MESSRS WILSHIRE LABORATORIES (PVT.) LTD. VS FEDERATION OF PAKISTAN, 1998 PTD-LAHORE-HIGH-COURT-LAHORE 3061 (1998)

Sales Tax Act (IX of 1990)---

----S.13 & Sixth Sched., Items 42 & 43--S.R.O.105(I)/97, dated 13-2-1997- Constitution of Pakistan (1973), Art. 199---Constitutional petition-- Exemption---Import of raw material for manufacture of pharmaceutical products---Withdrawal of exemption vide S.R.O. No. 105.(1)/97, dated 13-2-1997---Effect---Held, nature of S.R.O. 105(1)/97, dated 13-2-1997 being beneficial effect of notification of withdrawal was not to take away the exemption itself but to remove the restrictions placed for availing of the exemption---Authorities, therefore, had no lawful authority to demand sales tax on the imported pharmaceutical raw material covered by Items 42 & 43, Sixth Sched. of the Sales Tax Act, 1990.

The relevant items of the 6th Schedule are in two parts, first grants an exemption from the payment of customs duty and the second part lays down conditions subject to which that exemption is to be availed of in case the goods are imported. In that behalf, originally the condition laid down was that in the case of imported goods the importer has to fulfil the same condition in order to avail of the exemption as would be requirement in case of claim of exemption from the customs duty. Subsequently, the exemption from the customs duty stood withdrawn with the consequence that in order to avail of the exemption under the Sales Tax Act, 1990 the importer was no longer required to fulfil the same conditions as he would have been required to do in case of import from abroad under the Customs Act, 1969. The effect of the amendment in the relevant items of the 6th Schedule of the Sales Tax Act, 1990 was not to take away the exemption itself but to remove the restrictions placed for availing of the exemption. The amendment appears to be beneficial in nature.

The Authorities had no lawful authority to demand sales tax on the imported pharmaceutical raw material covered by Items 42 and 43 of the Sales Tax Act, 1990.

Talat Farooq Sheikh for Petitioner.

A. Karim Malik for Respondents.

Date of hearing: 20th February, 1998.

JUDGMENT

This judgment shall dispose of Writ Petitions Nos.29612 of 1997, 2222 of 1998, 1492 of 1993, 1684 of 1998 and 2077 of 1997, in all of which same question arises for determination.

2. The petitioners in all these petitions are manufacturers of pharmaceutical products and for the purposes of manufacturing pharmaceuticals, they import raw material from abroad. There is no dispute that in view of section 13 of the Sales Tax Act, 1990, import of goods specified in Sixth Schedule shall, subject to such conditions as may be specified by the Board, be exempt from sales tax under the Act. Again it is common ground between the parties that the raw material for the basic manufacture of pharmaceuticals is exempt from payment of sales tax as per Items 42 and 43 of the 6th Schedule which reads as under:

"Item 42. Raw materials for basic manufacture of pharmaceutical active ingredients; if imported these will be subject to similar conditions as are envisaged for the purposes of the Customs Act, 1969 (IV of 1969)

Item 43. Raw materials for manufacture of pharmaceutical products; if imported these will be subject to similar conditions as are envisaged for the purposes of Customs Act, 1969 (I of 1969)."

3. Earlier import of raw material was also exempt from payment of customs duty if used exclusively for the manufacture of pharmaceutical products. However, this exemption was subsequently withdrawn vide S.R.O. No.105 (I)/97, dated 13-2-1997 After the withdrawal of the exemption from the payment of customs duty, the Sales Tax Department started demanding the payment of sales tax also on the import of raw material on the premises that since the exemption from payment of customs duty has been withdrawn, the exemption under the Sales Tax Act, 1990 also stood withdrawn. Earlier, the Central Board or Revenue appears to have taken a contrary view by issuing a circular dated 8-11-1997, which was, however, subsequently withdrawn on 27-11-1997, which has obliged the petitioners to file these petitions.

4. The learned counsel for the petitioner has contended that the petitioners have a right to import pharmaceutical raw material without payment of sales tax in view of exemption granted under section 13 read with Items 42 and 43 of 6th Schedule of the Sales Tax Act, 1990 and the exemption from the payment of sales tax, being separate and distinct from the exemption of payment of customs duty under the Custom Act, 1969, the withdrawal of exemption under the latter Act cannot ipso facto take away the exemption granted under the Sales Tax Act, 1990.

5. Mr. A. Karim Malik, Advocate, appearing for respondents who is assisted by Mr. Ahmad Rauf, Assistant Collector, NLC Dryport Thokar Niaz Beg, Lahore, has defended the stand taken by the Central Board of Revenue by arguing that the exemption from payment of sales tax was not unconditional and absolute and on the other hand, Items 42 and 43 of thek6th Schedule to the Sales Tax Act, 1990 themselves have provided that the exemption from payment of sales tax shall be subject to the same conditions as are applicable to the exemption granted from the payment of customs duty and as the exemption from customs duty has been withdrawn, the same applies to the sales tax also.

6. I am not impressed by the argument being raised by the learned counsel and Assistant Collector. On the face of it, it appears to be attractive but it does not stand the test of deeper scrutiny. The relevant items of the 6th Schedule are in two parts; first grants an exemption from the payment of customs duty and the second party lays down conditions subject to which that exemption is to be availed of in case the goods are imported. In that behalf, originally the condition laid down was that in the case of imported goods the importer has to fulfil the same condition in order to avail of the exemption as would be requirement in case of claim of exemption from the customs duty. Subsequently, the exemption from the customs duty stood withdrawn with the consequence that in order to avail of the exemption under the Sales Tax Act, 1990 the importer was no longer required to fulfil the same conditions as he would heave been required to do in case of import from abroad under the Customs Act, 1969. The effect of the amendment in the relevant items of the 6th Schedule of the Sales Tax Act, 1990 is not to take away the exemption itself but to remove the restrictions placed for availing of tote exemption. The amendment appears to be beneficial in nature. If the stand taken by the learned counsel is accepted, anomalous position will arise inasmuch as though raw materials purchased from local market would be exempt from the payment of sales tax but those which have been imported will be liable to payment of sales tax. The Central Board of Revenue in its earlier decision has taken the correct view but for some reasons best known to it, the earlier notification was withdrawn.

In view of what has been stated above, these petitions are allowed and it is declared that the respondents have no lawful authority to demand sales tax on the imported pharmaceutical raw material covered by Items 42 and 43 of the Sales Tax Act, 1990.

No order as to costs.

M.B.A./W-31/LPetition allowed.