MAPLE LEAF CEMENT FACTORY LIMITED VS THE FEDERATION OF PAKISTAN
1999 P T D 3907
[Lahore High Court]
Before Mian Saqib Nisar, JJ
MAPLE LEAF CEMENT FACTORY LIMITED
Versus
THE FEDERATION OF PAKISTAN and others
Writ Petition No.8642 of 1995, decided on 08/04/1999.
(a) Sales Tax Act (VII of 1990)---
----S.2(30)---Time when sale takes place---Time of supply---Situations when payment of sales tax become due.
(b) Sales Tax Act (VII of 1990)---
----Ss.2(30)(22)(28), 3 & 11---C.B.R. Letter No. 1(59) STP-94, dated 14-11-1994---Constitution of Pakistan (1973), Art.199---Constitutional petition---Time of supply---Advance payments for supply of goods-- Chargeability of sales tax ---Assessee/petitioner; a manufacturer, received advance payments against supply of goods ---Assessee/petitioner was required to pay additional sales tax and surcharge for non-payment of sales tax on payment received in advance against supply in the light of interpretation of S.2(30), Sales Tax Act, 1990, vide C.B.R. Letter No.1 (59) STP-94, dated 14-11-1994 that sales tax was payable as soon as the money was received by assessee/petitioner---Validity---Mere deposit of money in anticipation of future sale could not be made the occasion for demanding the payment of sales tax---Stockists' deposit money with manufacturer in routine even though at the time of deposit, there was no contract specifying the price to be paid or the quantity to be purchased---No concluded sale existed at the time of deposit of money and the transaction could be nullified by manufacturer or stockists---No provision of Sales Tax Act, 1990 had purported to deem the receipt of money to be a sale---Department's interpretation had no basis in the text of the Sales Tax Act, 1990 and that it sought to change the nature of the tax from a levy on the supply of goods to a tax on the mere bailment of money---None of the provisions of the Sales Tax Act, 1990 provided that bailment of money could be deemed to be a sale or supply of goods-- Instructions contained in the C.B.R. letter, therefore, were declared to be without jurisdiction and lawful Authority by the High Court and ill orders/actions against the petitioner/assessee based upon said letter and instructions were of no legal effect.
Elahi Cotton Mills Ltd. v. Federation of Pakistan and others PLD 1997 SC 582. = 1997 PTD 1555; B.N. Syed v. Afzal Jahan Begum PLD 1970 SC 29; Siraj Din v. Sardar Khan 1993 SCMR 745; Mehran Associates Limited v. The Commissioner of Income-tax, Karachi 1993 SCMR 274 = 1993 PTD 69; Julian Hoshang Dinshaw Trust v. I.T.O. 1992 SCMR 250 = 1992 PTD 1 and Kamran Industries v. Collector of Customs PLD 1996 Kar. 68 ref.
(c) Sales Tax Act (VII of 1990)---
---Ss.2(30)(22) & 3---Time of supply---Fiction in respect of time-- Interpretation---Provision of S.2(30), Sales Tax Act, 1990 had onlv employed Legislature device of deeming so as to crystallize the point in time at which sales tax was payable with respect to a supply that had already occurred and that could not be employed to the extent of conceiving the payment of money so as to change the scope of word "supply" beyond the provisions of S.2(22) read with S.3 of the Act which was the charging section---Section 2(30) of the Act would nor in any way alter the scope and nature of the charging section---Where Legislature could have expressly specified as regards the charging of a tax but had chosen not to specify same, that must not be read into the text of the statute by way of intendment so as to expand or circumvent the scope of the charging provisions.
Elahi Cotton Mills Ltd-. v. Federation of Pakistan and others PLI) 1997 SC 582 = 1997 PTD 1555; B.N. Syed v. Afzal Jahan Begum PLD 1970 SC 29; Siraj Din v. Sardar Khan 1993 SCMR 745 and Mehran Associates Limited v. The Commissioner of Income Tax. Karachi 199 SCMR 274 = 1993 PTD 69 rel,
(d) Interpretation of statutes---
---- Fiscal statute---Where Legislature could have expressly specified as regards the charging of a tax but had chosen not to specify same, that must not be read into the text of the statute by way of intendment so as to expand or circumvent the scope of the charging provisions.
(e) Sales Tax Act (VII of 1990)---
---Ss.2(30)(22)(28) & 3--C.B.R. Letter No. l(59)STP-94, dated 14-11-1994--Constitution of Pakistan (1973), Art .199---Constitutional petition-- Additional sales tax/surcharge was imposed on the basis of interpretation of the Sales Tax Act, 1990 vide C.B.R. Letter No. 1(59)STP-94, dated 14-11-1994---Vires of C.B.R. Letter and legality of assessment order passed on the basis of said letter from C.B.R.---Constitutional petition-- Maintainability---Complicated question, of interpretation of law was involved, in and as a matter of fact, petitioner had not challenged directly show-cause notice or assessment order rather Instructions of Central Board of Revenue, which Instructions were binding on the subordinate officials of the Board of Revenue, therefore, to say that the petitioner had alternate remedy of filing appeal which was adequate and efficacious was not tenable-- Assessment order though had not been impugned through the Constitutional petition but the High Court had ample jurisdiction to mould and grant the relief to the petitioner which he was legally entitled to---Impugned assessment order was also based on the Instructions issued by the Central Board of Revenue, thus, even though it had not been directly challenged in the petition it could be set aside in exercise of Constitutional jurisdiction by the High Court in order to advancethe interest of justice and to prevent the abuse of the authority by the department.
Julian Hoshang Dinshaw Trust v. I.T.O. 1992 SCMR 250 = 1992. PTD 1 and Kamran Industries v. Collector of Customs PLD 1996 Kar. 68 rel.
(f) Constitution of Pakistan (1973)---
----Art.199---Constitutional jurisdiction of High Court---Scope---High Court had ample jurisdiction to mould and grant the relief to the petitioner which he was legally entitled to.
Raja Salman Akram for Appellant.
A. Karim Malik for Respondent.
Date of hearing: 8th April, 1999.
JUDGMENT
Through the instant petition, mainly, the legality and vires of the instructions contained in Letter No. 1 (59) STP-94, dated 14-11-1994 issued by respondent No. 2 (Central Board of Revenue), have been challenged, whereby the said respondent has elucidated the department's interpretation of section 2(30) of the Sales Tax Act, 1990 (the Act) by stating that sale tax can be levied and charged on the payment of advances to the cement manufactures by the stockists/dealers.
2. The petitioner is engaged in the manufacture of cement, .it sells cement direct to various wholesale dealers and it is stated in the petition that in terms of section 3 of the Act, it is liable to pay sales tax at the rate of 15% of the value of taxable supply made in Pakistan in the course of furtherance of any business carried on by the petitioner. Respondent No. 5 issued a show-cause notice dated 6-5-1995 requiring the petitioner to produce record etc. for reassessing the sales tax payable by it as according to this notice, it was Department's view that the petition had received payment in advance by 2/3 months but made supplies of goods in subsequent months. Therefore, it was necessary for the petitioner to make payment of Sales tax during the month in which the payment has been received. In order to calculate the amount of additional tax/surcharges, a direction was issued to the respondent to produce the relevant record. Subsequently an assessment order, dated 18-6-1995 under section 11 of the Act was passed by the Superintendent Sales Tax. Sargodha, by virtue whereof, the petitioner was required to pay additional sales tax and surcharge on the receipt of advance mentioned in the order from 7th July, 1994 to 4th April, 1995 by 20-6-1995.
3. It may be pertinent to state here that vide letter, dated 22-9-1994, the Directorate Central Intelligence and Investigation have sought instructions from the Board of Revenue on the proposition and interpretation of section 2(30) as to when the sales tax under this section becomes due in the case of cement industry, when the advances are received earlier whereas the supply is made after some months, it was observed in the letter that the Directorate of intelligence etc holds the view, that in the cases where payment for certain supplies are received in advance, the sales tax for such supplies should be paid to the Government by the 20th of the following month. This would remain so notwithstanding the non-delivery of the goods till much later It was further stated that the Department has observed that the manufacturers of cement usually receive payment for their supplies well in ` advance of actual delivery but makes payment of the sales tax to the Government by the 20th of the month following actual supplies. The actual supply is usually made 2/4 months after receipt of payment, therefore, guidance of the Board of Revenue was solicited.
In response to the above, Board of Revenue vide letter dated 14-11-1994 concluded that the matter has been examined by the Board and it is of the view that the language of section 2(30) (i) is quite clear and devoid of any ambiguity. The section clearly lays down that a supply made in Pakistan shall be deemed to take place at the earlier of the time of the delivery of the goods or the time when any payment is received by the supplier in respect of that supply. The Board, therefore, concurred with the view of the Directorate's letter, dated 22-9-1994 and permitted to take action inter alia against the petitioner on the basis of the interpretation placed.
4. It is in this back-drop, that the show-cause notice dated 13-5-1995 has been issued to the petitioner and subsequently an assessment order under section 11 of the Act dated 18-6-1995 has been passed against it. The petitioner through the instant petition seeks a declaration that the instructions contained in the letter of Central Board of Revenue, dated 14-11-1994 be declared without lawful authority and of no legal affect. With the further prayer that the petitioner is liable to pay the tax on the cement sold by it only when sale takes place in accordance with law i.e. when the property in the goods passes from the petitioner company to the buyer and not otherwise.
5. In view of the above, the main question involved in the instant petition is with regard to true interpretation and application of section 2(30) of the Act. The other proposition raised by the respondent's side is qua the maintainability of the petition, in view of the remedy of appeal available to the petitioner at the time of filing the petition but not availed by it.
6. Learned counsel for the petitioner has made reference to sections 3, 2(22). 2(28) and 2(30) to argue that the petitioner would only be liable to pay sales tax when "sale" has actually taken place and not on the payment/receipt of any advance amount, which is simply bailment of money and the sale is yet to take place.
In order to appreciate the submissions made by the learned counsel, it is expedient to re-produce for convenience the relevant provisions of the Act:--
(3) Scope of Tax.---(1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of [fifteen] per cent of the value of----
(a) taxable supplies made in Pakistan by a registered person in, the course or furtherance of any business carried on by him; and
(b)goods imported into Pakistan.
2.(22) "Supply" means sale, transfer, lease or other disposition of goods in the course or furtherance of business carried out for consideration and includes.
(a) putting to private, business or non-business use of goods acquired, produced or manufactured in the course of business;
(b) auction or disposal of goods to satisfy a debt owned by a person;
(c) possession of taxable goods held immediately before a person ceases to be a registered person;
(d) removal of goods from the manufacturing.
2(28) "taxable supply" means a supply of taxable goods made in Pakistan other than a supply of goods which is exempt under section 13, and includes a supply of goods chargeable to tax at the rate of zero per cent under section 4.
2(30)"time of supply" (i) A supply made :;I Pakistan shall be, deemed to take place at the earlier of the time delivery of good or the time when any payment is received by the supplier in respect, of that supply:--
7. From the above, it is clear that according to the charging section 3, sales tax shall be charged on the taxable supply made in Pakistan. Taxable supplies have been defined in section 2(28) to mean supply of taxable goods made in Pakistan other than those which are exempted etc. According to section 2(22), "supply" means sale, transfer, lease or other disposition of goods in the course of furtherance of business carried out by one for consideration. The collective reading of these provisions would show that the sales tax has been imposed on the actual sale, transfer, lease or any other means for disposing of the goods but if no such sale, transfer, etc., has taken place, sales tax cannot be charged thereon,
8. The case of the Department is that according to section 2(30) by fiction of law transaction of sale etc. shall be presumed if the payment has been received/paid without the delivery, of goods which even might occur latter meaning thereby that even if the goods have not been actually supplied or delivered, but any advance payment had been received for the purpose of the supply of such goods the time of supply by fiction would be deemed to be point in time when the money has been received notwithstanding the actual delivery.
9. In my view, the obvious meaning and import of section 2(30) is that if the goods are delivered and the property in the goods is transferred to the buyer, notwithstanding the non-payment of the price, a sale takes place and the sales tax shall become leviable. Moreover, if payment is made in such a manner that the property in goods is transferred to the buyer, even then sale is effected which is liable to tax irrespective of the fact that the delivery is to be .made subsequently. The important event in law is the date on which the property in goods passes to the buyer and it is only on that date the, sale shall be deemed to have taken place in the eyes of law.
10. In terms of section 2(30), the Department in fact is requiring andcharging the sale tax from the petitioner without confirmation of the event whether the property has passed from petitioner to the buyer, which means whether sale in law having yet taken place or not.
11. In order to elucidate the point in time when payment of sale taxi becomes chargeable, there can be the following four situations:--
(a) When a sale is made against cash and goods are delivered immediately upon payment; no difficulty arises. The date of receipt of money and delivery being the same.
(b) When goods are sold and delivered but the payment is received subsequently, in such a case the date of payment of sales tax will be the date when the goods are supplied i.e. sold and delivered to the purchaser.
(c) The third category of cases is where a purchaser deposits the amount in advance with the seller against which supplies are yet to be made, simple receipt. of money would not entail the liability to pay sales tax. However, if a proper sale agreement is entered into in which the prices fixed between the parties with regard to the quantity of goods sold (although the delivery of goods is to be made subsequently) then the sales tax liability will accrue on the date ofthe sale agreement alongwith the money received.
(d) However, if money is deposited by a person to whom goods will be supplied subsequently and there is no firm sale agreement either with reference to the price or the exact quantity to be sold, then in such a case, simple deposit of money in advance will not entail liability to pay sales tax. In such a case, if for any reason the seller is not able to supply the goods of the price fixed by the seller, at the relevant time is not acceptable to the purchaser and the money received as deposit in advance is refunded, no sales tax would accrue on this nature of the transaction.
12. For the purpose of the proposition in hand, the word "supply" occurring in subsection (2) of section 22 may well be equated with the word "sale" in that the petitioner may manufacture and then sells cement. Consequently, in the context of the instant petition, section 2(30) simply implies that a given sale shall be deemed to take place when in respect of that sale either the goods are delivered or payment is received. It may be noted that in terms of section 19 of the Sales Tax Goods Act, 1930, a sale takes place when the parties intend that the property in the goods being sold be transferred to the buyer by the seller. For the sale to occur neither the delivery of goods nor the receipt of payment is necessary. Resultantly, it is legally quite possible for the actual time at which a sale has been concluded to precede -the time of delivery of goods as well as the time of receipt of money with respect to that sale. All that section 2(30) has laid down is, that regardless of when a sale might actually have taken place in accordance with the terms of the agreement between the parties and the applicable law, sales tax will be payable only at the time when the goods are either delivered or payment in respect of the concluded sale is received. This interpretation of section 2(30) is also consistent with the principles that a tax cannot become payable prior to the occurrence of a "taxable" event. In terms of section 3 of the Act, the taxable event is the supply of the goods which in the context of the instant petition means the sale of cement, therefore, the mere deposit of money in anticipation of a future sale cannot be made the occasion for demanding the payment of sales tax. It is a regular feature in the sales of cement that the stockists of cements deposit money with manufactures in routine even though at the time of deposit no contract specifying the price to be paid or the quantity to be purchased by the stockists is in place. The cement manufacturer at the time of deposit is under no obligation to provide any quantity of cement to the stockists nor are the stockists under any obligation to purchase any particular quantity. In other words, simply at the time of deposit of money, there is no concluded sale in existence and the transaction can be nullified by the manufacturer or the stockists.
13. The departmental interpretation (C.B.R.) that the sale tax is payable as soon as money so received by the registered person would appear to be reading into the Sales Tax Act, following statement:--
"Whenever money is received by the manufacturer the manufacturer shall be deemed to have made a sale of value equivalent to the amount of the money received."
No provision of Sales Tax Act has purported to deem the receipt of money to be a sale. Consequently, the departments interpretation has no basis in the tax of the Act and that it seeks to change the nature of the tax from a levy on the supply of goods to a tax on the mere bailment of money. In none of the provisions of the Sales Tax Act, bailment of money could be deemed to be a sale or a supply of the goods.
14. The provision of section 2(30) of the Act has only employed the legislative device of deeming so-as to crystallize the point in time at which sales tax is payable with respect to a supply that has already occurred. It cannot be employed to the extent of conceiving the payment of money so as to change the scope of word "supply' beyond the provisions of section 2(22) of the act, read with section 3 which is the charging section. It cannot be held that section 2(30) would in any way alter the scope and nature of the charging section. There can be no doubt that where legislature could have expressly specified' as regards the charging of tax but has chosen not to specify must not be read into the text of the statute by way of intendment so as to expand or circumvent the scope of the charging provisions.
15. Reference with regard to the interpretation of deeming the provisions can be made to the following judgments of the Superior Courts reported as Elahi Cotton Mills Ltd. v. Federation of Pakistan and others (PLD 1997 SC 582 at 677) = 1997 PTD 1555.
"that the legal fictions are limited for a definite purpose, they cannot be extended beyond the purpose for which they are created."
B. N. Syed v. Afzal Jahan Begum (PLD 1970 SC 29 at 35)
"It cannot be denied that the Court has to determine the limits within which and for the purposes for which the Legislature has created the fiction."
Siraj Din v. Sardar Khan (1993 SCMR 745 at 749)
"It is settled rule that the Court is entitled to ascertain the object for which the legal fiction is created and confined to the purposes for which it is meant."
Mehran Associates Limited v. The Commissioner of Income Tax, Karachi 1993 PTD 69 = (1993 SCMR 274 at p.286, 287)
"The cardinal principles of interpretation of a fiscal statute seem to be that all charges upon the subject, are to be imposed by clear and unambiguous words. There is no room for any intendment nor there is any equity or presumption as to a tax. A fiscal provision of a statute is to be construed liberally in favour of the tax payer and in case of any substantial doubt the same is to be resolved in favour of the citizen. "
16. In the light of above I have no hesitation to hold that the interpretation placed by the department through the impugned letter/instruction, the impugned show-cause notice and the assessment order passed in pursuance thereof are without jurisdiction and of no legal effect.
17. As regard the other question involved in this matter pertaining to the maintainability of the instant petition, it may be stated that as complicated question of interpretation of law is involved, in the present matter and as a matter of fact, the petitioner has not challenged directly the show-cause notice or the assessment order rather instructions of C.B.R., which instructions are binding upon the subordinate officials to the Board of Revenue, therefore, to say that the petitioner had alternate remedy of filing appeal which is adequate and efficacious is not tenable. If any reference of the case-law is required following judgments are relevant:---
Julian Hoshang Dinshaw Trust v. I.T.O. 1992 SCMR 250 at p.255 = 1992 PTD.
Kamran Industries v. Collector of Customs PLD 1996 Kar. 68 at p.94.
18. Learned counsel for the respondent has objected that in the instant case though the assessment order under section 11 has been passed against the petitioner prior to this petition but the same has not been impugned through the instant petition. Suffice it to say, that this Court has ample jurisdiction to mould and grant the relief to the petitioner which he is legally entitled to. As the impugned assessment order is also based upon the instructions issued by the Board of Revenue thus even though it has not been directly challenged in the petition, while it can be set aside in exercise of Constitutional jurisdiction by this Court in order to advance the interest of justice and to prevent the abuse of the authority by the respondent department.
In the light of above, this writ petition is allowed, the instructions contained in the Letter No.l(59)STP-94, dated 14-11-1994 issued by the Board of Revenue are declared to be without jurisdiction and lawful authority and all the subsequent actions/orders against the petitioner based upon the said letter and instructions are of no legal effect:
C.M.A./M.A.K./M-1181/L Writ petition allowed.