FLYING KRAFT PAPER MILLS (PVT.) LTD. VS THE CENTRAL BOARD OF REVENUE
1996 P T D 576
[Supreme Court of Pakistan]
Before Saleem Akhtar, Saiduzzaman Siddiqui and Muhammad Bashir Khan
Jehangiri, JJ
FLYING KRAFT PAPER MILLS (PVT.) LTD.
versus
THE CENTRAL BOARD OF REVENUE and 2 others
Civil Petition No. 125 of 1996, decided on 18/03/1996.
(On appeal against the order dated 29-2-1996 passed by the Lahore High Court, Rawalpindi Bench in W.P. No. 1571 of 1995).
Sales Tax Act, 1990---
----S. 13(i)---Constitution of Pakistan (1973), Art.185(3)---Government Notification No. S.R.O. 580(1)/91---Entitlement to exemption from sales tax under the Notification---Original company went in liquidation in 1990-- Petitioner in liquidation proceedings of that Company purchased land, buildings, machinery spare parts etc. in Court auction in respect of which he was issued sale certificate by the Court---Petitioner (Company) was formed by auction- purchasers for setting up factory on property purchased in auction for production of specified paper and it claimed exemption on its products from sales tax for a period of 5 years in terms of Government Notification No. S.R.O. 580(1)/91-- Collector on inquiry found that petitioner did not qualify for exemption under said notification---Petitioner's Constitutional petition against Collector's decision was dismissed---Validity---Petitioner claimed that word 'industry" as used in said Notification had a definite meaning as distinct from the words "machinery and factory" and that even if a party after purchasing factory and machinery had also invested huge amount to convert it into a factory to produce a completely new product, same would be covered by the term "set up"; and that it was not necessary that it should be completely a new industry having no connection or relation with the machinery purchased earlier---Contentions raised by petitioner being questions of first impression, necessitated interpretation of relevant notification---Leave to appeal was granted in circumstances.
Commissioner of Wealth Tax, Madras v. Ramaraju Surgical Cotton Mills Ltd. AIR 1967 SC. 509 rel.
Irfan Qadir, Advocate and Ejaz Ahmed Khan, Advocate-on-Record for Petitioner.
K.G. Sabir, Advocate-on-Record for Respondents.
Date of hearing; 18th March, 1996.
ORDER
SALEEM AKHTAR, J. --The petitioner seeks leave to appeal against the order of the learned Judge in Chamber whereby the writ petition filed by paper used for manufacturing cement bags. According to the petitioner at that time the Pakistan Paper Corporation Ltd. was closed and no production was carried out. The petitioner in order to set up the industry for manufacturing totally new commodity for the first time in Pakistan, obtained franchise of Clupak Incorporated New York, who sent a team of its experts to examine the machinery of the defunct company to ascertain, its prospects to produce the standard Clupak extensible-sack kraft paper. They were of the view that the machinery was old and outdated and extensible sack kraft paper could not be manufactured by the existing machinery. The petitioner was advised to import new plant and machinery from abroad. The petitioner accordingly imported new plant and machinery of the value of Rs.40 million and also purchased locally made new machinery worth Rs.30 million and installed the same for the first time in its industrial concern for production of the new product. The petitioner went in production in October 1993 and is engaged in producing the same product. It is alleged that before going into production the petitioner by letter dated 14-9-1993 informed the Customs and Sales Tax Department, Nowshera Circle, that the company was going to manufacture this particular product and claimed exemption from sales tax under the following notification: ---
"S.R.O. 580(1)/91. --In exercise of the powers conferred by subsection (i) of section 13 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that all goods produced or manufactured by such industries which are set up in the North-West Frontier Province, and winder Industrial Estate, District Lasbella, Balochistan, between 1st July, 1991 and the 30th June, 1996, shall be exempt from the tax payable under the said Act for a period of 5 years from the date the industry is set up.
Explanation.--For the purpose of this notification, the expression 'set up' shall mean the date on which the industry goes into production including trial production, which date shall be intimated in writing by an intending manufacturer to the Assistant Collector of Sales Tax having jurisdiction in the area, at least fifteen days before commencing such production. "
This claim was rejected by the Collector. The petitioner filed Writ Petition No. 1/1995. By order dated 15-3-1995 the case was remanded to the Collector with direction to hold field inquiry and after hearing decide the following question: --
(i) The legal effect of liquidation of Pakistan Paper Corporation (Pvt.) Limited and the question whether the petitioner-Company would be deemed to be the successor of the previous establishment?
(ii) Whether the petitioner-company had "set up" a "new industry" as claimed by it or by merely buying of premises of an older set-up, it would disqualify itself to lay claim to be a new industry?
As the Collector did not decide the case, another writ petition was filed by the petitioner, which was dismissed on 8-5-1995 with the observation that the petitioner should approach the Collector for initiation and conclusion of the inquiry at an early date. The petitioner filed petition for leave to appeal in this Court and sought stay of recovery proceedings by the Collector. The recovery proceedings were stayed and the Collector was asked to conclude the -inquiry within 15 days. The Collector accordingly decided the case holding that the petitioner did not qualify for exemption under the said notification. The petitioner then challenged it in a writ petition, which was dismissed by the impugned order.
3. The learned counsel for the petitioner contended that after liquidation of Pakistan Paper Corporation (Pvt.) Limited, it lost its legal entity and having been purchased by the petitioner under the Court order, it was a new owner and not successor of the liquidated company. It was contended that for qualifying for the exemption under the notification, the goods should have been produced or manufactured by such industries, which arc set-up in the given area between 1-7-1991 and 30-6-1996. The learned counsel further contended that the words 'industries' and 'set-up' are the keywords. The word 'industry' has a definite meaning distinct from the words 'machinery and factory' and further that if a party after purchasing factory and machinery also invests huge amount to convert it into a factory to produce a completely new product will be covered by A the term 'set-up'. According to the learned counsel it is not necessary that the industry should be set up completely a new having no connection or relation with the machinery purchased earlier. The learned counsel has relied on Commissioner of Wealth Tax, Madras v. Ramaraju Surgical Cotton Mills Ltd. (AIR 1967 SC 509). The contentions raised seem to be questions of first IA impression, which require interpretation of the notification. Leave is granted.
4. The learned counsel for the petitioner has applied for stay of the recovery of sales tax. However, Mr. K.G. Sabir, Advocate-on-Record for respondents Nos.2 and 3 has filed documents to show that the petitioner has been charging sales tax from the customers. In these circumstances, stay is refused.
A.A./F-385/SLeave granted.