COLLECTOR OF CUSTOMS through Additional Collector, Hub VS CUSTOMS EXCISE AND SALES TAX APPELLATE TRIBUNAL, KARACHI BENCH, 2007 PTD-SUPREME-COURT 2275 (2006)

(On appeal from the judgment,. dated 6-12-2001 passed by High Court of Balochistan, Quetta in Sales Tax Appeal No.1 of 2000).

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

----Ss. 3(1), 7, 13 & Sixth Sched. Item No.41---Acquisition/production of limestone and clay etc. by assessee from its quarries and their consumption in manufacture of cement as raw material---Liability of assessee to pay sales tax on such raw material, when end product (cement) was exempt from levy of sales tax---Scope---Such raw material for not being exempt under S.13 of Sales Tax Act, 1990 would come within ambit of taxable supply---Taxable supply was not confined or limited to end product or goods manufactured, but would include such goods involved in some way with progress, promotion, advancement of business or any other taxable activity---Such raw material was supplied and used in the course of or in furtherance of taxable activity of assessee i.e. manufacture and supply of cement (end product) to other persons in the market---Levy of sales tax would start from point of supply and would have no relevance with any activity prior to supply irrespective of the source, which might be manufacturing one or a mineral one---Input tax. would be adjusted Pram output tax, provided end product was subject to levy of sales tax---Had cement not been exempted, assessee would have been entitled to adjustment of input tax as provided under S.7 of Sales Tax Act, 1990---Such, raw material and its supply was a taxable supply made in the course or in furtherance of manufacturing cement, thus, was chargeable to sales tax---Principles.

Advanced Law Lexicon, Third Edition 2005 P.1953 and Oxford English Dictionary, Vol. IV, P.619 ref.

(b) Words and phrases---

----"Furtherance"---Definition.

Advanced Law Lexicon, Third Edition 2005 P.1953 and Oxford English Dictionary, Vol. IV, P.619 ref.

Raja Abdul Ghafoor, Advocate-on-Record for Appellant.

Barrister Ch. Muhammad Jameel, Senior Advocate.

Supreme Court and Raja Sher Muhammad Khan, Advocate-on-Record for Respondents.

Date of hearing: 24th February, 2006.

JUDGMENT

MIAN SHAKIRULLAH JAN, J.--- Leave has been granted to consider true import of section 3(1) of the Sales Tax Act, 1990 (hereinafter referred to as the "Act") and the terms "taxable supply", "taxable activity" employed in the section (ibid).

2. Respondent Messrs Attock Cement Pakistan Limited Hub Chowki, Lasbela, Balochistan was issued a show-cause notice for the non-payment of sales tax. on the acquisition/production of limestone, clay and overburden from their own quarries and their consumption in the manufacture of clinker/cement by it as a raw material, which supply was liable to the payment of sales tax from 13-6-1997 when the end product i.e. cement was exempted from payment of sales tax as per Serial No.41 of the Sixth Schedule of the Act. As a contest of the show-cause notice, the Adjudicating Officer, the Additional Collector, passed an order-in- original and held the respondent liable to the payment of sales tax on the ground that the limestone, clay and overburden excavated, acquired, transported to the manufacturing unit and used for the production of cement are liable to sales tax under section 3(1)(a) of the Act. The appeal of the respondent was dismissed by Collector (Appeal) and on further appeal before the Customs, Excise and Sale Tax Appellate Tribunal, both the orders passed i.e. order-in-original as well as order in-appeal were set aside and it was concluded that the attempt to bring raw material under the ambit of sales tax after exemption of the end product i.e. cement from levy of sales tax by the Government was violative of law. The appellant being aggrieved of the order of the Tribunal filed an appeal under section 47 of the Act before the High Court of Balochistan Quetta, which was dismissed vide impugned order against which now the instant appeal, by leave of the Court, has been filed.

3. We have heard the learned counsel for the parties, perused the record and examined the relevant legal provisions. The learned counsel for the appellant has contended that both the forums i.e., the High Court as well as the Tribunal have given wrong interpretation to section 3(1) of the Act which resulted in the wrong conclusion. The learned counsel for the respondents supported both the judgments of the Tribunal as well as of the High Court and has contended that the products do not come within the definition of the "manufactured" and also there is no sale or involvement of another person qua the transfer/sale of the raw material rather the same is used by the respondent itself in its own unit for the manufacture of cement and none of the ingredients mentioned in section 3(1) are attracted to bring the commodity within the ambit of the aforesaid section liable to the payment of sales tax.

4. The whole edifice of arguments of the learned counsel for the parties revolves around the interpretation of the different provisions of the Act and in order to assess and analyze those provisions, it would be advantageous to reproduce them which are applicable at the relevant time i.e. after their amendment in the Act vide Finance Act, 1996:--

"3. Scope of tax.--- (1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales .tax at the rate of (eighteen) per cent of the value of"

(a) taxable supplied made in Pakistan by a registered person in the course or furtherance of any (taxable activity) carried on by him; and

(b) goods imported into Pakistan. "

S.2(12) "goods" includes every kind of movable property other than actionable claims, money, stocks, shares and securities.

S.2.(33) "supply" includes sale, lease or other disposition of goads in furtherance of business .carried out for consideration and also 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;

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

(b) such other transaction as the Federal Government may, by notification in the official Gazette, specify;

S.2(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 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;

S.2(39) "taxable goods" means all goods other than those which have been exempted under section 13;

S.2(41) "taxable supply" means a supply of taxable goods made in Pakistan 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. "

5. Section 3(1)(a), which is a taxing section, consists of the following components/constituents, the sales tax to be levied charged at the rate of (18 %) of the value of (i) taxable supply .made (ii) by a registered person (iii) in the course of furtherance of (iv) any taxable activity (v) carried on by him. The expressions used in section 3(1)(a) and which are relevant are (i) taxable supply (ii) taxable activity, and (iii) in the course or furtherance of. Though the first two, but not the latter one and also not the word "business", have been defined directly under section 2(41) and section 2(35) yet for proper appreciation of their meaning one has to revert back to the definitions of goods, taxable goods, and supply. Goods means and includes movable property other than money and securities etc. and taxable goods means and includes the movable property other than those which have been exempted from sales tax under section 13 of the Act, supply means the includes sale, transfer and other disposition of goods in furtherance of business carried out for consideration and also includes putting to private, business, or non-business use of goods acquired, produced or manufactured in the course of business and "taxable supply" means a supply of taxable goods other than supply of goods which are exempted under section 13 of the Act.

6. Now the controversy in the instant case will have to be examined on the touchstone of section 3(1)(a) and the various expressions and terms used therein and to see as to whether the limestone and clay etc., the raw material which is produced/acquired by the assessee from its own quarries in the course or furtherance of the taxable activity/main activity i.e., the manufacture and sale of cement would be liable to the sales tax or not. Section 3(1)(a) visualizes that whenever a taxable supply is made in the course or furtherance of the taxable activity the same is liable to charge of sales tax. By going through the definition of "supply", as referred to above, one may conclude that it does not only involve the sale but it also includes disposition of the goods (movable property) even may be putting to private, business or non-business use and from this it is evident that the involvement of the transfer of the goods to another person is not necessary. The limestone and clay etc., the raw material, is not exempt under section 13 of the Act and thus, it comes within the ambit of taxable supply. The other condition for levying of sales tax under section 3(1)(a) is that this taxable supply should be in the course or furtherance of the taxable activity. Here in this case the taxable activity is the manufacture and supply of cement which is the main activity of the respondent as this is the activity which is carried on by the respondent and which involves the supply of goods to another person which may be in the form of business or trade or manufacture as also the cement is manufactured by using the raw material i.e. limestone and clay etc. and then the same is supplied in the market. The raw material is used for the manufacture of cement and thus, it can be said that the same is supplied and used in the course or furtherance of the taxable activity i.e. the manufacture and supply of cement, the end product, in the market. As the words "in the course of" or "in furtherance of" have prefixed the words "taxable activity". The meaning of "in the course of" can be taken to mean as connected with, related to and having some nexus with the taxable activity. Similarly "in furtherance of" indicative of the fact that the taxable supply had been made for the enhancement/further development of the taxable activity. The word: furtherance has been defined in the Advanced Law Lexicon, Third Edition 2005 P.1953, as "act of furthering, helping forward, promotion, advancement, or progress". "In furtherance of" has been interpreted as in promoting or advancing, in the Oxford English Dictionary, Volume IV, P.619, "Furtherance" has been defined as "act or state of being furthered or helped forward, the action of helping forward, advancement, aid, assistance. It is abundantly clear that the taxable supply has not been confined or limited to the one which is the end product or the goods manufactured but also including those goods which involve in some way with the progress, promotion, advancement of business/activity/taxable activity.

7. The two expressions used in section 3(1), the taxable supply and the taxable activity, have been confused and- mixed by the forums below and the whole case, in the impugned judgment of the High Court as well as of the Tribunal, has been built on the assumption by considering the taxable supply as taxable activity, while the two are quite different with different concept and operate in their respective field. The quantum of tax liability is determined on the basis of value of taxable supply, while the liability to pay tax under section 3(1) of the Act arises only when such supply is made in the course or in furtherance of taxable activity. The taxable activity is relatable to the main business/main activity of the industrial concern or of the company or of a person while the taxable supply is made, as noted above, in the course of or for the progress, promotion and advancement of the main activity.

8. The conclusion of the above discussion is that the limestone and clay, which are taxable goods, as they are not exempt from the sales tax under section 13 of the Act, the supply i.e. disposition/acquisition for the private, business or non-business use, without intervening another person, is a taxable supply made in the course/in furtherance of taxable activity i.e. the activity of selling/supplying the cement in the market which is carried on by the respondent and involves the supply of goods. to other persons and which is in the form of business or in the form of manufacture i.e. the cement is manufactured from the using of limestone and clay etc., briefly the acquisition and production of limestone and clay and its supply for the manufacture of the cement is a taxable supply in the course of or in the furtherance of taxable activity i.e., the manufacture or sale of cement. The levy of sales tax starts from the point of supply and has got no relevance with any activity prior to the supply irrespective of the source, may be a manufactured one or a mineral one. The provisions of the Act show that it is a value-added tax, which is levied at every stage, the value addition takes place at the time of supply, unlike Sales Tax Act, 1951 which was one point levy. Moreover, the provisions of input tax to be adjusted from the output tax has also been provided in the Act and a person paying the sales tax is entitled to the adjustment of the input tax, provided that the end product is subject to levy of sales tax, which is in the instant case the end product i.e., the cement, has been exempted. Had it not been exempted, the person would have been entitled to the adjustment of the input tax as provided under section 7 of the Act. The mere fact that it is acquired from a natural source would make no difference and the other question of fixation of its value for the purpose of charge the sales tax is a different question which can easily be solved by making recourse to section 2(46) relating to the fixation of value of the commodity (supply).

9. The net result of the above discussion is that the limestone and clay etc. are the goods and its supply is a taxable supply which is made in the course of or in furtherance of the manufacturing of the cement and is chargeable to sales tax. The Courts below have proceeded on the wrong premises and on a consideration which are not relevant. Resultantly while accepting this appeal with costs, the judgments of the High Court as well as of the Tribunal are set aside and the final conclusion arrived "at by the Additional Collector, who passed, the order -in-original is restored.

S.A.K./C-26/SCAppeal accepted.