COLLECTOR, CUSTOMS, CENTRAL EXCISE AND SALES TAX, KARACHI (WEST) VS NOVARTIS PAKISTAN LTD., 2002 PTD-KARACHI-HIGH-COURT-SINDH 976 (2001)

(a) Sales Tax Act (VII of 1990)---

----Ss.2(12)(35)(41), 3, 7 & 47---Constitution of Pakistan (1973), Art.25---S.R.O. No.578(I)/98, dated 12-6-1998---Sale of fixed assets-- Chargeability to tax---Tribunal had found that no sales tax was leviable on disposal of fixed assets owned by assessees, since they were not trading in the items they had sold---Contention of the Authority was that such disposal constituted a "taxable activity" and it was irrelevant as-to whether assessees undertook the activity for profit motive or not, thus, such sale was chargeable to tax under S.3 of the Sales Tax Act, 1990-- Validity---Under S.3 of the Sales Tax Act, two conditions must be fulfilled independently for creating the charge of sales tax i.e. transaction of sale must constitute a "taxable activity" and the same should also be a "taxable supply"---Where one of such conditions was missing, the charge of sales .tax would not be leviable ---Expression "any, activity carried on in the form of a business, trade or manufacture" as used in S.2(35) of the Sales Tax Act, was an independent ingredient of the term "taxable activity "---Since assessees were not engaged in the business, trading or manufacturing of commodities, which they had sold i.e. fixed assets would not constitute "taxable activity"; second ingredient of S.3 of the Act i.e. "taxable supply" was also absent in the present case---To constitute a "taxable supply", the transaction must first qualify to be a "supply" and to constitute "supply" the transaction must be in 'the "furtherance of business" ---Term "business" had not been defined in the Act, and in order to be construed as "business", the activity must be recurring for profit- motive and in the nature, of trade, commerce or manufacture---Disposal of fixed assets in the present case could not be construed as an activity for profit motive or in the nature of .trade, commerce or manufacture, thus, the same was not an `activity in furtherance of "business" ---Assessee did not trade in or manufacture the fixed assets, thus, the same did not constitute "supply" under S.2(33) of the Act and could not be construed as "taxable supply" under S.2(41) of the Act---Fixed assets, if assumed to fall within definition of "goods" as given in S.2(12) of the Act, even then two essential conditions of charging S.3 i.e. "taxable activity" and "taxable supply" would not be satisfied ---Assessees had not be able to claim any input tax under S.R.O. No.578(I)/98, thus, there could be no determination -of liability under S.7 of the Act---Authority in another case similar to that of assessees had vacated show-cause notice, thus, there would be no justification to accord a discriminatory treatment to other assesses in violation o1 Art.25 of the Constitution---High Court accepted the appeals holding that there could be no sales tax on the disposal of fixed assets.

Usmani Associates v. C.B.R. 2001 PTD 2982; State of Gujara v. Raipur Manufacturing' Co. Ltd. 'AIR 1967. SC 1066; Director o Supplies v. Member, Board of Revenue AIR 1967 SC 1826, State o Tamil Nadu v. Thiru Murugan Bros. AIR 1988 SC 336 and C.I.T. v Habib Insurance PLD 1969 Kar. 278 ref.

(b) Sales Tax Act (VII of 1990)---

----S.3---Levy of tax---For a levy to be successful and valid, all it; components must be certain and in case, there was any uncertainty in an) component, the same would be fatal to the levy.

Shakil Ahmed for Appellant.

Dr. Farogh Naseem for Respondent.

JUDGMENT

ZAHID KURBAN ALVI, J.---By a common order we shall dispose of twelve (12) Special Sales Tax Appeals, which have filed by the Collector, Central Excise and Sales Tax, Hyderabad, arising out of the order dated 1'7-10-2000, passed by the Customs, Excise and Sales Tax, Appellate Tribunal, Karachi.

2. Briefly stated, the present appeals have been filed by the Collector of Customs, Central Excise and Sales Tax against orders of the Customs, Central Excise and Sales Tax Appellate Tribunal, Karachi, which has held that no sales tax under the Sales Tax Act, 1990 (hereinafter called as the Act, 1990) is leviable on disposal of fixed assets owned by the assessee. The questions of law which have been framed by the appellants in the present appeals are as follows:

(b) Whether the fixed assets fall within the ambit/definition of goods as envisaged under section 2(12) of Sales Tax Act, 1990?

(c) Whether the disposal .of fixed assets as sold by the respondent No. 1, fall within the ambit/definition of "taxable activity" as provided under section 2(35) of Sales Tax Act, 1990?

3. Mr. Shakil Ahmed, learned counsel for the appellant, in all .the appeals has contended that the disposal of fixed assets by the assessee constitutes a "taxable activity" under section 2(35) of the Act, 1990, since thereunder it is irrelevant as to whether the assessee undertake the activity for any motive to earn profit or not and as such the sale of fixed assets is chargeable to tax, under section 3 of the Act, 1990. It is further contended ~by him that tinder section 2(12) of the Act, 1990 `goods' have been defined to include every kind of movable property without excluding fixed assets and the Act, 1990 does not distinguish between sale of goods in which the assessee conduct trade and sale of fixed assets. It is lastly argued by him that the tax is liable in both the cases.

4. Dr. Farogh Naseem, learned counsel has argued the case on behalf of respondent No.l that the charge of sales tax is created under section 3 of the Act, 1990, which spells out different ingredients/pre conditions and in case even one of the ingredients is missing no charge of sales tax. can be levied. In order to create the charge there .must be "taxable activity" and "taxable supplies" as provided under section 3, however, in the present case none of these two pre-conditions are met "taxable activity" has been defined under section 2(35) to mean various activities but all the same it must be carried on in furtherance, of "business, trade or manufacture". If the activity is not in furtherance of the latter three eventualities, the activity will not become a taxable activity". To support this contention he has relied upon the case of Usmani Associates v. C.B.R. 2001 PTD 2982.

5.It is further argued by him that section 2(41) of the Act, 1990, defines "taxable supply" to mean, inter alia, a "supply". In turn the term "supply has been defined under section 2(33) of the Act, 1990 to include sale, lease or other disposition of goods "in furtherance of business". It will not become a "supply". and could also not be then construed as a "taxable supply", in which event the prime ingredient under section 3 will be missing. For the term "business" he has placed reliance on the cases of State of Gujarat v. Raipur Manufacturing Co. Ltd. AIR 1967 SC 1066; Director of Supplies v. Member, Board of Revenue AIR 1967 SC 1826, State of Tamil Nadu v. Thiru Murugan Bros.. AIR 1988 SC 336 and the case of C.I.T. v. Habib Insurance PLD 1969 Kar. 278.

6: 1t is lastly contended by him that for the fixed assets in question no input tax was claimed under the statute and hence no output tax can be charged. He has shown us section 7 of the Act, 1900, read with S.R.O. 5?WI)/98, dated 12-6-1998 and has referred to the case of Messrs Treet Corporation Ltd. where the Department/Appellant through Sales Tax Order in Original No.38 of 2000 dated 15-11-2000 has itself vacated the show-cause notice issued in this regard. As such filing or pressing the present appeals constitutes discrimination and amounts to violation of Article 25 of the Constitution of Islamic 'Republic of Pakistan, 1973.

7. Messrs Sattar Sillat, Munir A. 'Malik and Muhammad Fareed, learned counsel representing the other respondents have adopted the arguments of Dr. Farogh Naseem, learned counsel for the respondent No. 1.

8. We have heard the arguments of parties and perused the material placed on record and the law cited above. The admitted facts in all the appeals are that the respondents in the present case have sold away their fixed assets on which no input tax was claimed. The Tribunal has also found that there was no intention to make any profit since the respondents were not trading in the items that they had sold. A perusal of section 3 of the Act, 1990, confirms that in order to create the charge of sales tax, inter alia, two conditions must be fulfilled independently, i.e. the transaction of sale must constitute a "taxable activity" and it should also to be a "taxable supply". Even if one condition is missing the charge of sales tax would not be leviable.

9. The term "taxable activity" has been defined under section 2(35) of the Act, 1990, as follows:

"(35) `taxable activity' means any activity which is carried on by any person, whether or not for a pecuniary profit, and involves in whole or in part, the supply of goods to any other person, whether for any consideration or otherwise, and includes any activity carried on in the form of a business, trade or manufacture."

10. As bare perusal of the above would confirm that although in the first part "taxable activity" has been defined to constitute certain eventualities but in the later part it has been construed to be an activity in the form of a business, trade or manufacture. Very recently a Division Bench of this Court, comprising one of us namely Zahid Kurban Alavi, J., in Usmani Associates (supra) has been pleased to hold that the expression used under section 2(35) i.e. "any activity carried on in the form of a business, trade or manufacture" used at the end of the definition is to be read in conjunction with the other parts contained in the definition. This being so, the expression "any activity carried on in the form of a business, trade on manufacture" is an independent, ingredient of the"taxable activity" and in case the same ingredient; is not independently satisfied, a transaction cannot be construed as a "taxable activity". In the present case admittedly the transactions are not "in the form of a business, trade or manufacture" of the respondents since the respondents are not engaged its the business, trading or manufacturing of the commodities that they have sold i.e. fixed assets would not constitute "taxable activity" and hence would not qualify to be taxed under section 3 of the Act, 1990.

11. Furthermore, the second ingredient under section 3 of the Act, 1990 i.e. "taxable supply" also appears to be conspicuously absent. "Taxable supply" has been defined under section 2(41) as follows:---

"(41) 'taxable supply means a supply of taxable goods made in Pakistan by an importer, manufacturer, wholesaler (including dealer), distributor or retailer 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."

12. A perusal of the above leads to the conclusion that in order to constitute a "taxable supply", the transaction must first qualify to be a "supply". The term "supply" has been defined under section 2(33) of the Art 1990 as follows:

"(33) `Supply' includes sale, lease (excluding financial lease) or other disposition of goods in furtherance of business carried out for consideration and also 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 owed by a person;

(c) possession of taxable goods held immediately before a person ceases to be a registered person; and

(d) such other transaction as the Federal Government may, by notification in the official Gazette. specify; (under lining is mine)"

13. From the above it is clear that in order to constitute "supply", the transaction must be "in furtherance of business". In the case of State of Gujarat (ibid) the Supreme 'Court of India considered the term "carried on business" as it appeared in the Bombay Sales Tax Act, 1953. In that case also the issue was whether the disposal of old and discarded items such as stores, machinery, iron, scrap, boxes and such other miscellaneous goods in which the company/assessee was not carrying on business could attract taxability under the statute. It was held that since the company was not trading or carrying on business in relation to such items, any disposal of the same could not be construed as "business" under the Act. Similarly, in the case of Director of Supplies v. Member Board of Revenue (AIR 1967 SC 1826) the Supreme Court of India held that any profit made on the selling. of war material would not be to under the Bengal Finance (Sales Tax) Act, 1941, since the assessee was not carrying on business in those items. In the case of State of Tamil Nadu (referred above) the Supreme Court of India; while dealing with the Tamil Nadu General Sales Tax Act, 1959, held that where the assessee sold incomplete films due to adverse circumstances, the sale thereto did not constitute part -of business of the assessee and thus was not liable to sales tax. In the case of CIT v. Habib Insurance (mentioned above) a Division Bench of this Court has held that in older to constitute, "business" there must be a continuous exercise of activity for the purpose of gain.

14. The term "business" has riot been defined in the Act, 1990 and) the settled meaning of the said expression as found in the aforesaid case-law as also various dictionaries as relied upon in the case of CIT v. Habib Insurance confirms that in order to. be construed as "business", the activity must be recurring, for profit motive and must be in the nature of trade, commerce or manufacture. In the present case disposal of fixed assets can by no figment of imagination be construed as an activity for profit motive or in the nature of trade, commerce or manufacture. Thus, it is not an activity in the furtherance of "business".' The assessee did not trade in or manufacture the fixed assets, it does not constitute "supply" under section 2(3:3), in which event it could also not be construed as "taxable supply" under section 2(41). Accordingly another essential ingredient to successfully create a charge under section 3 of the Act, 1990 is also missing.

15. The contention of Mr. Shakil Ahmed that the fixed assets in question fall within the ambit of the definition of "goods" as provided G in section 2(12) of Act, 1990, will not be of much help to him; even if for the sake of argument, we were to accept his contention, the two essential ingredients of the charging section 3 i.e., "taxable activity" and `taxable supply" would not be satisfied in view of the aforesaid discussion. These ingredients have found to be absent, irrespective and independent of whether or not fixed assets in question fall within the statutory definition of "goods".

16. In any event for the fixed assets in question the assessee have not been able to claim input tax under S.R.O. 578(1)/98, dated 12-6-1998. This being so there could be no determination of liability, under section 7 of the Act, 1990 which provides that in order to determine the tax liability a registered person would be entitled to deduct input tax from output tax. For a levy to be successful and valid all its components must be certain, while in case there is any uncertainty in any 1 component, it is fatal to the levy. In the case of Govind Saran v. C.S.T. (1985) 155 ITR 144 the Indian Supreme Court held as follows:

"The components which enter into the concept of a tax are well-known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is, imposed; and the fourth is the measure or value to which the rate will be applied for computing the tax liability. If those components are not clearly and definitely ascertainable, it is difficult to say that the levy exists in point of law. Any uncertainty or vagueness in the legislative scheme defining any of those components of the levy will be fatal to its validity."

17. In the present case the manner in which the liability could be determined under section 7 of the Act, 1990, cannot be computed since the assessee, as mandated under section 7, have not been able to J claim any input tax. As such the component whereby the levy could be measured would be missing since under S.R.O. 578(1)/98, dated 12-6-1998 no input tax can be claimed for the fixed assets in question. Very recently a Division Bench of this Court comprising of one of us namely, Zahid Kurban Alavi, J., was a member in the unreported case of Amin Textile Mills and others v. Federation of Pakistan and others (Constitutional Petition No.D-1405 of 1998) invalidated central excise duty on bank loan, inter alia, on grounds that the yard-stick to measure the levy thereunder was neither clear nor it had any co-relation with the nature of the tax. As such even if we were to find the charge of sales tax available, there would be no measure or determination of the liability in terms of section 7 of the Act, 1990.

18. Also if on one hand in the case of Treet Corporation Limited the show-cause notice has been vacated by the appellant there would be no justification to accord a discriminatory treatment violating Article 25 of 1 the Constitution to other assessees.

19. In view of the above discussion, the questions of law framed mentioned above are answered in the negative i.e. there can be no sales 1 tax on the disposal of fixed assets.

20. In view, of the above the appeals are dismissed, however, there will be no order as to costs.

S.A.K./C-40/K Appeals dismissed.