MESSRS ENGLISH BISCUIT MANUFACTURERS LTD, VS THE ASSISTANT COLLECTOR, CENTRAL EXCISES & LAND CUSTOMS,
LANDHI DIVISION KARACHI
1991 P T D 478
[Karachi High Court]
Before Saleem Akhtar and Husain Adil Khatri, JJ
Messrs ENGLISH BISCUIT MANUFACTURERS LTD,
versus
THE ASSISTANT COLLECTOR, CENTRAL EXCISES & LAND CUSTOMS,
LANDHI DIVISION KARACHI and 3 others
Constitutional Petition No.D-996 of 1989, decided on 30/01/1991.
(a) Sales Tax Act (III of 1951)---
----Ss. 3 & 2(16)---Central Excises and Salt Act (I of 1944), Ss. 4 & 11---Central Board of Revenue Sales Tax Circular No. 6 of 1981, dated 25-6-1981---Collection of sales tax on goods produced or manufactured in Pakistan---Authority of Central Excise Department to determine and recover sales tax---Extent and limitations ---Assessability and recovery, two different aspects of taxing statute-- Sales Tax Authorities and Excise Authorities, their respective functions stated.
Section 3 subsection (4) of the Sales Tax Act, 1951 provides that the Sales Tax in respect of goods mentioned in it shall be payable on the occurrence of the first of the four events categorised therein. Therefore subsection (4) in fact fixed the time and place where and when the sales tax shall be payable. By virtue of the proviso added to it, in respect of goods classified under section 3(1)(a), sales tax becomes payable as duty of excise leviable under section 3 of the Central Excises and Salt Act, 1944 and the provisions of the said Act so far applicable will be applied provided there is such a direction by the Central Board of Revenue.
By virtue of C.B.R. Sales Tax Circular No. 6 of 1981, dated 25-6-1981 the Sales Tax leviable do goods produced or manufactured in Pakistan is to be paid at the time and in the manner as the excise duty is payable. Therefore it fixes the time and. manner of payment of sales tax in respect of goods manufactured in Pakistan. Under the proviso to, subsection (4) of Section 3 of the Sales Tax Act the Central Excise authorities can recover sales tax only if a direction to this effect is issued by the Central Board of Revenue. Thus their power is limited only to such direction and not beyond it. It may be mentioned that in the proviso the word `payable' was substituted by the word `levied' by Finance Act 1982 but for the purposes of the present case-law as it stood upto 31-12-1981 will be applicable. Therefore the word `payable' as it stood in December, 1981 has been taken into consideration. The assessee's contention is that under the direction issued by the Central Board of Revenue and the proviso to subsection (4) of section 3 Excise Department were not authorised to assessee tax but could only recover it. The contention seems to be correct .as the proviso and the notification containing the direction of C.B.R. clearly relate to the payment and collection of the sales tax by the Excise Authorities. In order to collect such sales tax Excise Department was to exercise all powers conferred on it by the Central Excises and Salt Act without resorting to the procedure provided for recovery under the Sales Tax Act.
Assessability and recovery are two different aspects of a taxing statute. First the assessee is assessed to tax and then comes the second step of recovery unless otherwise provided by law. In cases where goods subject to Sales Tax are produced or manufactured, to ensure proper recovery, subsection (4) of section 3 provides a different mode. By virtue of proviso to subsection (4) of section 3 and the direction issued by the C.B.R. the Sales Tax is to be paid at the time when excise duty is payable. After making payment in this manner when the assessee riles his quarterly return and .the assessment is made due credit is given for the tax paid to the Excise and Salt Act Authorities. In case there is deficit it is payable by the assessee but in cases there is surplus he is entitled to claim refund.
Central Board of Revenue, in the present case issued notice applying section 11 of the Central Excises and Salt Act and exercising the power conferred by virtue of the above notification issued under section 3(4) of the Sales Tax Act. All these powers and provisions are meant for recovery of the tax. Excise Department objected to the calculation of sales tax on the basis of the sale price declared by the assessee exclusive of the discount given to the customers. By this calculation price was reduced to the extent of such discount. However show-cause notice ' was issued by calculating the sale price inclusive of discount. Such treatment was bound to create liability for higher amount of Sales Tax. The term `sale price' has been defined under section 2(16) of the Sales Tax Act.
Definition of sale price comprises of two categories. First relates to goods on which Sales Tax is payable at the same time and the same manner as the duty of excise under the Central Excises and Salt Act, 1944. The second part relates to other goods which are not covered by section 2(16)(i). In the present case section 2(16)(i) will apply. The sale price of such goods is to be determined under subsection (1) of section 4 of the Central Excises and Salt Act by adding the duty if payable. Therefore Excise Department is entitled to determine the value as prescribed by section 4 of the Central Excises and Salt Act.
Section 4 of the Central Excises and Salt Act, 1944, read with section 3, subsection (4) of the Sales Tax Act provides for the manner and method for determining the value and collection of Sales Tax. It is significant to note that by virtue of the directive of the Central Board of Revenue and section 4(1) of the Central Excises and Salt Act the Central Excise Authorities were empowered to determine the value of the goods and collect the tax but the power of assessment has not been given to them. They can only determine the value and collect the sales tax on that value and the rest is left to the Sales Tax Authorities under the Sales Tax Act. Therefore while originally making a demand Excise Department has to determine the value of the goods as discussed above and sales tax is collected on that basis. Once such step has been taken and tax paid the Excise Authorities are exhausted of the power delegated to them. They draw the source of authority from the notification of the Central Board of Revenue which does not empower them to initiate proceeding (after assessment has been made by the Sales Tax Officer), for recovery of any amount of Sales Tax which according to them has escaped assessment or assessed at a sale price not properly determined at the time of payment of tax or when the assessment was framed.
Only power given to the Assistant Collector of Excise Department was to collect Sales Tax in the manner provided by the Central Excises and Salt Act without resorting to procedure provided for recovery by the Sales Tax Act. The direction of C.B.R. was restricted to collection and not the levy of Sales Tax.
Section 11 of the Central Excises and Salt Act, 1944- provides that any officer empowered by the Central Board of Revenue to levy duty can initiate action for recovery in the manner provided therein. Therefore, only such officer who is empowered by C.B.R. to levy duty can issue notice requiring the person from whom duty is recoverable or due, to pay the same. Assistant Collector of Excise Department was not authorised by Central Board of Revenue to levy duty. He was empowered to collect sales tax at the same time and manner in which duty was collected. Further at the time when the assessee was called upon by the impugned notice to pay the sales tax it had not defaulted in payment of such tax as, it had paid it as assessed by the Sales Tax Officer. Therefore none of the preconditions necessary for invoking section 11 were complied with. It is pertinent to note that section 11 provides a procedure for recovery of duty recoverable from and payable by an assessee. A duty is payable and recoverable once it is determined. Section 11 does not contemplate creation of a new demand or higher demand from what has been assessed. The officer authorised to recover duty under section 11 cannot go behind the demand already created or determined. He cannot reopen the case and assess afresh creating a liability different from the one already assessed. Assistant Collector Excise Department by issuing notice reopened the case and changed the assessment made by the Sales Tax Officer. Such action is completely without jurisdiction and void.
Sub-clause (1) of section 2(10) of the Sales Tax Act, 1951 fixes the time and manner for payment of sales tax which should be the time and manner in which excise duty is payable whether it is chargeable or not.
(b) Words and phrases---
Sale price"- -Meaning.
Sirajul Haq for Petitioner.
Syed Tariq Ali for Respondents.
Dates of hearing: 11th and 12th December, 1')90.
JUDGMENT
SALEEM AKHTAR, .J.---The petitioner is a private limited company engaged in the business of manufacture of biscuits. The petitioner's products arc liable to sale tax which it has been regularly paying. It is alleged that assessments were completed by the Sales Tax Officer upto the assessment year 1980-81 in which the value of goods for the purpose of charging sales tax was accepted to be the actual sale price received from the customers i.e. after allowing discount ranging from 11% to 15% depending upon the variety of biscuits in accordance with Rule 23 of the Sales Tax Rules of 1951. After assessment by the Sales Tax Officer the petitioner paid the tax. From 25-4-1981 the payment and collection of sales tax was transferred to the Central Excise Authorities and on the same basis the petitioner had been paying the sales tax to the Assistant Collector of Central Excise and Land Customs, Landhi, Karachi. Respondent No.1 issued a show-cause notice dated 7-9-1982 under section 11 of the Central Excises and Salt Act 1944 requiring the petitioner to explain why the differential amount of sales tax amounting to Rs.7,65,963.44 for the period from 25-4-1981 to 31-12-1981 should not be recovered from it. The petitioner filed a reply to the notice dated 15-9-1982 claiming that in view of Rule 23 of the Sales Tax Rules where a manufacturer allows discount, such discount does not form part of the gross sales price for the purpose of charging sales tax. Therefore it was not liable to pay the amount claimed as sales tax on the differential amount of discount allowed to the customers. This plea was rejected and the said amount was ordered to be recovered. The petitioner filed an appeal before the Collector, Central Excises and Land Customs (Appeal) /Appellate Assistant Commissioner Sales Tax, Karachi who partially accepted the appeal by order dated 7-3-1.984 and remanded the case to respondent No.1 with a direction that demand for the period dated 25 4-1981 to 30-6-1981 should be dropped while the demand for the remaining period namely from 1-7-1981 to 31-12-1981 should be re-examined and re ad judicated. Respondent No.1 again issued a show-cause notice in respect of fresh demand of Rs.5,11,141 for the period 1-7-1981 to 31-12-1981. The petitioner submitted a reply in which it was pleaded that the amendment made by the Finance Ordinance 1981 pertained only to collection of sales tax and not the chargeability of sales tax and that section 2(16)(ii) was applicable only in cases where excise duty as well as sales tax were simultaneously payable. According to the petitioner its case was covered by section 2(16)(ii) and Rule 23 of the Sales Tax Rules, 1951. It also claimed protection under S.R.O. 7(1)/83, dated 5-1-1983. -Respondent No.1 by order dated 22-9-1986 maintained his demand. The appeal filed against this order was rejected by respondent No.2 on 28-1-1987. The revision filed before respondent No.3 was also rejected by order dated 29-8-1989. The petitioner has challenged these orders as void ab initio, arbitrary and without jurisdiction.
Mr. Sirajul Haq, the learned counsel for the petitioner has contended that respondent No.1 slid not have the jurisdiction to make assessment of Sales Tax and therefore the notice issued by him and subsequent actions based on it were void ab initio and without jurisdiction. The assessment and collection of Sales Tax are made under the Sales Tax Act. Section 3 is the charging section and its relevant part is reproduced as follows:
"3(1). There shall be levied and collected a tax on the value of--
(a) all goods produced or manufactured in Pakistan, payable by the manufacturer or producer;
(b) ..........
(c) ..........
(d) ..........
(e) ..........
(2) The tax shall be at the rate of twelve and a half per cent, on the value of the goods as aforesaid.
(3) The value of the goods shall be:
(i) in the case of goods falling under clause (a) of subsection (1) the sale price
(ii) in the case of goods falling under clause (b) or clause (d) of the said subsection--the duty paid value
(iii).................
(iv)..................
(4) The tax in respect of the goods mentioned in clauses (a), (c), (d) and (f) of subsection (1) and clause (d) of subsection (6) shall be payable on the occurrence of the first of the following events--
(i) when the goods are delivered to the purchaser, or
(ii) when the property in the goods passes to the purchaser, or
(iii) when the goods are sent, consigned or exported to any place outside Pakistan, and for the purposes of this clause the goods shall be deemed to have been sold when they are sent, consigned or exported to any such place as aforesaid, or
(iv) when the goods are actually used by the manufacturer or producer or exporter:
Provided that, in case of goods mentioned in clause (a) of subsection (1), the tax shall, where the Board so directs, be payable at the same time and in the same manner as the duty of excise under the Central Excises and Salt Act, 1944 (1 of 1944) and the provisions of the said Act and the rules made thereunder shall, so far as may be and with the necessary modification apply for the purposes of this Act as they apply for thepurposes of the said Act."
Section 3, subsection (4) provides that the Sales. Tax in respect of goods mentioned in it shall be payable on the occurrence of the first of the four event categorised therein. Therefore subsection (4) in fact fixes the time and place where and when the sales tax shall be payable. By virtue of the proviso added to it, in respect of goods classified under section 3(1)(4), sales tax becomes payable as duty of excise leviable under section 3 of the Central Excises and Salt Act, 1944 and the provisions of the said Act so far applicable will be applied provided there is such a direction by the Central Board of Revenue. The direction given by the Central Board of Revenue in the present case is reproduced as follows:
"GOVERNMENT OF PAKISTAN
CENTRAL BOARD OF REVENUE
Islamabad, 25th June, 1981.
SALES TAX CIRCULAR NO.G OF 1981
Subject: Collection of Sales Tax on goods produced or manufactured in Pakistan.
In exercise of the powers conferred by the proviso to subsection (4) of section 3 of Sales Tax Act, 1951 (III of 1951), and in supersession of Sales Tax Circulars No.2 of 1979 dated 28-G-1979 and No.2 of 1981 dated 25-4-1981, Central Board of Revenue is pleased to direct that sales tax leviable on all goods produced or manufactured in Pakistan shall be paid at the same time and in the same manner as the duty of excise."
By virtue of this notification the Sales Tax leviable on goods produced or manufactured in Pakistan is to be paid at the time and in the manner as the excise duty is payable. Therefore it fixes the time and manner of payment of sales tax in respect of goods manufactured in Pakistan. Under the proviso to subsection (4) of Section 3 of the Sales Tax Act the Central Excise Authorities can recover sales tax only if a direction to this effect is issued by the Central Board of Revenue. Thus their power is limited only to such direction and not beyond it. It may be mentioned that in the proviso the word `payable' was substituted by the word `levied' by Finance Act, 1982 but for the purposes of the present case-law as it stood upto 31-12-1981 will be applicable as reproduced above. Therefore the word `payable' as it stood in December, 1981 has been taken into consideration. The petitioner's contention is that under the direction issued by the Central Board of Revenue and the proviso to subsection (4) of section 3 respondents were not authorised to assess tax but could only recover it. The contention seems to be correct as the proviso and the notification containing the direction of C.B.R. clearly relate to the payment and collection of the sales tax by the Excise Authorities. In order to collect such sales tax respondent No. 1 was to exercise all powers conferred on him by the Central Excises and Salt Act without resorting to the procedure provided for recovery under the Sales Tax Act.
In this regard it may be made clear that assessability and recovery are two different aspects of a taxing statute. First the assessee is assessed to tax and then comes the second step of recovery unless otherwise provided by law. In eases where goods subject to Sales Tax are produced or manufactured, to ensure proper recovery, subsection (4) of section 3 provides a different mode. By virtue of proviso to subsection (4) of section 3 and the direction issued by the C.B.R. the Sales Tax is to be paid at the time when excise duty is payable. After making payment in this manner when the assessee files his quarterly return and the assessment is made due credit is given for the tax paid to the Excises and Salt Act Authorities. In case there is deficit it is payable by the assessee but in cases there is surplus he is entitled to claim refund.
Respondent No. 4 issued notice applying section 11 of the Central Excises and Salt Act and exercising the power conferred by virtue of the above notification issued under section 3(4) of the Sale Tax Act. All these powers and provisions are meant for recovery of the tax. Respondent No. 1 objected to the calculation of sales tax on the basis of the sale price declared by the petitioner exclusive of the discount given to tile customers. By this calculation price was reduced to the extent of such discount. However show-cause notice was issued by calculating the sale price inclusive of discount. Such treatment was bound to create liability for higher amount of Sales Tax. The term `sale price' has been defined under section 2(16) of the Sales Tax Act which reads as follows:
S.2(16). `Sale price' means--
(i) in relation to goods in respect of which tax is payable at the same time and in the same manner as the duty of excise under the Central Excises and Salt Act, 1944 (1 of 1944), the value determined under subsection (1) of section 4 of the said Act `plus the said duty, if chargeable:
Provided that, in the case of any goods or class of goods, the Federal Government may direct that `sale price' shall mean the value determined under subsection (2) of section 4 of the said Act;
(ii) in other cases, the price before any amount payable in respect of tax is added and includes any duty of Provincial excise, whether or not paid by the assessee, and any charges for advertising,. financing or any other charges of a similar nature contracted for at the time of sale whether charged separately or not;"
This definition comprises of two categories. First relates to goods on which Sales Tax is payable at the same time and the same manner as the duty of excise under the Central Excises and Salt Act, 1944. The second part relates to other goods which are not covered by section 2(16)(i). In this case section 2(16)(i) will apply. The sale price of such goods is to be determined under subsection (1) of section 4 of the Central Excises and Salt Act by adding the duty if payable. Therefore, respondent No. 1 is entitled to determine the value as prescribed by section 4 of the Central Excises and Salt Act which is as follows:--
S.4. Determination of value for the purposes of duty.---(1) Where under this Act any article is chargeable with duty at a rate dependent on the value of the articles, such value shall be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable. of being sold to the general body of retail traders or, if there is no general body of retail traders, the general body of consumers on the day on which the article which is being assessed to duty is removed from the factory or the warehouse, as the case may be, without any abatement or deduction whatever except the amounts- of duty and sales tax then payable.
(2) Where under this Act any article is chargeable with duty at a rate dependent on the retail price of the article, the retail price shall be the price fixed by the manufacturer, inclusive of all charges and taxes, other than sales tax levied and collected on the basis of the sale price under the proviso to subsection (16) of section 2 of Sales Tax Act 1951 (III of 1951) and octroi at which any particular brand or variety of such article should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest such price
(3) Where under this Act any services, facilities and utilities are subject to duty at a rate dependent on the charges therefore and--
(a) any such services, facilities or utilities are, in any case, rendered or provided free of charge or at a concessional rate, the duty shall be levied and collected on the amount which would have been charged for such services, facilities and utilities had they not been rendered or provided free of charge or at a concessional rate; and
(b) the amount with reference to which the duty shall be levied shallbe the total amount charged for all services, facilities and utilities provided or rendered, including charges for supplies or merchandise therewith.
The words underlined were substituted by the Finance Act, 1987 for the words `other than octroi' which words were inserted by Finance Ordinance, 1982.
This provision read with section 3, subsection (4) of the Sales Tax Act provides for the manner and method for determining the value and collection of Sales Tax. It is significant to note that by virtue of the directive of the Central Board of Revenue and section 4(1) of the Central Excises and Salt Act the Central Excise Authorities were empowered to determine the value of the goods and collect the tax but the power of assessment has not been given to them. They can only determine the value and collect the sales tax on that value and the rest is left to the Sales Tax Authorities under the Sales Tax Act. Therefore while originally making a demand respondent No. 1 has to determine the value of the goods as discussed above and sales tax is collected on that basis. Once such step has been taken and tax paid the Excise Authorities are exhausted of the power delegated to them. They draw the source of authority from the notification of the Central Board of Revenue which does not empower them to initiate proceeding (after assessment has been, made by the Sales Tax Officer), for recovery of any amount of Sales Tax which according to them has escaped assessment or assessed at a sale price not properly determined at the time of payment of tax or when the assessment was framed. Similar circular bearing No.2 of 1982 came up for consideration C.F. No. D-724 of 1985 Industrial Engineering Ltd. v. Assistant Collector of Customs where the Assistant Collector authorised by the circular to collect, sales tax holding that sales made by the petitioner were incorrectly exempted by the Sales Tax Officer created a demand. The action was struck down as without jurisdiction and it was held that only power given to the Assistant Collector of Customs was to collect Sales Tax in -the manner provided by the Central Excises and Salt Act without resorting to procedure provided for recovery by the Sales Tax Act. The direction of C.B.R. was restricted to collection and not the levy of Sales Tax. We are in full agreement with these observations.
Mr. Tariq, Ali the learned counsel has referred to section 11 of the Central Excises and Salt Act and contended that in order to recover the sales tax respondent No.1 was competent to issue such notice under it. Section 11 of the Central Excise and Salt Act, 1941 provides that any officer empowered by the Central Board of Revenue to levy duty can initiate action for recovery in the manner provided therein. Therefore only such, officer who is empowered by CAR. to levy duty can issue notice requiring the person from whom duty is recoverable or due, to pay the same. Respondent No. 1 was not authorised by Central Board of Revenue to levy duty. He was empowered to collect sales tax at the same time and manner in which duty was collected. Further at the time when the petitioner was called upon by the impugned notice to pay the Sales Tax it had not defaulted in payment of such tax as it had paid it as assessed by the Sales Tax Officer. Therefore none of the preconditions necessary for invoking section 11 were complied with. It is pertinent to note that section 11 provides a procedure for recovery of duty recoverable from and payable by an assessee. A duty is payable and recoverable once it is determined. Section 11 does not contemplate creation of a new demand or higher demand from what has been assessed. The officer authorised to recover duty under section 11 cannot go behind the demand already created or determined. He cannot reopen the case and assess afresh creating a liability different from the one already assessed. Respondent No. 1 by issuing notice reopened the case and changed the assessment made by the Sales Tax Officer. Such action is completely without jurisdiction and void.
Mr. Sirajul Haq the learned counsel further contended that the petitioner is covered by section 2(16)(2) of the Sales Tax Act because sub-clause (1) refers to cases where sales tax and excise duty both are payable on the goods and as excise duty was not payable on the petitioner's goods it will fall outside the scope of section 2(16)(1). We do not find any force in this contention. Sub-clause (1) has been discussed above. It fixes the time and manner for payment of sales tax which should be the time and manner in which excise duty is payable whether it is chargable or not. We allow the petition and declare that the impugned notice and orders passed in pursuance thereof by respondent Nos.1, 2 and 3 are without lawful authority and of no legal effect.
M.B.A./E-49/KPetition allowed.