the respondent approached the Federal Board of Revenue for
appointment of an Alternative Dispute Resolution (ADR) Committee, under
section 47-A of the Seals Tax Act, 1990, for resolution of the dispute. The
Committee so constituted made the following recommendations:

(i) "The applicant rightly cleared the product Dettol without charging
sales, tax during the period of 3-5-1982 to 29-9-1987 and therefore, the
demand of sales tax amounting to Rs.16.556 million covering the period
3-5-1982 to 29-9-1987 should be waived.

(ii) The demand of sales tax Rs.0.500 million and Rs.9.189

million levied on the clearance of the Dettol made during the period
February, 1982 to April, 1982 and 30-9-1987 to 16-10-1989 respectively
stands recoverable from the applicant."

2. The Federal Board of Revenue (F.B.R.) on 6-7-2006 passed an order

under section 47-A of the Sales Tax Act accepting the recommendations of
the ADR Committee. Consequently the Appellate Tribunal disposed of the
respondent's appeal on 23-9-2006 in terms of the recommendations.

3. After conclusion of the above proceedings initiated by the Assistant

Collector Sales Tax and culminating in the order of the Appellate
Tribunal, the Federal Board of Revenue (F.B.R.) again issued notice to the
respondent on 18-1-2007, exercising powers under section 45-A of the
Sales Act read with section 21 of the General Clauses Act, 1897, to re-
examine the Board's order dated 6-7-2006, accepting
the recommendations of the ADR Committee. Though the show-cause
notice mentioned five grounds for the issuance of the notice, in essence
it asserted that 'Dettol' was not medicine and thus the supplies made
during the relevant period were not exempted from payment of sales tax.
The respondent assailed this notice before the High Court of Sindh in a
Constitutional petition. The Court allowed the petition and struck down
the notice dated 18-1-2007 as unlawful. This judgment has now been
challenged by the F.B.R. through this petition for leave to appeal.

4. Mr. Asif Wardag, Advocate Supreme Court, appeared for the petitioners
and Mr. Makhdoom All Khan, Senior Advocate Supreme Court,
represented respondent No.1.

5. In order to appreciate the arguments addressed by the learned counsel

it is necessary to take a look at section 45-A of the Sales Tax Act, under
which the F.B.R. had issued show-cause notice on 17-1-2007 to the
respondent:-

"45-A. Powers of the Board and Commissioner to call for records.---(1) The
Board may, of its own motion, call for and examine the record of any
departmental proceedings under this Act or the rules made thereunder for
the purpose of satisfying itself as to the legality or propriety of any
decision or order passed therein by an Officer of Inland Revenue, it may
pass such order as it may think fit:

Provided that no order imposing or enhancing any penalty or fine

requiring payment of a greater amount of sales tax than the originally
levied shall be passed unless the person affected by such order has been
given an opportunity of showing cause and of being heard.

(2) No proceeding under this section shall be initiated in a case where

an appeal under section 45B or section 46 is pending.

(3) No order shall be made under this section after the expiry of five
years from the date of original decision or order of the subordinate
officer referred to in subsection (1).

(4) The Commissioner may, suo motu, call for and examine the record
of any proceeding wider this Act or the rules made thereunder for the
purpose of satisfying himself as to the legality or propriety of any
decision or order passed by an officer of Inland Revenue subordinate
to him, and pass such order as he may deem fit."

6. Defending the said notice before the High Court it was argued on behalf
of the Board of Revenue that the same was lawfully issued in exercise of
specific powers conferred upon the Board under the above provision read
with section 21 of the General Clauses Act, generally empowering an
authority to rescind any notification or orders issued by it. The High Court
rejected this argument by holding that section 45-A of the Sales Tax Act
did not empower the F.B.R. to review its orders. That section 21 of the
General Clauses Act could not be invoked by an authority exercising
judicial or quasi judicial powers; that the acceptance of the
recommendations of the ADR Committee by the F.B.R. by order dated
6-7-2006 was quasi judicial in nature. On the question as to whether
`Dettol' was medicinal or not, the High Court held that the show-cause
notice could not be issued on this ground as the recommendations of the
ADR Committee did not give any finding thereon and found the
respondent entitled to make supplies during the relevant period
without payment of the sales tax in the light of the view on the issue
prevailing in the Department during that period.

7. The learned counsel appearing for the petitioners (F.B.R.) reiterated

the arguments advanced before the High Court in defending the issuance
of the show-cause notice. Elaborating he contended that the power
exercised by the Board under section 47-A was in a different capacity than
that conferred upon it by section 45-A of the Sales Tax Act, to examine the
legality or propriety of any decision by an officer of the Inland Revenue.

8. This argument was aptly met by Mr. Makhdoorn Ali Khan, Sr. Advocate
Supreme Court, who pointed out that the Board, under section 45-A of the
Sales Tax Act, is empowered to examine the decision or order of an
officer of the Inland Revenue, which according to section 2(18) read
with section 30 of the Sales Tax Act does not include the Board itself.
The 'officer of the Inland Revenue' is defined as an officer appointed
under section 30. The latter gives a list of such officers. They are
appointed in relation to a particular area by the Board of Revenue. For
obvious reason the list does not include the Board. On the plain
reading of section 45-A of the Sales Tax Act read with other relevant
provisions, there can be no two opinions that the Board does not,
under the said provision, possess any authority to examine the legality
or propriety of its own orders.

9. Invoking the provisions of section 21 of the General Clauses Act by the

Board was also misconceived. Apart from holding by the High Court that
such powers cannot be exercised by an authority recalling orders passed
in quasi judicial capacity, such powers are general in nature and cannot
be invoked iii the presence of section 45-A of the Sales Tax Act. To hold
otherwise would enlarge the scope of the said provision and confer upon
the Board the power of Review. Additionally the issue raised in the show-
cause notice already stood resolved in the earlier litigation culminating in
the decision of the Appellate Tribunal. That decision was passed on the
recommendations of the ADR Committee after it was duly endorsed by the
Board.

10. The learned counsel for the respondent rightly drew our attention to
the provisions of section 47-A of the Sales Tax that the Board initially had
the discretion not to appoint committee for resolution of the dispute. That
under subsection (4) of section 47-A 'of the Sales Tax Act, the Board was
empowered to pass any order as it deemed appropriate on the
recommendations of the Committee. It could have withheld its
approval. Again under subsection (5) it was for the Appellate Tribunal
to pass any order it considered appropriate upon the orders of the
Board. It follows that the Board had consciously appointed the
Committee and thereafter upon due consideration accepted its
recommendations and the same were duly incorporated in the order of
the Appellate Tribunal. We therefore fail to understand as to how the
Board could after such exercise reopen the entire issue.

11. The show-cause notice, as observed above, is based on the stand point
of the Board that 'Dettol' was not medicinal and therefore the respondent
could not claim exemption from sales tax during the relevant period. As a
matter of fact the recommendations of the ADR Committee do not go
against the stand of the Board on merits of the issue, as the following
observations would clarify:

"The Committee while reviewing the ruling given about classification of

the product Dettol vide letter C. No.11/2. Sales Tax/82 dated 3-5-1982
issued by the then Collectorate of Central Excise and Land Customs,
Karachi which clarified the product as exempt from sales tax in terms
of S.R.O. 666(I)/81, agreed with the applicant's view point. Moreover,
since the said ruling was even not challenged by the office who later
on instituted this very case after lapse of eight years, on 16th October,
1989 the Committee concluded that the applicant rightly claimed
exemption as per advice of the then Collectorate."

12. The Committee went on to clarify that such exemption was

not available to the respondent after 30-9-1987 as the ruling mentioned
in the above paragraph had lost its validity when the authority superior to
the Collectorate declared the 'Dettol' as non-medicine and non-
disinfectant. No exception can be taken to the above recommendations.

13. For the foregoing reasons, this petition lacks merits and therefore
dismissed and leave refused.