PAKISTAN INTERNATIONAL AIRLINES CORPORATION, KARACHI VS COLLECTOR, SALES TAX AND FEDERAL EXCISE LARGE TAX PAYERS UNIT (LTU); KARACHI, 2007 PTD-KARACHI-HIGH-COURT-SINDH 2537 (2007)

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

----S.47---Advisory jurisdiction of High Court---Scope---In tax reference/appeals, advisory jurisdiction of High Court is restricted to answering only question of law arising from order of Tribunal.

Caltex Oil (Pakistan) Limited v. Collector, Central Excise and Sales Tax and others 2005 PTD 480 and Collector of Customs E & St and Sales Tax v. Pakistan State Oil Company Ltd. 2005 PTD SC 2446 rel.

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

----Ss. 2 (35), 19, 45 (2) & 47---Sales tax, imposition of---Self-consumption---Principles---Book adjustment---Products printed in printing press owned by assessee were for assessee's own internal use and consumption---Authorities issued notice for recovery of-sales tax on the products of the printing press---Validity---Produce of the press was supplied to other departments of assessee-company for their business use for consideration recovered through book adjustment---Value of such adjustment was more than Rs.2.5 million per annum which was threshold over which supply was liable to tax--Printing and self-use of stationery by printing press of assessee constituted taxable activity within the meaning of S.2 (35) of Sales Tax Act, 1990---Reference was dismissed in circumstances.

Caltex Oil (Pakistan) Limited v. Collector, Central Excise and Sales Tax and others 2005 PTD 480; Shahi Carpet (Pvt.) Ltd. v. CWT/IT, Companies-II, Karachi and another 2003 PTD 1377 and Collector of Customs E & ST and Sales Tax v. Pakistan State Oil Company Ltd. 2005 PTD SC .2446 ref.

Sheikhoo Sugar Mills Ltd. and others v. Government of Pakistan and others 2001 SCMR 1376 fol.

Yawar Farooqi for Appellant.

Raja Muhammad Iqbal for Respondent.

ORDER

MUHAMMAD ATHAR SAEED, J.---This Sales Tax Reference Application has been preferred against the order of the Customs Excise and Sales Tax Appellate Tribunal, dated 30-6-2006 passed in Sales Tax Appeal No. 1192 of 1999., seeking the opinion of this Court on the following proposed questions:--

(1) Whether in the facts and circumstances of the case impugned show-cause. notice, dated 19-6-1998 is time-barred under section 36(2) of the Sales Tax; 1990.

(2) Whether in the facts and circumstances of the case it was not compulsory for the appellants printing press to be registered under section 19 of the Sales Tax Act, as it was not involved in the supply of goods to any other person?

(3) Whether the printing and self-use of the stationery by the printing press of the appellant does not constitute any taxable activity within the meaning of section 2 (35) of the Sales Tax Act, 1990?

(4) Whether the compulsorily registration of the appellant required an inquiry and notice in accordance with provisions of section 19 of the S.T. Act 1990 r/w rule 4a Annex D of the rule 1996.

(5) Whether show-cause notice, dated 19-6-1998 and order passed thereon dated 27-10-1998 was without jurisdiction, and to no legal effect as amount of purported tax exceeded Rs. Ten million under section 45(2) of the Sales Tax Act, 1990.

(6) Whether the impugned order of the learned Tribunal is time-barred under section 46(7) of the Act, 1990'?

(7) Whether book adjustment in the budget of PIAC on the basis of cost of production cannot be treated as value of supply as defined under section 2(46) of the Sales Tax Act 1990 if in fact there is absence of payment by recipient of supply to supplier as both are one and the same?

(8) Whether in the facts and circumstances of the case the provisions of sections 32(1) and 36(2) of the Sales Tax` Act, 1990 are not attracted?

2. Brief facts of the case are that the applicant the printing press of Pakistan International Airlines was found engaged in printing of documents, calendars, schedulers, .letter heads and miscellaneous stationeries since, 1993 and .supplying the same to various departments of Pakistan International Airlines Corporation (PIAC) without payment of sales tax. They were compulsorily registered under section 14 of the Sales Tax Act, 1990 in the year, 1993. However, they never filed their sales tax returns with the Sales Tax Department and no action was taken for recovery of tax on items printed by the press up to March, 1998: The respondent finally issued a show-cause notice vide their Letter C-No. 16(223)/Copt/Tech/S.TE/PIA/98/5500, dated 19-6-1998 in which they were informed that they had failed to explain the reasons for non-payment of sales tax since August, 1993 and were called on to explain as to why action should not be taken against them for violation of various provisions of Sales Tax Act, 1990 and why .sales tax amounting to Rs. 1,45,26,835.62 involved on the .supplies of Rs.100.18 million should not be recovered from them in terms of section 136 along with additional tax and surcharge under section 38. The applicant filed a reply, where they contended that activity of printing of certain items for in-house use without any financial consideration does not fall within the ambit of taxable activity and requested for withdrawal of the show-cause notice. During the adjudication proceedings the applicants reiterated the same contention, but their explanation was rejected by the Additional Collector-II, who vide Order-in-Original No. 38 of 1998, dated 27-10-1998 ordered for payment of sales tax amounting to Rs. 1,45,26,835.62 along with additional tax and surcharge and also levied penalty under section 33(2) of the Sales Tax Act.

3. Being aggrieved by order-in-original, the applicant filed an appeal before the Collector Appeals who vide his Order-in-Appeal No.45 of 1999, dated 15-2-1999 disposed of the appeal by holding that the demand of .sales tax made under section 33 of the Income Tax Act was justified, however, recovery of arrears should be made strictly in accordance with law.

4. Being aggrieved by the above order, the applicant filed an appeal before the Customs, Excise and Sales Tax Appellate Tribunal, Karachi, who vide their impugned order upheld the order-in-original so far as levy of principal amount of sales was concerned but remitted the whole amount of additional tax and penalty. Hence this reference application.

5. This appeal was initially heard by another Division Bench of this Court who vide their order, dated 21-12-2006 directed for issuance of pre-admission notice to consider question No.3 only. However, while arguing the appeal for disposal at Katcha Peshi Stage Mr. Yawar Farooqui the learned counsel for the applicant sought permission to argue on the merits of question No.1 also. The learned counsel submitted that the question No.1 deals with the question as to whether show-cause notice on the basis of which the adjudication proceedings had been initiated and which culminated in the order-in-original was barred by the period of limitation: The learned counsel referred to the show-cause notice and pointed out that it was issued on 19-6-1998 for the period from August, 1993 onwards. He argued that although the show-cause notice was allegedly issued under subsection 1 of section 36 of the Sales Tax Act, but the allegation actually falls under subsection 2 of section .36 for which a limitation period of three years is provided and, therefore, the show-cause notice was barred by limitation atleast for the period up to 19th June, 1995. However, before examining the case on the merits of the contention of the learned counsel we asked him to point -out the findings, of the Tribunal on this point. The learned counsel frankly conceded that this question was not raised before any of the forums, below including the Adjudicating Authority, Collector appeals and the Income Tax Appellate Tribunal, but argued that it was a pure question of law which goes to the very root of the matter and can be raised at any stage of the proceedings. In this connection he insisted that despite the fact that this Court enjoys only advisory jurisdiction in respect of sales tax reference applications filed under section 47 of -the Sales Tax Act, 1990, but still the question of law which is apparent from record and goes to the very root of the matter can be raised at any stage. In this connection he relied on the following case-laws.

(1) Caltex Oil (Pakistan) Limited v. Collector, Central Excise and Sales Tax and others 2005 PTD 480.

(2) Shahi Carpet (Pvt.) Ltd. v. CWT/IT, Companies-II, Karachi and another 2003 PTD 1377.

6. Coming to question No.3 the learned counsel referred to the definition of taxable activity, supply and taxable supply in sub-sections (35), (33) and (41) of section 2 and argued that when these three subsections are read together it becomes apparent that manufacture of supply for self-business or personal use cannot be treated as taxable supply and; therefore, will not be liable to levy of .sales tax. He, however, again frankly informed the Court that the Honourable Supreme Court in the case of Sheikhoo Sugar Mills Ltd. and others v. Government of Pakistan and others (2001 SCMR 1376) has held that Bagasse which is an intermediatory product of sugar and is used by the sugar mills as an alternate fuel is liable to levy of sales tax despite being used by the sugar factories themselves. He, however, tried to argue that the judgment of the Honourable Supreme Court is distinguishable because Bagasse is being consumed as fuel for the manufacture of sugar whereas the items printed by the printing press of the PIA are for self-use by various departments of PIA.

7. The learned counsel for the respondent Mr. Raja. Muhammad Iqbal replying to the above arguments that the Sales Tax Act is a special law under which only a reference application can be filed to this Court seeking the opinion of this Court on question of law arising from the order of the Tribunal and from the time of the promulgation of Income Tax Acts and Ordinances and Sales Tax Acts in Pakistan the Courts have continuously held that the jurisdiction in case of references filed 'under these Acts is an advisory jurisdiction restricted to giving opinion on the questions of law arising from the order of the Tribunal only. In order of elucidate his point, he read out the provisions of section 47 and then relied on a judgment of the Honourable Apex Court reported in Collector of Customs, E. & ST and Sales Tax v. Pakistan State Oil Company Ltd. (2005 PTD SC 2446). The learned counsel submitted that this judgment which is later in time than the judgment of the Honourable Supreme Court in the Caltex case quoted supra and has also been passed by a three Member Bench of the Honourable Supreme Court while the Caltex case has been passed by a two Member Bench and, therefore, this judgment shall have precedent over the Caltex case. The learned counsel also pointed out that the facts in this case are also completely identical to the facts in the present case because in this case also the question before the Court was whether the show-cause notice issued by the Adjudicating Authority was barred by the period of limitation and the Honourable Apex Court had held that the question of limitation was a mixed question of law and fact and unless it is raised before the forum below the same cannot straightaway be agitated before the High Court. The learned counsel also strongly rebutted the arguments of the learned counsel for the applicant that the judgments of the Honourable Supreme Court, in case of Sheikhoo Sugar Mills Ltd. quoted supra is distinguishable to the present case. He submitted that the Honourable Supreme Court has discussed the applicability of the definition of the terms `taxable activity', `supply' and `taxable supply' and has held that self-use of any goods manufactured whether or not it is for pecuniary profit or otherwise falls within the definition of taxable supplies and is taxable under the Sales Tax Act. He also pointed out that in the present case a finding of fact has been given by the Authorities below that the items printed by the printing press were supplied to the departments on the basis of consideration through book entry and it is also an admitted fact that such supplies exceeded Rs.2.5 million per year.

8. We have examined the case in the light of the arguments of the learned counsel and have perused the records of the case including the impugned order and have also gone through the judgments relied on by the learned counsel.

9. It is an admitted fact that `proposed question No.1 i.e. the question pertaining to the show-cause notice being time-barred was never raised before the lower forums including .the Tribunal and there is no finding given by the Tribunal on this point. It is a settled law that in tax reference/appeals, the advisory jurisdiction of this Court is restricted to answering only question of law arising from the order of the Tribunal. In the Caltex case quoted supra, the Honourable Supreme Court has held that questions of law going to the root of the matter can be raised at any stage. However, in a later judgment which is also a judgment of a larger Bench of three Judges including his Lordships Justice Nawaz Abbasi J. who is the author of the judgment in Caltex case, the Honourable Supreme Court has once again upheld the settled law that only those questions can be adjudicated- in reference applications which are questions of law arising from the order of the Tribunal. Reliance is placed on following extract from the judgment in PSO case quoted supra.

"(11). Perusal of section 196 of the Act reveals that High Court can exercise its jurisdiction only in respect of questions of law arising out of order under section 194-B of the Act. It is significant to note that before the Customs hierarchy plea of limitation, was not raised. It being so, the High Court was not competent to consider said plea, as it was neither raised before the Collector Customs, nor before the Tribunal. There is no discussion on the point of limitation in the orders passed by the Collector Customs and the Tribunal. Question of limitation is a mixed question of law and fact and unless it was raised before the forum below, it could not straightaway be agitated before High Court. It can be concluded that such question never arose from the order passed by the Tribunal. Factual controversy is sorted out up to the level of the Tribunal. Remedy under section 196 is restricted to legal points only, which .was not available to the respondent-company before High Court.

10. Another distinguishable feature of the Caltex case quoted supra is that the Honourable Supreme Court has held that the Honourable Supreme. Court in its jurisdiction under Article 187(1) of the Constitution of Islamic Republic of Pakistan has powers to entertain any question of law going to root of the matter which was not argued before the Lower Courts. They have not held that this Court in its limited jurisdiction under section 47 of the Sales Tax Act can give its opinion on questions not arising from the order of the Tribunal.

11. Respectfully following the judgment of Honourable Supreme Court in the case of P50 quoted supra we refuse to answer question No.1 as admittedly it does not arise from the order of the 'Tribunal.

12. Coming to question No.3 in respect of which the preadmission notice was issued, we have noted that it is an admitted fact that the produce of the press was supplied to the other departments of the applicant company for their business use for consideration recovered through book adjustment and the value of such consideration is more than Rs.2.5 million per annum which is the threshold over which supply is liable to tax. We have carefully perused the judgment of Honourable Supreme Court in the case of Sheikhoo Sugar Mills quoted supra and we are of the opinion that the present case is fully covered by the above judgment. Reliance is placed on the following extract from that judgment.

"(9) It may be noted that the intention of the Legislature can be gathered from the arrangement of different parts of section 2(35) of. the Act which appears to be disjunctive and not conjunctive Its careful study suggests that taxable activity means any activity which is carried out by any person which may include one or more than one person with pecuniary profit or without pecuniary profit with regard to supply of goods to any person for any consideration or supply of goods otherwise and the supply of goods includes any activity carried on in the form of business, trade or manufacture meaning thereby that if supply of manufacture meaning thereby that if supply of goods has been made in the course or furtherance of business carried out for consideration putting to private .business or non-business use of goods acquired, produced or manufactured in the course of the business it would fall within the definition of taxable activity. At this juncture reference may also be made to the definition of manufacturer or producer under section 2(17) of the Act, according to which 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 person who by any process or operation assembles, mixes, cuts, dilutes, .bottles, packages, repackages or prepares goods by any. Other manner etc. will be considered to have manufactured or produced identifiable-goods which can either be consumed independently or can be incorporated in the finished product of any item. Admittedly the intermediary produce of Bagasse which is procured, during the reprocess of extracting juice from sugarcane can be considered a marketable and identifiable goods which can be supplied by a corporate or incorporate person to itself in the course of business. While making such supply it is not necessary that it should be against money consideration to a third person because as we have noted that the definition of word "supply" .under section 2(33) includes putting to private, business etc., therefore, instead of defining the expression taxable activity extensively if it is defined exhaustively it coveres any form of those activities which are even carried out by one person in his own business. As it has been observed hereinabove that Bagasse as per its definition is an identifiable/ marketable goods on which tax can be levied, therefore, concluding so we feel no hesitation that once a taxable goods has been supplied by a person to itself it would fall within the definition of taxable supply. Thus notwithstanding the fact whether the sale has taken place or not between two persons but fact remains that by supplying Bagasse the appellants will be doing a taxable supply during the process of taxable activity. As such it is liable to sales tax under the Act unless otherwise it is exempted by the Federal Government to provide incentive to the traders dealing in the sugar manufacture so they may reduce the price of the sugar by saving the price incurred by them on the fuel by burning Bagasse because if they have to consume other energy i.e. electricity, gas etc. they have to pay its price independently."

13. Respectfully following the above judgment which is binding on us. We answer question No.3 in negative, against the applicant.

14. The upshot of the above discussion is that this sales tax reference application is dismissed.

M.H./P-25/KReference dismissed.