(a) Sales Tax Act (III of 1951)-----

----S. 17---Advisory jurisdiction of High Court---Scope---Whip exercising such jurisdiction, High Court is supposed to give its opinion on a particular point of law referred by Tribunal or admitted by High Court on an application submitted by a party to proceedings ---opinion o High Court should be confined only to the point referred and should no extend to any other point.

(b) Sales Tax Act (III of 1951)-----

----Ss. 3 & 17(1)---S.R.O. 125(1)/70, dated 29-6-1970---Sales tax, levy of---Exemption claimed in respect of gear boxes and axles manufactured by assessee---Assessing Officer refused to grant exemption as such parts being automotive vehicles parts did not form part of machinery as defined in S.R.O. 125(1)/70---Appellate Authority-found assessee entitled to exemption on ground that definition of machinery was very wide, thus, automotive vehicles and spare parts of machinery were covered by the same---Tribunal upheld findings of Appellate Authority ---Validity-- For bringing a machinery or component parts of any machinery within definition of machinery given in said S.R.O. two conditions precedent have to be satisfied at one and same time i.e. such machinery should be operated by power of any description, and same should be such to be used in any industrial process---Second condition was lacking in case of manufacture and sale of gear boxes and axles produced by assessee as they were being used for automotive vehicles---Exemption was, thus, not available to assessee, and same had rightly been refused by Assessing Officer---Appellate Authority and Tribunal had misdirected themselves in extending exemption to assessee by misinterpreting definition of machinery given in S.R.O.---High Court answered question in the negative.

1991 PTD 1060 ref.

(c) Interpretation of statutes---

---- Fiscal provision of a statute is to be construed liberally in favour of taxpayer---Tax is to be levied by a clear and unambiguous legislation-- Any doubt or ambiguity in matter of levy of tax is to be resolved in favour of citizen/subject/taxpayer.

1993 SCMR 274 ref.

(d) Taxation------

----Exemption from levy of tax, grant of or claim of---Effect stated.

Grant of exemption from levy of any tax and claim of any exemption by any taxpayer envisage levy of tax and the effect of grant of exemption is that a particular income in the case of income-tax and a particular transaction in case of sales tax shall be allowed to go untaxed, which was otherwise subject to levy of tax. In other words, the act of exemption is that a tax is allowed to be evaded by the Legislature itself.

(e) Interpretation of statutes---

----Fiscal statute---Exemption---Provisions relating to exemption from levy of tax---Such provisions are not to be interpreted liberally, but have to be interpreted and applied strictly---Exemption is to be allowed in such case only where an assessee is able to establish that same is covered by exemption provision on all fours.

(f) Interpretation of statutes---

---- No word or expression or a few words should be taken from the context in which they are used and then be interpreted in isolation-- Provision of law is to be read and interpreted as a whole---If there is any scheme of law, when entire scheme is to be taken together consideration and not part thereof is to be considered in isolation.

Construction of Statutes by Crawford, Chap. XIX, para. 188 and 1999 PTD 1060 ref.

(g) Taxation---

---- Exemption from levy of tax---Where more than one conditions have been prescribed for availing an exemption and they are not in the alternative, then all such conditions should be satisfied simultaneously for availing exemption.

Ms. Masooda Siraj for Appellant. Khalid Javed for Respondent.

Date of hearing 3rd March, 2002.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---By this reference under section 17(1) of the Sales Tax Act, 1951, the Income Tax Appellate Tribunal, of Pakistan, has referred the following question of law for our opinion:--

"Whether on the facts and circumstances of the case, the Tribunal was justified in holding that the Gear Boxes and axles produced by the assessee fall within the definition of machinery as defined in S.R.O. 125(1)/70, dated 28th June, 1970, hence were exempt from sales tax under head ' 84.63 ".

2. Briefly stated the relevant facts are that, the respondent during the course of assessments for the assessments years 1974-75, 1975-76 and 1976-77, claimed exemption from the levy of sales tax on Gear Boxes and axles manufactured by it, by placing reliance on the Notification No. S.R.O. 125(1)/70, dated 29-6-1970 as amended by Notification No. S.R.O. 540(1)/71; dated 23-11-1471. The notification under which exemption was sought, reads as follows:--

Exemption of capital goods (machinery etc.) imported into Pakistan, S.R.O. 125(1)/70, dated 29-6-1970. In exercise of the powers conferred by section 7 of the Sales Tax Act, 1951 (III of 1951) and in supersession of this Ministry's Notification No.S.R.O. 124(1)/69 dated 29th June, 1969, the Central Government is pleased to direct that the articles falling under the heading numbers of the First Schedule to the Customs Act, 1969 (IV of 1969), specified in the table below which are machinery or articles for use with machinery or as component parts or spare or spare parts of machinery as hereinafter defined, shall be exempt from the tax payable under the Sales Tax Act, 1951 (III of 1951):

(a) the articles are identifiable as intended for use only with machinery and have been given for that purposes some special shape, size or quality and,

(b) it is established in the case of imported articles to the satisfaction of the Customs Collector, and in the case of articles manufactured in Pakistan, to that of the Sales Tax Officer, that they are used as aforesaid.

Definition of machinery:-

(i) Machinery, operated. by power of any description (excluding agricultural machinery or implements imported into Pakistan) such as is used in any industrial process, including the generation, transmission and distribution of power or used in process directly connected with the extraction of minerals and timber, construction of buildings, roads, dames, bridges and similar structure and the manufacture of goods:

(ii) Apparatus and appliance, including metering and testing apparatus and appliances specially adapted for use in conjunction with machinery, specified in item (i) above:

(iii) Mechanical and electrical control and transmission gear adapted for use in conjunction with machinery as specified in item (i)

(iv) Component parts, including spare parts of machinery as specified in items (i), (ii) and (iii) above, identifiable as for use in or with such machinery".

3. The Assessing Officer confronted the respondent/assessee with the view that, the automotive vehicle parts, manufactured by the respondent, do not form parts of machinery as defined in the notification and therefore, exemption claimed was not available. An explanation was submitted on behalf of respondent as follows:--

"The subject S.R.O. not only exempt Machinery but also component parts or spare parts of the Machinery. The exemption claimed is related to component and spare parts and are the Machinery for automotive vehicles. The product thus qualifies for exemption as component of the Machinery falling under the Head No.84 and 63 and subhead of the First Schedule to the Tariff Act, 1934 appended to the Table forming part of the said notification"

4. The Assessing Officer, after considering explanation furnished with the reference to the relevant facts reiterated his views that, the automotive vehicles parts do not form parts of machinery defined in the notification and consequently, the exemption was declined.

5. The respondent/assessee preferred first appeal before the learned Assistant Commissioner Income Tax (Appeals) Zone-2, Karachi, assailing the refusal of exemption. The learned CIT(A) observed that the definition of machinery is very wide in the relevant S.R.O. According to the learned CIT(A), the operative part of the definition is, "machinery operated by the power of any description". He further held that, afterwards the said definition excluded agricultural machinery imported into Pakistan and gave illustrations. He was of the view that; the illustrations are never exhaustive and though the word automotive vehicles part does not appear in the illustrations, it does not follow that, it was excluded. He ultimately held that, the definition of machinery is very wide and automotive vehicles are covered by the definition. Component parts or spare parts of the machinery are also included in the said definition. He therefore, held that, the sales of gear and axles manufactured by the respondent enjoyed exemption from the levy of sales tax.

6. The Sales Tax Officer, feeling aggrieved with the findings of CIT(A) preferred second appeal before the Income Tax Appellate Tribunal. It was contended by the Departmental Representative, before the ITAT that, the axles and gear boxes were neither machinery within the meaning of the relevant S.R.O. nor constituted part of an engine. The learned counsel for the respondent placed reliance on clauses (i) and (iii) of S.R.O. referred to above, and supported the finding of CIT(A) granting the exemption.

7. The learned Members of the Tribunal held that, after carefully going through the definition of machinery, contained in S.R:O. 125(1)/70, dated 29-6-1970, they had no hesitation in holding that, the products of the respondent fall under clauses (i) and (iii) of the definition of machinery, hence they were exempt from sales tax. The impugned findings of the learned CIT(A) were upheld and the appeals at the instance of Sales Tax Officer were dismissed.

8. The Revenue still feeling dissatisfied, submitted reference application and the question of law arising out of the order of Tribunal as reproduced in the earlier part of this judgment 'was referred for our opinion.

9. We have heard Ms. Masooda Siraj, learned counsel for the Revenue and Mr. Khalid Javed, Advocate for the respondent.

10. She has vehemently argued that, although the learned CIT(A) and the learned Members of the ITAT have observed that, the exemption under S.R.O. 125(1)/70, is available to the machinery or articles for wijlt machinery or as component parts or spare parts of machinery,. defined in the notification but they have misdirected in not considering the entire definition of machinery given in the notification. She has submitted that, the learned CIT(A) seriously erred in making an observation that, illustrations Itave been given in the notification which are not exhaustive. She has contended that, a bare reading of the notification shows that, no illustrations have been given in the notification and on the contrary under heading, "definition of machinery", four causes are appearing and all of the them contained the definition of machinery. Analysing the definition of machinery, she has maintained that, in clause (i) the main definition is contained and clauses (ii), (iii) and (iv) are subservient to clause (i), as clauses (ii) and (iii) deal with the apparatus and appliances, Mechanical and Electrical control arid transmission gear which are adapted for use in conjunction with the machinery, specified in item (i) and clause (iv) specifically deals with the component parts including spare parts of machinery, as specified in items (i), (ii) and (iii) identifiable as for use in or with such machinery. She has argued that, bare reading of clause (iv) which refers to the machinery as specified in items (i), (ii) and (iii) is indicative of the fact that, there are no illustrations in the notification and all the four clauses pertain to the definition of machinery. She has further maintained that, the learned ITAT has observed that, they have carefully gone through the definition of machinery contained in the notification and that they have no hesitation in holding that, the products of the respondent fall under clauses (i) and (iii) of the definition of machinery, hence are exempt from sales tax, but this finding does not contain any analysis of the definition of machinery and is devoid of any reason, as to why and how, the learned Members of the ITAT came to the conclusion that, gear boxes and axles manufactured by the respondents fall within the definition of machinery, contained in the S.R.O. 125(1)/70. Giving her own analysis of the definition of machinery contained in the notification under consideration, she has urged that, the main definition is contained in clause (i). According to her, the first condition is that it should be a machinery, operated by power of any description. The agricultural machinery or implements imported into Pakist, have been excluded from the definition of machinery for the purposes of notification under consideration. The second condition is that, the machinery operated by power should be such as is used in any industrial process, including the generation and distribution of power, or used in processes, directly connected with the extraction of minerals and timber, construction of buildings, roads, dams, bridges and similar structures and the manufacture of goods. She has vehemently argued that for determining the scope of the definition of machinery given in the notification under consideration the word ,"such" plays the key role and both the appellate authorities have ignored this word, with the result that, they have wrongly interpreted the definition of machinery and have fallen in error. She has submitted that, the learned CIT(A) as well as learned ITAT have been influenced by the first part of the definition in clause (i) which speaks of machinery, operated by power of any description and thereafter, they have jumped to the conclusion that, the definition of machinery given in the notification is very wide and covers each and every machinery operated by power, as well as mechanical and electrical control and transmission gear, adapted for use in conjunction with machinery. She has further argued that, in clauses (ii) and (iii) it is clearly stated that, the apparatus and appliances and mechanical and electrical control and transmission gear should be adapted for use in conjunction with machinery is specified in item (i). Like-wise in clause (iv) such component parts have been included in the definition of machinery as are for use in for in with such machinery. Again expression such machinery refers to the definition contained in clause (i). She has submitted that, when the word, "such" used in clause (i), is read with the word machinery and further with, the expression, ". as is used in any industrial process", it becomes abundantly clear that, the exemption was allowed to such machinery and the apparatus and appliances, mechanical and electrical control and transmission gear and component parts which are used with the machinery which is meant for industrial process only and not to every machinery. She explained that, by the use of expression, "such as is 'used in any industrial process," all machineries used for any purpose other than industrial process have been excluded from the purview of machinery, defined in the notification, except those which have been specifically included, such as is used in generation, transmission and distribution of power, or used in process directly connected with the extraction of minerals and timber, construction of buildings, roads, dams, bridges and similar structures and the manufacture of goods, meaning thereby that, the machinery used for these purposes and for other similar and allied purpose have been included in, the expression, "industrial process" thereby enlarging the scope of machinery used in industrial process. However, it does not mean that, the definition has been made so wide, as to include machinery of every sort/description including every automotive vehicle and the parts thereof. She has contended. that, the respondent never contended that, the gear boxes and axles produced by them and which are claimed exempt from levy of sales tax under Notification S. R. O. No. 125 (I)/70, were being used in the machinery used in any industrial process as defined in the notification, therefore, the Sales Tax Officer was fully justified in refusing to grant exemption, while both the appellate forums committed error of law in coming to the conclusion that, the gear boxes and axles manufactured by the respondent which are used in automotive vehicles and have no nexus with the use of any industrial process, were entitled for the exemption claimed.

11. On the other hand, Mr. Khalid Javed, learned counsel for the respondent has supported the views held by the learned ITAT. The learned counsel for the respondent has submitted written notes also which are reproduced below:--

"It is respectfully submitted on behalf of the above named respondent as under:--

(1) That the case of the respondent falls under Heading 84.06 and 84.63 of the First Schedule to the Tariff Act, 1934 which has subsequently been substituted by Finance Act, 1975 effective from 1st July, 1975. The words and figures "Tariff Act, 1934 (XXXII of 1934)", have been substituted by the words and figures "Customs Act, 1969 (IV of 1969)" vide Notification No.S.R.O. 334(1)/76; dated 10-4-1976, the subject articles are fully covered by the above headings.

(2) That the aforesaid heading Numbers find place in the Table forming part of Notification No.S.R.O. 125(1)/70, dated 29th June, 1970.

(3) That in referred notification, dated 29th June, 1970 the Central Government was pleased to direct that the articles fallen under heading numbers of the First Schedule to the Tariff Act, 1934 specified in the table below which are machinery or articles for use with machinery or as component parts or spare parts of machinery as hereinafter defined, shall be exempt from tax payable under the Sales Tax Act, 1951.

(4) That the Table of the said notification contains heading numbers and sub-heads which have been exempted from the tax payable under the Sales Tax Act. The following words of the notification are very important.

"The articles falling under the heading numbers of the First Schedule to the Tariff Act, 1934, specified in the table below which are machinery OR articles for use with machinery OR as component parts OR spare parts of machinery as hereinafter defined shall be exempt from the tax payable under the Sales Tax Act, 1951".

This clearly provides that the heading numbers and sub-heads given in the table from First Schedule to the Tariff Act which are machinery OR articles for use with machinery OR as component parts have been exempted. So far as spare parts of machinery as defined in the said notification is concerned those spare parts or machinery are in addition to machinery or articles specifically mentioned in the table to which the exemption has been granted. If the intention of the Legislatures was that only machinery as defined in the notification shall be exempted then there was no necessity for giving the heading numbers and sub heads in the table in the notification. The machinery as defined in the notification is different from 4iachinery and articles as defined/provided on the heading numbers and sub-heads of the table: Hence the machinery as defined in the notification shall be in addition to the machinery and articles defined/provided in the table.

(5) That the word "OR" is used in the said notification in disjunctive sense. Ordinarily words like "AND,, "OR" are used in disjunctive sense. The words "OR", AND are often used interchange-able. The reliance is placed on paragraph No. 188 of Chapter XIX- of the Book "Construction of Statutes by Crawford". Photocopies of page Nos.322 and 323 are filed herewith. The reliance is also placed on 1999 PTD 1960 (1067-D).

(6) That it is well-settled principle of law that a fiscal provision of a statute is to be construed liberally in Favour of taxpayer and in case of any substantial doubt the same is to be resolved in favour of the citizen. Reliance is placed on 1993 SCMR 274 (287-E).

(7) That the said notification has been amended by subsequent Notification NO.S.R.O. 540(1)/71, dated 23 November, 1971 whereby in the table given in the said notification, Heading number 84.10 has been amended. This also clearly shows that exemption granted to the machinery and articles of heading numbers and sub-heads of the table has not been made depended or conditional with the definition of machinery provided in the notification itself.

(8) That without prejudice, it is submitted that the brackets and commas used in the said notification as punctuation cannot control the plain meaning of the text of the enactment. Copies of pages 342 and 343 from the Construction of Statutes by Crawford are filed".

12. We have carefully considered the contentions raised by the learned Advocates for the parties. So far, the contention of learned counsel for the respondents pertaining to heading numbers are concerned, we are of the opinion, that, they are of no help to the respondent for the reasons, that, the learned ITAT has not agreed with the view of the learned CIT(A) that the exemption is available on the basis of heading in the schedule to the Tariff Act. The learned ITAT allowed the exemption for the sole reason that, the gear boxes and axles manufactured by the respondent fall within the preview of machinery vide clauses (i) and (iii) of the definition given in the notification under consideration. We have therefore, considered the contentions raised by the learned Advocates for the parties on the point if gear boxes and axles manufactured by the respondent fall within the definition of machinery as defined in S.R.O. No.107(1)/70. This is in consonance with the principles of exercise of advisory jurisdiction vested in this Court, in the reference made under various Tax Statutes. It is to be kept in mind that while exercising advisory jurisdiction, this Court is supposed to give its opinion on a particular point of law referred by the Tribunal or admitted by this Court on an application submitted by a party to the proceedings. The opinion of this Court is to be confined to the point referred to this Court and should not extend to any other point.

13. A perusal of the question referred to this Court, reproduced in earlier part of this judgment shows that our opinion has been sought on the point whether .on the facts and circumstances of the case, the Tribunal was justified in holding that, the gear boxes and axles produced by assessee fall within the definition of machinery as defined in S.R.O. 125(1)/70. The availability or otherwise of exemption is a mere consequence. So far, the question of fact pertaining to the gear boxes and axles produced by the respondent are concerned, it is admitted position that, they are used in automotive vehicles. There is nothing do the record and in the reference made by the ITAT that, these two component parts are used for any industrial process. We will therefore, examine if the gear boxes and axles produced by the respondent and used in automotive vehicles fall within the definition of machinery as defined in notification under consideration, notwithstanding, the fact that they are not being used in conjunction with any machinery in the industrial process.

14. Before proceeding further, we would like to make a pertinent observation with reference to the contentions raised by the learned counsel for the respondent that, a fiscal provision of statute is to be construed liberally in favour of taxpayer. There can be no cavil to the proposition, that, while interpreting/applying provision of fiscal statute levying any tax or creating any financial burden or liability on a l subject/citizen, the law is to be interpreted liberally in favour of the subject/taxpayer. A tax is to be levied by a clear and unambiguous legislation and any doubt or ambiguity in the matter of levy of tax is to be resolved in favour of a citizen/subject/taxpayer.

15. However, another equally important principle is always to be kept in view, that, the grant of exemption from levy of any tax and the claim of any exemption by any taxpayer envisage the levy of tax and the effect of grant of exemption is that, a particular income in the case of income tax and a particular transaction in the case of sales tax shall be allowed to go untaxed which was otherwise subject to the levy of tax. In words, the effect of exemption is, that, a tax is allowed to be evaded - the Legislature itself. In the matter of interpreting and applying the provision pertaining to the exemption, the provisions of a fiscal statute are not to be interpreted liberally as in the case of levy of the tax but have to be interpreted and applied strictly and exemption is to be allowed in such case, only where an assessee is able to establish that, it is covered by the exemption provision on all fours.

16. Now we advert to the connotation and scope of the definition of machinery, contained in the notification under consideration. The contention raised by Ms. Masooda Siraj, learned counsel for the Revenue has been discussed in detail by us. In short, her contention is that, the exemption under S.R.O. 125(1)/70 was granted to boost-up and encourage industrialization in the country. For this purpose such machinery as operated by power, used in any industrial process was granted exemption. Her contention is that, because of this reason, the l~ agricultural machinery or implements imported into Pakistan were expressly excluded from the definition of machinery. We find, force in her contention. It is cardinal principle of interpretation of statutes that no word or expression or few words, should be taken from the context in l which there are used and then be interpreted in isolation. A provision of law is to be read and- interpreted as a whole and if there is any scheme of law then the entire scheme is to be taken together into consideration and no part thereof is to be considered in isolation. We find that, the learned ITAT has observed that the gear boxes and axles fall within the definition of machinery given in clauses (i) and (iii) of the definition, without fully interpreting the entire definition in its totality. The learned Members of the ITAT have upheld the finding of the learned CIT(A) to the effect that, the definition of machinery is very wide in the said S.R.O. and that, the operative part of the definition is machinery operatedby power of any description and that, the definition has excluded agricultural machinery imported into Pakistan and thereafter illustrations have been given which are not exhaustive. The learned Commissioner has observed that, in his view the definition of machinery is very wide and automotive vehicles are covered by definition. The learned Members of the ITAT fell in serious error by failing to note that the learned CIT(A) confined his consideration of the definition or machinery to the opening part of the definition only, i.e. "machinery operated by the power of any description". The latter part of the definition was totally ignored and excluded out of consideration by the learned CIT(A) and the learned ITAT, both. Thus, one of the most established principle of the interpretation of the statutes has been ignored as explained above. If the learned ITAT would have given proper consideration to the definition of machinery, contained in clause (i), it would have become abundantly clear that, the exemption was available to such machinery or component parts or spare parts of machinery as defined in the notification itself and the definition specifically contains that, for the purpose of notification the machinery means, machinery operated by power of any description, such as is used in any industrial process. Thus, the first condition precedent for bringing a machinery within the definition given in the notification is that, it should be operated by power of any description and the second condition precedent is that it should be such machinery as is used in any industrial process. The remaining part of the definition starting with the word, "including" has the effect of enhancing and widening the connotation and scope of the industrial process. In ordinary course, the extraction of minerals and timber, construction of buildings, roads, dams, bridges and similar structures may not be considered as an industrial process but looking to the requirements of the country, all such activities have been included in the connotation of industrial process, thereby granting exemption to machineries apparatus and appliances and component parts of machineries used for such purposes also. We find substance in the contention of Ms. Masooda Siraj that, the key words in the definition are, "such as is used in any industrial process", which have been totally ignored by the CIT(A) and the ITAT who have considered one part of the definition only, which prescribes one condition and have therefore misdirected in interpreting the definition of machinery given in the notification under consideration. Here, we would like to hold that, ii more than one conditions have been prescribed for availing an exemption and they are not in the alternative, then all those conditions should be satisfied simultaneously for availing the exemption. It is, therefore, held that, in order to bring a machinery or component parts used in any such machinery, within the definition of machinery given in the Notification S.R.O. 125(1)/70, the two conditions must be satisfied at one and the same time i.e. (i) .a machinery, should be operated by power of any description and it should be such machinery which is used in any industrial process. The second condition is admittedly lacking in the case of manufacture and sale of gear boxes and axles produced by the respondents/assessee, as they being admittedly used for automotive vehicles, therefore, the exemption was not available 'to the respondents and the Sales Tax Officer had rightly refused the exemption while the CIT(A) and ITAT misdirected in extending exemption to the respondent.

17. The question referred to us and reproduced in the earlier part of the judgment is answered in negative.

18. A certified copy of this judgment duly sealed and signed by the Registrar of High Court, should be sent to the Income Tax Appellate Tribunal, with the direction that the copy of the order along-with record of the ITAT be transmitted to the Customs, Central Excise and Sales Tax Tribunal Karachi, for passing the order, conformably to the opinion contained in this judgment. The record of the Reference Applications Nos. 17, 18 and 19/KB of 1985-86 relating to the assessment years 1974-75, 1,975-76 and 1976-77, which were submitted in this Court, shall also be returned back to the ITAT immediately.

S.A.K./C-67/K Question answered in negative.