Messrs HABIB SUGAR MILLS LTD. through Law Officer VS ADDITIONAL COLLECTOR, SALES TAX, CUSTOMS HOUSE, SITE HYDERABAD, 2007 PTD-KARACHI-HIGH-COURT-SINDH 171 (2006)

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

----Ss. 2(46) & 3---Sindh Abkari Act (V of 1878), S. 19---Industrial alcohol, supply of---Inclusion of Provincial excise duty for determining value of such supply for purpose of charging sales tax---Validity---Such duty was not collected by supplier at the time of sale, but was collected subsequently directly by Provincial Excise officials---Amount of such duty would not be included in the value of supply.

(b) Interpretation of statutes---

----Fiscal statute---No presumption as to a tax---Duty of Court to implement law according to plain language thereof---Principles.

While interpreting the tax statutes, the Court is required to implement the law in accordance with the plain reading of the language of statute. There is no room for any intendment by ignoring the ordinary plain language of the statute. In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no presumption as to a tax. Nothing is to be read in. Nothing is to be implied. One can only look fairly at the language used.

Cape Brandy Syndicate v. IR (1921) 1 KB 64 fol.

Muhammad Ali Sayeed for Appellant.

Nemo for Respondents.

Mrs. Sofia Saeed Shah, Standing Counsel is present on Court notice.

Date of hearing: 3rd October, 2006.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---The question of law requiring consideration in this appeal is as follows:

"Whether on the facts and in the circumstances of the case, the Customs, Excise and Sales Tax Appellate Tribunal was justified in holding that for the purpose of determining the value of taxable supply during the period November, 1990 to October, 1995 element of Provincial Excise Duty is to be included for the purpose of charging sales tax under the Sales Tax Act, 1990?"

2. The relevant facts giving rise to the above question of law are that the appellant is a Sugar Mill, having its Distillery at Nawabshah, producing Industrial Spirit (Rectified and Denatured) as a by-product of sugar manufacture. The production of sale of the spirit is controlled and regulated under the Sindh Abkari Act, 1878. According to appellant the Provincial Government collects the Permit Fee and Vend Fee and the Provincial Excise Duty at the stage of consumption.

3. In exercise of power under section 3 of the Sales Tax Act, 1990, sale tax is also levied by the Central Government at the rate specified from time to time. According to appellant the exports of spirit supply to foreign countries and supplies to Pakistan Ordnance Factory, Wah, do not attract the levy of Provincial Excise Duty, whereas supplies for use as a raw material in Pharmaceutical Industries are exempt from the levy of sales tax. It is averred that the procedure prevalent for sale/supply of industrial Alcohol as prescribed under the Abkari Act, is that the licensed purchaser brings the permit issued by the Officer of the Provincial Excise Department. On production of permit at the Distillery, the sale tax is calculated on the value of supply. The sale tax is charged on the said value at the prescribed rate which is collected by the appellant and is subsequently deposited in the account of Federal Government. After transportation by the licensed buyer's the Provincial Excise Duty is either recovered by the Directorate of Provincial Excise Department or is deferred on execution of bond.

4. A question arose, as far back as, the year, 1982, whether excise duty is recoverable at the time of sale of Rectified and Denatured Spirits from the Distillery. The Excise and Taxation Officer, Nawabshsh informed by his Letter No. Excise/3095, dated 19th May, 1982 that no excise duty is recoverable at the time of issue/sale of Rectified and Denatured Spirits from the Distillery on retail sale as well as wholesale. A query was made by the Assistant Collector, Central Excise and Land Customs, Hyderabad and Director Excise and Taxation, Sukkur Division, vide his letter, dated 7-8-1982 informed that the excise duty follows consumption. No excise duty is leviable on the sale of Rectified or Denatured Spirit at the time of issue from the Distillery.

5. In the year, 1985, the Sales Tax Collector, Hyderabad, passed order that all the provincial taxes such as vend fee, permit fee and assessment fee are required to be included in the value of supply for the purposes of charging Central Excise. The Collector further held that for the purpose of determining the value of supply, Provincial Excise Duty is to be excluded. On a revision filed with the Federal Government the Member C.B.R./Additional Secretary to the Government of Pakistan, Ministry of Finance, held that the Provincial Excise Authorities have confirmed that the excise duty and other charges like vend fee, permit fee etc., are not levied on spirit at the time of its issue from the Distillery. These charges are in fact recovered at the later stage from the consumers of spirit who were issued permits by the Excise and Taxation Department, for its purchase from the Distillery. It was held that there was no justification for inclusion of these charges in the assessable value of the spirit sold by the appellant. Habib Sugar Mills. It was also observed that on verification, it was found that this practice is followed in Collectorates of Peshawar, Rawalpindi and Lahore where Sales Tax is being levied on spirit at the ex-factory price exclusive of excise duty and other charges.

6. However, the Second Secretary Sales Tax C.B.R. vide his letter C. No.3(1)GST/92/Pt, dated 27-9-1993 issued direction to the Collectorate Central Excise and Sales Tax to the effect that the Board vide its letters, dated 18-5-1993 and 21-8-1993 has directed that the Provincial Excise Duty should be included for determining sales tax price of the goods for assessment purposes. In compliance of the above direction the Superintendent Customs and Central Excise Sukkur directed the appellant that Provincial Excise Duty should be included for determining the sales tax of Alcohol for assessment purposes.. The same officer of the C.B.R. in his Letter C. No.3(8)/90-STJ, dated 2-1-1994 directed the Collectorate, Customs, Central Excise and Sales Tax that sales tax is to be calculated on the amount of money received by customers. If permit fee is collected by the customers for onward payment to the Provincial Government sales tax will be calculated on the price inclusive of this permit fee and the reference to excise duty is by way of illustration. It was further stated that the definition of the term "value of supply" in section 2(31) of the Sales Tax is not exhaustive. Any local/Provincial/Federal Tax collected by the seller from the customers would be included in sale price on which tax is to be levied. It was further directed that in the light of above mentioned principle the Collectorate may decide the issue for ascertaining the mode of collection of permit fee.

7. Deputy Collector-II, Collectorate of Customs and Central Excise, Hyderabad, issued a show-cause notice to the appellant on 31-12-1995 intimating that the checking of appellant's record showed that the sales tax on `spirit' was being assessed and paid on the price without addition of Provincial Excise Duty leviable thereon. Due to non-inclusion of provincial excise duty, in assessable value for the purpose of sales tax, the Government sustained a loss amounting to Rs.48,33,579, during period from November, 1990 to October, 1995.

8. It was further stated in the show-cause notice that the appellant has contravened the provisions of section 6(2) of the Sales Act, 1990, punishable under section 33(4). The short paid amount of sales tax is recoverable under section 36 of the Sales Tax Act, 1990 along with additional tax and surcharge computable under section 34.

9. The appellant was called upon to show cause as to why an amount of Rs.48,33,579 being an amount of sales tax worked out on the amount of Provincial Excise Duty on taxable supply made from November, 1990 to October, 1995, should not be recovered together with additional tax and surcharge. The appellant submitted explanation as follows:--

"In our case the position is that we are manufacturer of alcohol (rectified spirit) for about 28 years. The manufactured goods are exported as well as locally sold to the manufacturers of pharmaceuticals, Wah Ordnance Factory etc. The alcohol (Rectified Spirit) is controlled by the Sindh Abkari Act and the Government of Sindh has indeed imposed Provincial Excise Duty vide Notification No.1/134/71-Excise/9218, dated 29-6-1974."

Section 2(31) of the Sales Tax Act, 1990 is reproduced below which defines the value of supply for levy of Sales tax as under:--

Section 2(31)(a).---the Value of Supply (a) in respect of a taxable supply, means the consideration in money including the Excise Duty, if any which the supplier receives from the recipient for that supply but excluding the amount of tax.

It is thus apparent from the above definition that for the purpose of valuation of a taxable supply, the excise duty, if any, is to be included provided it is received by the supplier. While C.B.R.'s Circular No.3(8)/90-ST, dated 2-1-1994 confirms this position as would appear from the following extracts of this Circulars:--

"Sales Tax to be calculated on the amount of money received by the registered persons from his customer. If the permit fee is also collected by the registered person from his customers for onward payment to the Provincial Government Sales Tax will be calculated on the price inclusive of this permit fee the reference to `excise duty' is by way of illustration. The definition of the term `value of supply' vide section 2(31) is not exhaustive."

Further the Circular clearly lays down that a reference to Excise duty is by way of illustration. The definition of the term `value of Supply' vide section 2(31) is not exhaustive. Any local/Provincial/Federal tax collected by a seller from his customers will be included in the sale price on which tax is to be levied. Indeed the Provincial Excise Duty is a Provincial Excise Duty collected under Sindh Abkari Act by the Provincial Govt. and this tax like present fee etc. is not collected from the sellers by us and as Collector of the Provincial Excise Duty we are completely out of the ambit of section 2(31).

It is also noteworthy that upon a Revision Application filed by our Company, the C.B.R. has itself set this matter at rest. It has categorically been decided that if the taxes are not received by the supplier there is no justification for inclusion of these charges in the assessable value. Revision Application No.1 of 1985-C. No.10(99) ST-R/85. The same practice is being followed by the Collectorates of Lahore, Peshawar, Rawalpindi. So in view of the clear and categorical enunciation of law by Superior Courts of Pakistan and also in view of the legally correct position and practice adopted by other Collectorates under your own supervision/department, it would be unfair if law in our case is interpreted and applied differently in similar situations and in similar set of circumstances.

It is thus respectfully prayed that since we do not receive any Provincial Excise Duty, at the time of sales, it is not possible for us to include the same in the assessable value at the time of sales which is to be taken as assessable value under section 2(31) at the time of sales as all, the other duties are to be levied only at subsequent stages of consumption and not at sale. Hence the C.B.R.'s ruling in the noted Revision Petition, the Circular Instructions of 2nd January, 1994 clarifying the factual position and the judicial rulings quoted absolve our company from including any provincial duties or levies for calculation of our `value of supply' at the factory premises."

10. The explanation furnished could not find favour with the Additional Collector Sales Tax, Hyderabad, and he vide order, dated 15-8-1997, held in the light of clarification issued by C.B.R. vide C. No.3(8)/90/STJ, dated 2-1-1994 that the appellant was found avoiding assessment of sales tax on fair value. He therefore, directed the recovery of Rs.48,33,579 as differential amount of sales tax under section 36 of the Sales Tax Act, 1990, along with the amount of Rs.14,885,256 as additional tax and surcharge under section 34 totalling Rs.19,716,837.

11. Being aggrieved with the above order the appellant filed appeal before the Collector of Customs, Central Excise and Sales Tax (Appeals) Karachi. The Collector (A) held that the expression value of supply has been defined in section 2(46)(a) (by that time section 2(31) of the Sales Tax Act, was substituted by section 2(46)), to the effect that the value of supply means, in respect of a taxable supply the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of sales tax. Interpreting this provision the Collector (A) held that all the duties and taxes were subject to sales tax in respect of taxable supply. He further held that the amount of excise duty whether charged from the consumer or not is to be included in the value of supply and, therefore, the Adjudicating Authority has correctly directed for the recovery of amount specified in his order.

12. Being still dissatisfied the appellant preferred appeal before the Customs, Excise and Sales Tax Appellate Tribunal, contending that the Provincial Excise Duty was not to be included in the value of supply as defined in section 2(31), as substituted by section 2(46), because, it is not received by the appellant/supplier. The plea was not accepted by the Tribunal and it was held that the element of Provincial Excise Duty was to be included for the purpose of computing the value of supply. The direction for recovery of principal amount of sales tax at Rs.48,33,579 was up held. However the amount of additional tax and surcharge was deleted.

13. The appellant still dis-satisfied has preferred this appeal.

14. Mr. Muhammad Ali Sayeed, learned counsel for the appellant has vehemently assailed the observation made by the Tribunal that the provision of law is to be considered in its real spirit. He has maintained that the approach is subjective and is not warranted under the principles of interpretation of statutes and more particularly in the realm of tax statues. He has urged that the settled principle of interpretation of tax statutes is that the Court is required to apply the law on plain reading of the words used by the statute. There is no room for any intendment, presumption, assumption or inference. Charging of tax by implication is not warranted. He has taken us through the definition of `value of supply' contained in section 2(46) (previously section 2(31)) wherein it is provided that the value of supply means in respect of a taxable supply, the consideration in money including all Federal and Provincial duties, if any which the supplier receives from recipient for that supply. Mr. Muhammad Ali Sayeed, has forcefully argued that the learned Tribunal has ignored the crucial, important ingredient of the definition. He has submitted that the definition of value of supply contains that the Federal and Provincial duties if any shall be included in the value of supply in case the same are received by the supplier from the recipient of that supply. He contended that admittedly the Provincial Excise Duty is not being received by the appellant and is collected by the Provincial Excise officials on consumption of the spirit and not at the time of sale. He has concluded his arguments by asserting that since admittedly the Provincial Excise Duty is neither charged nor collected by the appellant/supplier and is collected directly by the Provincial Excise officials, on consumption therefore, it is not to be included in the value of supply at the time of sale by the appellant from Distillery. He has submitted that the confusion has arisen on account of conflicting circulars issued by the C.B.R. He has submitted that, however, the correct criteria has been laid down in the C.B.R. Circular No. 3(8)/90/STJ, dated 2-1-1994 to the effect that sales tax is to be calculated on the amount of money received by the registered person from his customers and if excise duty is collected from the suppliers of its customers for onwards payment to the Provincial Government, the sales tax would be calculated on the value of supply including the excise duty. Mr. Muhammad Ali Sayeed, has contended that admittedly the Provincial Excise Duty is not collected by the appellant/supplier and therefore, the Tribunal fell in serious error in holding that the amount of Provincial Excise Duty was required to be included in the value of supply and the appellant was required to collect the sales tax on the amount of Provincial Excise Duty as well.

15. The learned Standing Counsel has supported the contention of Mr. Muhammad Ali Sayeed.

16. We have carefully considered the contention raised by the learned counsel for the appellant, the facts on record and the definition of the `value of supply' contained in section 2(46) (old section 2(31) of the Sales Tax Act, 1990). Admitted position is that no Provincial Excise Duty is collected by the appellant/supplier at the time of sale and it is subsequently collected directly by the Provincial Excise officials. A plain reading of the definition of `value of supply' shows that Federal and Provincial duties and taxes are to be included in the value of supply if such duties and taxes are received by the supplier from the recipients for the supply. The law was correctly appreciated in the C.B.R. Circular, dated 2-1-1994. The Tribunal has fallen in error in holding that in accordance with the spirit of the provision of law, the Provincial Excise Duty was to be included for the purpose of collecting sales tax. The approach adopted by the Tribunal is not sustainable and is violative of the settled principles of interpretation of tax statutes. While interpreting the tax statutes, the Court is required to implement the law in accordance with the plain reading of the language of statute. There is no room for any intendment or spirit of the law by ignoring the ordinary plain language of the statute. The classical principle has been laid down by Rowlatt J., in the case of Cape Brandy Syndicate v. IR (1921) 1 KB 64, as follows:--

"In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used."

17. The above principle has been approved by Supreme Courts of Pakistan, India and Bangla Desh. We fully agree with the contention raised by the learned counsel for the appellant and hold that since the Provincial Excise Duty is not collected/recovered by the appellant/supplier at the time of sale, the amount of Provincial Excise Duty is not to be included in the value of supply. The impugned finding of the Tribunal being violative of the definition of the value of supply contained in section 2(46) (old section 2 (31)), of the Sales Tax Act, 1990, is hereby vacated. The question of law is answered in negative.

A copy of this judgment shall be sent to Appellate Tribunal, under the seal of the Court who shall pass necessary orders disposing of the case in conformity with this judgment.

S.A.K./H-20/KQuestion answered in negative.