METALEX CORPORATION LTD. VS COMMISSIONER OF SALES TAX
1991 P T D 1018
[Supreme Court of Pakistan]
Present: Zaffar Hussain Mirza, Naimuddin and Ajmal Mian, JJ
METALEX CORPORATION LTD.---Appellant
Versus
COMMISSIONER OF SALES TAX---Respondent
Civil Appeal No.201-K of 1984, decided on 26/05/1991.
(From the judgment dated 22-12-1983 by High Court of Sindh in Sales Tax Reference No.103 of 1973).
(a) Sales Tax Act (III of 1951)---
----Ss. 7, 8, 3(1)(e) & 4---S.R.O. 475(K)-65, dated 14-5-1965---Constitution of Pakistan (1973), Art.185(3)---Leave to appeal was granted to consider the contention that the High Court erred in holding that 'once, it is established that F the raw material has been used in goods which were exempt from sales tax, those. raw materials will not be treated as partly manufactured goods and lose the character due to which the exemption is granted' and further that the conditions for exemption of sales tax on raw material used in partly manufactured goods were to be fulfilled at the time of purchase, and any subsequent exemption of the end-product would not nullify the exemption which was legitimately claimed and granted at the time of purchasing the raw material.
(b) Sales Tax Act (III of 1951)---
----S. 3(1)(e) [as amended by Finance Act (XII of 1967)]---Section 3 is a charging section and cannot be termed as procedural and is not retrospective in effect---By incorporating cl. (c) in S.3(1) of the Act, such goods or classes of goods purchased without payment of sales tax by a licensed manufacturer or producer of taxable goods as were not used in the manufacture or production of taxable goods were brought under the charge and the manufacturer or the producer was made liable to pay sales tax on such goods---Sales tax though was not payable in the past in such events but after the addition of cl. (e) in S.3(1), it became payable.
The provisions of clause (e) of subsection (1) of section 3 of the Sales Tax Act were wrongly termed as procedural. This clause was added in section 3 of the Act by Finance Act, 1967. Section 3 is a charging section. Originally it contained 4 clauses, which provided levy and collection of sales tax in 4 different events or stages. By incorporating clause (e) In section 3(1) of the Act, such goods or classes of goods purchased without payment of sales tax by a licensed manufacturer or producer of taxable goods as were not used in the manufacture or production of taxable goods were brought under the charge and the manufacturer or the producer was made liable to pay sales tax on such goods. Therefore, in the past in such events sales tax was not payable, but after the addition of clause (e) in 1967, it became payable. However, this clause was not given retrospective effect.
(c) Sales Tax Act (III of 1951)---
----S. 3(1)(e) [as amended by Finance Act (XII of 1967)]---S.R.O. No.475(K)-65, dated 14-5-1965---Whether raw material lying in stock on 15-6-1965 with an assessee who was a licences-holder; raw material used in the finished goods lying in his stock unsold on 15-6-1965 and raw material used in semi-finished goods under process on 15-6-1965 which were purchased without payment of sales tax on the strength of manufacturer's licences became liable to sales tax in the hands of the assessee on exemption of electric fans from payment of sales tax by S.R.O. No.475(K)-65 dated 14-5-1965.
In the present case the assessee was a licensed manufacturer of fans in Pakistan. Therefore, sales tax was leviable and was collected from the assessee on the fans manufactured by him till fans were exempted from payment of sales tax on 14-6-1965. But, the tax on raw material imported by the assessee was exempted by the Government from payment of sales tax under section 7 of the r Act. However, once the end-product was taxed the raw material on which sales tax was not paid could be taxed in the event of licensed manufacturer provided clause (e) of subsection (1) of section 3 was in existence. But, clause (e) was inserted by the Finance Act, 1967. The Tribunal considering it to be procedural applied it retrospectively and therefore, upheld the levying of sales tax on the raw material lying as, such on 15-6-1965 and used in the fans on which work was in progress and the raw material already used in the manufacture of fans up to June, 1965.
However, the High Court while relying on section 3 of the Act as to chargeability of the sales tax on the raw material or goods which were exempt from payment of sale tax erred in ignoring the fact that under section 3(11 of the Act sales tax was leviable and was collectable at the relevant time on the value of the raw material or goods as provided in clauses (a), (b), (c;) and (d). Accordingly, under clause (a) of section 3(1) of the Act, the fans manufactured or produced by the assesses were liable to tax before they were exempted from such payment on 15-6-1965. The raw material imported by the assessee, who was a licensed manufacturer, was exempted under section 7 of the Act. Therefore, it was clear that in the event and at the stage when the assessee imported the raw material it qualified for exemption from payment of sales tax and there was no provision in the Act to tax such goods at any subsequent stage. If at the time of import there was no exemption from payment of sales tax as provided in section 4(b) of the Act, the assessee would have paid sales tax in accordance with section 3(1)(a). But, once that stage or event passed subsequently, because the fans were also exempted from the payment of sales tax. Charge ability of sales tax on such goods could not revive in the absence of an express provision to that effect in section 3 of the Act, which was amended after two years after the relevant time, but without giving to it any retrospective effect.
Commissioner of Sales Tax v. Muhammad Hussain & Company 1974 PTD 20; Commissioner of Income-tax, East Pakistan v. Messrs Ayurvedic Pharmacy (Dacca) Ltd. and others PLD 1970 SC 93 and The Cape Brandy Syndicate v. The Commissioner of Inland Revenue 12 Tax Cases 358 ref.
Commissioner of Sales Tax v. Messrs Shaiq Corporation Limited P L D 1986 SC 731 applied:
.Ali Amjad, Advocate Supreme Court and Nizam Ahmed, Advocate-on Record for Appellant.
Shaikh Haider, Advocate Supreme Court and Muzaffar Hassan, Advocate-on-Record for Respondent.
Date of hearing: 26th May,1991
JUDGMENT
NAIMUDDIN, J.---In this appeal, by leave, the judgment of the High Court of Sindh dated 22-12-1983 passed in Sales Tax Reference No.103 of 1973, is impugned in the following circumstances:
2. The appellant is an assessee, carrying on business of manufacture and sale of electric fans. For the financial year 1965-66 the, appellant obtained manufacturing licences under section 8 of the Sales Tax Act, 1951.
3. After obtaining the licences, the appellant purchased raw material for the manufacture of electric fans and other goods from time to time. On the sale of raw material purchased by the appellant, no sales tax was charged as the appellant was a licensed manufacturer. However, the appellant was charged to sales tax on finished goods.
4. On 15-6-1965, the fans were exempted from payment of sales tax. Therefore, while framing assessment for the year 1964-65 on 14-5-1970 the Sales Tax Officer required the value of the raw material (i) lying in its stock on 15-6-1965, (ii) value of taxable raw material used in the fans on which work was in progress on the said date and (iii) the raw material already used in the manufacture of fans up to June, 1965, The appellant by its letter, dated 20-5-1970 informed the Sales Tax Officer that it could not furnish the value of the stock as on 15-6-1965 as the closing date of account was 31st March every year and also contested the chargeability of such raw material to sales tax.
5. The Sales Tax Officer, therefore, proceeded to assess the raw material remaining unused on 15-6-1965 at Rs.31,96,355 and the raw material used in the manufacture of fans lying in the stock at Rs.4,46,000 and the value of raw material used in finished goods which were in the process of manufacturing on 15-6-1965 at Rs.6,66,850. He accordingly determined the sales tax payable on these items at Rs.51,858.
6. Against the assessment order the appellant filed an appeal before the Income-tax Appellate Tribunal, but the Tribunal dismissed the same holding that the raw material mentioned above was chargeable to tax and remanded the case for re-determination of the value of raw material as the estimated value was excessive. The Tribunal also held that clause (e) of section 3(1) of the Sales Tax Act, which was added by Finance Ordinance, 1967, being procedural, was applicable to the case.
7. This led the appellant to file an application under section 17(1) of the Sales Tax Act, raising the following questions:--
4 "(1)Whether in the facts and circumstances of the case the Tribunal is right in holding that--
(i) raw material purchased by appellant and lying in stock on 15-6-1965;
(ii) raw material used in the finished goods lying in stock unsold on 15-6-1965, and
(iii) raw material used in semi-finished goods under process on 15-6-1965,
which were purchased without payment of sales tax on the strength of Manufacturer's Licences became liable to sales tax in the hands of the applicant on exemption of electric fans from payment of sales tax by S.R.0.475(K)-65 dated 14-5-1965?
(2) Whether in the facts and circumstances of the case the Tribunal is right in holding that clause (e) of section 3(1) of the Sales Tax Act. 1951 introduced for the first time by Finance Ordinance, 1967 is a measure of procedural or remedial nature and is, therefore, retrospective in application?
(3) Whether in the facts and circumstances of the case the Tribunal is right in holding that because at the time the Sales Tax Officer levied sales tax on raw materials, clause (e) of se5tion 3(1) of the Sales Tax Act had come into force, the Sales Tax Officer was right in assessing and levying sales tax thereon even though the raw materials were purchased in 1964 65 and even though the applicant was not the manufacturer of such raw materials?
(4) Whether in the facts and circumstances of the case the Tribunal is right in holding that clause (e) of subsection (1) of section 3 of the Sales Tax Act, 1951 as inserted by Finance Ordinance, 190>7 applies to the raw materials which were purchased without payment of sales tax on the strength of a valid manufacturer's licences granted under section 8 of the Sales Tax Act utilised and to be utilised for the manufacture of goods which were taxable at the time of purchasing and/or of utilization but became exempt as a result of statutory amendment?"
8. The High Court examined the above questions and by a detailed judgment, impugned in this appeal, answered the question No.1 in the affirmative and questions Nos.2 to 4 in the negative, and in effect upheld the order of the Tribunal, although for different reasons.
9. Leave to appeal was granted to consider the submission that the High Court erred in holding that `Once it is established that the raw material has been used in goods which were exempt from sales tax, those raw materials will not be treated as partly manufactured goods and lose the character due to which the exemption is granted' and further submission that the conditions for exemption of sales tax on raw material used in partly manufactured goods are to be fulfilled at the time of purchase, and any subsequent exemption of the end-product will not nullify the exemption which was legitimately claimed and granted at the time of purchasing the raw material.
9-A: Before examining the submissions it is necessary to set out the relevant provisions of sections 3 and 4 of the Sales Tax Act, 1951, as existing at the relevant time:--
"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) all goods imported into Pakistan, payable by the importer;
(c) all goods sold by a licensed wholesaler, payable by the licensed wholesaler;
(d) such goods or classes of goods as the Central Government may, by notification in the official Gazette, specify in this behalf which arc exported from Pakistan, payable by the exporter.
4. Notwithstanding anything contained in section 3, the tax shall not be payable on---
(a) goods sold by a licensed manufacturer to another licensed manufacturer if the goods are partly manufactured goods; or
(b) goods imported by a licensed manufacturer if the goods are partly manufactured goods; or
(c) goods imported by a licensed wholesaler; or
(d) goods sold by a licensed manufacturer to a licensed wholesaler or a licensed exporter; or
(e) goods sold by a licensed wholesaler to licensed manufacturer if the goods re partly manufactured goods; or
(f) goods sold by a licensed wholesaler to another licensed wholesaler:
Provided that if a licensed wholesaler sells goods to another licensed wholesaler at a price less than the value upon which the tax would be computed under clause (iii) or clause (iv) of subsection (3) of section 3. the vendor shall forthwith become liable to pay the tax upon the difference between such value and his sale- price:
Provided further that if a licensed manufacturer sells to any persons other than a licensed manufacturer partly manufactured goods on which no sales tax had been paid by him either at the lime of their import or purchase from another licensed manufacturer or a licensed wholesaler, or a licensed exporter sells within Pakistan the goods purchased by him without payment of sales tax, he shall pay the amount of sales tax which would, but for the exemption granted by this section, have been payable by him within seven days of the date on which the sale was made."
10. Clause (e) was added to section 3(1) of the Act by section 8 of Finance Act, 1967 (Act XII of 1967), which reads as follows:--
"(e) such goods or classes of goods purchased without payment of sales tax by a licensed manufacturer or producer of taxable goods as are not used in the manufacture or production of taxable goods, payable by such manufacturer or producer:"
11. In the present case the appellant is a licensed manufacturer of fans in Pakistan. Therefore, sales tax was leviable and was collected from the appellant on the fans manufactured by him till fans were exempted from payment of sales tax on 14-6-1965. But, the tax on raw material imported by the appellant was exempted by the Government from payment of sales tax under section 7 of the Act. However, once the end-product was taxed the raw material on which sales tax was not paid could be taxed in the event of licensed manufacturer provided clause (e) of subsection (1) of section 3 was in existence. But, clause (c) was inserted by the Finance Act, 1967. The Tribunal considering it to be procedural applied it retrospectively and therefore, upheld the levying of sales tax on the raw material lying as such on 15-6-1965 and used in the fans on which work was in progress and the raw material already used in the manufacture of fans up to June, 1965.
12. However, in our opinion the provisions of clause (e) of subsection (1) of section 3 of the Act were wrongly termed as procedural. This clause was added in section 3 of the Act. Section 3 is a charging section. Originally it contained 4 clauses, which provided levy and collection of sales tax in 4 different events or stages. By incorporating clause (e) in section 3(1) of the Act, such goods or classes of goods purchased without payment of sales tax by a licensed manufacturer or producer of taxable goods as were not used in the manufacture or production of taxable goods were brought under the charge and the manufacturer or the producer was made liable to pay sales tax on such goods. Therefore, in the past in such events sales tax was not payable, but after the addition of clause (e) in 1967, it became payable. However, this clause was not given retrospective effect.
13. Before the learned Division Bench of the High Court the case of Commissioner of Sales Tax v. Muhammad Hussain & Company' 1974 P T D 20, was cited on behalf of the appellant. In this case the facts were that an assessee was running a tannery and holding manufacturing licences under section 8 of the Sales Tax Act. It imported chemicals without payment of sales tax on the ground that they were partly manufactured goods which were required for use and consumption by the assessee in its own factory in manufacturing tanned leather. The assessee sold a part of the manufactured tanned leather locally. It also exported a part of the manufactured leather which was exempt from payment of sales tax on its exportation during the relevant years. The Sales Tax Officer held that the goods exported were exempt from payment of sales tax, but the raw material like chemicals etc. originally imported free of tax and used by the assessee in manufacturing tanned leather exported without payment of tax, would be taxable. Accordingly, he levied tax on those chemicals. The assessee in that case filed an appeal before the Appellate Assistant Commissioner, which was allowed. That order was also upheld by the Tribunal. The Revenue filed a reference under section 17(1) of the Sales Tax Act and referred the following question:--
"Whether the Tribunal was right in giving a finding that no sales tax is leviable under the Sales Tax Act on the facts and circumstances of this case in respect of the raw material which after having been imported without payment of sales tax by the respondents-licensees under section 8 of the Sales Tax Act, was used for the manufacture of goods which were exported?"
14. The learned Division Bench, after considering the provisions of the Sales Tax Act observed that in the scheme of the said Act there is a distinction between the chargeability and payability and further held that the goods might be chargeable to tax but payability might be exempted and on this basis the machinery provided for recovery of tax cannot be brought into operation, and the question was answered in the affirmative. However, the High Court in the present case relied on the following observations made in the cited case:--
"The answer to the question referred to us shall depend on the interpretation of those provisions on which both the parties have relied before us. In general there are three stages in the administration of a taxing statute. The liability is imposed by the - charging section. Then there are machinery provisions providing for the assessment to enable the liability to be quantified. Lastly there are the provisions for the collection and payment for the tax enforced against the subject."
And observed as follows-.--
"This distinction runs through the whole of the Sales Tax Act, 1951 as well. Studied in this light, section 3(1)(b) of the Act creates the liability and lays down that the tax shall be levied and collected' on the value of all goods imported into Pakistan payable by the manufacturer. In other words thereby all goods imported into Pakistan are subject to tax But section 4(b) lays down that notwithstanding anything contained in section 3 the tax shall not be `payable' on goods imported by a licensed manufacturer if the goods are partly manufactured goods. This section only means that although the goods imported into Pakistan are without any exception subject to the tax but the actual payment of the tax on the partly manufactured goods by the licensed manufacturer is excused. In this connection section 7(1) lays down that the Central Government may, by notification in the official Gazette, exempt any goods or class of goods or any person or class of persons from the tax `payable' under this Act. This provision further fortifies us in the conclusion that under the Act the liability to the tax must be distinguished from the payability of the tax. There is no inconsistency in this and the two things are quite compatible with each other. Indeed the question as to the payment of tax and its exemption from the payment can arise only after the charge and the liability to tax has been created. Section 3 of the Act subjects to the tax all goods mentioned therein and lays down that there shall be levied and collected a tax on them. But notwithstanding anything contained in section 3 the tax shall not be payable on certain transactions enumerated in section 4 of the Act. In spite of the liability to tax its payment may be exempted. The exemption from payment may be allowed although undoubtedly the goods are subject to the tax imposed on them under section 3 of the Act."
The High Court disagreeing with the observations made in the cited case further observed as under:--
"In this connection section 4(b) provides that the tax shall not be payable on goods imported by a licensed manufacturer if he produces `partly manufactured goods'. As already mentioned above section 2(12) defines `partly manufactured goods' to mean only goods, which are to be incorporated into and form a constituent or component part of an article, which is 'subject to the tax'. In the context the expression `subject to the tax', has reference to section 3 to mean charged to tax under it."
15. However, we think that the High Court in the case in hand while relying on section 3 of the Act as to chargeability of the sales tax on the raw material or goods which were exempt from payment of sale tax erred in ignoring the fact that under section 3(1) of the Act sales tax was leviable and was collectable at the relevant time on the value of the raw material or goods as provided in clauses (a), (b), (c) and (d). Accordingly, under clause (a) of section 3(1) of the Act, the fans manufactured or produced by the appellant were liable to tax before they were exempted from such payment on 15-6-1965. The raw material imported by the appellant, who was a licensed manufacturer, was exempted under section 7 of the Act. Therefore, it is clear that in the event and at the stage when the appellant imported the raw material it qualified for exemption from payment of sales tax and there was no provision in the Act to tax such goods at any subsequent stage. If at the time of import there was no exemption from payment of sales tax as provided in, section 4(b) of the Act, the appellant would have paid sales tax in accordance with section 3(1)(a). But, once that stage or event passed subsequently, because the fans were also exempted from the payment of sales tax, chargeability of sales tax on such goods could not revive in the absence of an express provision to that effect in section 3 of the Act, which was amended after two years after the relevant time, but without giving to it any retrospective effect. Thus, in our opinion Commissioner of Sales Tax v. Muhammad Hussain & Co. (supra) was applicable to the case in hand.
16. The learned High Court in the judgment under appeal, relied on (1) S. Muhammad Din & Sons v. Sales Tax Officer Special Circle PLD 1977 Lah. 1225, (2) Colony Textile Mills Ltd. v. Commissioner of Sales Tax 1976 PTD 128 and (3) Messrs Paracha Textile Mills Ltd. v. Commissioner of Income-tax 1980 PTD 17. However, all these cases are distinguishable on facts as well as on the principle decided therein. Indeed, in none of those cases section 4(b) came up for interpretation.
17. However, we are fortified in our view by a recent judgment of this Court in Commissioner of Sales Tax v. Messrs Shaiq Corporation Limited PLD 1986 SC 731; Although this case relates to partly manufactured goods which had been assimilated in the production of the fans and, therefore, partly applies to the present case, because in this case also sales tax was levied on the goods which were imported by the appellant and had already been assimilated in the fans on 14-6-1965 for the reason that they had lost their original shape and could not be subjected to any event as prescribed under section 3(1)(b) of the Act. It may be pertinent if the relevant portion of the judgment is reproduced here. It reads as under:--
"Now coming to the facts of the case, the assessee was a licensed manufacturer of electric fans and was exempt from the payment of tax on partly manufactured goods imported for being incorporated into the end product under section 4(b) of the Act. The partly manufactured goods in normal course were leviable to charge under section 3(1)(b) and the stage at which the sales tax was payable was after import but before clearance by the Customs authorities under section 5(1)(b) of the Act. That stage had passed away. The partly manufactured goods had been assimilated in production of fans, and the critical date on which these were sought to be assessed for payment of tax was the closing date, that is, 14th June, 1965. On that date they had lost their original shape and could not be subjected to any event as prescribed under section 4(1)(a) and (b) of the Act. That being so they were not liable to the payment of the tax. In this context the High Court rightly decided the case on the basis of the two judgments cited above while distinguishing Noorani Cotton Corporation's case."
18. This case will also apply to the raw material lying in stock of the appellant on 15-6-1965 as well as the raw material used in the fans on which work was in progress on the said date because the stage or event at which the sales tax was payable had already passed.
19. We may also refer to the judgment of this Court in Commissioner of Income-tax, East Pakistan v. Messrs Ayurvedic Pharmacy (Dacca) Ltd. and others P L D 1970 SC 93, in which the provisions of section 3(1) of the Sales Tax Act as well as the question of exemption alongwith another question of turn-over came up for consideration. In this case it was observed by Abdus Sattar, J., Hamoodur Rahman, C.J. and M.R. Khan, J. agreeing - as follows:--
"Once some goods have been exempted under section 7, they go out of the purview of the Act and their gross takings cannot be taken into account for any of the purposes of the Act in the absence of express words permitting the same."
20. It may be of advantage if we here recall the following observation of Rowlett, J., in the case of The Cape Brandy Syndicate v. The Commissioner of Inland Revenue 12 Tax Cases 358:
"That in taxation you have to look simply at what is clearly said. There is no room for any intendment; there is no equity about a tax: there is no presumption as to tax; you read nothing in; you imply nothing, but you look fairly at what is said and at what is said clearly and that is the tax."
21. Therefore, for all these reasons, we set aside the impugned judgment and opinion of the High Court so far as it answers the question No.l and we answer it in the negative but so far as it answers the questions Nos.2, 3 and 4 in the High Court. However, in the circumstances of the cases, we leave the parties to bear their own costs.
M.B.A/-1557/SOrder accordingly