1992 P T D 68

[Supreme Court of Pakistan]

Present: Muhammad Afzal Zullah, CJ.,

Saad Saood Jan and Rustam S. Sidhwa, JJ

Messrs SUFI SOAP FACTORY, LAHORE

Versus

THE COMMISSIONER OF SALES TAX, LAHORE

Civil Appeal No.230 of 1986, decided on 04/09/1991.

(From the judgment of the Lahore High Court, dated 8-1-1979 passed in Tax Reference No.327 of 1972).

Per Saad Saood Jan, J.; Muhammad Afzal Zullah, C.J. agreeing; Rustam S. Sidhwa, contra--

Sales Tax Act (III of 1951)---

----S. 12(1)---Goods sold by assessee which were purchased from the persons, other than the licensed manufacturers or licensed wholesalers and for which assessee was unable to lead any evidence to show that while purchasing the said goods which it later sold it had paid any sales tax, Sales Tax Officer, held, was entirely justified in calling upon assessee to pay sales tax by invoking C 12(1) of the Act.

Per Rustam S. Sidhwa, J: -

In the Case of Messrs Noorani Cotton Corporation P L D 1985 SC 161 and Commissioner of Income-tax v. Sh. Muhammad Ismail & Co. (1986) 53 Tax 122 (SC) ref.

Muhammad Amin Butt, Advocate Supreme Court and Rana MA. Oadri, Advocate-on-Record for Appellant.

M. Ilyas Khan, Advocate Supreme Court and M. Aslam Chaudhry, Advocate-on-Record for Respondent.

Date of hearing: 30th April, 1991.

JUDGMENT

RUSTAM S. SIDHWA, J.---This is an appeal by Messrs Sufi Soap Factory, Lahore, appellant, against the judgment of a learned Division Bench of the Lahore High Court dated 8-1-1979 answering the question posed in the tax reference in the affirmative and thus making the appellant firm liable to sales tax.

2. The brief facts of the case are that the appellant firm is a manufacturer of indigenous soap. The appellant firm also sells raw materials connected with the soap industry. With regard to the assessment year 1964-65 it declared sales of soap at Rs.118,788.62 and sales of soap raw materials at Rs.159,407.31. It showed the sales of soap as liable to sales tax under the Sales Tax Act, 1951 but the sales of the raw materials as free from any such liability. The Sales Tax Officer, `M' Circle, Lahore, vide his order dated 15-6-1980, charged the sales of soap to sales tax. With regard to the sales of raw materials, which were split up as under:--

(1)	Sales of Wooden Boxes, Empty drums etc.	Rs.2141
(2)	Sodium Silicate	Rs. 5587
(3)	Cotton Seed Oil	Rs.51188
(4)	Sales of Soda Caustic	Rs.28680
(5)	Rosin	Rs.8805
(6)	Coconut Oil	Rs.35494
(7)	Tallow	Rs.27512
		Rs.159407

The Sales Tax Officer found that all the purchases were made from local manufacturers and importers for which the appellant firm had not filed any certificates under Rule 16 of the Sales Tax Rules, 1951. The purchases were also partly un-vouched. Three of the items, namely, sales of wooden boxes, sodium silicate and cotton seed oil were treated as exempt by the Sales Tax Officer in view of the law exempting the same. He, however, held the sales of the other four items as liable to sales tax

3. Being aggrieved by the above order, the appellant firm preferred an appeal before the Sales Tax Appellate Tribunal. The Appellate Tribunal held that admittedly the appellant firm was a licensed manufacturer, that the normal presumption was that the raw materials had been purchased by the appellant firm on the strength of the manufacturing licence and thus without payment of sales tax and that even if it be conceded that the purchases were not made on the strength of the manufacturing licence, since the raw materials were purchased without payment of sales tax by the appellant firm and were not used in the manufacture or production of taxable goods, the said sales were liable to sales tax under section 3(1)(e) of the Sales Tax Act, 1951. The Tribunal also held that the raw materials were admittedly purchased from persons who were neither licensed manufacturers nor licence-holders and they had also been admittedly sold to persons other than licensed manufacturers or licence-holders and therefore, the provision of section 12(1) was clearly attracted and the levy of sales tax fully justified. The Tribunal accordingly rejected the appeal of the appellant firm.

4. Being aggrieved by the above order, the appellant firm filed a tax reference raising the following question of law:--

"Whether on facts and in the circumstances of the case the Tribunal was right in holding that the goods sold by the assessee which were purchased from persons other than the licensed manufacturers or licensed whole-Balers would be liable to tax under section 12(1) of the Sales Tax Act, 1951?"

The reference was heard by a learned Division Bench of the Lahore High Court, which answered the question in the affirmative.

5. The appellant firm thereupon petitioned the Supreme Court for leave to appeal, which leave was granted.

6. On behalf of the appellants it is contended that it carried on two distinct operations, namely, manufacture of washing soap and sale and trade of soap raw materials, which fact has been admitted both by the Sales Tax Officer and the Sales Tax Appellate Tribunal. It is submitted that the appellant firm purchased soap raw materials from shops in Akbari Mandi, none of whom held a manufacturer's licence or a whole-Baler's licence under the Sales Tax Act, except the Jallo Rosin and Therpentine Factory which held a manufacturer's licence and from whom the appellant purchased rosin. It is further contended that in respect of the soap manufactured by the appellant firm, the appellant firm was liable under section 3(1)(a) of the Act, which sales tax was paid and regarding which there is no dispute, but as regards its sales of soap raw materials to persons who were neither licensed manufacturers nor licensed wholesalers, the said sales were not chargeable under section 3 of the Sales Tax Act and therefore, the appellant was not liable for the payment of sales tax on the said sales. It is further submitted that it is an admitted position that the soap raw materials which were purchased by the appellant firm were purchased from persons who were neither licensed manufacturers nor licensed wholesalers and that they had been sold to persons who were neither licensedmanufacturers nor licensed wholesalers. It is further submitted that the soap raw materials, which are the subject of dispute, were not purchased for the manufacture of soap but were purchased for direct sale and, therefore, they did not constitute `partly manufactured goods', within the meaning of section 2(12) of the Act. In these circumstances, it is submitted that the application of section 12(1) does not arise, as the object of the said provision is that where a licensed manufacturer purchases goods from another licensed manufacturer or licensed whole-safer on the faith of a certificate issued by him under Rule 16 of the Sales Tax Rules, 1951, that he would use the partly manufactured goods purchased by him in the manufacture of other finished goods which would be ultimately liable to sales tax, but he does not use such partly manufactured goods but sells them to a person other than a licensed manufacturer or a licensed whole-safer and thus defrauds the Government of the sales tax which he (as the purchaser) would have paid, the Government is entitled to claim the tax which, but for the provisions of section 4 of the Act, he would have paid at the time of purchase. Since in the instant case the raw materials were not purchased from any licensed manufacturer or licensed whole-safer on the faith of any such certificate issued under Rules 14 to 16 of the Sales Tax Rules, 1951, the question of the Government having been defrauded of the sales tax payable by the purchaser does not arise. In these circumstances, it is submitted that the decisions of the sales tax functionaries below and of the High Court being against law, deserve to be set aside.

7. On behalf of the Sales Tax Authorities it is submitted that section 12(1) of the said Act clearly shows that where a licensed manufacturer purchases any partly manufactured goods without payment of sales tax and subsequently sells such goods to a person other than a licensed manufacturer or licensed wholesaler, he is liable to pay the sales tax leviable thereon under the Act. It is, therefore, contended that the appellant firm was rightly held liable for payment of sales tax on the sales of soda caustic, coconut oil, tallow and rosin.

8. I have given my anxious consideration to the arguments advanced by the learned counsel for the appellant and the Sales Tax Authorities and have also perused the record. Before dealing with the case, it is necessary to set out certain provisions of the Sales Tax Act which have relevancy to the case:--

Section 2(12)-- "partly manufactured goods" means only goods which are to be incorporated into and form a constituent or component part of an article which is subject to the tax.

Section 3(1): -- There shall be levied and collected a tax on the value of--

(a) goods produced or manufactured in Pakistan, payable by the manufacturer or producer;

(b)goods imported into Pakistan, payable by the importer;

(c)goods sold by a licensed wholesaler, payable by the licensed wholesaler; and

(d) such goods or class of goods as the Board may, by notification in the official gazette, specify in this behalf which are exported from Pakistan, payable by the exporter.

Section 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 a licensed manufacturer if the goods are partly manufactured goods; or

(f) goods sold by a licensed wholesaler to another licensed whole-saler.

Section 12.--(1) Subject to the provisions of subsection (4) of section 3, every person liable to pay tax under clause (a) or clause (c) of subsection (1) of section 3 and every licensed manufacturer who has either imported or purchased any partly manufactured goods without payment of sales tax and has subsequently sold such goods to a person other than a licensed manufacturer or a licensed whole-Baler (and every licensed exporter who had sold within Pakistan the goods purchased by him without payment of sales tax) shall, in such manner as may be prescribed, pay the tax leviable under this Act and where the goods have been sold by a licensed manufacturer (or a licensed exporter) in the circumstances specified above, the tax which should, but for the provisions of section 4, have been paid in respect of such goods at the time of their importation or purchase, as the case may be, within thirty days of the end of the month in which the goods in respect of which the tax is payable were sold).

(2) When any tax or penalty is payable in consequence of any order passed under or in pursuance of this Act, the Sales Tax Officer shall serve upon the assessee a notice of demand in the prescribed form specifying the sum payable.

(3)Any sum payable in accordance with subsection (2) shall be paid within the time and in the manner specified in the notice of demand.

(3-A) The Sales Tax Officer shall have power to extend the time as provided in subsection (3) on application made in that behalf.

(4) If a person fails without reasonable cause to pay tax as provided in subsection (1), subsection (3) or subsection 3-A, the Sales Tax Officer may direct that such person shall pay, by way of penalty, a sum not exceeding one thousand rupees and, in the case of a continuing default, a further sum not exceeding fifty rupees for every day during which the default continues."

9. The case relates to assessment year 1964-65. At that stage the sales tax was a one point tax. It was not payable by every seller of goods. It was only payable on--

(a)goods produced or manufactured in Pakistan, by the producer ormanufacturer;

(b)goods sold by a licensed wholesaler, by the licensed wholesaler;

(c) goods imported into Pakistan, by the importer; and

(d) such goods or class of goods as the Board may have, by notification in the official gazette, specified in this behalf, which were exported from Pakistan, by the exporter.

Under section 8 of the Act, all manufacturers, producers and exporters had to take out an annual licence, whereas under section 9, bona fide wholesalers could, at the discretion of the Central Government, be granted an annual licence, subject to furnishing of certain security, etc. In order to enable the licensed manufacturers, wholesalers and exporters to sell, import or export partly manufactured goods to other licensed manufacturers, wholesalers or exporters free of sales tax, section 4 excluded certain goods covered by certain transactions from payment of sales tax The effect of this exclusion provision was to enable partly manufactured goods to be used in, wrought into, or attached to other finished products which were liable to tax and to ensure that such partly manufactured goods could be purchased, imported 'or exported tax free; thus supporting the scheme of one point tax. In order to enable the licensed manufacturers to purchase partly manufactured goods from other licensed manufacturers or wholesalers free of tax, subject to the condition that they would use the partly manufactured goods in the finished product to be produced or manufactured by them, which would ultimately be liable to sales-tax section 4 of the Act excluded such goods from liability to sales tax. Where, however, I was found that the licensed manufacturer had either imported or purchased arty partly manufactured goods without payment of sales tax and had subsequently sold such goods to a person other than a licensed manufacturer or a licensed wholesaler, by the application of section 12(1) of the Act he was made liable for the sales tax which would, but for the provisions of section 4, have been paid in respect of such goods at the time of their importation or purchase as the case may be.

10. 4n 4order to understand what constitutes "partly manufactured goods", the case ofM/s. Noorani Cotton Corporation (PI.D 1985 SC 161) is of some assistance where in this Court held that the scheme of the Sales Tax Act, 1951, was to levy salestax only once on manufactured or produced goods which were offered for sale to the customer. In respect of a person who himself manufactured or produced goods and then incorporated them in another article, it held that there was no sale of the first manufactured goods because the person producing theca was only using them for manufacture of other goods and where the ultimate product was taxable, earlier manufactured goods which formed its constituents were not liable to sales tax. But where the last end product was not liable to sales tax, section 3(6)(d) of the Act made the keeping of the earlier manufactured goods for his own use a sale and thus liable to sales tax Likewise, where a person who manufactured the goods sold the same to another manufacturer for incorporation in another product, the device adopted under section 4 of the Act was that the sale of partly manufactured goods to another manufacturer was not liable to the charge of sales tax, leaving the final grad product liable to sales tax when sold. But where the end products in which thepartly ;manufactured goods were incorporated forsome reason was notliable to sales tax, . no tax on the partly manufactured goods was payable. To meet this case a limitation in the definition of "partly manufactured goads" was introduced so as to make the end product liable to tax. Thus where the end product was not liable to sales tax the earlier manufactured goods which constituted its ingredients, ceased to be party manufactured goods and becometaxable as manufactured goods.JI6iinI.bisq

11. It is admittedposition that the appellant firm manufactured washing soap and also dealt in soap raw materials. This is obvious from the very first sentence of the order of the Sale-Tax Officer dated 15-6-1870.This is also admitted by the sales tax appellate tribunal in very first sentence of Para2 of its order dated 3-7-1972.

12.The appellant firm in its sales tax returns of all quarters of the assessmentyear1964-65 showed the sales as under:---

Quarter ending	Total Sales	Exempted Sales	Net taxable sales
30-9-1964	73,637.77	51,343.23	22,294.54
31-12-1964	60,395.08	32,145.98	28,249.10
31-3-1965	35,513.87	12,013.38	23,500.48
30-6-1965	108,649.21	63,904.71	44,744.50
	278,195.93	159,407.31	118,788.62

13. The Sales Tax Officer dealt with both the categories of sales separately, namely, sales of soap produced or manufactured by the appellant firm, which were chargeable under section 3(1.10; of the .pct, and the sales of: raw materials which it held was liable under section 12(1) of the said Act. The sales in respect of the soap produced and manufactured by the appellant firm is riot in dispute. However the sales ofraw materials are in dispute, which is the subject of this appeal. The Sales Tax Officer treated the sales of wooden boxes sodium silicate and cotton seed oil as being exempt from sales tax. He therefore, did not charge any sales tax on the said items. As regards rosin purchased by the appellant firm from the Jallo Rosin and Therpentine factory, which was a licensed manufacturer; and caustic soda, which was purchased by the appellant firm from Khurshid Chemical Trading Co, Akbari Mandi Lahore, which was not a licensed manufacturer or wholesaler, the sales tax Officer held that all the bills produced did not show that the price was inclusive of sales tax and he therefore held that the exemption claimed could not be allowed. As regards coconut oil and tallow, he held that as the appellant had not produced any vouchers in support of the local purchases nor had been able to file certificates issued under rule 16,.the exemption claimed by the assessee could not be allowed.

14. The Sales Tax Appellate Tribunal held that the sales of the four disputed raw materials were chargeable under section 3(1)(e) of the Act (which provision was not in force in the assessment year 1964-65), and the even otherwise the appellant firm was liable under section 12(1). 1t then bold that issue hinged- on the question whether the appellant had purchase:.) the goods without payment of tax, or the price paid by it was inclusive of tax and since there was no evidence that the price paid was inclusive of tax; section 12(1) of the Act was clearly attracted.

15. The High Court treated the case on a totally different footing i.e. admittedly the goods were partly manufactured goods; which in any case was not the appellant firm's position. It held that the onus was on the appellant firm to prove that the partly manufactured goods had never been purchased with the intention to utilise them in the soap production and as they had not discharged that onus, they were liable to pay tax.

16. It is clear that the sale of the soap raw materials made by the appellant firm is not chargeable to sales tax under section 3 of the Act. This is the only section under which goods produced or manufactured in Pakistan, goods imported into or exported from Pakistan, or goods sold by a licensed wholesaler are liable to sales tax.

17. The next question is whether the sales of the raw materials are liable to sales tax under section 12(1) of the Acct. Section 12 is not a charging section. It falls within the Chapter dealing with "Payment and Recovery of Tax". This section basically deals with the time for payment i.e. when the sales tax is to be paid. Initially section 12(1) only dealt with the case covered by section 3(1)(a) and (c) of the Act. In 1961 a penalty or reimbursible provision was added which made licensed manufacturers, who had either imported or purchased any partly manufactured goods without payment of sales tax and had subsequently sold such goods to persons other than licensed manufacturers or licensed wholesalers, liable for the tax which would, but for the provisions of section 4, have been paid by them in respect of such goods at the time of their importation or purchase, as the case may be, within thirty days of the end of the month in which the goods in respect of which the tax was payable were sold. In the same year, i.e. 1961, an Explanation was also added to section 28 to permit this recovery to be made as escaped assessment. Section 4 provides that goods sold by a licensed manufacturer or a licensed wholesaler to another licensed manufacturer shall stand excluded from sales tax Rule 16 of the Sales Tax Rules provides that where a licensed manufacturer purchases partly manufactured goods from a licensed manufacturer or a licensed wholesaler, he shall submit to the vendor a certificate to the effect that the said partly manufactured goods shall be used in, wrought into, or attached to the final product to be produced or manufactured by him, which will be taxable. The certificate is prepared in duplicate, one copy being maintained by the vendor and the other by the purchaser. This enables the purchaser to purchase the partly manufactured goods tax free by earning the exclusion provided by section 4. Where such exclusion is earned, but the licensed manufacturer does not use the partly manufactured goods in the production of the final or end product, but sells the same to a person other than a licensed manufacturer or a licensed wholesaler, section 12(1) comes to the rescue of the Government to compel the purchaser licensed manufacturer to reimburse the sales tax which, but for the provisions of section 4, he would have paid in respect of such goods. In the instant case it is an admitted position that the appellant firm neither purchased the goods as a licensed manufacturer by issuing any false certificate under rules 14 to 16 to any licensed manufacturer or wholesaler or importer that it would be using the raw materials in any manufactured goods, nor purchased the goods from a licensed manufacturer or importer, nor sold the goods to a licensed manufacturer, wholesaler or exporter. The question of the appellant firm having to be called upon to produce such certificates in respect of the sales of the raw materials therefore does not arise. It is not the case of the Department that these raw materials were actually purchased free of tax by the appellant firm on the strength of such certificates, which having been discovered, the appellant firm is liable under section 12(1). In the absence of any such finding, the appellant firm is therefore not liable to pay tax under section 12(1) of the Act. It was an admitted position before the Sales Tax Officer and the Sales Tax Appellate Tribunal that the raw materials had neither been purchased from licensed manufacturers or wholesalers nor sold to any such persons nor had the appellant firm issued any certificates under rules 14 to 16 to its vendors. The High Court could not have changed this admitted position when dealing with this case. See the rule laid down in Commissioner of Income Tax v. Sh. Muhammad Ismail & Co. 1986, 53 Tax 122 at 127 SC. Strangely the High Court took the case into the field of partly manufactured goods, which was not even the case of the Department. Even if there were no purchase vouchers, the case could not be brought under section 12(1) of the Act. The orders of the Department and the judgment of the High Court are therefore against law and deserve to be set aside.

18. For the foregoing reasons, this appeal is accepted, the judgment of the High Court, dated 8-1-1979 is set aside and the sales of the appellant firm's raw materials are declared as not liable to sales tax. There shall be no order as to costs.

SAAR SAOOD JAN, J: --I regret I am unable to support the judgment proposed to be delivered by my learned brother.

2. The appellant is a firm. In the fiscal year 1964-65 it was engaged in the business of manufacturing soap. It had obtained a manufacturers' licence under section 8, Sales Tax Act, 1951. During the said year, its sales, apart from soap, included the following items:

(1) wooden boxes, empty drums, etc.;

(2) soda caustic;,

(3) sodium silicate;

(4) rosin;

(5) coconut oil;

(6) tallow; and

(7) cotton seed oil.

It may be mentioned that items Nos.2 to 7 are used as raw materials in the preparation of soap whereas item No.l comprised mainly packing material. The appellant claimed exemption from payment of sales-tax in respect of sale of all these items. The Sales Tax Officer rejected the claim with regard to items Nos.2,4,6 and 7, on the ground, mainly, that the appellant was unable to show that while purchasing these items it had paid any sales-tax in respect thereof. The appellant preferred an appeal before the Appellate Tribunal from the order of the Sales-tax Officer. Its case was that it had purchased theterms in question from the open market and had in the course of its ordinary business sold thesame in the same condition. It was, therefore, not liable to sale-tax on their sale. The learned Tribunal dismissed the appeal with the observations:

"Admittedly these goods were purchase by the licensed manufacturer and they were not used in the product' css1 of taxable goods having been sold out as such and not utilised in the goods manufactured by the appellant. Again section 12(1) provides that where a licensed manufacturer purchases any partly manufactured goods without payment of sales-tax and subsequently sells such goods to a person other than a licensed manufacturer or license holder shall pay the tax leviable under this Act. Now the-issue on which hinges the decision of this appeal is whether the appellant had purchased the goods without payment of sales-tax, or the price paid by it was inclusive of sales-tax. There is no evidence to show that the price paid by the appellant for the purchase of these goods was inclusive of sales-tax Only one item namely, rosin, was purchased by the appellant from a licensed manufacturer and although the purchase voucher did not show that any sales-tax had been charged or the amount of bill was inclusive of sales-tax and for that reason the Sales-tax Officer did not allow the appellant's claim for exemption in respect of the sales he has all the same observed that exemption will be allowed on production of certificate. As for the other goods these were admittedly purchased from persons who were neither licensed manufacturers or licence holders and these have also been admittedly sold to persons other '` than a licensed manufacturer or a license, holder, Thus the provisions of section 12(1) are clearly attracted and the levy of sales-tax is fully justified."

From the order of the learned Tribunal the appellant filed a reference application under section 17, Saes-tax Act, before the High Court, formulating the following question of law for its decision:

"Whether on facts and is the circumstances of the case the Tribunal was right in holding that the goods sold by the assessee which were purchased from persons other than the licensed manufacturers or licensed whole-sellers would be liable to tax under section 12(1) of the Sales Tax Act, 1951?

A Division Bench of the High Court answered the question in the affirmative with the observations:

"As it is admitted that the petitioner was manufacturer of soap and as the raw materials declared by it also pertained to the soap-production, the lower authorities rightly presumed that the said partly manufactured goods had been purchased for the manufacture of soap. The onus in that situation lay on the petitioner to prove that the same partly manufactured goods had never been purchased with the intention to utilise them in the soap production. The petitioner did not prove that and had also brought on record no material so that it could be considered now. It is a pure question of fact and cannot be gone into in this jurisdiction in the absence of any material. We told the learned counsel for the petitioner that we might have considered the question further only if the authorities below had either misread any evidence on record or had omitted to consider any other materials favourable to the petitioner. In this view of the matter section 12(1) of the Sales Tax Act would straightaway apply."

From the judgment of the High Court the appellant has come in appeal to this Court.

3. In support of this appeal it is contended that while assessing its liability to payment of sales-tax, the Sales tax Officers overlooked the fact that it was engaged in two entirely different trades, one of manufacturing soap and the other of retailing the raw material used in the manufacture of soap. So far as the second part of the business was concerned, it merely purchased the raw material from the open market and then sold it locally. A's it was neither the manufacture or producer of the raw material it could not be saddled with the liability to pay tax on its sale.

4. It may be stated at this stage that although the appellant alleged that it was carrying on two trades but it was not its case that the two trades were being run entirely independent of each other. Thus, it did not produce any record before the Sales-tax Officer indicating that it made separate purchases and kept separate accounts of the purchasers of the raw materials used in respect of each trade,

5.Section 3(1), Sales-tax Act, is the charging section .at the relevant time it reads as follows:

There shall be levied and collected a tax on value of--

(a) all goods produced or manufactured in Pakistan, payableby the manufacturer orproducer:

(b) all goodsimported in the Pakistan, payableby the importer;

(c) all goods sold by a licensed wholesaler, payable by the licensed wholesaler;

(d) such goods or classes of goods as the Board may, by notification in the official Gazette, specify in this behalf which are exported from Pakistan, payable by the exporter."

It will be noticed that under clause (a) the value of all goods produced or manufactured in Pakistan is subject to the levy of tax which is payable by the manufacturer or producer thereof.

6. Before proceeding further it will be of advantage to take notice of the definition of the expressions "goods" and "partly manufactured goods" as given in section 2 of the Sales-tax Act. According to clause (6) the expression "goods" "means all kinds of movable property other than actionable claims, money, stocks, shares and securities". According to clause (12) the expression "partly manufacturer goods" "means only goods which are to be incorporated into and form a constituent or component part of an article which is subject to the tax". It will be noticed that "partly manufactured goods" are covered by the definition of goods for the purpose of section 3(1)(a). It is not in dispute that the items in respect of which the claim for exemption of the appellant was turned down are all used in the making of soap and so far as manufacturing of soap is concerned they constitute the basic material. It may also be mentioned that none of these items is found in the natural state but requires some chemical or mechanical process for its production. However that may be, in so far as the business of the appellant was concerned the items constituted partly manufactured goods.

7. Ordinarily under clause (a) of section 3(1) the sales-tax is to be paid by the manufacturer or producer of goods. However, section 12(1) of the Act as in force during the relevant fiscal year stated:

"Subject to the provisions of subsection (4) of section 3, every person liable to pay tax under clause (a) or clause (c) of subsection (1) of section 3 and every licensed manufacturer who has either imported or purchased any partly manufactured goods without payment of sales tax and has subsequently sold such goods to a person other than a licensed manufacturer or a licensed wholesaler and every licensed exporter who had sold within Pakistan the goods purchased by him without payment of sales-tax shall, in such manner as may be prescribed, pay the tax leviable under this Act and where the goods have been sold by a licensed manufacturer or a licensed exporter in the circumstances specified above, the tax which should, but for the provisions of section 4, have been paid in respect of such goods at the time of either importation or purchase, as the case may be, within thirty days of the end of the month in which the goods in respect of which the tax. is payable were sold."

A perusal of this subsection will show that it not only lays down the time limit for the payment of tax, but also enlarges the classes of persons who are liable to pay the tax. Thus apart from persons specifically mentioned in clauses (a) and (c) of section 3(1), the following persons too have been saddled with the liability:

(i) a licensed manufacturer who has purchased any partly manufactured goods without payment of sales-tax and has subsequently sold such goods to a person other than a licensed manufacturer or a licensed wholesaler; and

(ii) a licensed exporter who has sold within Pakistan the goods purchased by him without payment of sales-tax.

On the facts of this case the appellant fell in category No.(i).

8. Section 4 of the Sales-tax Act excludes certain transactions from payment of the tax At the relevant time, as the said provision then stood, sales of partly manufactured goods by a licensed manufacturer or a licensed wholesaler to a licensed manufacturer were not liable to the payment of tax. It may be argued that the liability created by section 12(1) against the licensed manufacturer was referable to the transactions which stood excluded from payment of tax by operation of section 4. However, this argument cannot be allowed to prevail in view of the unqualified language of section 12(1) which while making the licensed manufacturer liable to pay tax does not specify the source of his purchase. Had it been the intention to restrict his liability to the transactions of the nature specified in section 4, section 12(1) would have contained some indication to that effect. On its plain reading no such intention is discoverable.

9. In order to save a licensed manufacturer from paying the sales-tax twice, that is, one at the stage of purchasing partly manufactured goods and, second, at the time of selling his own goods, provision was made in the Act for refund of the tax paid by him at the first stage. Thus, subsection (1) of section 27 stated:

"Where partly manufactured goods are purchased by a licensed manufacturer and tax has been paid on those goods on importation or on any previous sale, a refund of the amount of the tax so paid shall be made to the licensed manufacturer.."

10. Before the Sales-tax Officer the appellant was unable to lead any evidence to show that while purchasing the disputed items which it later sold it had paid any sales-tax. In the circumstances the Sales-tax Officer was entirely justified in calling upon it to pay sales-tax in respect of sales made by it of the disputed items by invoking the provisions of section 12(1), ibid. The assertion of the appellant that it was engaged in two activities, that is, one of manufacturing soap and the other of retailing items used in the manufacture ofsoap could be of no avail to it in avoiding tax in view of the clear provisions of section 12(1) particularly when, as noticed above, it did not care to show that the two trades carried on by it were entirely independent of each other. I would, therefore, uphold the decision of the High Court on the question formulated for its consideration and dismiss this appeal with costs.

MUHAMMAD AFZAL ZULLAH, C.J: --I agree.

M.BA./S-646/SAppeal dismissed.