COLLECTOR OF SALES TAX AND CENTRAL EXCISE; LAHORE VS WATER & POWER DEVELOPMENT AUTHORITY, 2007 PTD-SUPREME-COURT 2410 (2007)

(On appeal from the judgment dated 4-2-2002 passed by Lahore High Court, Lahore in R.P. No.6147 of 1994).

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

----Ss.3(1) & 13---Pakistan Water and Power Development Authority Act (XXXI of 1958), S.8---Constitution of Pakistan (1973), Art.185(3) & Fourth Sched., Part-II, Item No.3---Printing material and stationery prepared by WAPDA for its own consumption---Supreme Court granted leave to appeal to consider, whether sales tax was leviable on such material and stationery and law laid down in the case reported as 2001 SCMR 1376 had been properly applied.

Shaikhoo Sugar Mills Ltd. and another v. Government of Pakistan and others 2001 SCMR 1376 ref.

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

----S.3(1)(a)---Expression "in the course of" as used in S.3(1)(a) of Sales Tax Act, 1990---Meaning.

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

----S.3(1)(a)---Expression "in furtherance of" as used in S.3(1)(a) of Sales Tax Act, 1990---Connotation.

Oxford English Dictionary, Volume-IV, P.619 ref.

(d) Words and phrases---

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

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

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

----Ss.3(1), 7 & 13---West Pakistan Water and Power Development Authority Act (XXXI of 1958), Ss.8, 13 & 25---Constitution of Pakistan (1973), Arts.165 & 165-A & Fourth Sched., Part-II, Item No.3---Printing material and stationery prepared by WAPDA for its own consumption---Liability of WAPDA to pay sales tax on such material and stationery---Scope---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/activity taxable activity---WAPDA was carrying on business as envisaged under S.3(1)(a) of Sales Tax Act, 1990---Supply of stationery was not exempt from sales tax- under S.13 of Sales Tax Act, 1990---Supply of such stationery for private business or non-business use without intervening another person would be a taxable supply made in the course of or in furtherance of business i.e. activity of generation and selling/supplying electricity being carried on by WAPDA in the form of business---Exemption available under Art.165 of the Constitution would not be available to a statutory Corporation from payment of taxes in view of incorporation of Art.165-A in the Constitution, which legal proposition would apply in the case of WAPDA also---Such stationery was, thus, chargeable to sales tax---WAPDA would be entitled to adjustment of input tax from output tax, provided its case came within ambit of S.7 of Act, 1990---Principles.

Shaikhoo Sugar Mills Ltd. and another v. Government of Pakistan and others 2001 SCMR 1376; Karachi Development Authority (KDA) v. C.B.R. 2000 Appeal Cases 53; Commissioner of Sales Tax and others v. Hunza Central Asian Textile and Woollen Mills Ltd. and others 1999 SCMR 526 and Central Board of Revenue and another v. Sindh Industrial Trading Estate Limited PLD 1985 SC 97 ref.

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

----S.3(1)(a)---Expression "business" as used in Sales Tax Act, 1990---Connotation slated.

The expression `business' though has not been defined in the Sales Tax Act, 1990, yet in the ordinary parlance it is used with varying connotations and has been defined by the Courts including those from foreign jurisdiction from time to time as it means any trading activity accompanied by regularity of transactions intended for the purpose of making profit; it is an activity carried on continuously in an organized manner with a set purpose and with a view to earn profits; it is used in the sense of an occupation or profession, which occupies the time, attention and labour of a person, normally with the object of making profit not for sport and pleasure.

The State of Andhra Pradesh v. Messrs H. Abdul Bakhi and Bros AIR 1965 SC 531 and Messrs Hindustan Steel Ltd. v. The State of Orissa AIR 1970 SC 253 rel.

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

----S.3(1)---Sales tax, levy of---Essential conditions stated.

The charging section 3 of Sales Tax Act, 1990 has prescribed certain conditions for levying of the sales tax, which are that (i) a taxable supply made (ii) in the course or furtherance of business. The taxable supply and business are two different expressions with different concepts and operate in their respective fields. 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)(a) of the Sales Tax Act, 1990 arises only when the supply is made in the course or in furtherance of business.

A. Karim Malik, Senior Advocate Supreme Court for Appellant.

Mian Ashiq Hussain, Advocate Supreme Court for Respondents.

Date of hearing: 15th March, 2006.

JUDGMENT

MIAN SHAKIRULLAH JAN, J.---heave xo appeal was granted "to consider whether the sales tax is leviable on printing material and stationery being prepared by WAPDA for its own consumption and the law hitherto laid down by this Court in 2001 SCMR 1376 Shaikhoo Sugar Mills Ltd. and another v. Government of Pakistan and others has been properly applied."

2. The background of the case is that Water & Power Development Authority is a statutory corporation constituted under WAPDA Act, 1958 and is referred to as Authority in the Act and also to be referred herein-after as Authority. A peculiar status has been assigned to it under Item No.3 of Part-II of the Fourth Schedule to the Constitution of Pakistan (1973). It has a printing press working at Kashmir Road, Lahore, which is engaged in making/printing computer stationery for use in WAPDA offices. In pursuance of an information the sales tax officers/staff visited WAPDA Printing Press on 19-1-1993 and found printing press engaged in preparing computer stationery and supplying the same to their computer sections without payment of sales tax leviable thereon. It was also disclosed by the Press Manager that it (Press of WAPDA) had not been registered by the Collectorate and supply of the computer stationery to different computer offices of WAPDA is made without payment of sales tax. He provided a statement giving details of the stationery supplied to different offices of WAPDA during the period from May, 1991 to May, 1992, also without payment of sales tax. A show-cause notice was issued on 28-2-1993 wherein WAPDA was charged with for contravention of various provisions/sections of Sales Tax Act, 1990 (hereinafter referred to as "Act"). They were asked to show cause as to why the seized goods should not be confiscated and why sales tax so assessed should not be recovered from it and why penal action should not be taken under sections 33 and 35 of the Act.

3. The show-cause notice was contested and the Adjudicating Officer/Collector passed an order-in-original on 20-12-1993 through which WAPDA was held liable to the levy of the sales tax on the supply of computer stationery and order for the recovery of the sales tax with consequential penal action was passed. An appeal before the Central Board of Revenue met the same fate against which a writ petition was filed before the Lahore High Court, Lahore which was accepted. Hence the present appeal with leave of the Court has been filed.

4.Learned counsel for the appellant has contended that in view of the clear provision of the Act qua imposition of the sales tax as provided under section 3(1) of the Act, and other relevant provisions thereto, the respondent was liable to the levy of the sales tax. In support of his contention, the judgment of this Court in the case of Sheikhoo Mills (supra), as referred to in leave granting order, was relied upon.

5. On the other hand learned counsel for the respondent while supporting the impugned judgment has submitted that under the law, as evident from the relevant provisions interpreted by him, the respondent was not liable to the levy of sales tax for the goods i.e. computer stationery provided by one of its organs to itself (WAPDA) for its own consumption and the respondent is not engaged while supplying the said stationery material in any business of profit oriented.

6. For resolving the controversy, which is mainly relating to the interpretation of the relevant provision of the Act, it would be pertinent to refer and reproduce those provisions which are section 3(1), a taxing section, and other terms used therein. Though the Act was promulgated in the year 1990, yet from .time to time various amendments have been .made, vide which its different sections and subsections were amended/substituted and significant amendments were made vide Finance Act, 1996 but the period under scrutiny is prior to the said amendment of 1996. Relevant sections of the Act, 1990, as existed during the period under consideration, are reproduced hereinbelow:---

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

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

(b) goods imported into Pakistan. "

S.2(8) "goods" means every kind of movable property other than actionable claims, money, stocks, shares and securities;"

S.2(22). "Supply" means sale transfer, lease or other disposition of goods in the course or furtherance of business carried out for consideration and 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 owned by a person;

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

(d) removal of goods from the manufacturing premises to the sale point or place of storage owned or operated by the manufacturer or his agent; and

(e) such other transaction as the Federal Government may, by a Notification in the official Gazette, specify;"

S.2(26) "taxable goods" means all goods other than those which have been exempted under section 13: "

S.2(28). "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."

7. Section 3(1)(a), which is taxing section, consists of the following components/constituents, the sales tax to be levied charged at the rate of 12-1/2% of the value of (i) taxable supply made (ii) by a registered person (iii) in the course or furtherance of (iv) business (v) carried on by him. The expressions used in section 3(1)(a) and which are relevant are (i) taxable supply (ii) business, and (iii) in the course or furtherance of. Though the taxable supply, but not the latter two i.e. (ii) and (iii), have been defined directly yet for proper appreciation of their meaning one has to revert back to the definitions of goods, taxable goods, and supply. Goods means every kind of movable property other than money and securities etc. Taxable goods means all goods other than those which have been exempted from sales tax under section 13 of the Act. Supply means 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 exempt under section 13 of the Act. 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. `Further' 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.

8. The expression "business" though has not been defined in the Act yet in the ordinary parlance is used with varying connotation and has been defined by Courts, including that from foreign jurisdiction, from time to time as it means any trading activity accompanied by regularity of transactions intended for the purpose of making profit; it is an activity carried on continuously in an organized manner with a set purpose and with a view to earn profits; it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit not for sport and pleasure as held in "The State of Andhra Pradesh v. Messrs H. Abdul Bakhi and Bros" AIR 1965 SC 531" which reads as under:---

"4 The expression "business" though extensively used is a word of indefinite import; in taxing statutes it is used in the sense of an occupation, or profession which occupies the time, attention and labour of a person, normally with the object of making profit. To regard an activity as business there must be a course of dealings, either actually continued or contemplated to be continued with a profit motive, and not for sport or pleasure."

The aforesaid definition was later on again reiterated by the Supreme Court of India in "Messrs Hindustan Steel Ltd. v. The State of Orissa" AIR 1970 SC 253.

9. Now the question for consideration is as to whether the Authority is carrying on the "business" as contemplated by section 3(1)(a). As already observed that Authority has been constituted under the WAPDA Act, 1958 which is a statutory corporation and it is a public utility instrumentality of the State, yet not a Sovereign body. Section 8 of the WAPDA Act prescribing the powers and' duties of the Authority. According to subsection (2) of the section ibid, its functions are to frame schemes which then, under subsection (3), are submitted for approval to the Government and after the scheme being approved then under subsection (5), it is the Authority which undertakes the completion of the scheme, may be through a joint venture with other agencies and with a main function of the Authority is the utilization of the resource of energy for generation, transmission and distribution of power throughout I the country except the area covered by KESCO. The Authority is also having a power to form companies and to execute the aforesaid functions through the said companies and to carry on so many commercial activities and transactions and also having the power to hold or dispose of shares, bonds, debentures and securities and also to receive dividends or other payments etc. Under section 13, the Authority undertakes any work, incurred any expenditure, procure plant, machinery and materials required for its use and enter into any performance of such contracts as it may consider necessary and acquire by purchase, lease or exchange or otherwise and dispose of by sale lease exchange or land or any interest of land. Last but not the least the Authority is having the power under section 25 of the WAPDA Act to sell power in bulk and also to fix rates of electricity in order to provide for meeting the operating costs, interest charges and depreciation of assets; the redemption at due time of loans other than those covered by depreciation, the payment of any taxes and a reasonable return on investment. From the aforesaid provisions of the WAPDA Act, it leaves no doubt and it is abundantly clear That the Authority is carrying on the business as envisaged under section 3(1)(a) of the Act. It may be mentioned here that an Act XL of 1997, namely, Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 has been promulgated which also deals with similar subjects relating to the Generation, Transmission and Distribution of electric power and also providing for the establishment of National Electric Power Regulatory Authority after which the power wing of the Authority comprising of Generation, Transmission and Distribution has been restructured into fourteen public limited companies which are corporate entities but that is sufficiently after the year 1993, the period under consideration.

10. The learned High Court before passing the impugned. order by setting aside the orders of the two forums below i.e. of the Additional Collector and Central Board of Revenue made reference to, inter alia, 03 judgments of this Court (i) Civil Appeal No.284 of 1987 decided on 29th December, 1991, Karachi Development Authority (KDA) v. C.B.R. (reported in 2000 Appeal Cases 53), (ii) Commissioner of Sales Tax and others v. Hunza Central Asian Textile and Woollen Mills Ltd. and others (1999 SCMR 526) and (iii) Sheikhoo Sugar Mills Ltd. and others v. Government of Pakistan and others 2001 SCMR 1376). In the case of KDA (supra) the question for consideration was "to examine whether goods manufactured by it for its own use for purposes enjoined by law were not exempt from sales tax on the authority of Article 165 of the Constitution considered with the law laid down by this Court in Central Board of Revenue and another v. Sindh Industrial Trading Estate Limited PLD 1985 SC 97 notwithstanding the subsequent addition, of Article 165-A in the Constitution". The KDA had been manufacturing for its own use pre-stressed Cement Pipes. This manufacture had been going on since before 1965. The question once was examined by the Central Board of Revenue as to whether such manufacture in use was liable to sales tax or not was considered by the C.B.R. in 1965 and it was held not to be liable to tax in which respect a letter was, issued. However, subsequently in' the year 1981 on re-consideration of taxability, the letter already issued was cancelled by the C.B.R. After making representation before the C.B.R. against the cancellation of the earlier order/letter by the assessee borne no fruits and who was constrained to file a constitutional petition before the High Court challenging the cancellation order but without any success and ultimately the matter was taken up further to this Court. During the hearing more emphasis was placed on additional grounds that KDA is a statutory corporation entirely financed by Provincial Government and discharging the statutory and the ordinary sovereign functions of the Provincial Government and it was contended that by lifting of the corporate veil, the assessee is not liable to any tax as the commodity produced or manufactured is Government owned property in view of exemption as available under Article 165 of the Constitution. However; this contention was not prevailed with this Court, it was found "that by statutory dispensation a juristic, personality is created which is distinct from that of the Government. Such a juristic personality is then entrusted with the statutory duties, some of which or all of which may partake of the functions of the government both sovereign and non-sovereign. In the case in hand, we are concerned with the welfare activity of the Government which has been passed on to the K.D.A. It is not wholly for the discharge of sovereign functions as such". The exemption as available under Article 165 of the Constitution is no more available to a statutory corporation from the payment of taxes in view of incorporation of Article 165-A of the Constitution and this legal proposition is also true and applicable in the case of Authority (WAPDA). The other contention of the learned counsel for the assessee, that the articles manufactured are consumed and not sold are not liable to be taxed, again did not find favour with this Court by making a reference to the amendment which has been brought in 1976 in Item No.49 of the Federal Legislative List whereby the expression "Taxes on Sales and Purchases" was substituted by "Taxes on the Sales and Purchases of goods Imported, Exported, Produced, Manufactured or Consumed" and ultimately the appeal of the assessee (KDA) was dismissed. In the case of Hunza Central Asian Textile and Woolen Mills (supra), the question for examination was as to whether on use of partly manufactured goods into manufacture of finished product by the assessee himself is liable to payment of Sales Tax as the same was contended to be not covered by the definition of sale under the Sales Tax Act, 1951. Before referring to the observations and the findings of this Court in the said case, it would be appropriate to reproduce the relevant provisions of the Sales Tax Act, 1951, which reads as under:---

"3. ---(1) -----------------

(2) ------------------------

(4) ------------------------

(5) ------------------------

(6) Where goods are produced or manufactured in Pakistan under such circumstances or conditions as render it difficult to determine the value thereof for the tax because---

(a) ------------------------

(b) ------------------------

(c) ------------------------

(d) such goods are for use by the manufacturer or producer and not for sale;

the Sale Tax .Officer may determine the value for the tax under this Act and "all such transactions shall, for the purposes of this Act, be regarded as sales. "

These deeming provisions of subsection (6)(d) "all such transactions shall for the purpose of this Act be regarded as sales" was considered and in the light of the amendment made in Entry No.49 of the Federal Legislative List of the Constitution, 1973 it was held that the use of the goods by manufacturer himself is to be considered as sale by fiction of law under para. No.21 of the judgment:---

"21. The dictionary meaning of sale as also the meaning of the word in the laws relating to contracts and Sale of Goods Act, 1930, presupposes a seller, a purchaser and transfer of property from one to .the other for consideration. However, by the deeming clause contained in section 3(6)(d) in the Sales Tax Act, 1951, use of the goods by the manufacturer or purchaser (and not for sale) mentioned in that clause was to be considered by fiction of law, as a sale."

11. Since Sales Tax was one point levy under the Sales Tax Act, 1951, the intermediary product to be used in the manufacture of finished goods were held to be subject to Sales Tax only when the finished product was exempt from sales tax and that the said intermediary products were identifiable and marketable as a separate goods. However, Sales Tax Act, 1990 is having a distinguished feature from that of the Sales Tax Act, 1951 as the tax under Sales Tax Act, 1990 is not a single point levy but is a value added tax to be levied at different stages when the supply is made, subject to the adjustment of input tax from the output tax as provided under section 7. The proposition laid down in the said judgment further elaborated in paras. 24 and 25 of the judgment, which read as under:---

"24. As observed, legislative entries should be given liberal and very wide interpretation and that the judicial approach in this regard should be dynamic rather than rigid. Another principle that has been noted in the earlier part of this judgment is that the Legislature enjoys a wide latitude in the matter of selection of persons subject-matter, events etc. for taxation. Reference has already been made to (1957) U. S. 457 where Frankfurter, J. has observed that, m the utilities tax and economic regulation cases, there are .reasons for judicial self-restraint if not judicial defence to the legislative judgment.

25. The deeming provision created a legal fiction that in the aforesaid restricted parameters, the use or consumption of independently identifiable goods would be considered to be a sale so as to bring such goods within the tax net. For the reasons mentioned above, we are of the view that, in the aforesaid restricted sense, the use and consumption of intermediary goods could be treated- as sales by legal fiction so as to bring such goods under the levy of sales tax where the find product was not subject to sales tax when sold and that the use or consumption of intermediary goods in such circumstances have a rational nexus with sale. Federal Legislature was, therefore, competent to enact the deeming previsions under entries of "sales of goods" in 'the constitutional documents."

12. In Sheikhoo's (supra) case, the question for examination, inter alia, was as to whether Baggasse, an intermediary product produced during the course of preparation of Sugar by the Sugar Mills, when it is used as a fuel in the process of manufacturing of the sugar would be liable to sales tax when it is not sold "to any other person. After examining the various provisions of the Sales Tax Act, 1990 and while placing reliance on the judgment of this Court in Hunza's case, referred to above, it was held that Baggasse which is procured during process and extracting juice from Sugarcane as marketable and identifiable goods can be supplied by a corporate or incorporate body to itself in .the course of business shall be levyable to sales tax. Relevant extract from the para. No.15 is reproduced hereinbelow:---

"----Admittedly the intermediary product of Baggasse which is produced during the process of extracting juice from sugarcane can be considered or 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 covers any form of those activities which are even carried out by one person in his own business. As it has been observed hereinabove that Baggasse 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."

13. It is not understandable that how the learned High Court after making reference to the aforesaid judgment of this Court, in addition to others, and extensively considered and reproduced, relevant parts of the judgments ultimately arrived at impugned conclusion by allowing the writ petition by holding that the charging provisions of section 3 of the Sales Tax Act cannot be extended to a self-censumption which does not happen at any stage of the business being carried out by a person. For ready reference the extract from the concluding para is reproduced hereinbelow:---

"It is, therefore, repeated that after the amendment of Item No.49 of the Legislative List the Federal Legislature had certainly been given the jurisdiction to impose 'tax on consumption which includes self-consumption. However, the charging provisions of section 3 of the Sales Tax Act in the present form cannot be extended to a self-consumption which does not happen at any stage of business being carried out by a person."

14. The charging section 3, as elaborated above, has prescribed certain conditions for levying of the sales tax and the relevant for the purpose are that a (i) taxable supply made (ii) in the course or furtherance of business. The taxable supply and business are two different expressions with different concepts and operate in their respective fields. 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)(a) of the Act arises only when the supply is made in the course or in furtherance of business.

15. The conclusion of the above discussion is that the supply of stationery is not exempt from the sales tax under section 13 of the Act,' the supply for the private, business or non-business use, without intervening another person, is a taxable supply made in the course/in furtherance of business i.e., the activity of selling/supplying the electricity which is carried on by the respondent in the farm of business. Supply of computer stationery is a taxable supply in the course of or in the furtherance of business i.e. the generation (production) and sale of electricity. The anxiety of the Authority (respondent) that after acquiring the paper (raw material) from the market and then after production/ converting the paper into computer stationery is not liable to the levy of sales tax to the full extent as it is not the paper, before converting into computer stationery,. which has been manufactured/produced by its printing press, has already been taken care of through statutory provisions under section 7 of the Sales Tax Act in the form of adjustment of input tax from output tax and which, if the respondent has been able to show its case to come within the ambit of section 7, then it would be entitled to the same benefit.

16. As a result of the above discussion, while accepting the appeal with costs, the impugned judgment of the high Court is set aside.

S.A.K./C-27/SCAppeal accepted.