INTERNATIONAL BEVERAGES (PVT.) LTD. VS GOVERNMENT OF PAKISTAN
2002 P T D 311
[Lahore High Court]
Before Maulvi Anwarul Haq, J
INTERNATIONAL BEVERAGES (PVT.) LTD.
Versus
GOVERNMENT OF PAKISTAN through Additional Secretary, Ministry of Finance (Central Board of Revenue), Karachi and 2 others
Writ Petition No. 1075 of 1990, heard on /01/.
th
July, 2001. Sales Tax Act (III of 1951)---
----Ss. 2(12) & 27(1)---Refund of sales tax---Term "subject to the tax" as used in S.2(12) of Sales Tax Act, 1951 with reference to exemption or non-payment of sales tax on end-product, must be read as "subject to the payment of tax"---Assessee would not be entitled to claim refund of sales tax paid on partly manufactured goods at the time of import/purchase of such goods, which were ultimately incorporated into and form a constituent part of end-product, which was exempt from payment of sales tax in relevant years---After inclusion of amount of such sales tax in the price structure of end-product, such incidence for all purposes stood passed on to consumers and assessee would not be having any locus standi to make claim for refund of such sales tax.
Commissioner of Sales Tax North Zone (West) Pakistan, Lahore .v. H. Muhammad Hussain & Co., Lahore 1974 PTD 20; Commissioner of Sales Tax, Rawalpindi Zone, Rawalpindi v. Shafiq Corporation Ltd., Gujrat 1974 PTD 15; Messrs Noorani Cotton Corporation v. The Sales Tax Officer PLD 1965 SC 161; Latif Bawany Jute Mills Ltd. and 4 others v. The Sale Tax Officer, Dacca 1971 PTD 26; The Commissioner of Sales Tax v. Messrs Shaiq Corporation Ltd. PLD 1986 SC 73.1; Abbasi Textile Mills Ltd. v. Commissioner of Sales Tax (East), Karachi PLD 1990 SC 422; Commissioner of Sales Tax v. Hunza Central Asian Textile and Woollen Mills Ltd. 1999 SCMR 526 = 1999 PTD 1135 and Central Board of Revenue and others v. Messrs Champion Clock Company 1.996 SCMR 1468 ref.
Saleem Zulfiqar Khan for Petitioner.
Iftikhar Javaid, Standing Counsel and Asif Jah for Respondent.
Date of hearing: 10th July, 2001.
JUDGMENT
The petitioner is a manufacturer of soft drink beverages and is marketing the same under Seven Up and like Cola. In the process of said manufacture the petitioner purchases and imports various intermediary good like carbon dioxide gas, flavouring, crown corks, chemicals etc. which are ultimately incorporated into and form a constituent part of the product. According to, the petitioner it paid sales tax on the said goods amounting to Rs. 11,70,619 in the year 1981-82, Rs. 17,59,263 in 1982-83, and Rs. 26,08869 in 1983-84 and refund of the said amount was sought by the petitioner on the ground that under section 27(1) of the Sales Tax Act, 1951, where partly manufactured goods are purchased by a manufacturer and sales tax has been paid on such goods at the time of import/purchase, the manufacturer shall be entitled to refund of amount that has been paid as sales tax. Three separate applications were moved which were rejected by respondent No. 3 vide order, dated 7-1-1987. The appeals were rejected by respondent No. 2 on 13-3-1988 while revisions filed before respondent No. 1 were rejected on 4-8-1990.
2. Learned counsel for the petitioner contends that notwithstanding the fact that ultimate manufactured articles i.e. the said aerated water/soft drink beverage was exempted from the payment of sales tax in the concerned years, the same would be "subject to the tax" within the meaning of section 2(12) of the Sales Tax Act, 1951. The precise contention of the learned counsel is that no article could be exempted from the payment of tax only when it was subject to such payment and exemption from the tax would not take the ultimate product out of the ambit of the said terms in section 2(12) of the said Act i.e. "subject to the tax". Relies on the cases of Commissioner of Sales Tax North Zone (West) Pakistan, Lahore v. H. Muhammad Hussain & Co., Lahore. 1974 PTD 20 and Commissioner of Sales Tax, Rawalpindi Zone, Rawalpindi v. Shafiq Corporation Ltd., Gujrat 1974 PTD 15.
3. Mr. Asif Jah, learned, counsel for respondent Department on the other hand contends that the case is squarely covered by the dictum laid down by the Supreme Court of Pakistan in the case of Messrs Noorani Cotton Corporation v. The Sales Tax Officer PLD 1965 SC 161. According to the learned counsel the term "subject to the tax" in section 2(12) of the said Act has been rightly read by the respondents as "subject to the payment of tax". Further contends that the sales tax paid was incorporated in the price structure of the ultimate product and as such incidence has already been passed on to the consumers and as such A even if the interpretation being placed by the learned counsel for the petitioner on the said terms in section 2(12) of the said Act, is conceded no case for refund stands made out as the sales tax paid already stands recovered from the consumers.
4. .1 have given some thought to the respective contentions of the learned counsel for the parties. There is no dispute that the said "intermediary goods", in respect whereof the sales tax was admittedly paid, do constitute partly manufactured goods which were to be incorporated into and to form a constituent or component part of the said article manufactured by the petitioner. I also find that the said judgments in` the cases of H. Muhammad Hussain & Co. Lahore, as also Shafiq Corporation Limited Gujrat, fully support the contentions of the learned counsel for the petitioner. In fact the tenor of the two said judgments is that where exemption has been granted in respect of the end product, the partly manufactured goods utilized in the manufacture of the said products would also not be liable to the payment of sales tax. The reasoning adopted by the learned Division Bench of this Court in the said two judgments was that there was a distinction, as pleaded by the learned counsel for the present petitioner, between liveability and payability. According to the said judgments the tax is charged under section 3 of the said Act on all goods produced or manufactured or imported into Pakistan and the mere fact that the exemption has allowed from the payment of the tax so charged would not mean that the said charge ceased to exist and that the goods had ceased to be subject to charge.
5. I, however, also find that the similar question arose in the case of Messrs Noorani Cotton Corporation v. The Sale Tax Officer (PLD 1965 SC 161). Mr. Justice Kaikaus (as his lordship then was) dealt with the matter in the following manner:---
"The definition of `partly manufactured goods' is that they are goods which are to be incorporated into another article. So, these provisions are a sufficient guarantee that the tax will be paid only with respect to the last stage of manufacture of goods. However, there is one difficulty which had to be removed. Suppose the manufactured article into which partly manufactured goods are to be incorporated is for some reason not liable to the payment of sales tax? In that case if no tax is paid on partly manufactured goods no tax will be paid at all. Therefore, in the definition of `partly manufactured goods' a limitation has been introduced that the article into which the goods are to be incorporated should be one which is liable to the payment of sales-tax. If it is not liable to payment of tax then the goods which are incorporated into it are also manufactured goods on which sales-tax has to be paid."
6. The said judgment in fact the said very observations were noted by the learned Division Bench in the said case of H. Muhammad Hussain & Co. Lahore, but their lordships were pleased to observe that the said remarks were of general nature. The learned Division Bench on the other hand sought support from the observations of Mr. Justice Saleh-ud-Din Ahmad in the judgment rendered by the Dacca High Court in the case of Latif Bawany Jute Mills Ltd. and 4 others v. The Sale Tax Officer Dacca (1971 PTD 26) wherein his lordship had sought to distinguish said case of Noorani Cotton Corporation. I may further note that in the said case of Shafiq Corporation the learned Division Bench followed the reasoning in the case of H. Muhammad & Co.
7. I have also found that in the case of The Commissioner of Sales Tax v. Messrs. Shaiq Corporation Ltd. (PLD 1986 SC 731) wherein the question was as to whether sales tax could be retrospectively imposed on raw material used in the manufacture of Fans and imported earlier by assessee free of sales tax, at the time when finished goods were assessable to sales tax. The, question was answered in the negative with the observations that the stage at which the sales tax could have been charged or could have become payable had passed away at the point of time when it was demanded and meanwhile finished produce itself stood exempted from the payment of sales tax. In this case also the said `observation in the case of Noorani Cotton Corporation were noted and was distinguished and reliance was placed on the said cases of Latif Bawany Jute Mills Ltd. and H. Muhammad Hussain & Co. In a later case of Abbasi Textile Mills Ltd. v. Commissioner of Sales Tax (East) Karachi (PLD 1990 SC 422). Again a Bench comprising of 4 Hon'ble Judges headed by Hon'ble Chief Justice Muhammad Haleem (as his Lordship then was) endorsed the said reasoning of Mr. Justice Kailkaus in the case of Messrs. Noorani Cotton Corporation. 1 may state here that the said case of Messrs Shaiq Corporation Ltd. (PLD 1986 SC 731) was duly brought to the notice of their lordships while deciding the case of Abbasi Textile Mills Ltd. but the said observations in the Noorani Cotton Corporation case were followed.
8. In a still later case of Commissioner of Sales Tax v. Hunza Central Asian Textile and Woolen Mills Ltd. 1999 SCMR 522 = 1999 PTD 1135 a Bench comprising of 5 Hon'ble Judges took note of the said judgments in the cases of Messrs Noorani Cotton Corporation (PLD 1965 SC 161), Messrs Shaiq Corporation Ltd. (PLD 1986 SC 731), Abbasi Textile Mils Ltd. (PLD 1990 SC 422) as also Central Board of Revenue and others v. Messrs Champion Clock Company (1996 SCMR 1468). It was thus observed in para. 13 of the judgment appearing at page 674 of the said report:---
"In Abbasi Textile Mills case (supra) judgment of this Court in Shaiq Corporation (PLD 1986 SC 731) and PTCL 1989 CL 203) relied upon on behalf of the assessees has been distinguished and the principle enunciated in Noorani' Cotton Corporation case (supra) were reaffirmed in very clear and positive terms. No judgment of this Court has been cited before us which has reviewed the opinion of this Court in Noorani Cotton Corporation case and affirmed in Abbasi Textile Mills on the interpretation of sections 2(12), 3(4) and 3(6) of the Sales Tax Act as they stood on the statute book during the relevant period: We find no error in the impugned judgment of the Lahore High Court and the Sindh High Court on the interpretation of aforesaid provisions."
Respectfully following the said dictum of the Hon'ble Supreme Court, I find myself in agreement with the learned counsel for the respondents that in view of the interpretation of section 2(12) of the said Act with C reference to the exemption or non-payment of the tax on the end-product, it has rightly been held by the respondents that the petitioners are not entitled to the refund claimed by them.
9. The said second contention of the learned counsel for respondent department is also not without force. The learned counsel for the petitioner has very fairly conceded that the amount of sales tax paid on the said partly manufactured goods which were ultimately incorporated D in the end product had been included while structuring the price of the product for sale to consumers. Thus for all purposes the incidence of the said tax has passed on the consumers and thus the petitioner in any case a locus standi to make claim for refund of the said
10. For all that has been discussed above, I do not find any force in this writ petition and the same is dismissed leaving the parties to bear
S.A.K./M.A.K/1-69/L ??????????????????????????????????????????????????????????????????????? Petition dismissed