Messrs PAK LAND CEMENT LIMITED, KARACHI VS CENTRAL BOARD OF REVENUE, ISLAMABAD through Chairman, Karachi and another
2007 P T D 1524
[Karachi High Court]
Before Sabihuddin Ahmed, C.J. and Rahmat Hussain Jafri, J
Messrs PAK LAND CEMENT LIMITED, KARACHI
Versus
CENTRAL BOARD OF REVENUE, ISLAMABAD through Chairman, Karachi and another
Constitutional Petitions Nos. D-544 of 1999 and 566 of 2000, 6th April, 2007.
(a) Sales Tax Act (VII of 1990)--- ----Ss.3, 6, 7, 22, 23, 26 & Sixth Sched., Item No.41---Sales Tax Circular No.2 of 1996, dated 21-11-1996---Constitution of Pakistan (1973), Art.199---Constitutional petition---Use of limestone, gypsum and clay in manufacture of cement---Notice demanding sales tax from manufacturer of cement on consumption of limestone, gypsum and clay---Non-availing of statutory remedies of appeal and revision by manufacturer before invoking constitutional jurisdiction of High Court---Effect---Normally such remedies ought to be resorted to as such jurisdiction would be invoked in absence of an alternate remedy---Alternate remedy must be equally efficacious---Statutory remedies in the present case had become illusory on account of a clear expression of opinion on the subject by Member (Customs Judicial) to whom appellate body was a subordinate---No factual dispute was involved in the present case---Controversy being confined to a purely legal question as to whether taxable goods manufactured by manufacturer for its own business consumption rather than supply to other parties, would be liable to sales tax and whether Sales Tax Circular No.2 of 1996, dated 21-11-1996 issued by Member (Customs Judicial) correctly interpreted law---High Court entertained constitutional petition for decision of such question.
Collector of Customs v. S.M. Ahmed & Company 1999 SCMR 138 rel.
(b) Sales Tax Act (VII of 1990)---
----Ss.2(33)(a)(35)(39)(41), 3 & 13 & Sixth Sched., Item No.41---Sales Tax Circular No.2 of 1996, dated 21-11-1996---Use of limestone, gypsum and clay in manufacture of cement---Liability of manufacturer to pay sales tax on limestone, gypsum and clay so used---Scope---Incidents of sales tax would arise upon "taxable supplies" made in the course or furtherance of a "taxable activity"---Word "supply" as used in S.2(41) of Sales Tax Act, 1990 would imply passing on goods from one person to another---According to S.2(33) of Sales Tax Act, 1990, putting of goods acquired, produced or manufactured in the course of business would fall within definition of "supply" even though put to private use whether for business or non-business purposes---Taxable activity would cover any form of activity, which was carried out by a person in his own business--Such clay, limestone and gypsum were not exempt under S.13 of Sales Tax Act, 1990, thus, their use by manufacturer itself would fall within scope of expression "taxable supplies".
Sheikho Sugar Mills v. Government of Pakistan 2001 SCMR 1376 fol.
Dr. Farogh Naseem assisted by Sardar Aijaz, Danish Shah, Miss Puja Kalapna and Miss Farkhanda Jabeen for Petitioners.
Abdul Mujeeb Pirzada, Syed Khalid Shah, Raja Muhammad Iqbal and Faisal Arab, Standing Counsel for Respondents.
Date of hearing: 24th March, 2005.
JUDGMENT
SABIHUDDIN AHMED, C.J.---Both these petitions involve the same question of law and are being disposed of by this common judgment. The common petitioner in C.P. No.544 of 1999 and 566 of 2000 are engaged in the manufacture and supply of cement. In the course of such manufacture certain intermediary products i.e. limestone, gypsum etc. are consumed. From 13-6-1997 cement was exempted from payment of sales tax through insertion of Item No.41 in the Sixth Schedule to the Sales Tax Act, 1990 (The Act). In 1988 the Additional Collector-II, Sales Tax Karachi East, after serving a show-cause notice passed order in original holding that the petitioners were liable to pay sales tax on the consumption of limestone. Gypsum and Clay used in the manufacture of cement but the order was set aside by the Collector (Appeals) through an order dated 28-12-1998. However, the matter was reopened by the respondent No.1 under section 45-A of the Sales Tax Act and a show-cause notice dated 9-3-1999 was issued requiring the petitioners to show cause why the order in appeal dated 28-12-1998 should not be quashed and the amount of sales tax plus surcharge should not be collected from the petitioners. This notice has been called in question in C.P. No.544 of 1999.
2. During the pendency of the above petition on 20-4-1999 the Additional Collector-II issued a show-cause notice to the petitioners contending that whereas cement was exempted from payment of sales tax, taxable items used in the manufacture thereof were not so exempt as had been clarified in Sales Tax Circular No.2 of 1996, dated 21st November, 1996. It was alleged that the petitioners had violated the provisions of sections 3, 6, 7, 22, 23 and 26 of the Sales Tax Act, punishable under sections 33 and 34 of the Act. They were also called upon to show cause why sales tax together with additional tax should not be recovered from them. The petitioners by way of reply requested that adjudication be stayed as the question was sub judice before this Court in C.P. No.544 of 1999 .where an interim order suspending recovery had also been passed. Nevertheless, the respondent No.3 proceeded to adjudicate the matter and vide order in original dated 20-3-2000 held the petitioners liable to pay sales tax in the amount of Rs.423,622.72 together with additional tax of Rs.455,414.53 calculated upto 15-2-2000. The aforesaid order in original has been questioned by the petitioners through C.P. No.566 of 2000.
3. We have heard the learned counsel for the parties. A preliminary objection relating to the maintainability of this petition was taken by the respondents to the effect that the petitioners were required to avail the statutory remedies by way of appeal and revision before invoking constitutional jurisdiction of this Court. Indeed normally such remedy ought to be resorted to because the jurisdiction under Article 199 of the Constitution is to be invoked in the absence of an alternate remedy. Nevertheless; it is equally well-settled that the alternate remedy must be equally efficacious and learned counsel for the petitioners seems to be correct in asserting that statuary remedies had become illusory on account of a clear expression of the opinion on the subject by the respondent No.2 to whom the appellate body was a subordinate. The relatively recent pronouncement of the Honourable Supreme Court in Collector of Customs v. S.M. Ahmad & Company 1999 SCMR 138 squarely supports this view. We must therefore repel the objection as to maintainability. It is equally important that no factual dispute being involved and the controversy being confined to a purely legal question i.e. whether taxable goods manufactured by the petitioners for their own business consumption rather than supply to other parties are liable to sales tax and whether the Circular of the respondent No.2 correctly interprets the law, a pronouncement of this Court may be necessary.
4. The relevant provisions of the Circular may be reproduced as follows:---
"The definition of "supply" under section 2(33)(a) of the Sales Tax Act, 1990 provides that "putting to private, business or non-business use of goods produced or manufactured in the course of business" amounts to supply. The definition of "taxable supply" means a supply of taxable goods.
3. In each of these cases of in house use, the definition of supply under section 2(33)(a) is attracted. It is of no consequence that any cotton ginner-cum-oil expeller did not make any sale of cotton seed but used it to produce cake and oil; or the poultry feed was not sold but used in house to produce poultry birds. In each case there was a "supply" of cotton seed and poultry feed as per the aforesaid definition. Also in such case the goods are taxable goods. Thus sales tax has to be paid on the taxable goods used in house for production or manufacture of exempt goods."
5. Under the charging section of the Act (section 3) sales tax is leviable on taxable supplies made in Pakistan by a registered person in the course or furtherance of any taxable activity carried on by him. In other words the two essential requirements are that the incidents of tax arises upon "taxable supply" which are made in the course or furtherance of a "taxable activity". The expression "taxable supply" has been defined in section 2(41) to read as follows:---
" "taxable supply" means a supply of taxable goods made in Pakistan (by an importer, manufacturer, wholesaler (including dealer), distributor or retailer) other than a supply of goods which is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent under section 4."
6. Indeed if the word "supply" was to be considered in its ordinary dictionary meaning there would be force in the contention of the learned counsel for the petitioners that the word itself implies passing on goods from one person to another and therefore, no tax could be leviable as the goods in question were consumed by the petitioner himself. Nevertheless, through a legal fiction the expression "supply" has been given an extended meaning in section 2(33) the relevant, part whereof reads as under:---
"(a) putting to private, business or non-business use of goods acquired, produced or manufactured in the course of business."
7. It may therefore, be seen that by virtue of the above provision putting of goods acquired, produced or manufactured in the course business would fall within the definition of "supply" even when they are put to private use whether for business or non-business purposes. Taxable goods under section 2(39) have been defined to mean all goods other than those exempted under section 13.
8. It would therefore, follow that since Clay and limestone are not exempted under section 13 of the Act, their use by the petitioner himself would also fall within the scope of the expression "taxable supplies". The next question requiring our attention would be whether such supplies were made in furtherance of a taxable activity. The expression "taxable activity" has been defined in section 2(35) as follows:---
" `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 to any other person, whether for any consideration or otherwise, and includes any activity carried on in the form of a business, trade or manufacture."
9. A careful reading of the above definition shows that its ambit is not merely confined to supply of goods to another person for consideration but has been consciously included to extend "any activity carried on in the form of business, trade or manufacture". The Honourable Surpeme Court in Sheikho Sugar Mills v. Govermnent of Pakistan 2001 SCMR 1376 in almost identical situation held that bagasse produced by Sugar Mills which were consumed as fuel for burning boilers by the Mills themselves held that taxable activity covers any form of activity which is carried out by a person in his own business. The aforesaid pronouncement being binding upon us, we have no option but to dismiss both these petitions.
S.A.K./P-8/KPetitions dismissed.