ORIENT STRAW BOARD & PAPER MILLS LIMITED, KARACHI VS COMMISSIONER OF INCOME-TAX, HYDERABAD, 1992 PTD-KARACHI-HIGH-COURT-SINDH 1369 (1992)

(a) Sales Tax Act (III of 1951)---

----S.7(1)---Notification No.9, dated 27-6-1951, item 62, Explanation-- Exemption ---Assessee, carrying on business of manufacture of straw-board, file board, chip board and grey board claimed exemption from levy of sales tax-- Explanation given under item 62 of the Notification No.9, dated 27-6-1962 (as amended) defines "chip board" in very precise technical terms and straw board manufactured by the assessee falls within such definition---No other construction of the explanation being possible, straw board manufactured by the assessee was entitled to exemption.

The State of Gujarat v. Sakarwala Brothers (1967) 19 STC 24 ref.

G. Sriramula Naidu and others v. Commercial Tax Officer (1975) 35 STC 531; Hunza Asian Textile and Woollen Mills Ltd. v. Commissioner of Sales Tax 1973 PTD 544; Usmania Glass Sheet Factory v. Sales Tax Officer PLD 1971 SC 705: Crescent Sugar Mills and Distillery Ltd. v. Commissioner of Income Tax 1981 PTD 43; Muhammadi Steamship Co. Ltd. v. Commissioner of Income Tax PLD 1966 SC 828 and Vidarbha Co-operative Marketing Society Ltd. v. Commissioner of Income Tax (1985) 156 ITR 42 mentioned.

(b) Interpretation of statutes---

---- Provisions providing exemption must be strictly construed.

Iqbal Naeem Pasha for Applicant.

Shaikh Haider for Respondent.

Date of hearing: 9th April, 1992.

JUDGMENT

NASIR ASLAM ZAHID, J.---On five reference applications of the applicant/assessee, in respect of the assessment years 1967-68 to 1971-72, under section 17(1) of the Sales Tax Act, 1951, the learned Income Tax Appellate Tribunal has referred the following question of law to this Court for opinion:--

"Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in holding that except for the three items (Class of Goods) specifically mentioned in Item No.62 of Notification No.9 dated 27-6-1951, i.e. Chip Board, Particle Board and Hard Board, no other goods manufactured by the applicant is eligible for exemption from levy of sales tax?"

We have heard Mr. Iqbal Naeem Pasha, learned counsel for the applicant/assessee and Mr. Shaikh Haider, learned counsel for the Department.

2. According to the statement of the case drawn up by the Tribunal, the applicant company carries on business of manufacture of straw-board, file board, chip-board and grey-board and assessee's case is that items manufactured by it were exempted from levy of sales tax in the relevant years vide item No.62 of Notification No.9 dated 27-6-1951 as amended vide Notification dated 30-6-1967 which read as follows:--

"In exercise of the powers conferred by subsection (1) of section 7 of Sales Tax Act of 1951, the Central Government is pleased to exempt the goods or class of goods specified hereunder being goods manufactured or produced in Pakistan from tax payable under the Act . ....................................................................

Item No.62. Chip-Board, Particle Board and Hard Board made out of indigenous waste products."

Explanation.--The word Chip Board and Particle Board as used in this entry means "a sheet material manufactured from small pieces of wood or other lingo-cellulosic materials e.g. Chips, Flaps, Splinters, Strands Silver etc. agglomerated by use of organic binder together with one or more of the following agents: heat, pressure, humidity, a catelyst etc."

3. The Sales Tax Officer repelled the contention of the applicant holding that straw board and grey board were not covered by Item No.62. Under the then existing law, the applicant, being dissatisfied with the orders passed by Sales Tax Officer, filed direct appeals before the Appellate Tribunal. By a consolidated order dated 15-5-1974, the Tribunal reached the conclusion that the Assessing Officer had failed to examine the applicant's pleas with regard to the assumption that sales of straw-board and grey-board manufactured by it were exempt from incedence of sales-tax and remanded the case for report to the Sales Tax officer with-the following observations and directions:--

" ....A perusal of the impugned order explicitly shows that the Sales Tax Officer, has not examined in details the plea of the assessee and that he has apparently discarded the assessee claim simply on the ground that these items by their very name do not appear under item No.62, and hence they are not covered by it. We are of the opinion that the above-noted contention of the appellant required a detailed enquiry and thorough probe before a final verdict could be given thereon. We therefore, deem it proper to direct the Sales Tax Officer to make thorough inquiry into the matter. He should first obtain in writing from the assessee, the manufacturing process of the Chip Board, Particle Board and Hard Board as well as that of the items manufactured by it and then examine such expert witnesses and record their relevant evidence as may be produced by the assessee in support of its contention. The Sales Tax Officer may also examine independent expert witnesses as he may deem proper but he would record their statements in the presence of the assessee so as to enable it to cross- examine them if it so desired. The Income Tax Officer should then submit a detailed report with his own opinion about the validity or otherwise of the above recorded contention of the appellant and forward his report alongwith relevant statements and other evidence which is adduced before him, within three months from the receipt of this order by him."

Pursuant to the aforesaid directions of the Appellate Tribunal, the Sales Tax Officer examined the experts and submitted his report to the Tribunal. However, the Tribunal decided to examine further the expert witnesses who had submitted their reports. The Tribunal issued summons to the Director-General, Testing Laboratory, Government of Pakistan and the Incharge of Customs Laboratory. The two expert witnesses from the said laboratories appeared before the Tribunal and their statements were duly recorded by the Tribunal in the presence of the parties' representatives, who were given a fair opportunity to cross-examine them. The Tribunal by its consolidated order dated 18-4-1979, decided that only chip-board, particle board and hard-board (specifically mentioned in Item.No.62 of the CBR's Notification) were exempted from levy of sales-tax and the scope of exemption could not be extended to other Items manufactured by the applicant and, as such, straw-board and grey-board manufactured by the applicant were subject to sales-tax.

In the circumstances, on the application of the assessee under section 17(1) of the Sales Tax Act, 1951. the aforesaid question has been referred to this Court for opinion.'

4. In the appellate consolidated order dated 18-4-1979 of the Income-tax Appellate Tribunal the entire case of the assessee and that of the Department, with detailed reference to the evidence of the two expert witnesses, has been discussed and thereafter the Tribunal decided that straw-board and grey-board manufactured by the assessee fell outside the scope of exemption. We consider it appropriate to refer to paras. 6 to 10 of the consolidated appellate order of the Tribunal which read as follows:--

"6. Mr. Irshad Muhammad Aslam of the Customs Department was first examined and various questions were put to him after showing the samples to him of items manufactured by the assessee-appellant. Mr. Irshad Muhammad Aslam deposed that the matter was referred to him by the Commissioner of Income Tax, Hyderabad under letter dated 9-12-1978 for necessary chemical test and Report whether the samples qualified to be considered as chip board, particle board and hard board within the meaning of item No.62 of CBR's Notification No.9 dated 27-6-1957 Mr. Irshad Muhammad Aslam deposed that technically all the samples qualified to be considered as Chip Board. They differed only in colour and thickness. Further, technically the ingredients constituting these boards also qualified them to be called Chip Board. He further deposed that if Chips are used the products will be called Chip Board and if straw is used the produce will be straw board. He also identified and examined the samples as Exhs. "B.C.E. & F' and said that these samples may be called Card Board, Straw Board of (GUTTA) in the trade. He again saw the samples Exhs. B to F and was of the opinion that these products should fall within the scope of definition of Chip Board. When cross-examined by Mr. K. Salahuddin, Advocate appearing on behalf of the appellant he stated that both chip and straw are lingocellulosic materials. About the binders, used for agglomeration in the samples tested by the Laboratory Mr. Irshad deposed that the wood and other lingocellulosic materials themselves contained inherent constituent being natural binding material like lignin and other gums. However, in the case of appellant sodium silicate had also been used for binding purposes.

7. The next expert witness, Mr. Abdul Aziz, Assistant Director, Chemicals of the Central Testing Laboratory was also examined and he deposed that he recognised the signature of Dr. Tufail Chowdhry appearing on the report sent to the department earlier on the relevant subject. He was shown the samples Exhs. B to F which were termed by him as Board and sub-classed as Chip/Straw Board. In some of the samples like those Exhs. B to F he could not find any difference except that of colour. According to him, the items manufactured contained lignin. He also deposed that particles of chips and straw were present in the samples. He also admitted that the binding material can be called an organic binder.

8. After examining the samples and on the basis of the evidence ,of experts the learned counsel appearing on behalf of the appellant, vehemently argued that the items manufactured by the appellant viz.

Chip Board, Straw Board and Grey Board were clearly made out of indigenous waste products and were manufactured from lingocellulosic material and were agglomerated by use of organic binder, and according to the actual manufacturing process involved like heat, pressure, humidity etc. as also the deposition made by the Exports, he contended that there could be no doubt that the aforementioned items also fell within the scope of item 62 of the Central Board of Revenue's Notification and were clearly exempt from levy of sales tax. The learned Departmental Representative on the other hand submitted that the law provide for exempt only to the following items.

"Chip Board, Particle Board and Hard Board:"

According to him, any other articles manufactured by the appellant like Straw Board and Grey Board clearly fell outside the scope of exemption notwithstanding the fact that the ingredients from which these items were manufactured as also binding material and the agents like heat, pressure, etc. were also the same as in the case of Chip Board etc. which has been declared as exempt. He further submitted that nothing, except what has been enumerated in item 62, could be considered as eligible for exemption from sales tax.

9. We have given careful consideration to the facts of the case and have also heard the opinion of the two experts. A plain reading of the item 62 which grants exemption from sales tax to certain items viz. Chip Board, Particle Board and Hard Board. It was for the sake of convenience, and to provide clarification that while allowing the exemption, the Legislature explained the words Chip Board and Particle Boards by Mentioning the raw materials utilised including the binding material and other agents utilised for giving them the shape of sheets. We are of the opinion that except for these three items exemption cannot be allowed to other items even if they are more or less of the same type and are also manufactured from the same ingredients from which the exempted items are manufactured. It is one of the basic principles of interpretation of statutes that taxing statutes have to be construed strictly as has been held in one of the important decisions:---

"In a taxing Act, one has to look merely at what is clearly said. There is no room for any intendments. There is no equity about a tax. There is no presumption about a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

In the case before us, the language used by the delegated legislature while granting exemption is quite clear and unambiguous. In our opinion it cannot and does not authorise the inclusion of other items even though the method of manufacture and the ingredients used may be the same. The Chemical Experts whose evidence was also recorded by us, did mention that technically speaking the various samples could not be distinguished from one another because except of colour and the difference in the proportion of ingredients they appeared to be alike. However, the fact remains that the items manufactured by the appellant bear different names and are marketed under different names and at different rates. Therefore, notwithstanding the observations of the Experts we cannot have any justification of extending the scope of the exemption to items other than chip board, particle board and hard board. In fact, if the legislature wanted to include other similar items they could have conveniently modified the language used so as to make it more exhaustive and applicable to all items manufactured by the aforesaid ingredients and in the manner as laid down in item 62.

10. For the reasons given above we, therefore, conclude that except for the three items specifically mentioned in the Notification referred to above, no other item manufactured by the appellant would be eligible for exemption from sales tax. This was one of the common grounds in the years under appeal and our finding will hold good in respect of the assessee-appellant's objection on this particular issue:'

5. According to the chemical experts, whose evidence had also been recorded by the Tribunal, samples of straw-board and chip-board manufactured by the assessee could not be distinguished from one and other because (except for colour and the difference in the proportion of ingredients) they were similar. From the aforesaid discussion in their order, it is apparent that the Tribunal came to the conclusion that, according to the "Explanation" in Item No.62, straw board fell within the meaning of the word "chip-board" but the Tribunal decided that straw board manufactured by the assessee was not exempted from sales-tax as straw-board and chip-board are different names and are marketed as such and at different rates. The Tribunal has not correctly considered the effect of the Explanation in Item No.62 and, after coming to the conclusion that straw-board fell within the meaning of "chip-board" as given in the Explanation of Item No.62, it ignored such definition/meaning of chip board in the Explanation and observed that if the legislature wanted to include straw-board or other items they could modify the language used so as to make it more exhaustive and applicable to all items manufactured by the aforesaid ingredients and in the manner as laid down in Item No.62.

6. In our view, the Tribunal erred in ignoring the definition or meaning of the term "chip-board" in Item No.62. According to us, in the Explanation, the word "chip-board" has been defined in very precise technical terms and as straw-board manufactured by the assessee fell within such definition according to the Experts' opinions, the straw-board manufactured by the assessee was entitled to exemption. The Explanation has given the definition of "chip-board" and "particle-board" and such definition could not be ignored as has been wrongly done by the Tribunal in its order dated 18-4-1979.

7. One learned member of the Tribunal, in his separate opinion, observed that the assessee wanted to extend the scope of the main Entry forgetting that the purpose of an "Explanation" is simply to explain the law and, by no known canon of interpretation of law, an Explanation can enlarge the scope of the original section or Entry. Here also the learned, member of the Tribunal fell into error in expressing such an absolute interpretation of an "Explanation" leaving no room for any exceptions. In the case of the present Explanation, the word "chip-board" in Entry No. 62 had been defined and as such, this was not a case of an explanation enlarging or modifying the meaning of an Entry. It has been described as an "Explanation" but in fact this Explanation defined "chip-board" and "particle-board" in a technical manner.

8. We may here refer to certain decisions referred by the learned counsel in support of their respective contentions. Mr. Iqbal Naeem Pasha, learned counsel for the applicant/assessee relied upon the following reported decision:-

(i) G. Sriramula Naidu and others v. Commercial Tax Officer (1975) 35 Sales Tax Cases 531.

In this decision by the High Court of Andhra Pradesh, it was observed that there is no general rule that an explanation can in no case enlarge the scope of the section to which it is appended and the purpose of the explanation ordinarily is not to limit the scope of the main provision. It was further observed that an explanation enacting a legal fiction can add to the cases falling within the main provision. Difference between a proviso and an explanation was also highlighted by observing that an explanation is quite different in nature from a proviso as the proviso excepts, excludes and restricts, while the explanation explains, clarifies or substracts or includes something by introducing a legal fiction;

(ii) The State of Gujrat v. Sakarwala Brothers (1967) 19 Sales Tax Cases 24.

In this decision by the Supreme Court of India, where the question was whether certain items were included in the definition of "sugar" for purposes of exemption from the sales tax, it was observed by the Supreme Court of India that a definition which refers to the Chemical contents of an article could not be said. to be a definition which is intended to cover the article as understood in common parlance, and it is with a view to give a meaning different from that which the article bears in common parlance that special definition had been given and it is not possible to interpret the words in the relevant Entry as only covering the term "sugar" as used in common parlance.

(iii) Hunza Asian Textile and Woollen Mills Ltd. v. Commissioner of Sales Tax 1973 PTD 544.

In this judgment by a Division Bench of the Lahore High Court, it was held that "woollen hosiery yarn" manufactured by the assessee was the same thing as "knitting wool" which was exempt from payment of sales tax under the concerned notification of exemption in view of the following entry of the notification:---

"75. Woollen yarn, all sorts, including knitting wool."

Mr. Shaikh Haider for the Department, on the other hand, relied upon the following decisions:---

(a) Usmania Glass Sheet Factory v. Sales Tax Officer PLD 1971 SC 705.

In this judgment, Supreme Court of Pakistan referred to Crates on Statute Law about the rules of construction of ordinary and technical terms and expressions as follows:---

"According to Craies on Statute Law, for the construction of ordinary and technical terms and expressions, there are two rules according to which such terms and expressions, are to be construed when used in an Act of Parliament. The first rule is that general statutes will prima facie be presumed to use words in their popular sense. The second rule is that if the statute is one passed with reference to a particular trade, business or transaction and words are used therein which everybody conversant with that trade, business or transaction knows and understands to have a particular meaning in it, then the words are to be construed as having that particular meaning which may differ from the ordinary or popular meaning."

(b) Crescent Sugar Mills and Distillery Ltd. v. Commissioner of Income Tax 1981 PTD 43.

In this judgment by a Division Bench of the Lahore High Court, reliance was placed on -the Supreme Court's judgment in the case of Muhammadi Steamship Co. Ltd. v. Commissioner of Income Tax PLD 1966 SC 828 for the principle of interpretation that provisions granting exemptions or privileges have to be construed strictly against the person claiming the exemption or the privilege.

(c) Vidarbha Cooperative Marketing Society Ltd. v. Commissioner of Income Tax (1985) 156 ITR 42:

In this judgment by the Bombay High Court also it was held that a provision conferring exemption from tax must be construed in a strict manner and the person who claims the exemption must fall within the four corners of the exemption provision.

9. Judgments relied upon by Mr. Shaikh Haider do not advance the case of the department. The proposition put forth by learned counsel for the department that exemption provisions must be strictly construed is well settled. In the present case, the exemption provision has been strictly construed but, from the definition/meaning of the term given in the Explanation, no other construction is possible. The decision of Supreme Court of India in the case of The State of Gujarat v. Sakarwala Brothers supports the case of the assessee that as the definition in Explanation to item No.62 refers to the chemical or physical contents of an article, it is not possible to interpret the word "chip board" in item No.62 as only covering the term chip board as understood in that particular trade and the reason for giving a technical definition was to give it a different meaning and, in this case a wider one.

10. In the circumstances, we are of the view that the Tribunal did not interpret Item No.62 with its Explanation correctly. The question referred to us is, therefore, answered in the negative.

There shall be no order as to costs.

M.B.A./O-23/KReference answered,