M.F.M.Y. INDUSTRIES LTD. VS ADDITIONAL SECRETARY,
1991 P T D 513
[Karachi High Court]
Before Saleem Akhtar and Muhammad Hussain Adil Khatri, JJ
M.F.M.Y. INDUSTRIES Ltd.
versus
ADDITIONAL SECRETARY, Ministry of Finance, Islamabad and 2 others
Constitutional Petition No.212 of 1987, decided on 06/12/1990.
(a) Sales Tax Act (III of 1951)---
----S. 7---Central Excises and Salt Act (I of 1944); First Sched., item 07.01 & P.C.T. 48.07---Notification No. S.R.O. 620(1)/83, dated 7-6-1983---Import of rolls of paper specially manufactured for use of transfer of design ---Assessee printed/designed on rolls of papers imported by him for selling same in the market---Assessee's liability to pay sales tax---Marketability of such product was only due to the printing of design ---Assessee's product was thus covered by the description P.C.T. 49.08 which mentioned transfer---When goods manufactured by assessee were taken out of the description provided by P.C.T. 48.07 then same would not correspond with the description mentioned in item 07.01 of First Sched., Central Excises and Salt Act, 1944---Printing process of all sort falling under Chapter 49 P.C.T. except metal printing having been exempted from Sales Tax by Notification S.R.O. 620(1)/83, assessee's goods were thus, not liable to sales tax.
(b) Central Excises and Salt Act (I of 1944)---
----First Sched.---Constitution of Pakistan (1973), Art: 199---Goods mentioned in First Sched., Central Excises and Salt Act, 1944 were alone excisable goods and excise duty could be levied only on those goods---Petitioner's goods not falling under said category were not subject to excise duty---Excise duty levied on such goods of petitioner was declared to be without lawful authority and of no legal effect.
H.A. Rehmani for Petitioner.
Shaikh Azizur Rehman for Respondents.
Date of hearing: 26th November, 1990.
JUDGMENT
SALEEM AKHTAR, J.---The petitioner is a composite Textile Industry at Sindh Industrial Trading Estate Karachi. In the year 1982 the petitioner installed in its mills a printing unit for printing various designs on imported paper for consumption of silk fabrics industries. The designs were transferable and used to be transferred on silk fabrics by the consuming industries through heating process. On or about 21-8-1982 petitioner received a show-cause notice from respondent No. 3 alleging that certain quantity of the paper was not found in RG-1 store room and certain quantity was found in an adjacent room and thus there was violation of Rule 216 of Central Excise Rules of 1944: The petitioner was thus threatened with action under Rules 210 and 226 of the Central Excise Rules and also required to show-cause why the sales tax amounting to Rs.39,491.56 should not be recovered from the petitioner. The petitioner replied it explaining the stages of the printing process and the storage of the printed designs in the air-conditioned room which technically required for completing the process. Respondent No.3 by order dated 16-10-1982 dropped action under Rules 210 and 226 but held that the said printing of design was liable to excise duty as well as to Sales Tax at the time of clearance of the goods. The petitioner preferred an appeal against the aforesaid order but respondent No.2 dismissed the same by order dated 6-2-1983. The petitioner challenged this order in revision before respondent No.1 mainly on the ground that the printing of designs on imported paper could not be subjected to payment of excise duty nor the Sales Tax was payable thereon. The provision application was however dismissed by the order dated 26-8-1986.
The petitioner's claim is that it does not manufacture paper but imports paper on which it-prints designs and sells it in the market which is used by the consumers for transferring the design on silk fabrics. The imported papers are used by the petitioner for printing designs on it in its factory. The petitioner has claimed exemption under notification bearing S.R.O. 620(1)/83, dated 7-6-1983 which was amended by S.R.O. 665(1)/84, dated 30-7-1984. The notifications are reproduced as follows:--
"S.R.O. 620(1)/83.---In exercise of the powers conferred by subsections (1) and (2) of section 7 of the Sales Tax Act, 1951 (III of 1951), the Federal Government is pleased to direct that the following further amendment shall be made in its Notification NO.S.R.O.666(1)/81, dated the 25th June, 1981, namely:--
In the aforesaid Notification, in the table, against Sr. No.37 in column (1), for the entry in column (2) the following shall be substituted, namely:--
"37. Printing process all sorts falling under Chapter 49 except metal printing."
"S.R.O.665(I)/84: -In exercise of the powers conferred by subsections (1) and (2) of section 7 of the Sales Tax Act, 1951 (III of 1951), the Federal Government is pleased to direct that the following amendment' shall be made in this Ministry's Notification No. S.R.O. 620(I)/83, dated the 7th June, 1983, namely:--
In the aforesaid Notification, in the preamble, after the word `made', the words `and shall be deemed always to have been so made' shall be inserted."
The dispute revolves round the question whether the petitioner is manufacturing as described in P.T.C. 48.07 or it is only printing on imported paper as classified in P.T.C. 49.08. If the petitioner is not covered by P.T.C. 48.07 and is covered by P.T.C. 49.08 then it is exempted under S.R.O. 620(1)/83 from Sales Tax. So far Excise duty is concerned according to Mr. HA. Rehmani as the printing has not been mentioned in the First Schedule to the Central Excises and Salt Tax it is not excisable good and therefore duty cannot be charged: In this regard we will reproduce P.T.C. 48.07 as follows:--
"48.07. Paper and paperboard, impregnated coated, surface-coloured, surface decorated or printed not constituting printed matter within Chapter 49 in rolls or sheets."
This item is mentioned under Chapter 48 which is entitled "paper and paperboard and cellulose of paper or of paper-board". Note No.8 contained under this Chapter reads as follows:--
"Note 8: Paper, and paperboard and cellulose wadding, and articles thereof, printed with characters or pictures, which are not merely incidental to the primary use of the goods, are regarded as printed matter falling within Chapter 49.
P.C.T. 49.8 reads as follows:--
"P.C.T. 49.08:Transfers (Decalcomanias):"
Chapter 49 deals with `printed books, newspapers, pictures and other product of the printing industry manuscript typescript and plans. Note (a) states that paper, paperboard, or cellulose wadding, or articles thereof, to which printing is merely incidental to their primary use will not be covered by Chapter 49. The department seems to be of the view that the product of the petitioner falls under item No.0701 of the First Schedule to the Central Excises and Salt Act, 1944. Under the First. Schedule the excisable goods as defined by section 2(d) of the Act have been mentioned on which duty is levied. Item 0701 reads as follows:--
"0701: Paper and paperboard, all sorts including paste board, millboard, straw4oard and such other paper and paper-board, bonded, coated, corrugated, creped- crinkled, sensitized, impregnated, surface-coloured or surface decorated." Thirty paisa per kg.
A perusal of item 0701 will show that it relates to the product like paper, paperboard and other paper product as specified therein. These are the products of paper which if manufactured by the factory are subjected to excise duty. This description corresponds with P.T.C. 48.07 reproduced above. In 48.07 goods covered by Chapter 49 have been excluded. Likewise in Chapter 49 goods covered by Chapter 48 are excluded from the description and goods mentioned in Chapter 49. Chapter 49 deals with printing jobs and not the manufacture or production of paper or paperboard items. Printing job can be done on locally made paper or on imported papers but if printing is merely incidental to the primary use of the paper then it will not be covered by Chapter 49.
In the present case the petitioner does not manufacture paper. It is an admitted position that it imports rolls of paper which are specially manufactured for use of transfer of designs. The petitioner prints/designs on these rolls of paper and then sells it in the market. The consumers use this product for the purpose of transferring the design printed on these imported papers on silk fabrics through a heating process. Therefore design on imported paper is not ancillary to the use of the said paper. In fact its marketability is only due to printing of the design. It therefore seems clear that the product of the petitioner is covered by the description P.C.T. 49.08 which mentions transfer. Once the goods manufactured by the petitioner are taken out of the description provided by P.C.T. 48.07 then it will not correspond with the description mentioned in item 07.01 of the First Schedule to the Act. Since by notification dated S.R.O. 620(1)/83 printing processes of all sorts falling under Chapter 49 of the P.C.T. except metal printing have been exempted from sales tax the petitioner's goods are not liable to sales tax.
Now coming to the question whether the goods are subject to excise duty or not Mr. HA. Rehmani, the learned counsel has referred to section 2(d) of the Act. Excisable goods mean goods specified in para. I of the First Schedule as being subject to a duty of excise and include salt. Section 3 is the charging section which provides that there shall be levied and collected in such manner as may be prescribed duties on all excisable goods, produced or manufactured and on all excisable services provided or rendered in Pakistan as and at the rates set forth in the First Schedule. Therefore only those goods which are mentioned in the First Schedule to the Act are excisable goods and excise duty can be levied only on those goods. The goods falling under Chapter 49 of the P.C.T. have not been B included in the First Schedule therefore those goods are not subject to excise duty. We therefore declare that the orders passed by the respondents are without lawful authority and of no legal effect.
A.A./M-1332/KPetition accepted.