K. REHMAN MILK FOOD INDUSTRIES LTD., KARACHI VS COMMISSIONER OF SALES TAX, CENTRAL ZONE "A", KARACHI
1991 P T D 863
[Karachi High Court]
Before Saleem Akhtar and Muhammad Hussain Adil Khatri, JJ
K. REHMAN MILK FOOD INDUSTRIES LTD., KARACHI
Versus
COMMISSIONER OF SALES TAX, CENTRAL ZONE "A", KARACHI
I.T.R. No. 76 of 1983, heard on 20/02/1991.
(a) Sales Tax Act (III of 1951)---
----S. 11---Powers of Sales Tax Officer under S. 11---Assessee, an ice-cream manufacturer was charging delivery charges at fixed rate from every customer irrespective of the distance at which the ice-cream was supplied to him ---Assessee had to supply ice-cream at the shop of each shopkeeper through its refrigerated van and there could be no other way to supply the goods and the customers had no option but to pay the price fixed by the assessee---Held Sales Tax Officer had enough material to infer that the sale price declared by the assessee was not the price on which tax should be imposed because the assessee was charging a fixed amount from each customer higher than the so-called price---Provisions of S. 11, Sales Tax Act, 1951, therefore, were rightly invoked.
Assessee, an ice-cream manufacturer was charging delivery charges at fixed rate from every customer irrespective of the distance at which the ice-cream was supplied to him. It is also an admitted position that the assessee had to supply ice-cream at the shop of each shopkeeper through its refrigerated van. There could be no other way to supply the goods and the customers had no option but to pay the price fixed by the assessee.
Under section 11, Sales Tax Act, 1951, a discretion had been vested in the Sales Tax Officer to fix a fair price of the goods for purposes of assessment, which might be different from what the assessee claimed. Such discretion could be exercised when the Sales Tax Officer came to the conclusion that the price claimed to have been charged was not the usual and proper price of the goods and in the normal course of business the sale price was different from what had been declared by the assessee. The applicant was charging the price fixed for the goods plus delivery charges at fixed rate. Therefore, both these amounts were charged from each customer as price though bifurcated in record for purposes of assessment. In these circumstances, the Sales Tax Officer had enough material to infer that the sale price declared by the assessee was not the price on which tax should be imposed because the assessee was charging a fixed amount from each customer higher than the so-called price. There was thus sufficient material on record on the basis of which section 11 could be pressed in service and it had rightly been invoked.
(b) Sales Tax Act (III of 1951)---
----Ss. 2(16) [(after amendment by Finance Act, 1957), S. 11]---Interpretation of S. 2(16)---"Sale price"---Sale price as defined in S. 2(16) does not include servicing charges and is completely different from the fair price as contemplated by S. 11 of the Sales Tax Act, 1951.
Muktida Karim for Applicant.
Nasrullah Awan for Respondent.
Date of hearing: 20th February 1991.
JUDGMENT
SALEEM AKHTAR, J: --The Assessee is engaged in manufacturing and selling of the Ice-Cream. For the assessment year 1974-75, he declared the net loss of Rs.11,80,645 after deducting the delivery charges amounting to Rs.5,97,731. Later on, it was reduced to Rs.3,86,687 from the total sales of Rs.15,06,382. The applicant's contention was that the delivery charges do not form part of the sale price due to amendment by the Finance Act, 1957 in section 2(16), whereby word "servicing" has been deleted from the definition of "sale price". The Sales Tax Officer did not agree with this contention and included the delivery charges in the sale price and imposed the sale tax accordingly. The applicant filed an appeal against this order, which was dismissed and finally it approached the Tribunal, where also it failed. At the instance of the applicant, the following questions have been referred:--
"(1) Whether there was any material on record to conclude that the provisions of section 11 of the Sales Tax Act could be invoked? If so, were these invoked properly.
(2) Whether the Tribunal's interpretation of section 2(16)(ii) was correct for equating delivery charges with advertising, financing and other or any charges of similar nature."
QUESTION NO. l.---Under this question, the appellant is challenging the finding of the Tribunal on the ground that there was no material on record to substantiate such findings and further that it was not properly invoked. While dealing with the appeal, the Tribunal has expressed its opinion on the factual point in the following manner:--
"On the factual plane also it is clear from the Sales Tax Officer's order that the price charged by the appellant was inclusive of delivery charges. The basis of determining the delivery charges appears to be arbitrary because even when called upon to explain the difference in the expenses originally claimed at Rs.5,97,731 finally reduced to Rs.3,86,687 there remains an unexplained difference of Rs.2,11,094. Also, it appears that such charges have been shown at fixed rate and without reference to distances of delivery points. It was perhaps in these circumstances that the Sales Tax Officer pressed into service the provisions of section 11 of the Sales Tax Act:"
From this statement, it is clear that on applicant's own admission, it is charging delivery charges at fixed rate from every customer irrespective of the distance at which the ice-cream is supplied to him. It is also an admitted position that the applicant has to supply ice-cream at the shop of each shopkeeper through its refrigerated van. There can be no other way to supply the goods and the customers have no option but to pay the price fixed by the applicant. Now the question is whether, section 11 can be applied. Section 11 reads as follows:--
"11. Power to determine fair price.---Where goods subject to sales-tax under this Act are sold at a price which in the judgment of the Sales Tax Officer is less than the fair price on which the tax should be imposed, the Sales Tax Officer shall determine the fair price."
Under this provision, a discretion has been vested in the Sales Tax Officer to fix a fair price of the goods for purposes of assessment, which may be different from what the assessee claims. Such discretion can be exercised when the Sales Tax Officer comes to the conclusion that the price claimed to have been charged is not the usual and proper price of
3. the goods and in the normal course of business the sale price is different from what has been declared by the assessee. The applicant is charging the price fixed for the goods plus delivery charges at fixed rate. Therefore, both these amounts are charged from each customer as price though bifurcated in record for purposes of assessment. In these circumstances, the Sales Tax Officer had enough material to infer that the sale price declared by the assessee is not. the price on which tax should be imposed because the applicant is charging a fixed amount from each customer higher than the so-called price. We are, therefore, of the view that there was sufficient material on record on the basis of which section 11 could be pressed in service and it has rightly been invoked."
Our answer to Question No. l is in the affirmative.
QUESTION No .2:---It requires interpretation of section 2(16) of the Sales Tax Act, which reads as follows--
"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 (I 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:'
According to Mr. Muqtida Karim, the learned counsel for the applicant, under section 2(16) servicing charges cannot be treated as sale price. In this regard, the learned counsel has referred to the history of this provision up to the amendment made by the Finance Act, 1957, whereby the word "servicing" was deleted. Before amendment section 2(16) read as follows:--
"Sale price" means the price before any amount payable in respect of tax is added and includes any other charges for advertising, financing, servicing or any other charges of a similar nature contracted for at the time of sale whether charged separately or not."
After the amendment, the word "servicing" has been deleted, which is al significant change. According to the existing definition, the sale price, in respect of goods on which sales tax is payable at the same time and same manner as the Excise Duty, shall be, as provided under section 4 of the Central Excises and Salt Act, which is not relevant here. Where section 2(16)(ii) is applicable the sale price is inclusive of advertising. financing or other charges of similar nature. The words "other charges of similar nature" do not cover the word "servicing". These are general words preceded by specific words like advertising and financing. Therefore, applying the principle of ejusdem generis the general word shall take colour of the specific word precedingit and should be of the same genus, Reference can be made to the case of Don Basco High School v. The Assistant Director, E.O.B.I. and others reported m P L D 1989 SC 128. The word servicing cannot be covered by the terms of financing or advertising. By amending section 2(16) and deleting the word "servicing", the object of the legislature was not to include servicing charges in sale price as defined. Therefore, the sale price as defined by section 2(16) does not include servicing charges. It may, however, be clarified that sale price under section 2(16) is completely different from the fair price as contemplated by section 11 of the Sales Tax Act.
Our answer to question No.2 is in the negative.
M.BA./K-255/K Reference answered.