PAK SUZUKI MOTOR COMPANY LTD VS FEDERATION OF PAKISTAN, 2002 PTD-KARACHI-HIGH-COURT-SINDH 2440 (2002)

2002 P T D 2440

[Karachi High Court]

Before Ata‑ur‑Rehman and Muhammad Mujeebullah Siddiqui, JJ

PAK SUZUKI MOTOR COMPANY LTD. and others

versus

FEDERATION OF PAKISTAN and others

Constitutional Petitions Nos. 1348, 1526 of 1995 and 1776 of 1998, heard on 27/02/2002.

Sales Tax Act (VII of 1990)‑‑‑

‑‑‑‑Ss.3 & 2(33)(44) ‑‑‑Constitution of Pakistan (1973), Art. 199‑‑ Constitutional petition‑‑‑Levy of sales tax‑‑‑Scope‑‑‑Principles‑‑‑. Advances received by the assessee without coming into existence of the transaction of sale‑‑‑Not taxable‑‑‑Existence of contract of sale of goods‑‑‑Events‑‑‑Part payment after coming into existence of the . transaction of sale‑‑‑Taxability‑‑‑Question‑ as to whether the deposits /advances received by the assessee were in pursuance of any transaction of supply or were mere advances/deposits in pursuance of any dealership or any agency agreement or any other arrangements being question of fact was declined to be. determined by the High Court under its Constitutional jurisdiction tinder Art.199 of the Constitution and left the matter to be decided by concerned tax officials after obtaining necessary particulars and giving opportunity of being heard to the assessee and then decide the question of chargeability to sales tax or otherwise of the advances/deposits.

The assessees are liable to pay the sales tax under section 3 of the Sales Tax Act, 1990, on taxable, supplies at the time when the transaction of supply takes place.

The transaction of supply shall come into existence when a contract of sale of goods comes into existence i.e., when the supplier transfers or agrees to transfer the specified goods to the buyer, or a lease or other disposition of goods in furtherance of the business is carried out for consideration or the other conditions prescribed in section 2(33) of the Sales Tax Act, 1990 are satisfied.

Where a transaction of supply takes place under a contract of sale, meaning thereby, transfer of goods from supplier to buyer or where an agreement to sell takes place meaning thereby, that the transfer of goods is to take place at a future time, the sales tax shall be charged on the happening of any of the following events:‑‑‑

(a) When a delivery of goods is made; or

(b) the price is paid in full.

If after coming into existence of the transaction of sale,, as explained above any part payment is received by the supplier from the buyer the supplier shall be liable to account for the part payment in the return of tax for that tax period and the sales tax shall be charged accordingly.

If no transaction of supply has taken place and the supplier has received any advances or deposits from the buyers, such advances/deposits are not liable to the charge of sales tax. However, as soon as a contract of sale or agreement to sell is executed with the stipulation of adjustment of full or part payment from the advances/deposits, the said adjustment in full or in part shall be deemed to be in pursuance of the transaction of supply and such amount shall immediately become liable to the imposition of sales tax..

Question as to whether the deposits/advances received by the petitioners were in pursuance of any transaction of supply or were mere advances/deposits in pursuance of any Dealership Agreement or any Agency Agreement or any other arrangement, is a question of fact. High Court declined to give any finding on this question of fact and the concerned tax officials were to decide such question of facts, after obtaining necessary particulars and giving opportunity of being heard to the petitioners and shall decide the question of chargeability to sales tax or otherwise of the advances/deposits in the light of above findings.

Maple Leaf Cement Factory Limited v. Federation of Pakistan, (1999) 80 Tax 41 fol.

Rehan Hasan Naqvi, Muhammad Athar Saeed and Mansoorul Arfin for Petitioners.

Fariduddin, Muhammad Akram Zuberi and Raja Muhammad Iqbal for Respondents.

Date of hearing: 27th February, 2002.

JUDGMENT

MUHAMMAD MUJIBULLAH SIDDIQUI, J.‑‑‑The petitioners have sought following reliefs in. their respective petitions:

C. P. No.D‑1348 of 1995

This Court may be pleased to:‑‑‑

(1) quash the impugned show‑cause notice;

(2) declare that the assessment order, dated June 15, 1995 of respondent No.3 seeking to recover Rs.1,506,703,272.is without lawful authority, of no legal effect, mala fide and illegal;

(3) declare that the goods of the petitioner are subject to payment of sales tax at the point of delivery to the customer;

(4) restrain the respondents from taking any punitive action against the petitioner;

(5) award costs; and

(6) grant any other or further relief.

C. P. No.D‑1526 of 1995

(1) declare that show‑cause notices dated 2‑8‑1995 and 6‑8‑1995 are mala fide, of no legal effect and issued without jurisdiction and is ab initio void;

(2) declare that the petitioner is not liable to Sales Tax and Additional Tax/Surcharge on provisional booking advance received;

(3) declare that while provisionally booking and receiving advance the petitioner has "not made any taxable supply" in Pakistan;

(4) declare that the petitioner is liable to Sales Tax when petitioner "makes taxable supplies" in Pakistan i.e. when the sale transaction is completed and property in the goods passes on to the purchaser;

(5) restrain the respondents from acting on the show‑cause notices by them;

(6) cost of the petition.

(7) grant any other or further/better relief or relieves as this Honourable High Court may, deem fit and proper in the circumstances of the case;

C.P. No.D‑1776 of 1998

(a) declare that the ad hoc deposits received by the petitioner do not fall within the ambit of section 2(44) of the Sales Tax Act, 1990. and therefore, the proposed levy of sales tax on these ad hoc deposits is illegal, invalid and of no legal effect;

(b) cancel the impugned show‑cause notice and direct the respondent No.3 to file the, proceedings;

(c) declare that the section 2(44) of the Sales Tax Act, 1990 is ultra vires the Constitution and against the fundamental rights guaranteed by the Constitution of Islamic Republic of Pakistan;

(d) declare that ad hoc deposits received by the petitioner do not fall within the ambit of definition of 'sales' as defined in section 4 of the Sales of Goods Act; .

(e) award cost of the petition

(f) Grant any other appropriate relief this Hon'ble Court may deem fit and proper.

2. As common question of law is involved in all the three petitions, therefore, all the three petitions have been heard together and are disposed of by this single consolidated judgment.

3. The learned Advocates for the petitioners have submitted that identical issue has been considered by a learned Single Judge of the Lahore High Court in the case of Maple Leaf Cement Factory Limited v. Federation of Pakistan (1999) 80 Tax 41. The petition has been allowed by the learned Single Judge of the Lahore High Court and the instructions issued by the Board of Revenue have been declared without jurisdiction and lawful authority and all subsequent actions/orders in pursuance of the C.B.R.'s instructions have been held to be of no legal effect. Mr. Muhammad Ather Saeed, learned counsel for the petitioner in C.P. No.D‑1776 of 1998, has submitted that although a show‑cause notice has been issued to the petitioner in this petition, in November, 1998 and a reference has been made to section 2(44) which is a part of amended section 2 of the Sales Tax Act, 1990 but the amendment has no effect on the ratio of the judgment of Lahore High Court because in the cited judgment it has been laid down that the word "supply" occurring in subsection (22j of section 2 .(as it stood up to 30th June of 1996) is equated with the word "sale". The word "supply" has been defined almost in similar words in amended section 2(33) of the Sales Tax Act, 1990 and thus even for taxing apart payment under proviso to section 2(44) the existence of supply is sine qua non.

4. On the other hand, the learned Advocates for the respondents have assailed the maintainability of the petitions and have supported the view of the respondents to the effect that, receipt of any part payment entails the imposition of sales tax.

5. We have gone through the judgment of the learned Single Judge of the Lahore High Court, cited above. We are, persuaded to agree with the contention of the learned Advocates for the petitioners. We agree with the findings of the learned Single Judge of the Lahore High Court, both on the point of maintainability of the petitions and the non‑taxability of the advances received by the petitioners without coming into existence of the transaction of sale. It would be appropriate to reproduce the relevant finding of the learned Single Judge of the Lahore High Court which is as follows:‑‑‑

"In order to appreciate the submissions made by the learned counsel, it is expedient to reproduce 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 of 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' (1) A supply made in Pakistan shall be deemed to take place at the earlier of the time of delivery of goods 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 the furtherance of business carried out 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 later, 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 of 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 and charging 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 sales tax 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 elate 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, price is 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 of the 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 or 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 (22) of section 2 may well be equated with the word `sale' in that the petitioner may manufacture and then sell 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 Sale of 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 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 fulfilled by the manufacturer or the stockists.

13. The departmental interpretation (C.B.R.) that the sale tax is payable as soon as money is 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 text 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 a 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 provisions can be made to the following judgments of the superior Courts, reported as Elahi Cotton Mills Ltd. v. Federation of Pakistan and others (1997) 76 Tax 5 (SC Pak) = PLD 1997 SC 582 at 677).

'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)

'I 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 (1992) 66 Tax 246 (SC Pak) = (1993 SCMR 274 at 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 taxpayer 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) 65 Tax 102 (SC Pak) = (1992 SCMR 250 at 255) and Kamran Industries v. Collector of Customs (1995) 72 Tax 223 (H.C. Kar.) = (PLD 1996 Kar. 68 at 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 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'."

6. We fully subscribe to the views of the learned Single Judge of the Lahore High Court, reproduced above and for the foregoing reasons, all the three petitions are allowed in the following terms:‑‑‑

(1) The petitioners are liable to pay the sales tax under section 3 of the Sales Tax Act, 1990, on taxable supplies at the time when the transaction of supply takes place.

(2) The transaction of supply .shall come into existence when a contract of sale of goods comes into existence i.e., when the supplier transfers or agrees to transfer the specified goods to the buyer or a lease or other disposition of goods in furtherance of the business is carried out for consideration or the other conditions prescribed in section 2(33) of the Sales Tax Act, 1990 are satisfied.

(3) Where a transaction of supply takes place under a contract of sale, meaning thereby, transfer of goods from supplier to buyer or where an agreement to sell takes place meaning thereby, that the transfer of goods is to take place at a future time, the sales tax shall, be charged on the happening of any of the following events:‑‑‑

(a) When a delivery of goods is made; or

(b) the price is paid in full.

(4) If after coming into existence of the transaction of sale, as explained above any part payment is received by the supplier from the buyer the supplier shall be liable to account for the part payment in the return of tax for that tax period and the sales tax shall be charged accordingly.

(5) If no transaction of supply has taken place and the supplier has received any advances or deposits from the buyers, such advances/deposits are not liable to the charge of sales tax. However, as soon as a contract of sale or agreement to sell is executed with the stipulation of adjustment of full or part payment from the advances/deposits, the said adjustment in full or in part shall be deemed to be in pursuance of the transaction of supply and such amount shall immediately become liable to the imposition of sales tax.

(6) Whether the deposits/advances received by the petitioners were in pursuance of any transaction of supply or were mere advances /deposits in pursuance .of any Dealership Agreement or any Agency Agreement or any other arrangement, is a question of fact. We would not like to give any finding on this question of fact and the concerned tax officials shall decide such question of facts, after obtaining necessary particulars and giving opportunity of being heard to the petitioners and shall decide the question ‑of chargeability to sales tax or otherwise of the advances/deposits in the light of above findings.

The parties are left to bear their own costs.

M.B.A./P‑37/K

Order accordingly