FEDERATION OF PAKISTAN through Secretary, Ministry of Finance, Islamabad VS Messrs BALCHEM (PVT.) LTD., BALOCHISTAN, 2002 PTD-QUETTA-HIGH-COURT-BALOCHISTAN 967 (2001)

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

----S-47 read with Ss.46, 2(33)(41)(44), 33 & 34---S.R.O. No.580(I)/91, dated 27-6-1991---Appeal to High Court---Maintainability---Question of law ---Assessee was exempt from sales tax up to 30-6-1996 vide S.R.O. No.580(1)/91---Demand of sales tax by Authority on goods supplied after 30-6-1996---Tribunal found such demand to be exempt under said S.R.O.---Objection of assessee with regard to appeal filed by Authority against the decision of Tribunal was that appeal was not maintainable asquestion of law was involved therein---High Court repelled such objection and held that the question, whether sales tax could be demanded on goods supplied after 30-6-1996, was a pure question of law.

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

----Ss.2(33)(41)(44), 33, 34, 46 & 47---S.R.O. No.580(I)/91, dated 27-6-1991---Assessee-company was exempt from sales tax up to 30-6-1991 vide S.R.O. No.580(1)/91---Show-cause notice to assessee in respect of sales tax on goods supplied after 30-6-1996-- Tribunal discharged such notice holding that goods manufactured before 30-6-1996, but supplied thereafter were exempt from tax under the notification---Validity---According to S.2(44) of the Sales Tax Act, time of supply of manufactured goods would mean when the same were removed from the premises of assessee---Notification granting exemption had remained operative till 30-6-1996, thus, beyond such date, assessee would not be entitled to any further exemption from payment of sales tax---Supply of manufactured goods was admittedly made by assessee after 30-6-1996, thus, were liable to sales tax---Show-cause notice revealed that tax had been demanded w.e.f. 1-7-1996 i.e. after expiry date of the notification---Tribunal had misinterpreted such notification and had not taken into consideration S.2(44) of the Act i.e. the time of supply and had overlooked provisions thereof---Conclusion drawn by the Tribunal was not according to the provisions of the Act---High Court accepted appeal, set aside impugned judgment of Tribunal and restored the initial order passed by the authority.

Bolan Chemical's case 1998 PTD 3064; 1998 SCMR 440; 1999 SCMR 1442 and 1999 SCMR 1072 ref.

(c) Estoppel---

----Promissory estoppel, doctrine of---Application---Where Government functionaries made promises and representation to anyone, who believed and acted under them, then such functionaries would be precluded from acting to the detriment of such person.

Lever Brothers. Pakistan Ltd. and another v. Government of Punjab through Secretary, Health Department, Civil Secretariat, Lahore and 3 others PLD 2000 Lah. 1 and Pakistan v. Salah-ud-Din and 3 others

PLD 1991 SC 546 ref.

K.N. Kohli, D.A.-G. for Appellant.

Aziz A. Shaikh for Respondent.

Date of hearing: 1st October, 2001.

JUDGMENT

AMAN-UL-ALLAH KHAN, J.---This appeal under section 47 of the Sales Tax Act, 1990 (hereinafter referred to as the Act) is directed against the judgment dated 27-10-2000 passed by the Customs, Excise and Sales Tax Appellate Tribunal, Karachi whereby the appeal filed by the respondents against the judgment, dated 22-1-2000 passed by the Collectorate of Customs, Central Excise and Sales Tax Appeals-II, Karachi was accepted and show-cause notice, dated 26-2-1999 issued by the Collectorate of Sales Tax Quetta was discharged.

2. That factual background of the case is that respondent Baclhem Pvt. Ltd. incorporated under the Companies Ordinance, 1984 has been engaged in the manufacture of Water treatment chemicals in the name of Aqua Clene. Under Notification NO.S.R.O: 580(1)/91, dated 27-6-1991 the Company was exempted from Sales Tax under the Act up to 30th June, 1996. During the scrutiny of the Sales Tax Record, auditor of the petitioner submitted report that balance-sheet for the year 1996-97 was Rs.3,09,93,387 whereas return filed by the respondent was Rs.2,16,50,913. The difference of the same came to Rs.93,40,470 and less sales tax of Rs.16,81,645 was not paid. Similarly for the year 1997-98 challan showed Rs.1,20,08,770 whereas the balance-sheet showed Rs.1,21,48,410 difference being Rs.1,49,640 on which Sales Tax amounting to Rs.17,455 was not paid; therefore, in total Sales Tax of Rs.16,99,100 for the years 1996 to 1998 was not paid. The Collectorate of Sales Tax, Quetta at Hub issued show-cause notice to the respondent on 20-2-1999 calling upon him as to why the afore-mentioned amount of Sales Tax be not recovered from him as contemplated under section 34 of the Sales Tax Act and further why action should not be taken under section 33 of the Act.

Pursuant to such show-cause notice, the Collectorate of Sales Tax, Quetta after hearing respondent and auditor of the appellant vide order, dated 15-9-1999, directed the appellant to make payment of Sales Tax as mentioned in the show-cause notice and also an additional amount at the rate of 5 % on the total amount was imposed as penalty. Being aggrieved from the order, dated 15-9-1999 passed by Additional Collector Sales Tax, the respondent filed an appeal before the Collectorate of Customs, Central Excise and Sales Tax Appeals-II, Karachi who after hearing the parties rejected the same. Thereafter, the appellant approached Customs Excise and Sales Tax Appellate Tribunal, Karachi who accepted the appeal and held that the Sales Tax demanded by the appellant was exempted under the S.R.O. 58(1)/91, dated 27-6-1991, vide order, dated 27-10-2000. Being aggrieved from the same, the appellant has filed the instant appeal.

3. Mr. K.N. Kohli, learned Deputy Attorney-General contended that the learned Appellate Tribunal had misinterpreted the S.R.O., dated 27-6-1991 wherein it is clearly mentioned that Sales Tax was exempt upto 30-6-1991 and show-cause notice to the respondent was issued in respect of sales tax on goods supplied after 30-6-1996 being taxable .supply as contemplated under section 2(41) of the Act. Further, as embodied to section 2(44) of the Act regarding time of supply i.e. after 30-6-1996, the goods supplied were liable to Sales Tax, thus, the learned Appellate Tribunal misinterpreted the S.R.O. and overlooked the aforementioned provisions of the Act.

4. Mr. Aziz A. Sheikh, learned counsel for the respondent contended that appeal under section 47 is only maintainable on the point of law, no legal question was involved; therefore, appeal was liable to be dismissed and further the Appellate Tribunal had correctly interpreted the S.R.O. dated 27-6-1991, therefore, the appeal is liable to be dismissed and further submitted that the show-cause notice issued by the appellant is barred undue the doctrine promissory estoppel; thus the exemption of Sales Tax vide the said S.R.O. could not be withdrawn to the detriment of the respondent: The learned counsel in support of his contention relied upon the following case-law:---

(1) 1998 PTD 3064; (2) 1998 SCMR 440; (3) 1999 SCMR 1442; (4) 1999 SCMR 1072 and PLD 2000 Lah. 1.

5. Adverting to the arguments of the learned counsel for the parties, it may be convenient to reproduce S.R.O. No. 580(1)/91, dated 27-6-1991 which reads as under:---

Government of Pakistan

MINISTRY OF FINANCE AND ECONOMIC AFFAIRS

Islamabad, the 27th June, 1991.

NOTIFICATION

(Sales Tax)

"S.R.O. 580(1)/91.---In exercise of the powers conferred by subsection (1) of section 13 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that all goods produced or manufactured by such industries which are set up in the North-West Frontier Province 1 (and Winder Industrial Estate, District Lasbela, Balochistan) between the 1st July, 1991 and the 30th June, 1996, shall be exempt from the tax payable under the said Act for a period of five years from the date of industry is set up.

Explanation. ---For the purpose of this notification, the expression `set up' shall mean the date on which the industry goes into production including trial production, which date shall be intimated, in writing, by an intending manufacturer to the Assistant Collector of Sales Tax having jurisdiction in the area at least fifteen days before commencing such production.

(Sd.)

Muhammad Zafeer Abbasi,

Deputy Secretary.

A plain perusal of the S.R.O. reproduced hereinabove would reveal that all the industries set up in places mentioned therein would be exempt from Sales Tax w.e.f. 1-7-1991 up to 3-6-1996 for a period of five years from the date the industry is set up meaning thereby that any industry set up in this period shall be exempt from sales tax up to 30-6-1996.

6. Mr. Aziz A. Sheikh, learned counsel for the respondent raised objection that the appeal under section 57 of the Act is only maintainable, if any question of law is involved. The learned counsel l further argued that in the instant appeal as no question of law is involved, therefore, the appeal is not maintainable. We are unable to agree with the argument of the learned counsel. The show-cause notice was issued to the respondents to make payment of Sales Tax for the years 1996 to 1998 as mentioned above after expiry of 30-6-1996 as embodied in S.R.O. dated 27-6-1991. To ascertain whether the Sales Tax demanded on goods after 30-6-1996 is pure question of law; therefore, objection is repelled.

7. Mr. Aziz A. Sheikh, Advocate further strenuously argued that the show-cause notice is hit under the doctrine of promissory estoppel. It may be mentioned here that doctrine of promissory estoppel is only F attracted wherein Government functionaries make promises and representations to anyone who believes and acts under them and these functionaries are precluded from acting to the detriment of such persons. The doctrine of promissory estoppel has been elaborately defined and interpreted by His Lordship Justice Allah Nawaz in the case: "Lever Brothers" Pakistan Ltd. and another v. Government of Punjab through Secretary, Health Department, Civil Secretariat, Lahore and 3 others PLD 2000 Lah. 1, wherein the following observations were made:---

"This concept of promissory estoppel is complex legal notion. In order to succeed under this plea, the person, who raises it must show the presence of following circumstances:

(i) That the party sought to be estoppel, or some person for whose representations such party is in law responsible, made a representation;

(ii) that the case which the party is sought to be estopped from making, setting up, or attempting to prove, contradicts in substance his original representation:

(iii) that such original representation was of a nature of induce, and was made with the intention of inducing the party raising the estoppel, to alter his position to his detriment;

(iv) that the party raising estoppel actually altered his position to his detriment on the faith of such original representation;

(v) that the original representation was made to the party setting up the estoppel, or to some person in right of whom he claims.

This concept was examined by Supreme Court of Pakistan in Pakistan v. Salah-ud-Din and 3 others (PLD 1991 Sr- 546) it was held therein:---

The doctrine of promissory estoppel is subject to the following limitations, none of which is attracted in these appeals before us:---

(1) The doctrine of promissory estoppel cannot be invoked against the Legislature or the laws framed by it because the Legislature cannot make a representation.

(2) Promissory estoppel cannot be invoked for directing the doing of the thing which was against law when the representation was made or the promise held out.

(3) No Agency or Authority can be held bound by the promise or representation not lawfully extended or given.

(4) The doctrine of promissory estoppel will not apply where no, step has been taken consequent of the representation or inducement so as to irrevocably commit the property or the reputation of the party invoking it; and

(5) The party which as indulged in fraud or collusion obtaining some benefits under the representation cannot be rewarded by the enforcement of promise."

8. This concept of considering the arguments of learned counsel on the touchstone of the aforementioned parameters, the doctrine of promissory estoppel as argued by the learned counsel is not applicable.

9. A bare perusal of the show-cause notice would also reveal that the sales tax were demanded w.e.f. 1-7-1996 i.e. after the expiry of the date-of S.R.O. The learned counsel could not satisfy us on the said point and case-law relied upon by him is also inept and not attracted in the case in hand. Since the appellant has not demanded Sales Tax in violation of the S.R.O. to the detriment of the appellant, thus. the arguments of the learned counsel are not tenable

10. Adverting to the arguments of Mr. K.N. Kohli, learned Deputy Attorney-General---that the Appellate Tribunal had misinterpreted the provisions of S.R.O., in this regard reference is made to the show-cause notice wherein the respondents were called upon as to why sales tax should not be recovered from them. The relevant portion of the show cause notice dated 26-2-1999 of Collectorate of Sales Tax, Quetta- is reproduced herein below:--

"Whereas it has been reported to the undersigned by the audit team `D' of the Collectorate that during the scrutiny of the sales tax records pertaining to the period of 1996-97 and 1997-98 in respect of Messrs Balchem (Pvt.) Ltd. situated at the Plot No.A-74, Winder, Lasbella, Balochistan, it has been observed that the unit shows less sales in the sales tax return by the amount of Rs.93,42,474 as compared to the sale value shown in the Balance Sheet during 1996-97, on which sales tax is involved Rs.16,81,645 during 1997-98 in the sales tax return as compared to the balance sheet. Hence, they have not paid sales tax by the amount of Rs.17,455 which is recoverable from them. Since they have violated sections 2 (44), 6 and 11(2) of the Sales Tax Act, 1990, they are to pay total amount of sales tax for Rs.16,99,100 in terms of short payment of sales tax in both the financial years under section 36 alongwith additional tax under section 34 ,And punishable under section 33 of the Sales Tax Act, 1990."

Perusal of the above quoted para would clearly reveal that the respondent had not accounted for the Sales Tax and had paid less tax returns on Rs.93,42,474 for the year 1996-97 and similarly sales tax on the amount of Rs.16,81,645 for the year 1997-98 was not accounted for. The contention of Mr. K.N. Kohli, learned Deputy Attorney-General for I the appellant is very much relevant regarding the time of supply. Admittedly the manufactured goods supply by the respondent-Company were after 30-6-1996 which were liable to Sales Tax. In this regard reference may be made to section 2(33) regarding supply which reads as under:---

"(33) `supply'. include sale, 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;

Regarding time of supply the same has been defined under section 2(44) of the, Act which reads as follows:---

"(44) `time of supply' a supply made in Pakistan shall be deemed to have taken 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:

Provided that where any part payment is received---

(a) for a supply in a tax period, it shall be accounted for in the return for that tax period; and

(b) in respect of any exempt supply, it shall be accounted for in the return for the tax period during which the exemption is withdrawn from such supply:

Provided further that---

(a) where any goods are supplied by a registered person to an associated person and the goods are not to be removed, the time of supply shall be the time at which these goods are made available to the recipient; and

(b) where the goods are supplied under hire purchase agreement, the time of supply shall be the time at which the agreement is entered into;"

Perusal of subsection (44) would clearly show that the supply shall be deemed to have taken place at the time of delivery of goods and further when the goods are made available to the recipient and in case of agreement, goods shall be supplied when the agreement is en Bred into, Thus, in view of subsection (44) the time of supply would mean that any manufactured goods removed from the premises of the Company shall be deemed to be supplied. The contention of the learned counsel for the respondent that since the goods were manufactured before 30-6-1996 and have thereafter supplied to the supplier; thus were exempted from Sales Tax. The contention so raised is not tenable as the S.R.O. clearly states that the goods shall be exempt from tax under the law up to 30-6-1996. Thereafter, goods supplied after the said date would be liable to Sales Tax irrespective of the fact that the same were manufactured before the expiry date, of the S.R.O. dated 27-6-1991. It is pertinent to observe that the notification through which the exemption was granted remained operative till the expiry date 30-6-1996.. Thus, the respondents shall not be entitled to any further exemption from payment of sales tax after the expiry date of S.R.O.

In our considered opinion the contention of Mr. K.N. Kohli, learned Deputy Attorney-General has substance that the learned 1 Appellate Tribunal has misinterpreted the S.R.O. dated 27-6-1991. For reference, operative portion of the impugned order is reproduced hereinbelow:---

(i) The respondent after examining S.R.O. 5$0(1)/91, dated 27-6-1991 drew the conclusion that the goods which appellant supplied subsequent to withdrawal of exemption as available under S.R.O. On 30-6-1996 could not extend the benefit of S.R.O.. This S.R.O. is very clear and specific and does not leave any ambiguity as hasthe respondent to draw the aforestated conclusions, All goods produced or manufactured during a 'specified period in the area specified have been exempted for five years. Having done that it cannot be said that their supply out of stocks would not qualify for exemption merely because exemption ceased to exist on a particular date. The position would have been different had the department been able to establish that the goods were those as were produced and manufactured subsequent to withdrawal of exemption or removed from premises to sale point or place of storage."

The learned Appellate Tribunal had accepted the appeal of the respondent on the ground that the goods manufactured before 30-6-1996 though supplied at subsequent stage were exempted from tax. We are unable to concur with the findings of the Appellate Tribunal, interpreting the S.R.O. On the contrary it clearly states that the companies established in the said area would be exempt from Sales Tax up to 30-6-1996. The Appellate Tribunal had not taken into consideration section 2(44) of the Act i.e. the time of supply and had overlooked the provisions of the same. Since admittedly the goods were. supplied after the expiry of the exemption date mentioned in the S.R.O.; therefore, the same were liable to Sales Tax. Thus, the conclusion drawn by the learned Appellate Tribunal are not according to the provisions of the Act. Regarding interpretation of a statute on the subject, reference is made to Bolan Chemicals 1998 PTD 3064 wherein it was observed as under:---

"It is true that in a statute, which deals with recovery of taxes, the incentives should be construed liberally, but it does not mean that while doing so, the words employed by the statute-givers be defined under a forced, strained, or unnatural meaning, or warrant an extension of the statute to the suppression of supposed evils or the effectuation of conjectural objects and purposes not referred to, nor indicated in any of the terms used or should be carried to the extent of always trying to discover a dormant or patent legislative policy to sustain an arbitrary powers conferred on Executive Authorities, as it has been held in Interpretation of Laws by Crawford at page 451. Relevant para therefrom is reproduced hereinbelow:---

`But a liberal construction does not require that words be accorded a forced, strained, or unnatural meaning, or warrant an extension of the Statute to the suppression of supposed evils or the effectuation of conjectural objects and purposes not referred to, nor indicated in any of the terms used'."

11. As a result of the above discussion, the appeal is accepted and the impugned judgment, dated 27-10-2000 passed by the learned Appellate Tribunal is set aside and the initial order, dated 15-9-1999 passed by learned Additional Collector Sales Tax is restored. Parties are left to bear their own costs.

S.A.K./115/Q Appeal accepted.