Messrs MANDIALI PAPER MILLS LTD., LAHORE VS COLLECTOR OF CENTRAL EXCISE AND SALES TAX, LAHORE, 2006 PTD-LAHORE-HIGH-COURT-LAHORE 2429 (2006)

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

---Ss. 2(12)(31A) & 3(1)---Collection of Sales Tax on Paperboard Rules, 1994, R. 5---S.R.O. 876(I)/94 & S.R.O. 877(I)/94, dated 8-9-1994---Paperboard, manufacturer of---Payment of sales tax at the rate specified in S.3(1) of Sales Tax Act, 1990 by manufacturer on paperboard supplied---Demand of tax from manufacturer for omitting to give in tax invoice information required under R.5 of Collection of Sales Tax on Paperboard Rules, 1994---Validity---Manufacturer for such omission could not be burdened with liability placed on recipient of paperboard---S.R.O. 876(I)/94 levying sales tax on recipient of paperboard would not apply to assesses being a manufacturer and supplier of paperboard and not a recipient---S.R.O. 876(I)/94 & S.R.O.877(I)/94 had been issued without lawful authority---In absence of express statutory provision allowing purchaser's liability to be shifted on manufacturer was .without lawful authority---Demand was unlawful in circumstances.

The Collector of Sales Tax and others v. Superior Textile Mills Ltd. and others PLD 2001 SC 600 rel.

(b) Notification---

----Notification could not be given retrospective effect.

Anwar Kamal for Petitioner.

Izhar-ul-Haq Sheikh for Respondents.

Date of hearing: 9th May, 2006.

JUDGMENT

JAWWAD S. KHAWAJA, J.---This petition was decided by me vide judgment, dated 30-11-2001. The respondent department preferred an appeal which has been allowed and the matter remanded by means of a short order, dated 24-2-2006 which is reproduced as under:

"These appeals are by leave of the Court against the judgment, dated 30-11-2001 of the Lahore High Court, Lahore.

(2) Learned counsel for the respondents, when asked to explain as to whether directions made by this Court vide judgment, dated 4th July, 2001 passed in C.P. Nos. 1568-L/2001 to 1572-L/2001 have been complied with or not? He stated that impugned judgment has been composed in accordance with earlier decision. But in our considered opinion it is clot so.

(3) Thus instead of dilating upon the merits of the case, we consider it appropriate to remand the cases to the High Court on setting aside the impugned judgment for fresh disposal of Writ Petitions expeditiously as far as possible within a period of 6 weeks strictly in accordance with the judgment, dated 4-7-2001,

Appeals are allowed in the above terms. No order as to costs."

2. I have also gone through the order, dated 4-7-2001 whereby an earlier judgment, dated 22-2-2001 'deciding this petition was set aside and the matter was remanded for decision for the reason that Rule 5 of S.R.O. 877(I)/94, dated 8-9-1994 had not been interpreted and an aspect of the case (noted by the Hon'ble Supreme Court) had not been addressed. The relevant part of the said order is reproduced as under:--

"It may be noted that it was incumbent upon the High Court to at least have said few words whether under Rule 5 the department is empowered to call upon the respondents to explain as to why after deducting the sales tax at the rate of 750 from the wholesalers, distributors, dealers or commission agents it has not been deposited in the Treasury etc. Surprisingly without advancing reasons for accepting the petition the conclusion has been drawn that Rule 5 of the S.R.O. is not applicable on the cases of the respondents. Thus under the circumstances we are of the opinion that impugned judgments arc not sustainable at all.

Therefore, for the foregoing reasons petitions are converted into appeals and allowed, as a consequence whereof impugned orders are set aside and cases are remanded to learned High Court for deciding the same on merits after providing opportunity of hearing to all concerned."

3. The petition was heard by me on 30-11-2001 and the argument advanced by learned counsel for the petitioner as also learned counsel representing the respondent department relating to the interpretation of Rule 5, were duly considered by inc. The judgment, dated 30-11-2001 being relevant is reproduced hereunder in its entirety:-

"This case has been remanded by the Honourable Supreme Court by means of its order, dated 4-7-2001 whereby the judgment rendered by another learned Bench of this Court, dated 22-2-2001 passed in W.P. No.13174 of 1994 was set aside. The Honourable Supreme Court has observed that the aforesaid judgment, dated 22-2-2001 has not fully discussed the relevant provisions of the Collection of Sales Tax on Paperboard Rules, 1994, and, in particular, Rule 5 thereof.

(2) I have, with the assistance of both learned counsel, gone through the provisions of the Sales Tax Act and the aforesaid Rules. In order to fully appreciate the matter in controversy, subsection (12) of section 2 of the Sales Tax Act, which defines "manufacturer" or "purchaser", and subsection (31A) of section 2 of the said Act, which defines "wholesaler", are reproduced as under:--

"(12) "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---

"(31A) "Wholesaler" means any person who carries on, whether regularly or otherwise, the business of buying and selling goods by wholesale or of supplying or distributing goods, directly or indirectly, by wholesale for cash or deferred payment or for commission or other valuable consideration."

(3) Rule 5 of the Collection of Sales Tax on Paper Board Rules, 1994 is also reproduced as under:

"The wholesalers, distributors, dealers or commission agents of locally produced paperboard shall, before taking delivery of the paperboard from the manufacturer, pay sales tax at the rate of Rs.750 (seven hundred and fifty rupees) per tonne and every local manufacturer of paperboard shall, at the time of the delivery of the paperboard from the factory premises or place of storage, indicate in the tax invoice the registration number of the wholesalers, distributors, dealers or commission agents the amount of sales tax and the number and date of the treasury receipt (challan) whereunder the tax was deposited in the treasury."

(4) Before me, learned counsel for the respondent department has argued that the petitioner, although a manufacturer of paperboard, also falls within the definition of a wholesaler of paperboard. This argument has been advanced on the basis that the petitioner are not only manufacturers of paperboard but also sells the paperboard in wholesale. As such, it has been argued by learned counsel for the respondent department that the petitioner has come within the ambit of the aforesaid Rules and is, therefore, liable to pay sales tax at the rate of Rs.750 per ton.

(5) Learned counsel for the petitioner, on the other hand, has argued that the petitioner is not a wholesaler because one necessary ingredient of the definition of wholesaler, reproduced above, is that only such person can be termed as wholesaler who is engaged in the business of buying and selling paperboard. The petitioner, according to learned counsel, does not buy paperboard. It merely manufactures and sells paperboard. In such circumstances, it is clear that the petitioner is not a wholesaler and, therefore, cannot be subjected to the regime established by the Collection of Sales Tax on Paperboard Rules, 1994.

(6) Faced with the above situation, learned counsel for therespondent department has stated that the petitioner also buys paperboard and sells the same. This contention, however, is denied by learned counsel for the petitioner. In any event, this is a question of fact which need not be addressed in this case as it is not germane to the decision of the legal issue raised in the present petition.

(7) In view of the above discussion, the petition is allowed and it is declared that the petitioner does not fall within the definition of wholesaler if it does not engage in the business of both buying and selling of, paperboard. "

4. Since the present remand order does not provide indication as to the portion of the previous remand order of 4-7-2001 which may not have been dealt with, I have asked learned counsel for both sides to argue the petition afresh. They have done so.

5.It is not in dispute that the petitioner is a manufacturer of paperboard. It is also admitted in the parawise comments of the respondent department that the petitioner has paid sales tax on the paperboard supplied by it, in accordance with and at the rate specified in section 3(1) of the Sales Tax Act, 1990. Learned counsel for the respondent department argued that the supplies of paperboard made by the petitioner were subject to the provisions of Rule 5 reproduced in my judgment of 3-11-2001. It was submitted that the said rule imposed a duty on the petitioner to give in its tax invoice, the information required under the said rule. According to learned counsel for the department, since this had not been done, the petitioner became liable to pay the amount of Rs.14,06,105 demanded from it vide notice, dated 8-11-1994 which has been impugned in this petition.

6. The aforesaid submission is without merit for a number of reasons. Firstly, as noted above, the petitioner has already discharged its tax liability by paying sales tax at the are of 15% ad valorem under section 3(1) of the Sales Tax Act. This has been specifically averred in para 7 of the writ petition and has been admitted by the respondent department in its parawise comments.

7. Additionally, learned counsel for the petitioner argued that the petitioner could not. be held liable for payment of the disputed demand because there was no provision either in the Sales Tax Act or the Rules referred to above whereunder the petitioner could be burdened with the liability placed on the recipient of the paperboard simply because the particulars, required under Rule 5, were not mentioned in the tax invoice. There is merit in this submission. Learned counsel for the respondent department was not in a position to state the basis on which the impugned demand was raised against the petitioner. Here I may add that without any express statutory provision allowing the purchaser's liability to be shifted onto the petitioner (which is a manufacturer), the impugned demand was clearly unlawful.

8. Thirdly, learned counsel for the petitioner argued that S.R.O. 876(I)/94 levies sales tax on the recipient of paperboard and, therefore, has no application to the petitioner which, as noted above, is D manufacturer and supplier of paperboard and not a recipient. This contention is also well founded and could not be controverted by learned counsel appearing for the respondent 'department.

9. Fourthly, it was argued that in view of the law enunciated by the Honourable Supreme Court in case titled the Collector of Sales Tax and others v. Superior Textile Mills Ltd. and others (PLD 2001 SC 600), the notification S.R.O. 876(I)/94 and the rules framed pursuant thereto vide S.R.O. 877(I)194 were without lawful authority. I have gone through the cited precedent and find that the ratio thereof applies in the present case also. Learned counsel for the department was not in a position to cite any law to the contrary. He conceded that sub-section (3A) was introduced into section 3 of the Sales Tax Act much after the issuance of notifications S.R.O. 876(1)/94 and S.R.O. 877(I)/94. In the circumstances, I do not see how the department can press these notifications into service against the petitioner.

10. Fifthly, the two notifications were issued on 8-9-1994 but were made effective from 1-7-1984. The impugned demand also has been made from 1-7-1994 to 31-10-1994. Learned counsel for the petitioner rightly argued that the notification could not be given retrospective effect. This legal preposition is, by now, well settled and was not contested on behalf of the respondent department.

11. The reasons discussed above provide ample justification for allowing this petition. However, in order to ensure that the observations of the Honourable Supreme Court in the two remand orders have been duly addressed, I have also considered the question noted by the Honourable Supreme Court in its order, dated 4-7-2001 in the following words:-

"It may be noted that it was incumbent upon the High Court to at least have said few words whether under Rule 5 the Department is empowered to call upon the respondents to explain as to why after deducting the sales tax at the rate of 750 from the wholesalers, distributors, dealers or commission agents it has not been deposited in the Treasury etc."

12. With utmost respect, in my humble opinion, the above question does not arise in the present case. It is not the case of either party (whether in the pleadings or during arguments) that the petitioner has deducted sales tax from wholesalers etc. In the circumstances, there can be no question of depositing the said amount in the treasury.

13. In view of the foregoing discussion, this petition is allowed and the impugned demand raised by the respondent department is set aside being without lawful authority. The petitioner shall also be entitled to its costs.

S.A.K./M-408/LPetition accepted.