COLLECTOR, SALES TAX AND CENTRAL EXCISE through Law Officer of the Collectorate VS Messrs KOHINOOR TEXTILE MILLS LTD., RAWALPINDI
2006 P T D 1116
[Lahore High Court]
Before Nasim Sikandar and Jawwad S. Khawaja, JJ
COLLECTOR, SALES TAX AND CENTRAL EXCISE through Law Officer of the Collectorate
Versus
Messrs KOHINOOR TEXTILE MILLS LTD., RAWALPINDI
S.T.A. No. 319 of 2000, heard on 13/02/2005.
Sales Tax Act (VII of 1990)---
----Ss.2(35)(33), (25) & 47 [before promulgation of Finance Act (I of 2003)---Taxable activity---Sending of yarn for its treatment and conversion into greige cloth by the vendor (unregistered person) was not a supply as contemplated in the Sales Tax Act, 1990---Parting with the goods by the registered person for the purpose of limited addition by the unregistered person was neither a sale/lease nor "other disposition of the goods" thus not a taxable activity---Principles.
Sajjad Ali Jaffri for Appellant.
Nemo for Respondent.
Date of hearing: 13th February, 2005.
JUDGMENT
NASIM SIKANDAR, J.---In this appeal under section 47 of the Sales Tax Act, 1990 an order of the Customs, Central Excise and Sales Tax Appellate Tribunal, Islamabad Bench, dated 21-6-2000 is assailed.
2. The respondent, Messrs Kohinoor Textile Mills Limited, a registered person under the Sales Tax Act sent yarn to a non-registered vendor for its waving into greige cloth on service charge basis only. The department served them with a notice for payment of sales tax on the ground that sending of yarn to the non-registered vendor amounted to "supply" under the Sales Tax Act. Therefore, they were required to pay sales tax on the amount of the yarn sent to the vendor along with additional tax as well as penalty.
3.? In reply the respondent-registered person maintained that it was a manufacturer-cum-exporter and had sent the yarn for waving into greige cloth on service charge basis. The cloth was actually received back on payment of the settled charges. Also it was argued that STGO No.1 of 1998 supported its case that a registered person or principal was not legally bound to levy or pay tax on yarn supplied free of cost for waving into greige cloth.
4. The Revenue, however, did not agree. Accordingly by way of the order in original, dated 20-6-1998 Addl. Collector Sales Tax. Islamabad found the respondent liable to pay sales tax amounting to Rs.3,58,07,196 along with additional tax and penalties. The respondent-Tax Payer failed before Collector (Appeals), Rawalpindi on 6-1-2000.
5. On further appeal a Division Bench of the learned Tribunal on consideration of the arguments made before it agreed with the registered person that it was under no obligation to collect sales tax on behalf of the department from the unregistered vendor of the kind of transaction involved in this case. The operative part of the order as contained in para. 5 thereof reads as under:--
"(5) We have carefully considered the averments of both the parties and also perused the case records. It has been established that there has been no wilful violation or evasion of sales tax payment by the appellants. They are not under any binding of existing law or rules to be responsible for levy or collection of sales tax on behalf of the department from non-registered vendors. It has also been established through documentary evidence that yarn was supplied to an un-registered vendor for processing into greige cloth which was received back for re-processing into finished goods. Further, the commercial transactions between the registered and unregistered firms should not be disrupted by any levy of sales tax on goods which are sent temporarily and were received back for processing or export as such a levy would enhance costs and disrupt manufacturing chain."
6. Learned counsel for the appellant-Revenue claims that the manufacturer had made a taxable supply in this case which according to section 2(33) of the Act included sale, lease or other disposition of goods in furtherance of its business as a registered person. Also makes a reference to the definition of word "taxable supply" as contained in subsection (35) of section 2 of the Act. Therefore, claim that the order of the Tribunal gives rise to a question of law if in the facts and circumstances of the case the Tribunal was justified in finding that sending of yarn for its treatment and conversion into greige cloth by the vendor was not a "supply" as contemplated in the Act.
7. Having heard the learned counsel for the appellant and ongoing through the impugned order of the Tribunal we will agree that at the relevant time the definition of the word "taxable activity" as made in subsection (35) of section 2 of the Act did not contemplate levy of sales tax on the kind of the transaction made in the case in hand. Before inclusion of the words "or rendering of services on which sales tax has been levied under the respective Ordinance and use of goods acquired for private purposes or for the manufacture of exempt goods without making supply" by Finance Act, 2003, dated 17-6-2003, the "supply" of the kind was not covered by the definition of the "taxable A activity" as noted above. Also addition of proviso to the definition of' the words "registered person" in subsection (25) of section 2 of the Act by Finance Act, 1996 did make a difference as far the unregistered vendor in this case was concerned. The definition of the word "supply" as made in sub-section (33) of section 2 of the Act even after a number of amendments still contains the crucial test. It contemplates "disposition" of goods in any form whatsoever. Learned Members of the Tribunal found , and we will agree that parting with the goods by the respondent-registered person for the purpose of a limited addition by the unregistered person was neither a sale/lease nor "other disposition of the goods".
8. Therefore, no ease for interference in the impugned order of the Tribunal is made out. Accordingly our answer to the question identified in para. 6 above is in the affirmative.
9. Dismissed in limine.
M.B.A./C-8/L????????????????????????????????????????????????????????????????????????? Reference answered.