(a) Income-tax Act (XI of 1922)---

----S. 66-A---Sales Tax Act (III of 1951), S.18---Constitution of Pakistan (1973), Art. 185(3)---Time-barred appeal ---Condonation of delay---Appeals involving important legal issues having public importance---Appellants having submitted applications for obtaining certificates of fitness within time, which earlier was the procedure, and their conduct being bona fide, time spent in obtaining fitness certificate for filing appeals was excluded and memorandum of appeals were deemed to have been filed within time---Delay in filing appeals was condoned.

Bawany Jute Mills Ltd. v. Sales Tax Officer 1971 PTD 26; Commissioner of Sales Tax v. Haji Muhammad Hussain & Co. PLD 1974 Note 21 p. 57; Commissioner of Sales Tax v. Crescent Textile Mills Ltd. PLD 1975 Lah. 631; Colony Textile Mills Ltd. v. The Commissioner of Sales Tax 1980 PTD 201; Messrs Noorani Cotton Corporation v. The Sales Tax Officer PLD 1965 SC 161; Latif Bawany Jute Mills Ltd. v. The Sales Tax Officer, Companies Circle, Dacca 1971 PTD 26 and Commissioner of Income Tax v. Umar Sehgal PLD 1975 Lah.1558 rel.

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

----S. 3(6)(d)---Raw material---Ginned cotton and yarn constituted raw materials, i.e. partly manufactured goods that go into the making of yarn and cloth respectively.

Abbasi Textile Mills Ltd. v. Commissioner of Sales Tax P L D 1990 SC 422 rel.

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

----S. 3(1)(a), (4) & (6)(d)---Levy of sales tax---Partly manufactured goods whether liable to taxation---Ginned cotton and yarn constituting partly manufactured goods that went into the making of yarn and cloth respectively were liable to sales tax---Merely because such goods were assimilated into the end product would not get them out from the levy of sales tax.

Dada Soap Factory Ltd. v. The Commissioner of Income-tax 1987 P T D 420 and Hamza Asian Textile and Woollen Mills Ltd. v. Commissioner of Sales Tax, Rawalpindi 1973 P T D 544 ref.

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

----S. 2(12)---Expression `subject to the tax' used in S.2(12) elaborated.

Dada Soap Factory Ltd. v. The Commissioner of Income-tax 1987 PTD 420 ref.

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

----S. 2(12)---Legislative intent behind the enactment of the provision discussed.

Muhammad Ilyas Khan, Senior Advocate Supreme Court and Ch. Muhammad Aslam Chatha, Advocate-on-Record for Appellant (in all Appeals).

Nemo for Respondents (in Civil Appeals Nos.281, 355, 520, 521, 565, 568 and 603 of 1980).

Sh. Maqbool Ahmad, Advocate Supreme Court and S. Abul Aasim Jafri, Advocate-on-Record for Respondents (in Civil Appeals Nos. 360 and 514 to 517 of 1980).

Date of hearing: 2nd March, 1991.

JUDGMENT

RUSTAM S. SIDHWA, J.----This judgment will dispose of the above noted fourteen appeals filed by the Commissioner of Sales Tax, Lahore, appellant, against the various judgments passed by the Lahore High Court, some of which have answered the appellant's references in the respondents' favour by holding that the ginned cotton or yarn used in the manufacture of yarn and cloth respectively were not liable to sales tax and some of which have dismissed the appellant's references in view of the decisions already taken in the respondents's favour.

2. The questions of law involved in the above appeals are common. All the respondent companies held manufacturing licences issued under the Sales Tax Act, 1951 (hereinafter to be referred to as "the Act") in respect of the assessment years which are in dispute in these appeals. During the relevant assessment years the sales of yarn and cloth (including mazri cloth) produced and/or exported by the respondent companies were found to be exempt from payment of sales tax. Accordingly, the Sales Tax Officers charged to sales tax the ginned cotton and yarn which had been manufactured by them or had been bought by them free of tax under section 4 and had been used by them in the manufacture of such yarn and cloth respectively which was found to be exempt. The respondent companies however disputed the said levy on the ground that raw cotton constituted the raw material both for the yarn and the cloth which they had manufactured and as the raw cotton were "partly manufactured goods", no sales tax was payable on the raw cotton consumed in the manufacture of the yarn and the cloth. Reliance was placed by the respondents on Bawany Jute Mills Ltd. v. The Sales Tax Officer (1971, PTD 26) wherein levy of sales tax on the hessian which went into the manufacture of gunny bags, was successfully challenged. A Division Bench of the erstwhile Dacca High Court drew a distinction between leviability (liability to charge) under section 3(1)and "payability of tax" envisaged by section 3(4) of the Act; held the imposition of tax on hessian as untenable, as none of the taxing events mentioned in section 3(4) happened and further construed the word "use" appearing in section 3(6)(d) as independent utilization. On the basis of this enunciation, it was urged on behalf of the respondents that since yarn and cloth were chargeable to sales tax under section 3(1) (a) of the Act, though exempted by the Government under section 7 from its payability, the ginned cotton and yarn used in the production of yarn and cloth respectively, which were "subject to tax" being the "partly manufactured goods" within the meaning of section 2 (12), could not be charged to sales tax either under section 3(1) (a) or section 3(6) (d) of the Act. The plea of the respondent companies not having been accepted, they unsuccessfully challenged the said decisions of the Sales Tax Officers in appeals, whereafter references came up to the High Court under section 17(1) of the Act. The references filed were answered in the respondents' favour by the Lahore High Court in view of its decisions in the case of the Commissioner of Sales Tax v. Haji Muhammad Hussain & Co. PLD 1974 Note 21 at p.57 and the Commissioner of Sales Tax v. Crescent Textile Mills Ltd. (PLD 1975 Lah. 631). The Commissioner of Sales Tax sought leave to appeal against the said judgments, which leave teas granted to examine the view taken by the Lahore High Court in the case of Crescent Textile Mills Ltd. (supra).

3. On behalf of the appellant it is submitted that the legal questions involved in these appeals stand already answered by this Court in the case of Colony Textile Mills Ltd. v. The Commissioner of the Sales Tax 1980 PTD 201 with the result that these appeals should be accepted. On the basis of the said ruling it is contended that ginned cotton and yarn constitute the raw materials for production of yarn and cloth respectively and are therefore liable to sales tax. He also relies upon an earlier decision of this Court in M/s. Noorani Cotton Corporation v The Sales Tax Officer PLD 1965 SC 161 for the rule that where the end product is exempt from payment of sales tax, the partly manufactured goods which have been incorporated into or have gone into the making of the final product become chargeable to sales tax.

4. Amongst the respondents only one company is represented. Sh. Maqbool Ahmad, Advocate, appears on behalf of the Crescent Textile Mills Ltd. He submits that the raw material for the manufacture of yarn and cloth is not ginned cotton and yarn respectively, as urged on behelf of the appellant, but raw cotton, as held in the case of Crescent Textile Mills Ltd. (supra). He further submits that as sales tax was leviable on the end product, though exempted, the partly manufactured goods could not be taxed. In this connection he relies on Latif Bawany Jute Mills Ltd v. The Sales Tax Officer, Companies Circle, Dacca (1971 P.T.D. 26) and the Commissioner of Sales Tax v. Haji Muhammad Hussain & Co. PLD 1974 Note 21 at p.57.

5. We have heard the arguments of the learned counsel for the appellant and the respondent and have perused the record. The first question that arises is as regards limitation. Civil appeals CA. 565/1980 and CA. 566/1980 are within time. Civil appeal CA. 603/1980 is time barred by only six days, for which there is also adequate explanation, namely, that no date was given to the applicant by the Copying Branch when the certified copy would be ready and though the applicant had been visiting the Copying Branch again and again, he was not given the proper date. We in the circumstances of this case, condone the delay in respect of this appeal. The remaining eleven appeals are heavily time barred. In respect of these appeals the judgments of the High Court were delivered in October 1973 or October 1974, whereupon, under the old law, the Commissioner of Sales Tax submitted applications under section 18 of the Act read with section 66 (A) of the Income Tax Act, 1922, for grant of certificates of fitness, which applications unfortunately came up for hearing almost 2-3 years later in May 1976, when they were all disallowed by the High Court on the ground that they were no longer necessary after the promulgation of the new 1973 Constitution of Pakistan and by virtue of the law laid down by them in this behalf in the case of the Commissioner of Income Tax v. Umar Sehgal PLD 1975 Lah. 1558. At the time leave was granted in these appeals, it was observed that the question of limitation would be decided at the time of hearing. Considering that the applications for obtaining certificates of fitness were riled in time, which earlier was the procedure under the law, and considering that the appellant acted bona fide in the matter, we would exclude the time spent in obtaining the certificates and treat the petitions as having been filed within time. The appeals also involve the resolution of important legal issues having public importance. We would therefore condone the delay in respect of these appeals as well.

6. The question whether the ginned cotton and yarn constitute the raw material for the manufacture of yarn and cotton respectively, as urged by the appellant, or whether raw cotton constitutes the raw material for the manufacture of yarn and cotton, stands already answered by this Court in the case of Colony Textile Mills Ltd (supra) and Abbasi Textile Mills Ltd. v. Commissioner of Sales Tax PLD 1990 SC 422. In the said two cases this Court has clearly held that ginned cotton and yarn constitute the raw materials i.e. the partly manufactured goods, that go into the making of the yarn and cloth respectivley.

7. As regards the second proposition, namely, whether the partly manufactured goods can be taxed where the end product is not liable to the sales tax by virtue of any exemption notification, the same has been clearly answered in the affirmative by this Court in the case of Abbasi Textile Mills Ltd (supra), which has affirmed the rule stated in the case of Noorani Cotton Corporation (supra). In the case of Abbasi Textile Mills Ltd. Muhammad Haleem, CJ. Held that where the end product was not leviable to the sales tax, then the situation was met by the provisions of the last part of section 3(6) (d), that is to say the keeping of goods by the manufacturer for his own use, could be regarded as sale, as the scheme of the Act appeared to be to ensure that sales tax was paid only at one stage. The learned Chief Justice held that there appeared to be no doubt that section 3(6) (d) was a charging section according to its tenor and that the case was covered by the observations of this Court in the case of Noorani Cotton Corporation. At this stage our attention stands drawn to a judgment of the Division Bench of the Karachi High Court reported as Dada Soap Factory Ltd v. The Commissioner of Income Tax 1987 PTD 420 where section 2(12) of the Act has been examined in some depth. In this case the words "subject to the tax", as appearing in section 2(12), were examined in some detail to determine whether they implied leviability to tax or the actual payment of tax. The words "subject to contract" and "subject to shipment", as appearing in different contracts and which had received judicial interpretation, were found to be terms imposing conditions and obligations and as subject to a formal contract being executed or the shipment being actually made. Referring to various authorities, the Judges of the Karachi High Court came to the conclusion that what was intended by the words `subject to the tax' was that the sales tax was ultimately payable or had been paid, as distinguished from a case where it was not leviable, or was leviable but had been exempted. This decision basically clinches the true intent behind section 2(12), namely, that where partly manufactured goods lead to the production of different manufactured goods on which no tax is recoverable or payable, the said goods cease to be partly manufactured goods and if they have been produced or manufactured by the same producer or manufacturer, are liable to tax as manufactured or produced goods under section 3(1)(a), and if they have been bought by the manufacturer or producer free of tax by virtue of section 4, are liable to tax under section 12(1), as the said provision was before its amendment in 1973; thus maintaining the scheme of the Sales Tax Act which is to ensure that sales tax is paid only at one stage. Even the learned Judges of the Division Bench of the Lahore High Court, who rendered the judgment in Haji Muhammad Hussain's case, subsequently in Hamza Asian Textile and Woollen Mills Ltd v. L.Ommissioner of Sales Tax, Rawalpindi 1973 PTD 544 following the dictum laid down in Messrs Noorani Cotton Corporation's case, took a contrary view. In these circumstances, we have no hesitation in holding that ginned cotton and yarn constituted the partly manufactured goods that went into the making of yarn and cloth (including mazri cloth) respectively and that the said partly manufactured goods were rightly taxed, considering that the end products were held to be exempt from payment of sales tax by virtue of certain notifications, holding the field in that respect.

8. For the foregoing reasons, all these appeals are accepted with no order as to costs.

A.A./C-92/S???????????? ?????????????????????????????????????????????????????????????Appeals accepted.