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

----Ss.2(12), (14), (33), (34) & (41)---Term `goods'---Connotation---To become `goods' an article must be something which ordinarily comes to the market, to be bought and sold and is known in the market.

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

----Ss.2 (12), (16), (17), (35), (41) & 3(3)---Expressions `taxable activity' and `taxable supply'---Scope---Goods, leviable to sales tax---Girders used in construction of overhead bridge---Punjab Highway Authority designed the bridge and the girders to be used in its construction were of a specific size which were not available in open market---Contractor purchased raw material from open market, which was already liable to sale tax and pre-cast the girders at site under the direct supervision of engineer of the Authority---Sales tax authorities levied sales tax on the construction of girders used by the contractor in the construction of the overhead bridge---Validity---Sales tax could be charged, levied and paid only when a taxable supply was made in the course or furtherance of a taxable activity, which involved in the whole or in part the supply of goods to any other person---Word `supply', as defined under S.2(33) of Sales Tax Act, 1990, included, sale, transfer, lease or other disposition of the goods in course of furtherance of business carried for consideration---Contractor could not be termed as manufacturer, producer and whole-seller as he did not indulge in the manufacturing of any kind of goods which could be bought or sold in open market---Contractor had not created any independent market product, which could ordinarily be brought to market and sold in the 'ordinary course of business---Required girders, pre-cast at site and used in the construction of overhead bridge, were not goods saleable in open market, as the same were of a particular design, size and specification and could not be used in any other bridge or building or construction work---Use of such girders by the contractor itself amounted to taxable supply to itself---Construction of bridge which was handed over to the Highway Authority could not be treated as `goods', therefore, supply of girders was not made in furtherance of taxable activity---Contractor could not be held liable to pay sales tax---Appeal was allowed in circumstances.

2001 PTD 2982 fol.

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

---Ss. 2(35) & 2(41)---Expressions `taxable activity' and `taxable supply'---Connotation---Expressions `taxable supply' and `taxable activity' both operate in their own respective fields---Quantum of tax liability is determined on the basis of the value of taxable supply, but liability to pay tax under the charging section would arise only when such supply is made in furtherance of taxable activity involving in whole or in part, the supply to any other person.

Dr. Ilyas Zafar for Appellant.

Ch. Sagir Ahmad, Standing Counsel for Respondents.

Date of hearing: 21st July, 2005.

JUDGMENT

FAZAL-E-MIRAN CHAUHAN, J.---The appellant challenged the original order, dated 22-8-1993 of Collector Sales Tax, Multan vide which sales tax demand of Rs.5,00,075 was created on account of 74 concrete girders also imposing penalty of Rs.100,000 under section 3 of the Sales Tax Act, 1990. Vide judgment, dated 20-5-2002 of the Appellate Tribunal dismissing the appeal of the respondent.

2. Brief facts of the case are that the appellant, a Private Limited Company engaged in the business of construction of Bridges and Roads. It entered into an agreement with the Highway Department, Government of the Punjab, to construct overhead bridge near Khayam Cinema, Sargodha. During construction, the appellant pre-cast girder according to the specification of the bridge on the site to be placed/used in the overhead bridge. Since, in the opinion of Sales Tax Department, pre-casting of material for the construction of girder is an act of "manufacture" as defined in subsection (16) of section 2 of the Act, and use of the girder in the construction of overhead bridge, is a business activity liable to sales tax. Respondent issued show-cause notice, dated 21-7-1993, requiring the appellant to explain as to why sales tax amounting to Rs.6,80,250 should not be recovered on account of girder used in the bridge, further punitive action contemplated under the provisions of sections 34 and 35 of the Sales Tax Act.

3. The show-cause notice was contested by the appellant taking the position that they had not sold, delivered or supplied the pre-cast girder as such. The said girders are not marketable commodity because of its design, size and specification. Such girder cannot be used in any other bridge, building or construction work except the overhead bridge under construction. Besides, it lost its separate entity when it is put in its designated position and merged into the bridge, which is not a "good" as defined in subsection (12) of section 2 of the Act. It was further argued that the mere act of manufacture did not attract levy of sales tax unless the goods so manufactured are supplied in the course or furtherance of a taxable activity. The case was sent to Collector, E.E. Sales Tax, Multan who vide his order-in-original, dated 4-9-1993 estimating the value of girders at Rs.10,00,600 assessed the Sales Tax at Rs.500,075 and direct the appellant-company to pay the same with penalty of Rs.100,000 besides directing the Superintendent Sales Tax to calculate and recover additional tax and surcharge thereon from the appellant.

4. Aggrieved by it, the appellant filed an appeal before the learned Member (Judicial) of the Central Board of Revenue, 'Karachi. The learned Member Judicial vide his order, dated 15-2-1994 dismissed the appeal upholding order of learned Collector. Thereafter, the appellant filed a revision before the Federal Government, but the same was returned to the appellant being not maintainable.

5. Appellant invoked the Constitutional jurisdiction of the Lahore High Court by filing W.P. No.715 of 1994. The learned Judge of the Lahore High Court, Lahore by accepting the Writ Petition, set aside the order, dated 25-1-1994 and directed the Tribunal to decide the appeal where it was deemed to be still pending.

6. The learned Appellate Tribunal heard and decided the same vide impugned order, dated 2-5-2002; partly accepted the appeal to extant additional Tax penalty and allowed claim of input tax under section 66 of Sales Tax Act, 1990, but confirmed the denounced of Rs.500,075 as sales tax.

7. The learned counsel for the appellant argued that since 1-7-1951 the sales tax was enforced, there was not a single instance of collection of sale tax in respect of such-like girders used in the construction of bridge; the learned Appellate Tribunal had not been able to properly appreciate the substantive law on the subject. Both the impugned order and judgment are based on erroneous interpretation of law on the subject; the girders used in the bridge were without any patent name or Trade Mark which is the salient characteristic of 'goods' which are subject of incidence tax. The pre-casting of girders at the site was simply a construction work performed in furtherance of undertaking the bridge which is exempted from levy of sale tax being immovable property. The girders being of specific size and volume, in particular circumstances of the execution of bridge were not subject to rejection by the Punjab Highway Authority, they were infused with the power only to sue for breach of conditions. The very arrangement and term of mutual understanding essentially reveal in making particular girders, a contract of work which for all purposes is not a contract of sale, hence, it does not bring the charging provision of sale tax in play. The appellant's construction/pre-casting of girders does not come in the mischief of 'goods', 'manufactured' or 'producers' as specifically defined in subsection (12) and subsection (17) of section 2 of Sales Tax Act. Finally, argues that sales tax is levied on the sale (importation, exportation, manufacture or consumption of goods). The scope of tax has been divided into two portions; (1) taxable supply made in Pakistan by a registered person in the course of furtherance of any taxable activity carried on by him, (2) goods imported into Pakistan. The appellant is not engaged in any kind of supply of goods amounting to sale attracting the charging provision of Sales Tax Act, 1990. The pre-casting of girders of specific specification, size and design by the appellant at the site to be used in the construction of bridge does not fall in clause (a) of sub-section (33) of section 2 of the Act, 1990. The connotation "Bridge" does not fall within the definition "goods" defined in subsection (12) of section 2, hence is not liable to any kind of tax. The girder pre-casted by the appellant at the site are not marketable, and cannot be sold in open markets nor could be used in any other bridge or building, because they are constructed or pre-casted by the appellant according to the design, specification and drawing of the particular bridge in which they are to be used. These girders are not pre-casted at a different place from where they are transported or shifted to the site where the bridge was under construction. Reliance is placed upon 2001 PTD 2982, a Division Bench judgment of Karachi High Court.

8. Conversely, the learned Standing counsel argues that the appellant was engaged in the manufacture of pre-cast material within the meaning of subsection (16) of section 2 of the Act, and as such is a manufacturer as defined in subsection (17) of section 2 of the Act. The pre-cast girders were taxable goods which were supplied to the P.H.A. to be used in the bridge as consumer. The supply made by the appellant is covered by clause (a) of subsection (33) of section 2 of the Act. The act of manufacturing of girder by the appellant for its personal consumption is covered by clause (a) of subsection (33), subsection (35) and subsection (41) of section 2 of the Act, 1990. The business activity of the appellant as a whole-seller attracts the provisions of subsection 47 of section 2 of the Act. The appellant has, therefore, been rightly registered a whole-seller.

9. We have heard the arguments of the learned counsel for the parties, perused the record and law on the subject. It is claimed on behalf of the appellant that manufacturing of girder with particular specification for specific bridge with specific measurement cannot be said to be a supply made in course of furtherance of taxable activity carried on by the appellant for achieving an ultimate goal of construction of bridge. The provision of sales tax are note attracted to the work awarded to the appellant-company by P.H.A.

10. The Act goes on to define in section 2, its various clauses and the term contains in the Act. Some of which are applicable to the instant case and defined as under:--

Subsection (12)

"Goods" means every kind of movable property other than actionable claims, money, stocks, shares and securities.

Subsection (16)

"manufacture" or "produce" includes:--

(a) any process in which an article singly or in combination with other articles, materials, components, is either converted into another distinct article or product or is so changed, transformed or reshaped that it becomes capable. of being put to use differently or distinctly and includes any process incidental or ancillary to the completion of a manufactured product.

(b) process of printing, publishing, lithography and engraving; and

(c)process and operations of assembling, mixing, cutting, diluting bottling, packaging, repacking or preparation of goods in any other manner.

Subsection (17)

"manufacturer" or "producer" means a person who engages, whether exclusively or not, in the production or manufacture of goods whether or not the raw material of which the goods are produced or manufactured are owned by him; and shall include:--

(a) a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages, repackages or prepares goods by any other manner.

(b) an assignee or trustee in bankruptcy, liquidator, executor, or curator or any manufacturer or producer and any person who disposes of his assets in any fiduciary capacity; and

(c) any person, firm or company which owns, holds, claims or uses any patent, proprietary, or other right to goods being manufactured, whether in his or its name, or on his or its behalf, as the case may be, whether or not such person, firm or company sells, distribute, consigns or otherwise disposes of the goods.

Subsection (19)

"open market price" means the consideration in money which that supply or a similar supply would generally fetch in an open market.

Subsection (33)

"Supply" includes sale, transfer, lease or other disposition of goods in the course or furtherance of business carried for goods consideration and 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; and

(c) possession of taxable goods held immediately before a person ceases to be a registered person.

(d) removal of goods from manufacturing premises to the sale point or place of storage owned or operated by the manufacturer or his agent; (this clause (d) was omitted by Finance Act, 2004) .

Note:- The following amendments were made vide Finance Act, 2004.

(i) in sub-clause (b), after the semicolon at the end, the word "and" was added;

(ii) in sub-clause (c), for the semicolon and the word "; and" a colon was substituted; and

(iii)sub-clause (d) was omitted and thereafter a new provision was added.

Subsection (35)

"taxable activity" means any activity which is carried on by any person, whether or not for a pecuniary profit, and involves in whole or in part, the supply of goods' 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 to any other person, whether for any consideration or otherwise, and includes any activity carried on in the form of a business, trade of manufacture.

Note. After the word "goods", the word "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 excepted goods without making 'supply" were inserted vide Finance Act, 2003 dated 17-6-2003.

Subsection (41)

"Taxable supply" means a supply of taxable goods made in Pak. Other than a supply of goods which is exempted under section 13, and includes a supply of goods chargeable to tax and the rate of zero per cent. under section 4.

Note: The word "in Pakistan" was omitted vide Finance Act, 2003, dated 17-6-2003.

Subsection (26)

"taxable goods" means all goods other than those which have been exempted under section 13.

Note: Above subsection was omitted by Finance Act, 2004.

11. It is admitted position that the appellant pre-casted the girder at site and used the same in the construction of overhead bridge. The number of girder pre-casted at the site was found as under:--

Size???????????????????????????????????????????????????? No. of girders

5' x 70???????????????????????????????????????????????? 63

4' x 70'??????????????????????????????????????????????? 11

These girders were used by the appellant in the construction of bridge under the direct supervision, instructions, directions and control of Punjab Highway Authority. These girders, as mentioned above, were of two specific size, designs and specific bridge. These were pre-casted and used by the appellant at site and were not transported Or brought at site. It cannot be transported and sold in the open market. It is also admitted position that only the required numbers of girders were pre-casted which were used by the contractor. There is no allegation or evidence of the fact that the appellant had bought or sold any girder from the open market. The word "goods" used in subsection (12), (14), (33), (34) and (41) of section 2 means every kind of movable property, other than actionable claim, money, stock, shares and securities. To become "goods" an article must be something which could ordinarily come to the market, to be bought and sold and is known to the market. Although there are many companies which deal in the pre-cast manufacturing of girder, poll roofes, boundary walls etc. and sell the same in open market, which are used by the consumers according to the size and specification of goods so purchased. In the present case, the Punjab Highway Authority had designed the bridge and the size of the girder to be used in its construction were of a specific size and specification which is not available in the open market and the appellant was supposed to pre-cast the same at site under the direct supervision of the Engineer of P.H. Authority. The appellant thus cannot be termed as manufacturer, producer and whole-seller as he does not indulge in the manufacturing of any kind of goods which could be bought or sold in open market.

12. The amended Sales Tax Act, 1990 was enacted to consolidate and amend the law relating to the levy of tax on the sale, importation, exportation, manufacture or consumption of goods. The scope of tax had been discussed in section 3 of the Act, wherein, it has been divided into two parts (1) Taxable supplies made in Pakistan by a registered person in the course of furtherance of any taxable activity carried on by him (2)-goods imported into Pakistan. Subsection (1-A) added by Finance Act, 1998 was omitted vide Finance Act, 2004.

13. As per subsection (3) of section 3, the liability to pay tax shall be:--

(a) in the case of supply of goods in Pakistan of the person making the supply and

(b) in the case of goods imported into Pakistan of the person importing the goods.

14. The expression "taxable supply" instead "sales" have been used in the charging section (3) of the Act in view of its wider connotation. The three expressions used in the first part of the charging section have been defined in the Act. The three expressions are:

(i)Supply;

(ii)Taxable Activity and

(iii)Taxable supply

Section 3 of the Act makes it clear that sales tax will be charged levied and paid only when a taxable supply is made in the course or furtherance of a taxable activity. Definition of Taxable activity, lay down in clear and unambiguous terms, that it involves in the whole or in part the supply of goods to any other person. Whereas, the word "supply" as defined in subsection (33) of section 2 includes sale, transfer, lease or other disposition of the goods in course of furtherance of business carried for consideration and includes:--

(a) putting to private business or non-business use of goods acquired, produced or manufactured in the course of business.

As per clause (a) of subsection (33) of section 2, the use of goods so produced or manufactured, in the course of business will amount to taxable supply.

In all subsections (33), (35), (39) and (41) of section 2 of the Act, re-produced above, it is the "goods", the manufacturing, production, consumption, sale, lease or other disposition and self-consumption of which is charged with sale tax. The word "goods" as defined in subsection (12) of section 2 means every kind of movable property other than actionable claim, money stock, shares and securities. To become a "goods" an article must be same thing which can ordinarily come to market, to be bought and sold, and is known to the market. Here, in the present case, the appellant had undertaken to construct the overhead bridge and purchased raw material from open market which was already liable to sale tax. It had not created any independent market product, which can ordinarily be brought to market and sold in the ordinary course of business. The required girders pre-casted at the site and use in the construction of overhead bridge are not goods saleable in open market, as these were of a particular design, size and specification and it cannot be used in any other bridge or building or construction work. However, use of the same by the appellant itself amounts to taxable supply to itself.

15. Now it is to be seen as to whether the taxable supply made by the appellant to itself was made in furtherance of taxable activity.

16. Following the view of his Lordship Mr. Justice Sabihudin Ahmad J., in the case reported as 2001 PTD 2982, we are of the view that sale tax payable under the Act, 1990 is a value-added tax as distinguished from the Act, 1951, where it was one point levy. This distinction does not lead to the inference that only such activities as may amount to sale of goods in common parlance would fall within the tax net. The Act does not speak of tax on sales simpliciter but includes importation, exportation, production or consumption of goods. The expression "sale" has also been excluded from the charging section. Under section 3(1)(b) Sales Tax is leviable on all goods imported into Pakistan, even when no element of transfer to another person is involved and the goods are imported only for the personal use or consumption of the importer. The value addition aspect is taken care of by section 7 which enables a registered person to deduct the input tax paid from the output tax that he is liable to pay.

17. The expression "taxable supply" and "taxable activity" both operate in their own respective fields. The quantum of tax liability is determined on the basis of the value of taxable supply, but the liability to pay tax under the charging section would arise only when such supply is made in furtherance of taxable activity. The taxable activity defined in the Act meant any activity involving in whole or in part, the supply of goods to any other person. Applying these provisions to the facts of the present case, we are of the view that the appellant while manufacturing the goods in question and using them in the bridge was engaged in making taxable supply. However, whether such supplies were made in furtherance of a taxable activity i.e. the supply of goods to any other person. Keeping in view the definition of "goods" in subsection (12) of section 2, construction of bridge which was eventually handed over to P.H.A. cannot be treated as "goods" by any stretch of imagination. Therefore, it is held that supply of girder was not made in furtherance of? taxable activity, therefore, the appellant cannot be held liable to pay sale tax. This appeal is allowed.

M.H./S-451/L????????????????????????????????????????????????? Appeal allowed.