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

---S. 2(44)---Time of supply---Advance payments---Sales shall be deemed to have taken place at the time when the advance payments were received.

Messrs Mepal Leaf Cement Factory Limited v. Federation of Pakistan 1999 PTD 3907 irrelevant.

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

----Ss. 33 & 34---Non-payment of tax was not deliberate---Penalties and additional tax---Validity---While sales tax was being paid by other units in the cement industry on the limestone, clay and other minerals, the appellant's claim that non-payment of tax by them was not deliberate, was not tenable.

Per Mian Abdul Qayyum, Member (Judicial) and Masud Ahmad Dher, Member (Technical) [Majority view]-

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

----S. 3(i)(a)---Constitution of Pakistan (1973), Federal Legislative List- Part-1, Fourth Schedule: Art. 70(4), Entry at S. No.51 & 49---Sales of Goods Act (III of 1930) S.19---Regulation of Mines and Oil-fields and Mineral Development (Government Control) Act (XXIV of 1948), S.2(4)---Central Adaptation of Laws Order, 1964---[Presidential Order No. 1 1964], Art. 2---Punjab Mining Concession Rules, 1986---Scope of tax---Limestone/clay---Contentions were that Federal Government could charge sales tax only on the minerals used in generation of nuclear energy and that on rest of the minerals only Provincial Government could levy tax and that limestone/clay was mineral, which was not used for the generation of nuclear energy and it could not be charged to tax by the Sales Tax Department---Validity---Federal Government had no authority to charge Sales Tax on Limestone, Gypsum, Bauxite and Latrite which by implication fell within the domain of the Provincial Government---Demand of sales tax in respect of limestone was illegal-- Provincial Governments had full Constitutional jurisdiction on the whole range mineral sector underground or on surface and had the powers to levy taxes if they so choose or decide---Federal Government's jurisdiction to levy taxes -was confined to entry 51 of Fourth Schedule (Art. 70(4) of the Federal Legislative List, Part-1) i.e. mineral oil, natural gas and minerals for use in generation of nuclear energy, rest of the minerals fell within the legal, jurisdiction of the Provincial Government---Provincial Government were exercising their powers and enjoying their rights through the Regulation of Mines and Oil-fields and Mineral Development [(Government Control)] Act, 1948---Mere fact that minerals were not listed in the Sixth Schedule (listing exempted items) of the Sales Tax Act, 1990 did not confer on the Sales Tax Department the legal right to levy 15% Sales Tax.

Messrs Rehman & Rafiq v. Assistant Collector of Sales Tax Sargodha Sales Tax Appeal No.318/LB of 2000 and Appeal No. 164 of 1999 rel.

(d) Sales Tax Act (VII of 1590)---

----S. 2(44)---Time of supply---Advance payments---No sales tax was leviable on the amount of advances 'received---Advance received was the "bailment of money" and there was no provision in the Sales Tax Act, 1990 which authorizes the Department to tax advance payment---Appellant was only liable to pay sales tax on "sales" which actually took place and not on the payment/receipt of any advance amount which was simply bailment of money.

Messrs Mepal Leaf Cement Factory Limited v. Federation of Pakistan PTCL 2000 CL 195 rel.

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

----S. 33 & 34---Penalties---Additional tax---Since the demand of Sales Tax was illegal, the question of imposition of additional tax and penalty did not arise.

Per Zafar Majeed, Member (Technical) [Minority view]

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

----S. 3---Constitution of Pakistan (1973)---Fourth Schedule Entry at S.No.51 & 49---Scope of tax---Limestone/clay---Contention was that Federal Government could charge, sales tax only on the minerals used in generation of nuclear energy and that on rest of the minerals only Provincial Government could levy tax---Limestone/clay was a mineral, which was not used for the generation of nuclear energy and it could not be charged to tax by the Sales Tax Department---Validity---No doubt, the entry at S. No.51 of the Fourth Schedule to the Constitution of Pakistan, 1973 restricted the Federal Government to levy of "taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy", but ,the entry at S.No.49 fully empowered the Federal Government to levy taxes on "the sales and purchases of goods imported, exported, produced, manufactured or consumed" ---Federal Government was competent to levy sales tax on the production of minerals in question. [Miniorit view].

Messrs Rehman & Rafiq v. Assistant Collector of Sales Tax Sargodha Sales Tax Appeal No.318/LB of 2000 not relevant.

M. M. Akram for Appellant.

Amer Ahmed, D.R. for Respondent.

Dates of hearing: 12th, 26th September, 5th, 11th, 15th and October, 2001.

JUDGMENT

ZAFAR-UL-MAJEED MEMBER (TECHNICAL)---This appeal Order-in-Original No.143 of 2000, dated 22-12-2000 Additional Collector (Adjudication, Faisalabad. By this learned Adjudicating Officer has directed the appellants to pay sales tax, additional tax and penalty under various provisions of the Sales Tax Act, 1990 on the following accounts:--

(i)That they received an amount of Rs.42,21,711 in advance from their customers in the month of June, 1997 but supplied the goods in subsequent period. The time of supply for the purpose of payment of sales tax was taken when the goods were actually supplied/delivered, which was not in accordance with section 2(44) of the Sales Tax Act, 1990. A demand of sales tax amounting to Rs.5,27,714 was accordingly worked out against them.

(ii)That they produced limestone/clay within the factory. for use in the manufacture of an exempt supply; i.e cement, but did not pay sales tax amounting to Rs.45,18,270 chargeable thereon.

(iii)That they procured bauxite, latrite and gypsum from outside but did not pay sales tax thereon. The exact amount of tax was left to be worked out by the department.

2. The appellants have assailed the Order-its-Original mainly on the following grounds:--

(i)That according to Entry No.51 of the Federal Legislative List contained in Fourth Schedule to the Islamic Republic of Pakistan, 1973 the Federal Government can charge sales tax only on the minerals used in generation of nuclear energy and that on rest of the minerals only Provincial Governments can levy taxes. The limestone/clay is a mineral, which is not used for the generation of nuclear energy and, therefore, it cannot be charged to tax by the Sales Tax Department, which is a Federal Government Department. In support of their contention they have quoted a judgment of Lahore Bench of this Tribunal in Sales Tax Appeal No 318 of 2000 in the case of Messrs Rehman & Rafiq v. Assistant Collector of Sales Tax, Sargodha.

(ii)That the Adjudicating Officer erred it raising demand of sales tax amounting to Rs.5,27,714 on account of advances received from the customers as, according to law, sales can be deemed to have taken place only when the goods are delivered. In, support of their contention, the appellants have quoted a judgment of Lahore High Court in the case of Messrs Mepal Leaf Cement Factory Limited v. The Federation of Pakistan (1999 PTD 3907).

(iii)That the additional tax imposed by the Adjudicating Officer is unwarranted and ultra vires of law, as the same is due only if someone deliberately violates the law.

(iv)That the penalty of Rs.983,100 imposed under section 33 of the Sales Tax Act, 1990 is arbitrary, without any basis and liable to be remitted as there was no mens rea on the part of the appellants.

3. The learned departmental representative has opposed the appeal pleading that vide Entry No.49 of the Federal Legislative List contained in the Constitution of Islamic Republic of Pakistan, Federal Government is competent to levy sales tax on all the goods produced in the country and that the department has gone in appeal against the judgment of this Tribunal quoted by the appellants as precedent. He also submitted that according to Section 2(44) of the Sales Tax Act, 1990 the time of supply shall be deemed to be the time on which advance for supply is received in case actual delivery of goods is made subsequently. The Lahore High Court's judgment quoted by the appellants in support of their contention, has since been suspended by the Supreme Court of Pakistan. He further submitted that as other Mills are paying sales tax on the goods in question, non-payment of tax on the part of the appellant amounts to deliberate violation of law and, therefore, they are liable to pay additional tax and penalty.

4. We have considered the submissions made by both the sides and the case-law quoted by them. There is no force in the appellant's contention that the minerals in question do not fall in the domain of Federal Government for the purpose of levy of sales Tax. No doubt, the entry at S. No.51 of the Fourth Schedule to the Constitution restricts the Federal Government to the levy of "taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy", but the entry at S. No. 49 fully empowers the Federal Government to levy taxes on "the sales and purchases of goods imported, exported, produced manufactured or consumed". In view of this provision of the Constitution, the Federal Government is competent to levy sales tax on the production of minerals in question.

5. Similarly, section 2(44) of the Sales Tax Act, 1990 relevant to the time of supply specifies that "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". In the instant case, the appellants have admitted received advance payments and according to this provision of law, the sales shall be deemed to have taken place at the time when the advance payments were received. The judgment of the Lahore High Court quoted by the appellants in support of their contention is not relevant as its operation has been suspended by the Supreme Court of Pakistan. We also find that while sales tax was being paid by other units in the cement industry or the limestone, clay and other minerals, the appellant's claim that the non-payment of tax by them was not deliberate, is not tenable.

6. In view of the foregoing discussion, we find that the impugned order is correct in law and on facts. The appeal is, accordingly, rejected being without merit.

MIAN ABDUL QAYYUM, MEMBER (JUDICIAL).---The necessary facts have already been detailed in the proposed judgment recorded by Mr. Zafar-ul-Majeed, learned Member (Technical), I have gone through the judgment but I disagree with the learned Member (Technical) because limestone is a mineral in respect of which the Federal Government has no authority to levy the Sales Tax. The matter regarding another mineral known as gypsum came up before the Hon'ble Chairman in Appeal No.318 of 2000 decided on 22-12-2000 wherein the Hon'ble Chairman after surveying the relevant provisions of the Constitution, the regulation of mines and oil-fields and Mineral Development (Government Control) Act, 1948, the Punjab Mining Concession Rules, 1986 decided the matter in the following Words appearing in para 7 of the judgment which is re-produced as under:--

"In my opinion, there is a good deal of substance in the above contention of the learned counsel, gypsum is a kind of mineral which is within the legislative competence of the Provincial Legislature and the law enacted by it in the form of aforesaid rules is being administered by the Government of the Punjab. The legislative and executive authority of the Federal Government, as per specific Entry No.51 of the Fourth Schedule to the Constitution remains confined only to the levying of tax on mineral oil, natural gas and minerals being used for the general of atomic energy. No doubt, Entry No.49 of the Fourth Schedule is in general terms but its operation stands excluded impliedly and by necessary intendment by virtue of Entry No.51 ibid. The Sales Tax Authorities under the Sales Tax Act, 1990, do have the authority to levy taxes on the sale and purchase of goods by virtue of Entry No.49 ibid but it has no application so far as the gypsum is concerned and they are not competent to assess; levy and charge sales tax on the gypsum being excavated, transported and sold by the appellant."

2. About limestone, the Karachi Bench in Appeal No. 164 of 1999, decided on 29-7-2000 observed in para 18 as under:--

"It is clear from the facts and circumstances of the case that excavation of limestone etc., by the appellants and its use in the manufacturer of clinker/cement, does not amount to sale, lease or its disposition, which is not their business and such activity is not for consideration. Accordingly, it is not a "supply" within the meaning of law as it is also not a "taxable activity" as already described above."

3. In view of the above, it can be said with confidence that the Federal Government has no authority to charge Sales Tax on Limestone, Gypsum, Bauzite and Latrite which by implication fall with the domain of the Provincial Government. This being the position, the demand of Rs.45,18,270 on account of Sales Tax in respect of limestone , etc. is illegal.

4. The basic question regarding time of supply of goods is to be seen and examined with reference to the date when the sale is complete which under section 19 of the Sales of Goods Act is complete when the parties intend that the property in goods being sold is transferred to the buyer by the seller. Under section 3(1)(a) of the Sales Tax Act, 1990, the Sales Tax is leviable on the value of the taxable supplies made. Mere receipt of advance cannot be regarded as a sale which may be chargeable to sales tax. Section 2(44) of the. Act ibid simply lays down that the 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 and this interpretation is in line with the requirement of the charging section according to which sales tax becomes payable only when taxable supply is made. A combined reading of section 2(33) defining supply, 2(35) explaining taxable activity, 2(44) dealing with time of supply and section 3 showing scope of the Act, of the Sales Tax Act, 1990 makes it clear that Sales Tax has been imposed on the actual sale, transfer, lease or any other mode, of disposal of goods and in the absence of any such sale etc., no sale tax can be charged. Receipt of an advance amount can neither be regarded as a sale nor supply of the goods. In this view of the matter no Sales Tax was leviable on the amount of advances received by the appellant.

5. Since the demand of all the amounts in respect of the Sales Tax is illegal, therefore, question of imposition of additional tax and penalty did not arise. In my opinion the appeal is to be accepted and the impugned order is to be set aside. However, keeping in view our difference of opinion the record of the appeal is submitted to the Hon'ble Chairman for proper orders under subsection (5) of section 194-C of the Customs Act, 1969.

ABDUL MAJEED TIWANA, (CHAIRMAN)---To resolve the difference of opinion between Member Judicial and Member Technical of Lahore Bench-II, this appeal is referred to Mr. Masood A. Daher, Member Technical of Islamabad Bench-II of the Tribunal for his opinion. He is expected to come to Lahore on 11-10-2001 and notices be issued to the parties and their counsel for this date. Hearing will take place in the Court roam of Lahore Bench-I in the Customs House, Lahore.

MASUD AHMAD DAHER, MEMBER (TECHNICAL).----To resolve the difference of opinion between Member Judicial and Member Technical of Lahore Bench-II, this appeal was heard on 11-10-2001. The appellants submitted the same arguments as already recorded and placed on the file before the Lahore Bench-II. The point of view of the Sales Tax Department is also on the same lines and no new fact or point was submitted.

2. Before I record my findings, it is essential to give the factual background of the main issues i.e., jurisdiction of the Provincial Government on the mineral e.g. Gypsum, Lime stone, Bauxite, Latrite etc., and whether the Federal Government has the Constitutional jurisdiction and right to levy tax in the form of Sales Tax on the production or sale of minerals, etc. A reference to the Fourth Schedule (Art. 70(4) of the Federal Legislative list, (Part-I)] reveals that the original entry 49 before amendment read as follows:--

"(49). Takes on sales and purchases".

This was substituted by 5th Constitutional amendment and the present entry reads as under:--

"[49. Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed]."

3. This simple fact indicates that the Federal Government did not have the Constitutional jurisdiction to levy taxes on production of Minerals except those specified against entry 51 of the Federal Legislative List, which now reads "taxes on mineral oil, natural gas and minerals for use in generation of nuclear energy."

4. A further research into the whole question of minerals falling within the jurisdiction of the Provincial Government reveals that the Central Government enacted an Act called Regulation of Mines and Oil fields and Mineral Development [(Government Control) Act, 1948 which extended to all over Pakistan. The section (1) of this Act, "power to make rules" was amended [vide Presidential Order No. 1 of 1964, Article 2 and Schedule PLD 1965 Central Statutes 17, 271 and the words "Appropriate Government" were substituted in the public interest. The sections 2, 3 and 5 of this Act were also amended under the Adaptation of Law Order 1964.

5. These amendments were necessitated with the objective of enabling both the Federal and Provincial Governments to discharge their respective functions in the field of mineral development under the 1962 Constitution. Thus, with the enforcement of this amendment the Provincial Government was also legally authorised with the powers to frame rules. The extent of the authority for the framing of the rules was layed out in clauses (1) to (8) of section 2 of the said Act.

6. The implication of the term "appropriate Government" as given in the commentary on section 6 on the "Definition of Appropriate Government" on page 15 of said Act is quoted below:--

"The words "Appropriate Government" were added in place of words "Central Government". Its explanation in that prior to the 1962 Constitution the subject of mineral development was under the control of the Central Government which was administered under the Regulation of Mines and Oil Fields and Mineral Development (Federal Control) Act, t 1948. Under the 1962 Constitution, the subject, with the exception of Oil, Gas and Nuclear Minerals which were retained by the Centre, was made the responsibility of the Provinces. In order to save the Provinces from loss of time or any deadlock due to making of their own law of this subject, the President of Pakistan adapted, Act of 1948, so that both the Central Government as well as the Provincial Government may in their respective jurisdictions continue to work for the promotion of natural resources. In order to maintain the distinction, section 5 was added in the Act of 1948 whereby the words "Appropriate Government". "Appropriate Government" was defined to mean the Central Government in respect of the minerals belonging to the Centre whereas for the rest of minerals, the words " Appropriate Government" means the Provincial Government of the concerned Province. Thus by virtue of the President's Order No. 1 of 1964 also called the Central Adaptation of Laws Order, 1964, the Act of 1948 was amended consistent to the Constitutional change that took place in the sphere of mineral development."

7. Following this legal scheme of things, the Punjab Mining Concession Rules 1986 were enacted by the Provincial Government. The "source of authority to make rules" by the Provincial Governments is in exercise of the powers conferred by section 2 of the Regulation of Mines and Oil fields and Mineral Department (Government Control) Act, 1948 (XXIV of 1948). The subsection (4) of section 2 of the said Act also gave rule making powers; "the determination of the rates at which, and the conditions subject to which, royalties, rents and taxes shall be paid by licensees, lessees and grantees of mining concessions".

8. I am of the considered view that the aforesaid legal background and documentary evidence establishes:--

(vi)The Provincial Governments have full Constitutional jurisdiction on the whole range of mineral sector underground or on surface and have the powers to levy taxes if they so choose or decide.

(vii)That the Federal Government jurisdiction to levy taxes is confined to entry 51 of Fourth Schedule (Art. 70(4) of the Federal Legislative List, Part-I) i.e. mineral oil, natural gas and minerals for use in generation of nuclear energy.

(viii)The rest of the minerals fall within the legal jurisdiction of the Provincial Government since the 1962 Constitution and in the present abrogated Constitution.

(ix)The Provincial Governments are exercising their powers and enjoying their rights through the "Act" (1948) cited above.

(x)The mere fact that minerals are not listed in the Sixth Schedule (listing exempted items) of the Sales Tax Act, 1990 does nor confer on the Sales Tax Department the legal right to levy 15 % Sales Tax.

9. A question may arise as to why Provincial Governments are charging royalty on the minerals being mined/produced their provincial jurisdiction and are not levying any tax. The answer may lie in the Provincial Fiscal Policy. A prudent Provincial Government will always encourage the exploration, production and sale of minerals in its primary form so that it could be used in higher value added goods/commodities. Therefore, it is a bad fiscal policy to tax minerals and ores because this measure is bound to discourage the business to invest in the exploration, production and sale of minerals and ores.

10. As for the second issue pertaining to the time of supply or goods, I agree with the opinion recorded by Member (Judicial) in paras 4 and 5 above. On this specific issue the Honourable High Court has also given judgment where it was held that the advance received by the appellants is termed as "bailment of money" and there is no provision in the Sales Tax Act which authorises the department to tax advance payment. The appellants are only liable to pay Sales Tax on "Sales" which actually take place and not on the payment/receipt of any advance amount which is simply bailment of money (1999) 80 Tax 41 (H.C.) Maple Leaf Cement Factory Ltd. v. The Federation of Pakistan.

11. This also disposes off the question and demand of additional tax and penalty on minerals as illegal.

12. This opinion is submitted with respect to the judgment of the honourable Chairman in Sales Tax Appeal No. 318/LB/2000, dated 22-12-2000 in the case of Messrs Rehman & Rafiq, Quaidabad, Distt. Khushab v. Assistant Collector of Sales Tax, Sargodha, etc.

Final Order of the Tribunal

Vide order, dated 6-10-2001, I had referred this appeal to Mr. Masood A. Daher, learned Member (Technical) of Islamabad Bench-II of this Tribunal for his third and decisive opinion to resolve difference of opinion between Member (Judicial) and Member (Technical) of Lahore Bench-II.

2. Mr. Masood A. Daher, Member (Technical) of Islamabad Bench-II has, vide his judgment, dated 15-10-2001 agreed with the view of Member (Judicial) of Lahore Bench-II, who in- his dissenting note, dated 5-10-2001, suggested the acceptance of appeal and setting aside the impugned order as against the findings of the learned Member (Technical), who in his proposed judgment suggested the dismissal of appeal. I in view of the majority opinion direct that the appeal is accepted and the impugned order of the lower forum is set aside.

C.M.A./743/Tax(Trib.)Appeal Accepted.