MESSRS MAPLE LEAF CEMENT FACTORY LTD. VS CENTRAL BOARD OF REVENUE
1996 P T D 238
[Lahore High Court]
Before Malik Muhammad Qayyum, J
Messrs MAPLE LEAF CEMENT FACTORY LTD.
Versus
CENTRAL BOARD OF REVENUE and others
Writ Petitions Nos. 1046 to 1048 of 1991, decided on 26/01/1995.
Sales Tax Act (III of 1951)---
----S. 3---Central Excises and Salt Act (I of 1944), S.3---Constitution of Pakistan (1973), Art.199---Constitutional petition---Payment of sales tax on sale of cement manufactured by assessee---Value of goods for the' purpose of assessment of tax was wholesale cash price for which goods of like kind or quality were sold or were capable of being sold to general body of retail traders---Manufacturers assessee had been paying sales tax at the value at which they sold products to wholesale dealers---Central Board of Revenue demanded that while calculating value of goods, charges which were borne by purchasers i.e., transportation charges, loading, unloading charges, octroi duty, export duty etc. should have been included in determining value of goods and sales tax should have been paid on such determined amount in terms of S.3, Sales Tax Act, 1951---Validity---Assessable value would be the value at which manufacturer sells its products to wholesale dealers and not the price at which wholesale dealers further sell products to secondary wholesalers---Where freight was not received as part of price but was separately borne by purchaser it could not be included while computing value for purpose of ad valorem assessment of duty tax---Demand of authorities requiring assessee to pay sales tax on value of goods inclusive of incidental phages like freight etc. which were not received by assessee but were directly incurred by purchaser's, was not sustainable ---Assessee was liable to pay sales tax on the ex-factory price received by them.
Vacuum Oil Company v. Secretary of State AIR 1932 PC 168; Ford Motor Company of India Ltd. v. Secretary of State AIR 1938 PC 15; Union of India v. I.I.C. Limited AIR 1993 Supp. (4) SCC 326; Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh 24 STC 487 (SC); Hindustan Sugar Mills v. The State of Rejasthan and others AIR 1978 SC 1496; TVL Ramco Cement Distribution Co. (Pvt.) Ltd. Tamil Nadu v. State of Tamil Nadu AIR 1993 SC 123; Ittehad Chemicals v. Islamic Repubic of Pakistan through Additional Secretary to the Government of Pakistan, Central Board of Revenue, Karachi and 2 others PLD 1993 SC 136 ref:
Raja Muhammad Akram for Petitioner.
Mansoor Ahmad, Standing Counsel for Respondents:
Date of hearing: 25th May, 1994.
JUDGMENT
This judgment shall dispose of Writ Petitions Nos.1046, 1047 and 1048 of 1991 as all of them arise in the similar circumstances and involve the same controversy.
2. The petitioners are the companies incorporated under the Companies Ordinance, 1984 and are being run in the public sector under the control of Ministry of Production, Government of Pakistan through State Cement Corporation of Pakistan. They manufacture cement in their plants situate at Iskanderabad. There is no dispute that the production of cement was subjected to payment of sales tax vide Notification No.523(1)/88, dated 26-6-1988 at the rate of 12-1/2% of the value of the cement. According to the petitioners, they have been faithfully discharging their liabilities and paying sales tax on the cement produced by them.
3. On 1st July, 1981, the Central Board of Revenue through Circular No.7 of 1981 conferred the powers of the Sales Tax Officer upon the Assistant Collector,. Customs and Central Excise who served notices upon the petitioners alleging that the sales tax paid by them was less than what was actually due as while determining value of the cement for payment of sales tax certain charges like loading, unloading, transportation, octroi duty and export tax etc. were not included. These notices were contested by the petitioners by pointing out that the petitioners had been selling the cement at the ex-factory prices fixed by the State Cement Corporation of Pakistan and as they had not received any payment on account of charges mentioned above, they were not liable to pay any sales tax on these charges.
4. On 17-12-1989, the Assistant Collector, Central Excise and Sales Tax, Sargodha upheld the claim of the Department that while calculating the value of the cement, the petitioners should have included incidental charges like transportation charges, loading, unloading charges, octroi duty, export tax etc. and by failing to do so, they had evaded the payment of sales tax. These orders of the Assistant Collector, were challenged by the petitioners before the Collector, Central Excise and Sales Tax/Appellate Assistant Commissioner who on 3-3-1990 accepted appeal holding that the petitioners were not liable to pay any sales tax on the transportation charges etc. as the sales made by them were on ex-factory basis.
5. No appeal or revision was filed by the Department against the order of the Collector but on 31-10-1990 respondent No.2 assumed suo motu jurisdiction and issued notices to the petitioners to show cause as to why the order of the Collector be not set aside in revision. The petitioners contested those notices on various grounds. However, on 10-8-1991 the Member, Sales Tax, Central Board of Revenue, Government of Pakistan, Islamabad, respondent No.2, set aside order of the Collector and restored that of the Assistant Collector. These revisional orders of respondent No.2 have been assailed by the petitioners in these petitions.
6. Raja Muhammad Akram, learned counsel for the petitioners has contended that as the cement was being sold by the petitioners to their stockists at the factory gate on ex-factory prices fixed by the State Cement Corporation of Pakistan, the value of the goods for the purpose of payment of sales tax was that price and the 'petitioners could not be asked to pay sales tax on charges tike octroi duty, transportation, unloading and loading which were not received by the petitioners from the buyers but were borne by them directly.
7. Mr. Mansoor Ahmad, learned Standing Counsel, has, however, opposed the petition and has submitted that all the charges form part of the sale price on which the petitioners were liable to pay sales tax.
8. It is common ground between the parties that under section 3 of the Sales Tax Act, 1951 sales tax was payable on the value of the goods and in view of proviso to section 3(4) of the Sales Tax Act, 1951, sales tax is to be levied and recovered in the same manner as the Central Excise duty leviable under the Central Excises and Salt Act, 1944. It thus becomes necessary to refer to section 3 of the Central Excises and Salt Act, 1944 which reads as under:---
"(3)???? Duties specified in the First Schedule to be levied.---There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods, produced or manufactured and on all excisable services, ,provided or rendered, in Pakistan, as, and at the rates, set forth in the First Schedule,
(4) With the prior approval of the (Federal Government), the Central Board of Revenue may, in lieu of levying and collecting under subsection (1) duties of excise on excisable goods, by notification in the official Gazette, levy and collect duties on the production capacity of plants, machinery, undertakings, establishments or installations producing or manufacturing such goods; and such notification shall specify--
(a) the guiding principles, for the determination of production capacity;
(b) the production capacity, as determined in accordance with such guiding principles, of the plants, machinery, undertakings, establishments or installations affected by it;
(c) The duty or rate of duty on production capacity; and
(d) The manner of collection of such duty.
9. As would appear from the above, the value of the goods for the i purpose of assessment of the tax is the wholesale cash price for which the goods of like kind or quality are sold or are capable of bring sold to the general body of the retail traders. As explained by the Privy Council in Vacuum Oil Company v. Secretary of State (AIR 1932 PC 168), the wholesale price is different and distinct from the retail price and the word "wholesale" has been used in law in contradistinction to "retail-price". In Ford Motor Company of India Ltd. v. Secretary of State (AIR 1938 PC 15), while interpreting section 30 of Customs Act, 1878, the Judicial Committee of the Privy Council observed that the price at which goods were sold to the distributors would be the wholesale cash price of those goods. In Union of India v. I.I.C. Limited AIR 1993 Supp. (4) Supreme Court Cases 326), while construing section 4(a) of the Central Excises and Salt Act, 1944, it was held that the assessable value would be the value at which the manufacturer sells its products to the wholesale dealers and not the price at which the wholesale dealers further sell the products to secondary wholesalers.
10. Applying these principles to the present case, it will be seen that there is no dispute that the Cement was sold by the petitioners at the factory gate at the prices fixed by the State Cement Corporation of Pakistan on ex-factory basis to its stockists. The title in the goods passed on to the purchasers at the time of sale at the gate. The responsibility for further charges like transportation, loading, unloading, octroi duty and export tax was that of the purchasers and not the petitioners. In fact these amounts never came into the hands of the petitioners and are not a component of the price. In these circumstances, it is difficult to accept the contention of the respondents that while calculating value of the goods for the purpose of section 3 of the Central Excises and Salt Act, 1944, the charges, which are borne by the purchasers, should also be included. As explained by the Supreme Court of India in Union of India v. IJ.C. Limited (AIR 1993 Supp. (4) Supreme Court Cases 326) the wholesale cash price would be the price charged by the petitioners from their distributors/stockists. Reference may also be made three other judgments of the Indian Supreme Court in the cases of Hyderabad Asbestos Cement Products Ltd. v. State of Andhra Pradesh (24 STC 487 SC), Hindustan Sugar Mills v. The State of Rajesthan and others (AIR 1978 SC 1496) and T.V.L. Ramco Cement Distribution Co. (Pvt.) Ltd., Tamil Nadu v. State of Tamil Nadu (AIR 1993 SC 123) in which it has been held that where freight was not received as a part of the price but was separately borne by the purchaser it could not be included while computing value for the purpose of ad valorem assessment of the duty/tax.
11. The contention of the petitioners' learned counsel that determining the value of the goods, the Department itself has been excluding such, like charges is also borne out by the two orders placed by him on the record. The first is the order' passed by the Deputy Collector, Central Excise, Rawalpindi on 5-2-1984 while the other was passed by the Deputy Collector, Central Excise, Peshawar on 28-2-1987 in the case of M/s. Nowshera Sheet Class Industries. '
12. It may also be mentioned that similar question came up for consideration before this Court in Ittehad Chemicals v. Islamic Republic of Pakistan (W.P. No. 5054/88) which was decided on 18-10-1988. In that case the sale of the goods had taken place on ex-godown basis and the price as giver in the price list was inclusive of transportation charges and octroi It was also noticed that the ex-godown price was higher than the ex-factory price. The two orders, dated 5-2-1984 and 28-2-1987 of the departmental authorities referred to in the preceding paragraph were relied upon before the learned Single judge who was pleased to observe as under:--
"Learned counsel for the petitioner has cited two cases where the Central Excise Officers have not included transportation charges and octroi, whilst calculating the wholesale cash price. These cases are distinguishable as no sales were effected at a place away from the factory. In the instant case the petitioner quoted through price lists ex-godown rates for Faisalabad and Karachi, which were higher than their ex-factory prices at Kala Shah Kaku and where the goods in dispute were old. Thus, the determination of the wholesale cash price in this case is in order."
13. It is clear from the above that where the goods are sold at the factory gate at a uniform price which does not include the transportation charges etc. there is no justification for including those charges while assessing the value of the goods for assessment of the sales tax. It is also to be noticed that the sale price received by the petitioners is uniform and the same for all the dealers irrespective of the destination to which the goods are clearly taken by them. It may also be mentioned that the appeal filed against the judgment of this Court in Ittehad Chemicals v. Islamic Republic of Pakistan (W.P. 5054/88) vide its judgment reported as Ittehad Chemicals v. Islamic Republic of Pakistan through Additional Secretary to the Government of Pakistan. Central Board of Revenue, Karachi and 2 others (PLD 1993 SC 136) on another ground. The Supreme Court, however, did not decide the question as to what would be the value of the goods for the purpose of assessment of duty under section 4 of the Central Excises and Salt Act, 1944 on the ground that there was a factual dispute between the parties in that respect. In the present case, however, as already observed, there is no controversy between the parties as regards facts. Even in the impugned order of respondent No.2, the position that the 'sale of cement had taken place on ex factory basis and price fixed by the State Cement Corporation of Pakistan and was not inclusive of freight/transportation charges has not been disputed.
14. It follows from the above 'discussion' that the demand of the respondents to the petitioners to pay sales tax on the value of the goods inclusive of the incidental charges like freight etc. which are not received by the petitioners but are directly incurred by the purchasers and not the ex-factory price received by them is not sustainable.
In view of what has been stated above, these petitions arc allowed with no order as to costs.
A.A./M-2577/L ,
?Petitions accepted.