WATER AND POWER DEVELOPMENT AUTHORITY through Chairman, WAPDA VS COLLECTOR CENTRAL EXCISE AND SALES TAX, LAHORE, 2002 PTD-LAHORE-HIGH-COURT-LAHORE 2077 (2002)

(a) Sales tax---

-----Levy of---Legislative history.

{b) Sales Tax Act (III of 1990)---

----S.3(1)(a) [as amended by Finance Act (XI of 1996)]---Sales tax, levy of---Word. "business" as used in S.3(1)(a) of Sales Tax Act, 1990 would attract levy of sales tax with respect to which taxable supply was made during period 1991-93---Said word "business" substituted by "taxable activity" by Finance Act, 1996, would not at all be applicable to that period.

(c) Sales Tax Act (III of 1990)---

----Ss.2(22)(41), 3, 6, 14, 15, 22, 23, 26, 34, 35, 39 & 41--Constitution of Pakistan (1973), Art. 199 & Fourth Sched., Part I, Federal Legislative List, Item No.49---Constitutional petition---Demand of sales tax on printing material/computer stationery prepared by WAPDA in year 1991-1992 by its own printing press for exclusive use in its offices-- WAPDA denied liability to sales tax on the ground that printing press being run by them was not carrying on any business or making any supply" as defined in S.2(22) of Sales Tax Act, 1990---Validity-- Business being an activity undertaken by a person, natural or juristic directed towards reaping of monetary rewards, wherein selling was involved directly or indirectly---Press operated by WAPDA had not been engaged in any business as not only its employees were of WAPDA, but all the goods produced by it had never become a subject-matter of sale in any form---Material prepared or printed at the press had no rational nexus with electricity, even if WAPDA was taken to be a seller thereof- Provisions of S.3 of Sales Tax Act, 1990 was not at all attracted to disputed period---High Court accepted Constitutional petition and set aside both the impugned orders declaring them to be of no legal value at all.

A Sanyasi Rao and another v. Government of Andhra Pradesh and others (1989) 178 ITR 31; (1936) AC (PC) Sheikhon Sugar Mills Ltd. v. Government of Pakistan and others 2001 PTD 2097 = 2001 SCMR 1376; Commissioner of Sales Tax and others v. Hunza Central Asian Textile and Woollen Mills Ltd. and others 1999 SCMR 526; Karachi Development Authority v. C.B.R. Civil Appeal No.284 of 1987; Central Board of Revenue v. Sindh Industrial Trading Estate Limited PLD 1985 SC 97 and Mian Latif v, State PLD 1996 SC 201 ref.

(d) Words and phrases---

----"Business"---Connotation---Business is an activity undertaken by a person, natural or juristic, directed towards reaping of monetary rewards, wherein selling is involved directly or indirectly.

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

----S.3---Constitution of Pakistan (1973), Fourth Sched., Part I, Federal Legislative List; Item No.49 [as amended by Constitution (Fifth Amendment) Act (LXII of 1976) w.e.f. 13-9-1976]---Goods self- consumed, partly or wholly---Sales tax, levy of---Validity---Federal Government by virtue of amendment made in Item No. 49 of Federal Legislative List became competent to levy sales tax not only on sales and purchases of goods imported, exported, produced and manufactured, but also on goods "consumed"-- -Such, powers of imposition of sales tax on consumption also included self-consumption---Consumption of part of goods manufactured in the process, which was otherwise covered by the charging provisions, would no more be a defence available to a person.

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

----Preamble & S.3(1)(a)---Constitution of Pakistan (1973), Fourth Sched., Part I, Federal Legislative List, Item No.49---Expressions "sale" as used in Preamble of Sales Tax Act, 1990 and "taxable supplies" as used in S.3(1)(a) of the Act---Connotation and scope---Use of expression "taxable supplies" instead of "sales" in charging section has wider connotation than the term "sale" as used in Preamble of Sales Tax Act, 1990 and Item No.49 of Federal Legislative List of the Constitution of Pakistan---Scope of the expression has to be restricted only to such transactions, which may amount to sale and any extended meaning would render, the provision extra-Constitutional.

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

----Ss.2(33) & 3---Constitution of Pakistan (1973), Fourth Sched., Part I, Federal Legislative List, Item No.49---Sales tax on self-consumption or supply to self-demand of sales tax on printing material/computer stationery prepared by WAPDA in year 1991-92 by its own printing press for exclusive use in its offices---Validity---Every kind of "supply" to self, whether of final or intermediary goods, if did not happen/occur at any stage of business being carried by a person, then such supply would not be liable to sales tax under existing charging S.3 of Sales Tax Act, 1993---Such provisions could not be extended to a self consumption, which did not happen at any stage of business carried out by a person.

Messrs Usmani Associates Sub-Proprietary Firm v. Central Board of Revenue 2001 PTD 2982 ref.

Mian Ashiq Hussain for Petitioners.

A. Karim Malik for Respondents.

Date of hearing: 14th November, 2001.

JUDGMENT

NASEEM SIKANDAR, J.---The precise legal issue raised in this Constitutional petition is "if the charging provisions of section 3 of the Sales Tax Act, 1990 are attracted to the printing material and computer stationery being prepared by the printing press owned by WAPDA for their exclusive use in its offices throughout Pakistan".

2. Messrs Water and Power Development Authority is a statutory Corporation constituted under the WAPDA Act, 1958 and enjoys a peculiar status with reference to Item No. 3 of Part II of the 4th Schedule to the Constitution of Pakistan (1973). It has a printing press working at Kashmir Road, Lahore which is engaged in making/printing computer stationery and other allied material for use in WAPDA Offices.

3. It appears that on 19-1-1993 a raid was conducted on its premises by the Collectorate of Sales Tax, Lahore and part of the prepared stationery was taken into custody. The raid was followed by a show-cause notice dated 28-2-1993 wherein they were alleged to have contravened the provisions of sections 3, 6, 14, 15, 22, 23, 26, 34, 35, 39 and 41 of the Sales Tax Act, 1990. Also they were required to pay sales tax on the goods/material already cleared by them during the period from May, 1991 to December, 1992. The petitioner Messrs WAPDA replied to the above show-cause notice by submitting that printing press being run by them was not carrying on any business nor it was making any "supply" as defined in section 2(22) of the Sales Tax Act, 1990. Therefore, any liability to sales tax was denied.

4. The learned Collector, however, was not-convinced. Through an order, dated 20th December, 1993 it was found that the petitioner was liable to pay sales tax on all material printed even though it was being used and consumed by itself. Accordingly they were required to pay sales tax not only on the goods seized but also on the goods already cleared from May, 1991 to December, 1992. Further, they were found liable to pay a penalty of Rs.5,000 on account of their having violated the aforesaid provisions of the Act.

5. The appeal filed by the petitioner under section 35 of the Central, Excises and Salt Act, 1944 was rejected by the Member (Judicial),' Central Board of Revenue on 18-11-1993. Hence this Constitutional petition.

6. For the petitioner it is submitted that the computer stationery prepared by its printing press for the use of its offices in Pakistan is not chargeable to sales tax; that definition of taxable supply as contained in section 2(41) necessarily refers to a transaction wherein an element of sales or purchase is available. According to the petitioner in order to be a taxable supply there has to be a sale and purchase of the goods imported, exported, produced, manufactured or consumed. According to the learned counsel without the presence of the element of sale or purchase the levy of sales tax on mere import, export, manufacture, consumption or production of goods is not in accordance with the charging provisions of the Sales Tax Act, 1990. He has stated a number of judgments to support the proposition that consumption by an owner of goods in which he deals is not a sale within the meaning of Sale of Goods Act. Also relies upon in re: A. Sanyasi Rao and another v. Government of Andhra Pradesh and others (1989) 178 ITR 31 wherein it was inter alia held that measures employed for assessing a tax must not be confused with the nature of the tax and that the subject-matter of a tax and the standard by which the amount of tax is measured are clearly distinguishable: Lastly, that any slandered which maintains a nexus with the essential character of levy can be regarded as a valid basis for assessing the measure of the levy.

7. In the next case relied upon in re: reference under the Government of Ireland Act, 1920, in re: Section 3 of the Finance Act (Northern Ireland) 1934 (1936) AC (PC), decided on March 27, 1936 their Lordships were of the view that it was an essential character of the particular tax charged that was to be regarded, and the nature of the machinery, often complicated by which the tax was to be assessed was not of assistance except insofar as it may throw light on the general character of the tax.

8. In the next case re: Sheikhon Sugar Mills Ltd. v. Government of Pakistan and others 2001 PTD 2097 = 2001 SCMR 1376 the Hon'ble Supreme Court of Pakistan amongst, others considered the question, if the sales tax was leviable on "Bagasse" being produced by the petitioner sugarcane mills as an intermediary goods. Before the Court it was the case of the petitioner that Bagasse having been consumed as part of fuel by the petitioner sugar mills no element of sale was involved which was a sine qua non for the levy of the sales tax. The Hon'ble Supreme Court considered in detail the definition of various words and phrases including "taxable activity" and "taxable supply" as used in the charging provisions of section 3 of the Sales Tax Act, 1990. Finally their Lordships maintained their view earlier expressed by them in re: Commissioner of Sales Tax and others v. Hunza Central Asian Textile and Woollen Mills Ltd. and others 1999 SCMR 526. In that case it was concluded that in a restrictive sense the use and consumption of intermediary goods could be treated as sale by legal fiction so as to bring such goods under the levy of sales tax where the final product was not subject to, sales tax when sold and that the use or consumption of intermediary goods in such circumstances had a rational nexus with sale.

9. Lastly Mian Ashiq Hussain, Advocate/learned counsel for the petitioner lastly relies upon a recent judgment of Karachi High Court in re: Messrs Usmani Associates Sub-Proprietary Firm v. Central Board of Revenue (2001 PTD .2982) wherein the Court on consideration of charging provision of section 3 of the Sales Tax Act finally found that substitution of the word "business" by the expression "taxable activity" in sub-clause (3), subsection (1) of section 3 by Finance Act, 1996 was intended to bring about tax change to narrow down the scope of charging section. The definition of "taxable activity" was also considered at length to find in favour of the petitioner in Constitutional petition who was a sub-contractor of Messrs Karachi Development Authority engaged to executive a project of construction of a fly over.

9A. A reference has also been made to the judgment of the Hon'ble Supreme Court of Pakistan in Civil Appeal No.284 of 1987, decided on December 29, 1991 in re: Karachi Development Authority v. C.B.R. In 'that case the leave to appeal was granted to Messrs K.D.A. to examine if the goods manufactured by it for its own use were exempted from gales tax on the Authority of Article 165 of the Constitution notwithstanding the subsequent addition of Article 165-A when considered with the law laid down by the Court in re: Central Board of Revenue v. Sindh Industrial Trading Estate Limited PLD 1985 SC 97. Another judgment of the Supreme Court in re: Mian Latif v. State PLD 1996 SC 201 is cited at the bar to explain the concept of "sale".

10. Interestingly the Revenue also relies upon both the aforesaid judgments of the Supreme Court in re: Shaikhu Sugarcane Mills (supra) and Commissioner of Sales Tax v. Hunza Central Asia (supra).

11. Before proceeding any further a glance at the Constitutional and legal provisions involved needs to be taken. The subject of sales tax was on the Provincial Legislative List at Serial No.48 in the Government of Indian Act, 1935 and was described as "Taxes on sales of goods and on advertising". In the Constitution, 1956 "tax on sales and purchases" was mentioned at Serial No. 26 of the Federal Legislative List, and therefore, for the first time it became a Federal subject. The position was maintained in 1962 Constitution which mentioned "tax on sales and purchases" on the Federal Legislative List as clause (j) at Serial No.43 in the Third Schedule. In 1973 Constitution as originally adopted "tax on sales and purchases" was kept on Federal Legislative List at Serial No.49 of Part I of the Federal Legislative List given in the Fourth Schedule. The item was, however, completely substituted by Constitution 5th Amendment Act, 1976 w.e.f. September 13, 1976 to read "Taxes on sales and purchases of goods imported, exported, produced, manufactured or consumed". The second half of the amended entry appears to have been taken from the amendment made in Sales Tax Act, 1951 by Finance Ordinance, 1960. Through that amendment the words "consumption of goods" in the preamble were substituted by "importation, exportation, production, manufacturer or consumption".

12. The charging provisions of section 3 in the Sales Tax Act, 1951 as well as the one amended by Act VII of 1990 have undergone a number of changes. These changes were explained by this Court in the order impugned before the Hon'ble Supreme Court of Pakistan in re: C.S.T. v. Hunza Central Asian Mills Ltd. (supra). It, however, needs to be specifically noted that the word "business" used in sub-clause (a) of subsection (1) of section 3 as originally used in the provision was substituted by the word "taxable activity" by Finance Act, 1996. At the time relevant before us the taxable supplies made by a registered person in Pakistan was subject to levy of sales tax only if these were done in the course of furtherance of any "business" carried on by a registered person. The amended provision as we will see in the latter part of this order has not substantially changed the legal situation.

12A.To begin with it will be noted that during the period relevant before us i.e. 1991 to 1993 the word "business" remained the focal point with respect to which a taxable supply made was to attract the levy of sales tax. The amendment made in 1996 by substituting the word "business" by taxable activity is, therefore, not at all applicable to that period. A business is an activity undertaken by a person, natural or juristic directed towards reaping of monetary rewards wherein selling is involved directly pr indirectly. The press operated by the appellant was not engaged in any business as not only its employees were of WAPDA but also the goods produced by it never became a subject-matter of sale in any form. Also the material prepared or printed at the press had no rational nexes with electricity even if WAPDA was taken to be a seller thereof. Therefore, without an iota of doubt the provisions of section 3 at the relevant time were not at all attracted to the period under review before us.

13. The amendment made in the said entry in the Legislative List in the year 1976 certainly made the Federal Legislature empowered to levy tax not only on sales and purchases of goods imported, exported, produced and manufactured but also on goods "consumed". Accordingly consumption of part of the goods manufactured in the process is no more a defence available to a person which is otherwise covered by the charging provisions. The judgment of the Hon'ble Supreme Court of Pakistan in re: Sheikhu Sugarcane Mills (supra) can be referred to on the point. Therefore, the reliance of the learned counsel for the petitioner on the said cases from Indian jurisdiction where the occurrence of sale was held to be a necessary ingredient of transaction to attract levy of sales tax are of no relevance.

14. His other submission that despite competency of the Federal Legislature to levy sales tax on self-consumption the charging provisions of section 3 of the Act as these stand today do not provide for such a levy bears weight. He is also correct in maintaining that the judgment of the Hon'ble apex Court in the aforesaid two cases re: Hunza Central Asian Textile and Woollen Mills (supra) and re: Sheikhu Sugarcane Mills (supra) lends support to his proposition.

15. In the first case: Hunza Central Asia Textile and Woollen Mills Ltd., the Hon'ble Court considered sections 2(15), 3(4)(iv) and section 3(6)(d) of the Sales Tax Act on the basis of the competency of the Federal Legislature under Entry No.49 of Part I of the Federal Legislative List (Fourth Schedule). The Hon'ble Court found the Federal Legislature competent to enact the deeming provisions contained in the above sections of the Act. The ratio in the case was also confirmed in the second case re: Sheikhu Sugarcane Mills (supra). The issue in that case before the Court was if intermediary goods of "bagasse" produced during the process of extracting juice from sugarcane could be considered marketable and identifiable goods which could be supplied by a person to itself in the course of business. The Court answered the question in the affirmative. However, at more places than one the Hon'ble Court observed that "supply" as defined in section 2(33) of the Act and as used in the charging provisions of section 3 of Sales Tax Act, 1990 covered any form of activity which was carried on by a person in the course of his "business". A goods before becoming liable to sales tax their `supply' has to be made "in the course" of business. Their Lordships observed:

"It may be noted that the intention of the Legislature can be gathered from the arrangement of different parts of section 2(35) of the Act which appears to be disjunctive and not conjunctive Its careful study suggests that taxable activity means any activity which is carried out by any person which may include one or more than one person with pecuniary profit or without pecuniary profit with regard to supply of goods to any person for any consideration or supply of goods otherwise and the supply of goods includes any activity carried on in the form of business, trade or manufacture meaning thereby that if supply of goods has been made in the course of furtherance of business carried out for consideration putting to private business or non-business use of goods acquired, produced or manufactured in the course of business it would fall within the definition of taxable activity -----------------------------------------------

Admittedly the intermediary produce of Bagasse which is procured during the process of extracting juice from sugarcane can be considered a marketable and identifiable goods which can be supplied by a corporate or incorporate person to itself in the course of business."

16. In the last case relied upon by the learned Purnsel for the petitioner in re; Messrs Usmani Associates Sub-Proprietary Firm v. Central Board of Revenue High Court held that the "expression" any activity carried out in the form of any business, sales or manufacture" used in the end of the definition of "taxable activity" does not seem to have the effect of making a supply which is not made to any other person liable to sales tax. According to their Lordships to infer and to suggest that goods consumed by a person would also fall within the ambit of a sale and therefore, the tax shall be levied thereupon is far-fetched suggestion which is also against justice. In the view of their Lordships the expression "taxable supplies" instead of sales was employed in the charging section, which seems to have wider connotation than the term "sale" used in the preamble of the Act and in Item No.49 of the Federal Legislative List. However, according to their Lordships, the scope of the expression had to be restricted only to such transaction as may amount to sale. Any extended meaning according to their Lordships would render the provision extra-Constitutional. To these observations I will subscribe partly on the basis of the discussion made earlier in the order. It is that every kind of "supply" even to self whether final or intermediary goods, will have "to be relatable to and be in the course of business" a person is engaged in. Where such supply does not happen/occur at any stage of the business of a person in which he is engaged in, then such supply will not be liable to tax as far the existing charging provisions of section 3 of the Sales Tax Act are concerned. It is, therefore, repeated that after the amendment of Item No.49. of the Legislative List the Federal Legislature had certainly been given the jurisdiction to impose tax on consumption which includes self-consumption. However, the charging provisions of section 3 of the Sales Tax Act in the present form cannot be extended to a self-consumption which does not happen at any stage of business being carried out by a person.

17. Accordingly this Constitutional petition is accepted and both orders recorded by the Collector as well as the Member (Judicial), Central Board of Revenue are declared to be of no legal value at all.

S.A.K./M.A.K./W-44/L Petition accepted.