Haji SULTAN AHMED VS CHAIRMAN, CENTRAL BOARD OF REVENUE, ISLAMABAD
2008 P T D 103
[Lahore High Court]
Before Syed Hamid Ali Shah, J
Haji SULTAN AHMED
Versus
CHAIRMAN, CENTRAL BOARD OF REVENUE, ISLAMABAD and 5 others
Writ Petitions Nos.7781, 7823, 8155, 8176, 8397, 8563, 8790 to 8795, 8841 to 8844, 8876 to 8880, 8889 to 8901, 8917 to 8920, 8927, 8956, 8957, 8977, 8978, 8992 to 9000, 9002, 8929, 9032, 9068, 9069, 9101 to 9105, 9120 to 9153, 9210 to 9212, 9230, 9242, 10025, 10091 to 10093, 10137, 10145 to 10147, 10151 to 10159, 10173, 10174, 10179 to 10194, 10204, 10209, 10210, 10309, 10363, 11125, 11135, 11136, 11214, 11215, 11228, 11229, 11254 to 11257 and 11296 of 2007, decided on 23/11/2007.
(a) Sales Tax Act (VII of 1990)---
----Ss. 3 & 2(41)(46)---Scope of tax---Mandatory conditions to create charge of sales tax under Sales Tax Act, 1990---Modes to ascertain value of supply---Principles.
A bare perusal of the first part of S.3, Sales Tax Act, 1990 confirms that charge, payment and levy of sales tax is contingent upon the taxable supplies made in furtherance of taxable activity. To create the charge of sales tax under the Act, it is mandatory that two conditions must be fulfilled, namely the transaction of sale must constitute taxable activity and this must be a taxable supply. Three (3) expressions used in subsection (1) are:--
(i) Taxable Supply.
(ii) Taxable Activity.
(iii) Value.
These expressions are defined in the Act, in subsections (35), (41) and (46) of section. 2.?
Any activity carried on in the form of business, trade and manufacture, which is carried on by any person and involves in whole or In part, supply of goods to another person, whether or not for any pecuniary profit, or for any other consideration or otherwise. Taxable activity clearly envisages the supply of goods to any other person. To create the charge of sales tax both the factors i.e. transaction of sale must constitute a `taxable activity' and it should be `taxable supply', must co-exist independently. If one factor is missing, the tax cannot be levied. The transaction must first qualify to be `supply' to constitute `taxable supply' to constitute `supply' the transaction must be `in furtherance of business' and the `business' is to be construed as the activity recurring for profit motive and must be in the nature of trade, commerce or manufacture.?
Liability to pay tax under section 3 (charging section) arises only when a taxable supply is made by a registered person in furtherance of taxable activity. The law requires that tax must be levied or charged in clear, unambiguous and specific terms. Tax cannot be levied on presumption or on importing something which the legislature has not provided therein. Thus to create incidence of tax, the Revenue is duty bound to establish that a transaction falls within the scope and ambit of `taxable supply' and a `taxable activity' is involved in. it. Additionally the sales tax, under the Act, has to be charged on the value of the supply.?
`Value of supply' as it is defined in subsection (46) of section 2, can be ascertained in seven (7) different modes namely: consideration of money inclusive of duties but excluding the amount of tax which the supplier receives from the recipient for the supply; the discounted price excluding the amount of tax in the case of trade discounts; the open market price in the cases where it is difficult to ascertain value of supply in view of special nature of transaction; value according to section 25 of the Customs Act, in the cases of imported goods inclusive of customs duties and Federal excise duty; the value determined by Valuation Committee (comprising representatives of trade and sales tax department) where value has not been correctly declared in invoice; price of goods which goods fetch on sale in open market in cases of goods other than taxable goods which are supplied to registered person for processing and in case of a taxable supply, with reference to retail tax, the price of taxable goods excluding the amount of retail tax or such other price which the Board may, by Notification in the official Gazette, specify.?
(b) Sales Tax Act (VII of 1990)---
----S.2(35)(46), proviso 3 & S.71---Sales Tax (Special Procedure) Rules, 2007, Chap. XI---S.R.No.678(I)/2007, dated 6-7-2007---Constitution of Pakistan (1973), Art.199---Constitutional petition---Vires of Chap. XI as contained in S.R.O.678(1)/2007, dated 6-7-2007 issued by the Federal Government---Determination of sales tax as final charge by steel melter, steel reroller and composite units of steel melting and re-rolling having single electricity meter at the rate of Rs.4.75 per unit of electricity consumed for production of steel billets, ingots and mild steel products---Validity---Held, determination of the value on basis of consumption of electricity does not find mentioned in S.2(46), Sale Tax Act, 1990 and proviso to S.2(46) of the Act is not attracted in the present case---Chapter XI of Sales Tax (Special Procedure) Rules, 2007 as contained in S.R.O.678(I)/2007 dated 6-7-2007 issued by the Federal Government is in direct conflict with the charging provisions of Sales Tax Act, 1990 and is illegal and void for such inconsistency which was declared to be ultra vires, issued without any lawful authority and with no legal effect---Petitioners are/shall be liable to pay the Sales Tax at the rate of 15% on the basis of taxable supply, made in course or furtherance of any taxable activity carried out by them under S.3(1) of the Sales Tax Act, 1990---Present judgment, however, shall not affect the tax already paid or recovered under the impugned Rules, being past and closed transaction---Principles.
Determination of the value on the basis of consumption of electricity does not find mention in section 2(46) of the Sales Tax Act. The Revenue, however, has based the impugned value of the supply, on, proviso to clause (g) to S.2(46) where the Board has been authorized to fix the value of any imported goods or taxable supply or classes of supplies, through a notification in the official Gazette. This proviso is not attracted to the present case. Firstly the scope of the proviso is restricted to the ambit of main section, which, in the present case, is clause (g) which deals with retail tax. The assesses are not retailers and tax imposed on them is also not a retail tax. Secondly, the value according to this proviso can be fixed by the Board, while the impugned S.R.O. has been issued by the Federal Government and in this way the value, which is fixed by the Federal Government cannot be considered as the one under proviso to clause (g) of section 2(46) of the Act.?
Adverting to impugned S.R.O. (S.R.O. 678(I)/2007 dated 6-7-2007) where a mechanism has been provided under Chapter XI for charge and collection of sales tax, at rate of Rs.4.75 per unit of electricity consumed in the Units. Rules 58H to 58M Sales Taxes (Special Procedure) Rules, 2007 prescribe mode and manner of issuance of sales tax invoices, submission of sales tax returns, maintenance of specified record and penal consequences of non-payment of tax. It is reflected from the perusal of S.R.O. that it has been issued by the Federal Government, in the exercise of its powers under section 71, of the Sales Tax Act, 1990, read with clauses (9) and (46) of section 2, sections 3 and 4, subsection (2) of section 6, section 7, section 7A, clause (b) of subsection (1) of section 8, clause (a) of subsection (2) of section 13, subsections (2A) and (3) of section 22, sections 23 and 60 thereof. Section 71 of the Act empowers Federal Government to issue a notification in the official Gazette and prescribe special procedure for scope and payment of tax, registration, bookkeeping, invoicing requirements and returns etc. with reference to such supplies as are given in the notification. Similarly section 2(9) and (46) laid down the respective due date for filing of return and to give the value of supply at which the tax is to be discharged. Section 3 and section 4 are provisions, which relate to the levy of sales tax respectively. Section 6 relates to time and manner of payment of tax while section 7 relates to the determination of tax liability. Section 7A relates to levy and collection of tax on specified goods on value addition. Section 8 relates to tax credit not allowed under the Act. Section 13 relates to exemption from tax whereas section 22 pertains to record. Section 23 relates to tax invoice and section 60 refers to powers to deliver certain goods without payment of tax.
Section 71(1) of the Sales Tax Act, 1990 empowers Federal Government to prescribe special procedure for scope and payment of tax, registration, bookkeeping etc. by notifying the same in official Gazette. This power is to the extent of prescribing procedure and such power is subordinate to charging section (section 3 of the Act). Rules made under section 71, cannot take place of charging section. Rule making power conferred by the statute, is subordinate to the substantial provision of law. Rules made under section 71, cannot enlarge the scope of statutory provision.?
The Act provides the charge, levy and payment of sales tax @ 15 per cent of the value of taxable supplies. The taxable supply within the contemplation of subsection (35) of section 2 involves in whole or in part the supply of goods. To create the incidence of sales tax, taxable activity is condition precedent which envisages the supply of goods to another person. The collection of tax through adopting impugned procedure under S.R.O. 678(I)/2007, the element of charging tax on taxable supplies made in furtherance of taxable activity, has been done away with. Rules under section 71, Sales Tax Act, 1990 can be made and framed incidental to the substantive provision of law and can be rnade to deal with the details, following the parent statute but the fundamental intent of the Act cannot be changed. The impugned rules are in direct conflict with the charging provision of the Act, therefore, these are illegal and void for such inconsistency.?
The Revenue has also justified charging of tax through impugned rules by resorting to section 3(2)(b) of Sales Tax Act, 1990. Although subsection (2) begins with non obstante clause but clause (b) referred to, by the department, is of no help to Revenue, as careful perusal of this subsection demonstrates that it empowers Federal Government to impose lower or higher rates or rates as may be specified in the notification in respect of supply stipulated in subsection (1) of section 3 of the Sales Tax Act, 1990. The provisions of subsection 2(b) of section 3, relate to imposition of higher or lower rate of tax. It governs "rate" and does not alter the chargeability of sales tax on the basis of taxable supply in furtherance of taxable activity.
The Revenue has thirdly tried to justify the legality of impugned rules, relying upon subsection (6) of section 3. Subsection (6) again confirms to levy and collection of such amount of tax, in lieu of tax under section 3(1), and its payment in a mode, manner and time as Federal Government or the Federal Board of Revenue may deem fit. Here again it is the amount of tax and manner of its payment, which the Board or the Federal Government can notify but mode and manner of payment is one prescribed within the ambit of section 3(1). The yardstick to charge and levy sales tax is the sale constituting a taxable activity for a taxable supply. Any other mode or manner deviating from this yardstick, is not presently permissible under the Act. However, this is permitted under item 52 of the Fourth Schedule to the Constitution of Islamic Republic of Pakistan, 1973 and unless the act is amended, the same is not permitted herein.
The Revenue has worked out the electricity consumed on various products at a uniform formula i.e. 800 units for production of one metric ton of steel. The Revenue has ignored the material fact that a product of a lesser gauge consumes more electricity for its production as against the product of thick gauge. The impact of price variation and fluctuation of rates, has also been ignored.
Any payment of duty or tax cannot work as estoppel. Constitutional petition cannot be defeated on such plea as cause of action is recurring as each transaction gives fresh cause. Further the tax can be levied under the authority of law and mere convenience of tax collector in recovering tax liability, is no ground to deviate from substantive provision of law. The department, instead of streamlining the system for recovery of the tax, has adopted indirect method for impugned levy, by changing the statutory yardstick. Such procedure is not constitutionally permissible. Revenue, however, can consider consumption of electricity in manufacture of steel products, to detect tax fraud but it cannot be used to create charge of tax liability.?
The impugned Rules contained in Chapter XI of the S. R.O. 687(I)/2007 dated 13-6-2007 issued by the Federal Government are declared ultra vires, issued without any lawful authority and with no legal effect. The petitioners are/shall be liable to pay the sales tax at the rate of 15% on the basis of taxable supply, made in the course or furtherance of any taxable activity carried out by them under section 3(1) of the Act, 1990. This judgment, however, shall not affect the tax already paid or recovered under the impugned Rules, being past and closed transaction.
Messrs Usmani Associates Sub Proprietary Firm v. C.B.R. and another 2001 PTD 2982; Collector of Customs, Central Excise and Sales Tax, Karachi West v. Novartis Pakistan Ltd. 2202 PTD 976; Khawaja Ahmad Hassan (Supra); Collector of Sales Tax v. Superior Textile Mills Ltd. 2001 PTD 1486 PLD 2001 SC 600 and Pakistan Tobacco Company Ltd. and another v. Federation of Pakistan through Ministry of Commerce Islamabad and 3 others 1999 SCMR 382 rel.
Walter John Brooks v. Nee Barwich alias Mabel Esther Brooks and another AIR 1926 Sindh 58: Emperor v. Ram Sarup AIR 1938 Oudh 80; Province of Bengal v. Sm. Hingul Kumari Law AI.R 1946 Cal. 217; Mullins v. Treasurer of Surry (1885) QBD 170; Life Insurance Corporation of India v. United Commercial Bank, Karachi PLD 1962 Kar. 837; Commissioner of Income Tax v. Messrs West Punjab Factories Limited, Okara PLD 1966 Lah. 236; Aruj Textile Mills Ltd. v. Federation of Pakistan through Secretary Ministry of Finance 1998 PTD 3855; Maulvi Muhammad Hassan v. Collector Nasirabad and others PLD 1982 Quetta 1; Messrs Al-Halal Motors Stores and others v. Collector of Sales and Central Excise (East) Karachi and others 2004 PTD 868; B.P. Biscuit Factory Limited Karachi v. Wealth Tax Officer and another 1996 SCMR 1470; Maple Leaf Cement Factory Ltd. v. Federation of Pakistan and others 1999 PTD 3907; Messrs Usmani Associates Sub Proprietary Firm v. C.B.R. and another 2001 PTD 2982; Commissioner of Sales Tax and others v. Hunza Central Asian Textile and Woolen Mills Ltd. and others 1999 SCMR 526; Amin Textile Mills and others v. Federation of Pakistan and others 2002 CLC 1714; Excise and Taxation Officer, Karachi and another v. Burmah Sheel Storage and Distribution Company of Pakistan Ltd. and 5 others 1993 SCMR 338; Collector of Customs, Central Excise and Sales Tax, Karachi West v. Novartis Pakistan Ltd. 2002 PTD 976; Hashwani Sales and Services Ltd. v. Karachi Building Control Authority and 15 others PLD 1986 Kar. 393; Pir Sabir Shah v. Shad Muhammad Khan, Member Provincial Assembly N.-W.F.P. PLD 1995 SC 66; Messrs State Cement Corporation of Pakistan Ltd. v. Collector of Customs, Karachi and another 1998 SCMR 2207; Central Board of Revenue and 3 others v. Seven Bottling Company (Pvt.) Ltd. 1996 SCMR 700; Seven up Bottling Company (Pvt.) Ltd. v. Lahore Development Authority 2003 CLC 513; Pakistan Tobacco Company Ltd. and another v. Federation of Pakistan through Ministry of Commerce, Islamabad and 3 others" 1999 SCMR 382; Ittefaq Foundry v. Federation of Pakistan PLD 1990 Lah. 121; Collector of Sales Tax and others v. Superior Textile Mills Ltd. and others 2001 PTD 1486 = PLD 2001 SC 600; Crescent Re-rolling Mills, Lahore v. Assistant Collector of Sales Tax GST 2005 CL 73; Messrs Universal Merchants v. Commissioner of Karachi and 2 others 1980 CLC 704; Messrs Friends Sons v. Deputy Collector, Central Excise and Sales Tax and others TLD 1989 Lah. 337; Jamshed Waheed v. Government of Punjab through Secretary Excise and Taxation, Lahore and 5 others PLD 2001 Lah. 395; Messrs 'Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary Ministry of Finance, Islamabad and 6 others PLD 1997 SC 582; Deputy Collector, Central Excise and Land Customs, Lahore v. Tyrex Pakistan Limited PLD 1992 SC 364; Muslim Commercial Bank Ltd. v. Muhammad Nasirn 2001 SCMR 1191; Ghulam Hassan v. Jamshaid Ali and other 2001 SCMR 1001; Collector, Sales Tax and Central Excise (West), Karachi v. Messrs Al-Nadi Industries (Pvt.) Ltd. 2002 PTD 2457; Bengal Immunity Co. Ltd. v. State of Bihar and others AIR 1955 SC 661; Messrs Tanzeb Textile Industries, Faisalabad v. CIT Faisalabad Zone Faisalabad 2003 PTD 1; Islamic Republic of Pakistan through Secretary Ministry of Interior and Kashmir Affairs, Islamabad v. Abdul Wali Khan, MNA, Former President of Defunct National Awami Party PLD 1976 SC 57; Makhdoomzada Syed Hassan Mahmood v. City Co-operative Bank Ltd. Hyderabad and 2 others PLD 1980 Kar. 37; Gujrat Punjab Bus Limited v. Province of Punjab and others PLD 1957 Lahore 345; Messrs Sheikh Abdur Rehim, Allah Ditta v. Federation of Pakistan and others PLD 1988 SC 670; Muhammad Mubeen us Islam v. Federation of Pakistan, through Ministry of Defence and others PLD 2006 SC 602; Collector of Customs, Lahore v. Universal Gateway Trading Corporation and another 2005 SCMR 37; Lahore Improvement Trust, Lahore through its Chairman v. The Custodian Evacuee Property, West Pakistan, Lahore and 4 others PLD 1971 SC 811 and Federation of Pakistan through Secretary, Ministry of Finance and others v. Haji Muhammad Sadiq and others 2007 PTD 67 ref.
(c) Interpretation of statutes---
--Framing of rules---Rule making power conferred by a statute, is subordinate to the substantial provision of law---Principle---Rules can be made and framed incidental to the substantive provision of law and can be made to deal with the details, following the present statute but the fundamental intent of the Act cannot be changed---Rules cannot enlarge the scope of statutory provision.?
(d) Taxation---
----Tax can be levied under the authority of law and mere convenience of tax collector in recovering tax liability, is no ground to deviate from substantive provision of law. ?
Ali Akbar Bhindar, Mian Mahmood Rashid, Muhammad Shahzad Shaukat, Mian Ashiq Hussain and Azhar Mahmood for Petitioners.
Izhar ul Haq Sheikh, Ahmer Bilal Soofi, Shahid Jamil Khan and Ms. Kaousar Parveen for the Revenue.
Akhtar Ali and Shahnasha Shomail Piracha for Steel Melters Association.
Khurshid Alam Ramay for Lessco.
Dates of hearing: 25th to 28th September, 1st, 2nd, 8th, 11th, 18th, 19th, 22nd, 25th, 26th, 29th to 31st October, 19th at 2001, and 20th November, 2007.
JUDGMENT
SYED HAMID ALI SHAH, J.---The judgment will dispose of Writ Petitions Nos. 7781, 7823, 8155. 8176, 8397, 8563, 8790, 8791 to 8795, 8841, to 8844, 8876 to 8880, 8899 to 8901, 8917 to 8920, 8927, 8956, 8957, 8977, 8978, 8992 to 9000, 9002, 8929, 9032, 9068, 9069, 9101 to 9105, 9120 to 9153, 9210 to 9212, 9230, 9242, 10025, 10091 to 10093, 10137, 10145 to 10147, 10151 to 10159, 10173, 10174, 10179 to 10194, 10204, 10209, 10210, 10309, 10363, 11125, 11135, 11136, 11214, 11215, 11228; 11229, 11254 to 11257 and 11296 of 2007, as these petitions have same subject-matter and questions of law raised therein are the same.
2. The petitioners in these petitions are engaged in the manufacture and sale of steel products, made from scrap and other raw material through process of melting, carried on in the electric steel furnaces. The end product is known as ingot, billet or mild steel products, which have throughout been subject to levy of sales tax. These products were subject to sale tax at a rate of Rs.400 per metric ton, which the subsequently enhanced to Rs.480 per metric ton and then rose to Rs.540 per metric ton due to change in the value addition as per S.R.O. 4840(I)/2004, dated 12-4-2004, S.R.O. 522(I)/2005, dated 6-6-2005 and S.R.O. 5600(I)/2006, dated 5-4-2006. The petitioners have now been subject to special regime of payment of sale tax i.e. Sales Tax (Special Procedure) Rules, 2007. The rules stood amended through S.R.O. 678(I)/2007, dated 6-7-2007 of the Federal Government, whereby mechanism has been provided for collection of sales tax by incorporating Chapter XI in the aforesaid Rules. Every steel melter, steel re-roller and composite unit of steel melting and re-rolling (having single electricity meter) vide Rule 58-H (ibid) has been made liable to pay sales tax at the rate of Rs.4.75 per unit of electricity consumed for production of steel billets, ingots and mild steel products. The payment calculated and based on consumed electricity in the manufacturing process, under these rules, is the final discharge of sales tax liability. Rules 58(1) to 58(H) of Chapter XI (ibid) provide the mode and the manner of issuance/filing of invoices and returns and maintenance of the prescribed record etc.
3. The learned Advocates representing various petitioners have argued the matter at length. Messrs Izhar ul Haq, Ahmer Bilal Soofi and Shahid Jamil Khan, Advocates, have rendered their professional assistance on behalf of the respondents. Besides Mumtaz A. Sheikh (Member Legal, FBR) made his submissions as well.
4. Mian Mahmood-ur-Rashid, Advocate, has submitted that the only charging provision in the Sales Tax Act, 1990, is section 3. The Sales Tax was imposed in the past under section 3(1) at a specified rate of 15% of the value of taxable supply; that is to say that after determining the total production of ingots and other items and adding total value addition, the sales tax at 15% used to be charged, levied and paid. Learned counsel has added that in the past at certain points of time, the tax was imposed under section 3(2) of the Sales Tax Act, through notification whereby tax was imposed at a particular rate after determining the production. The tax, adopting different measures during different periods, has continuously been imposed keeping in view three basic factors namely: total production, value of total production and rate of tax. Learned counsel emphasized that new procedure has been introduced (impugned herein), which is .departure from the mandatory provisions of the statute. By levy of tax on the basis of consumed units of electricity in the Rules; normal procedure of determining total production, its value and rate of tax under. the Act, has been done away. It was submitted that by virtue of impugned notification value of the supply is determined on the basis of consumption of electricity, while value of supply within the meaning of section 2(46) of the Act, 1990, can be ascertained in seven different ways, each exclusive and independent of the other. The Legislature while defining the term `value of supply' in the Act, has intentionally used term `means' in its' beginning to narrow and restrict the scope and meaning of the term `value of supply' to the extent as provided in the aforementioned definition clause. The scope of this definition would have been enlarged, if the word `include' had been used in place of `means'. Learned counsel supported this contention by referring to the cases of "Walter John Brooks v. Nee Barwich alias Mabel Esther Brooks -and another" (AIR 1926 Sindh 58), "Emperor v. Ram Sarup" (AIR 1938 Oudh 80) and "Province of Bengal v. Sm. Hingul Kumari Law" (AIR 1946 Cal. 217). Learned counsel has submitted that according to respondent/revenue, the tax is being charged, under the impugned procedure of the Rules, by resorting to proviso to section 2(46)(g), in view whereof the Central Board of Revenue (hereinafter to be referred as "Board") by notification in the official gazette can fix the value of any class of value or for that purpose different value for different classes or for different descriptions of supplies. Learned counsel explained that above referred clause (g) pertains to the retail tax and its' proviso can be restricted to retail tax only charged under the Act. Its scope cannot be enlarged to any other tax under the Act. He added that section 2(28A) explains retail tax being one levied under section 3(AA) while according to section 3(AA) the tax levied and paid by a retailer is the retail tax. Retailer within the contemplation of section 2(28A) is a person supplying goods to the general public for the purpose of consumption. The sales tax being recovered from the petitioners is not the one to be charged, levied and paid by a retailer as retail tax, thus proviso to section 2(46)(g) is not applicable to the cases of the petitioners. The contention was supported by referring to the case of `Mullins v. Treasurer of Surry' (1885) QBD 170) and "Life Insurance Corporation of India v. United Commercial Bank, Karachi" (PLD 1962 Kar. 837). Learned counsel has submitted that proviso cannot travel beyond the scope of main section and to support this contention, he has made reference to the cases of "Commissioner of Income Tax v. Messrs West Punjab Factories Limited, Okara" (PLD 1966 Lah. 236) and issued by the Board and not by the Federal Government Learned counsel has submitted that the impugned notification has been issued by the Federal Government, which has no such powers under section 50 of the Act (ibid), Learned counsel has referred to the cases of "Aruj Textile Mills Ltd. v. Federation of Pakistan through Secretary Ministry of Finance" (1998 PTD 3855) and "Maulvi Muhammad Hassan v. Collector Nasirabad and others" PLD 1982 Quetta 1 to contend that when a manner of doing an act is provided, then such act has to be done in that manner only. Learned counsel went on to argue that under section 3, the sales tax can only be levied on actual taxable supply and in furtherance of taxable activity. He added that no provision in the charging section (section 3) of the statute has made the consumption of electricity unit as supply or taxable supply. He has submitted that tax must be imposed by clear and unambiguous language and it can be levied only when the statute clearly imposes the obligation. He in support of his contention, has referred to the cases of Messrs Al-Halal Motors Stores and others v. Collector of Sales and Central Excise (East) Karachi and others 2004 PTD 868 and "B.P. Biscuit Factory Limited Karachi v. Wealth Tax Officer and another" 1996 SCMR 1470. Learned counsel has submitted that calculating the tax on the basis of consumption of electricity units, has changed the nature of the levy, which is not legally permissible as no concluded sale exists, at the time of deposit of money i.e. payment of electricity bill and found support from the case of "Maple Leaf Cement Factory Ltd. v. Federation of Pakistan and others (1999 PTD 3907). Learned counsel referred to the case of "Messrs Usmani Associates Sub Proprietary Firm v. C.B.R. and another" (2001 PTD 2982), to contend that no tax can be imposed on an imaginary product, which is not even marketable. He further supported this contention by placing reliance on the case of "Commissioner of Sales Tax and others v. Hunza Central Asian Textile and Woolen Mills Ltd. and others" (1999 SCMR 526). It was contended that in the impugned S.R.O., the yardstick to measure the tax is consumption of electricity, which has no nexus with the nature and character. of the subject-matter of the tax under the Sales Tax Act, 1990. The yardstick to measure a tax must have nexus with the nature and character of the subject-matter of the tax. Learned counsel has submitted that the sales tax can be charged only when total taxable supply, total value of the taxable supply and rate of tax is determined. Imposition of tax without determining these ingredients is illegal. The case of "Amin Textile Mills and ethers v. Federation of Pakistan and others" (2002 CLC 1714). was referred in this respect. Learned counsel has submitted that the tax is always chargeable, on determined and definite event of sale and taxable supply. Schedule or Rules which are inconsistence with charging sections have no validity, as has been held in the case of "Excise and Taxation Officer, Karachi and another v. Burmah Sheel Storage and Distribution Company of Pakistan Ltd. and 5 others" (1993 SCMR 338). Learned counsel has submitted with vehemence that in order to create a charge of sales tax two conditions must exist independently i.e. transaction of sale to constitute a taxable activity and taxable supply. If a single is missing, the sales tax would not be leviable under the Act. He emphasized that, as per the Act, the consumption of electricity for manufacture of ingot, does not constitute taxable activity. For, manufacture or the end product is ingot, which is liable to tax independently. Learned counsel in this respect has cited the case of "Collector of Customs, Central Excise and Sales Tax, Karachi West v. Novartis Pakistan Ltd. 2002 PTD 976. He argued that a notification, which is beyond the statutory power, unreasonable and exorbitant, is liable to be struck down. Learned counsel in support of this contention referred to the case of "Hashwani Sales and Services Ltd. v. Karachi Building Control Authority and 15 others" (PLD 1986 Kar. 393) and "Pir Sabir Shah v. Shad Muhammad Khan, Member Provincial Assembly N.-W.F.P." (PLD 1995 SC 66). It was contended that the powers vested with the Government, under section 71 are not unlimited, whereby the Government can deviate from substantive provision of law. Substantive provision of law cannot be made redundant or ineffective through delegated exercise of powers i.e. the Rules. Learned counsel in this regard referred to the case of "Messrs State Cement Corporation of Pakistan Ltd. v. Collector of Customs, Karachi and another" (1998 SCMR 2207). While referring to the relevant portion of the impugned notification, learned counsel has submitted that the power to disconnect electricity connection vests with the Wapda authorities within the contemplation of section 24 of the Electricity Act, 1910. Non-payment of sales tax cannot legally entail consequences of disconnection of electricity. The terms and conditions for power sale can only be determined or altered by NEPRA, within the contemplation of section 31(ibid).
5. Mr. Shahzad Shaukat, Advocate has submitted that the word `levy' is absent in clause 3(2)(b), which finds mention only in sub-sections (1) and (6). Remaining subsections so far as question of levy is concerned, are subservient to sub-clause (1). He has submitted that actual dispossession of goods has to take place to create incidence of sales tax under the Act. Learned counsel has gone through clause (5) of 58-H of the Rules and submitted that Pakistan Steel Mills Karachi and People Steel Mills, Karachi have been excluded from the purview of the Rules, which makes the impugned Rules discriminatory. He has submitted that according to section 4 of the Act, zero per cent sales tax is leviable on export goods, the project of his client is involved in the exported and according to impugned Rules payment of sales tax on consumption of electricity is final discharge. He added that the petitioner cannot claim refund under these Rules, which is otherwise available under the Act. He went on to argue that electricity consumption in a furnace, is not the one Utilized for the manufacture of goods only, but it is also consumed in the project for other purpose as well. He has submitted that according to proviso to section 6(2), the mode and manner of the payment of the tax under the Act, is either through deposit in a bank or any other mode and manner as may be specified by the Board. He added that it is the Board and not the Government, which can prescribe any other mode except for the one prescribed by the statute. While referring to clause 2(46)(e) learned counsel submitted that a representative of the association can be consulted for determination of the value and not for framing of Rules and mode of collection of sales tax. While explaining the scope of the tax, learned counsel has submitted that scope of the sale tax, has been provided in section 3 and manner and time finds mention in section 6, which according to subsection (2) of section 6 is the time when return is filed. The payment of tax, according to subsection (3) of section 6, is to be made in the bank. He made a reference to section 71 to submit that the Rules framed thereunder cannot go beyond the scope of the main statute. He has referred to the case of "Al-Hilal Motors Stores and another v. Collector, Sales Tax and Central Excise (East) and others" (2004 PTD 868) where sales tax calculated on the basis of the bank statement was declared illegal. He has submitted that in case of conflict between the charging section and other provisions of the statute, then the charging section is to prevail. He went on to argue that where levy is calculated on the basis of actual production, legal fiction cannot be created under the Rules. He has submitted that determination of tax liability, which has no nexus with section 3(1) of Act, is invalid. Learned counsel has submitted that waiver cannot be projected as an excuse to deprive citizens of their rights under the constitution. He found support in this contention from the case of Central Board of Revenue and 3 others v. Seven Bottling Company (Pvt.) Ltd. (1996 SCMR 700). He has submitted that no tax can be charged or levied on obstructive formula. There must be some rationale on which basis the tax is to be assessed and recovered. Learned counsel has submitted that bank statement of the registered person without any evidence of corresponding taxable supply, made in the course of taxable activity, was held illegal and beyond the scope of Act, 1990, in the case of "Al-Hilal Motors Store" (Supra). He has referred to the case of "Seven up Bottling Company (Pvt.) Ltd. v. Lahore Development Authority" (2003 CLC 513) to contend that law cannot be interpreted in a different way, simply on the ground of hardship; he added that ambiguity in the statute, if any, has to be resolved in favour of subject. He has referred to the. case of "Pakistan Tobacco Company Ltd. and another v. Federation of Pakistan through Ministry of Commerce, Islamabad and 3 others" (1999 SCMR 382) and submitted that rate of duty/tax must have nexus with the value of goods which are produced and manufactured. Learned counsel has cited "Ittefaq Foundry v. Federation of Pakistan" (PLD 1990 Lah. 121), "Collector of Sales Tax and others v. Superior Textile Mills Ltd. and others" 2001 PTD 1486 = PLD 2001 SC 600, "Crescent Re-rolling Mills, Lahore v. Assistant Collector of Sales Tax" (GST 2005 CL 73), "Messrs Universal Merchants v. Commissioner of Karachi and 2 others (1980 CLC 704) and "Messrs Friends Sons v. Deputy Collector, Central Excise and Sales Tax and others PLD 1989 Lah. 337 to support his other contentions.
6. Mr. Azhar Mehmood, Advocate has submitted that to levy sales tax, the only yardstick is taxable supply and rate under section 3 of the Act, 1990. He has submitted further that the term `taxable supply' and `taxable activity' was considered in the judgment of Norvatis (supra) and according to the ratio of the judgment, levy of sales tax on electricity consumption is departure from the charging section i.e. section 3. He went through section 7 and submitted that deduction of input tax paid, from the output tax, is the right of taxpayer. According to impugned S.R.O. and the Rules therein the payment of the sales tax on the basis of electricity consumption is final discharge and in these circumstances section 7 has become redundant. He has contended that the consumption of electricity has no nexus and rate must have a direct nexus with the taxable supply. Any Rule ignoring the nexus of levy with taxable supply, being in contravention of the main statute, loses its validity. He supported his contention by referring to the cases of "Jamshed Waheed v. Government of Punjab through Secretary Excise and Taxation, Lahore and 5 others" (PLD 2001 Lah. 395), "Messrs Elahi Cotton Mills Ltd. and others v. Federation of Pakistan through Secretary Ministry of Finance, Islamabad and 6 others" (PLD 1997 SC 582). He has submitted that steel melters association has no authority to settle and agree for specific Rule to be framed for collection of tax, as bye-laws of the association do not provide so. He summed up his argument by submitting that the Rules have been made to facilitate the importers at the cost of the local manufacturers, who purchase their scrape from the open market. The Rules are discriminatory and are liable to be struck down.
7. Mr. Muhammad Akbar Bhinder, Advocate having adopted the arguments of Messrs Mian Mehmod ul Rashid and Shahzad Shaukat, Advocates has submitted that Rs.4.75 has been worked out as consumption one unit of electricity. One metric ton of the steel product calculating 800 units of electricity for producing one ton of steel and levying tax thereon at a rate of Rs.4.75, per unit is unreasonable, exorbitant and unfair. A person, who according to previous scheme of Sales Tax Act, 1990 was paying sales tax at the rate of 15% to the tune of Rs.12 lacs, has now been taxed with the liability of Rs.30 Ins. The rate of tax has been enhanced exorbitantly, under the Rules, with the motive to fail local industry. He has submitted that the electricity in the manufacture of ingot of different gauges do not consume uniform electricity. Lesser is the gauge, more in the consumption of electricity for its production. The formula for working out the production on the basis of consumption of electricity is not workable or practical nor legally permissible. He has referred to section 54 of the Transfer of Property Act, 1882, which defines sales as transfer of ownership is exchanged for consideration. He the referred to the cases of "Deputy Collector, Central Excise and Land Customs, Lahore v. Tyrex Pakistan Limited" PLD 1992 SC 364 to submit that the definition of "manufacture" should be read in conjunction with definition of "sale". He has drawn my attention to sections 2(3), 2(4-b), 2(6) & 2(9) and section 7, 8, 13, 22, 23, 60 and 73 of the act to contend that the impugned levy under the Rules is in conflict with main provisions of the Act, where maintenance of record and book keeping within the contemplation of section 22 has been done away. While referring to section 13(2) of the Act, 1990, learned counsel has submitted that the object of the Government is to promote production and not to harm it. It is contended that setting a target for collection of the tax, is illegal and has no sanctity. He supported his other contentions, by referring to the cases of "Muslim Commercial Bank Ltd. v. Muhammad Nasim" (2001 SCMR 1191) and "Ghulam Hassan v. Jamshaid Ali and others" (2001 SCMR 1001). He gave comparison of levy and charge of sales tax, on the basis of previous mode and also on the basis of impugned Rules, this according to learned counsel proves that tax is being charged at much a rate higher than 15% of the value of taxable supply as provided under section 3 of the Act.
8. Ch. Abdul Razzaq, Advocate has contended that the respondent in response to para. 6 has submitted reply, vaguely as `no comments', which shows that the averments of para. 6 have been admitted, which renders the settlement between the so-called representative of the association and the C.B.R., as a (?) him defeats the provision of law. He has submitted that the petitioner is entitled under section 7 of the Act, 1990 to input tax, while provisions of Rule 58-H negate the same. According to him, Rules cannot take away the effect of mandatory provision of law and supported this contention by placing reliance on the case of "Collector, Sales Tax and Central Excise (West), Karachi v. Messrs Al-Hadi Industries (Pvt.) Ltd." 2002 PTD 2457. The provisions of the Rules are self-destructive and violative of the main provision of the Act. He has submitted that according to Article 77 of the Constitution of Islamic Republic of Pakistan, 1973, the tax is to be levied only under the authority of the Parliament. He has referred to "Bengal Immunity Co. Ltd. v. State of Bihar and others" (AIR 1955 SC 661) to contend that imposition of tax is valid under the law when it is neither excessive, unjust nor oppressive. He has submitted that the representatives of association; are single set of person, shown to have attended all meetings during the past three years. It reflects that steel manufacturer are un?represented and a small group has posed itself as representative. He while making reference to the case of "Messrs Usmani Associates" (Supra) and "Messrs Sarwar & Co. (Pvt.) Ltd. Lahore v. The Collector of Sales Tax, Multan and others" 2004 PTD 868 has submitted that sales tax is charged when taxable supply is made under the Act. However, under the Rules it has tied down with consumption of electricity. This according to him, it is not valid in law.
9. Messrs Mian Ashiq Hussain and Muhammad Hussain Chotya, Advocates have submitted that raw material, which big industrial units import, is at zero rate. However, the small and medium manufacturers pay 14 to 15 per cent, higher cost on the raw material when purchased. In view of this disparity, the petitioners pay sales tax, six times more than the importers. While reiterating the arguments of the other learned counsel for the petitioners, it was submitted that rule framing power is conferred by the statute and rules framed thereunder cannot override parent statute. They referred to para. 11 of the judgment in the case of "Messrs Tanzeb Textile Industries, Faisalabad v. CIT Faisalabad Zone Faisalabad" (2003 PTD 1) to contend that where the nexus is broker the rules loose their validity, as is the case herein.
10. Mr. Akhtar Ali Advocate, representing the Steel Melters Association has submitted that the association is a registered body with Ministry of Commerce and has been brought to existence through a certificate of incorporation. It has no rival association and 145 melting and processing units are its' members. The association has played its role in rule making process to make the process easier, uniform and within the ambit of the understanding of men of common parlance. He has denied that the importers purchase raw material at zero rate, while the petitioners/manufacturers purchase scrape, whereupon sales tax is levied to the tune of 15% of the value. He has submitted that the sale tax is levied and recovered on end consumer and not on manufacturers, thus there is no extra burden on the steel melters. He has adopted arguments of learned counsel for the Revenue.
11. Sheikh Izhar ul Haq, Advocate, learned counsel for the respondent (Revenue) has gone through the past history of sales tax and its levy on melting and re-rolling sector and submitted that on the basis of agreed formula, the sales tax has been charged and collected on production capacity as against actual goods produced. The method was adopted to simplify and minimize documentation, to rule out the chance of evasion. He has submitted that special procedure was introduced (S.R.O. 484(I)/2004) in the budget 2004-2005, for the payment of sales tax on ingots/ballets and mild steel manufacturer. Minimum value addition for steel melters and re-rollers was fixed, by working out that 800 units of consumed electricity are required to melt and cost one. metric ton of steel. Learned counsel added that the tax was charged on production of steel ingots, on the basis of consumption of electricity, on the hypothesis that whatever is produced will be ultimately supplied and stock's variation is not to affect the tax liability. It was emphasized that the basis of determination was accepted by the petitioners herein as this system remained in vogue till June, 2007 and was never agitated. Charge of sales tax through self-declaration was introduced through S.R.O. 678(I)/2007, whereby Federal Government resorted to special procedure of determining production, on the basis of electricity consumed and in this way system of agreed value addition, was changed. Value of one metric ton of steel ingots was determined to be Rs.27,335 as per prevailing market price. The incidence of tax on this value comes to Rs.41,000. Ferro alloys worth Rs.2,000 are required to be used inone ton melted steel which at a rate of 15% of the said value has a tax incidence of Rs.300. After deducting the tax incidence, the net tax payable stands at Rs.3800 per metric ton. Dividing net amount on the electricity consumed for melting one ton of steel ingots, sales tax per unit of electricity, comes to be Rs.4.75 (Rs.3800-800 = 4.75). Learned counsel has submitted that sales tax on the basis of this formula was decided to be collected through electricity provides, through monthly electricity bills, to ensure the obligation of payment of tax, is discharged by everybody of this industry. He has controverted that scrap from the local market, by the steel melters and re-rollers, is not zero rated as alleged by the petitioners.
12. It was contended that subsection (1) of section 3 of the Act is not, the only charging section. Section 3 comprises of six (6) subsections and entire section is charging section. Learned counsel went on to argue that subsection (1) commences with the phrase "subject to the provisions of this Act." This commencing part of the subsection renders section 3(1) subservient and subordinate to other provisions/section of the Act. While placing reliance on the case of "Islamic Republic of Pakistan through Secretary Ministry of Interior and Kashmir Affairs, Islamabad v. Abdul Wall Khan, MNA, Former President of Defunct National Awami Party" (PLD 1976 SC 57), learned counsel contended that the expression "subject to" has been defined as "conditional upon" or "dependent upon" or exposed to some contingent action. Learned counsel then submitted that subsection (2) which starts with non obstante clause, excludes the operation of subsection (1). He has submitted that according to provisions of subsection (2), Federal Government is empowered to notify that tax shall be charged, collected and paid, in some other manner or at a higher or lower rate on the production of goods, quite distinct from supply. Learned counsel, while referring to the case of "Makhdoomzada Syed Hassan Mahmood v. City Co-operative Bank Ltd. Hyderabad and 2 others (PLD 1980 Kar. 37), he has submitted that non obstante clause renders other modes or provision without any effect. He has submitted that provisions of subsection (2), which commence with the phrase "Notwithstanding the provisions of subsection (1)', brings the provisions of subsection (1), subordinate to subsection 2. Learned counsel then, went through subsection (6) of section 3 and submitted that Federal Government is empowered to collect tax in any mode or manner and at any time, in lieu of tax. He added that Federal Government is vested with the power, within the contemplation of section 71 of the Act, to prescribe special procedure for scope and payment of tax. He went onto argue that according to subsection (46) of section 2 of Act, the authority vests with the respondent Board, to fix value of supply irrespective of its actual value. According to learned counsel this power is in addition to and independent of clause (g) of section 2(46). After referring to various provisions of the Sales Tax Act, 1990, learned counsel concluded that impugned S.R.O. is within 'the framework of law as it merely fixes an amount, in lieu of tax under section 3(1) and provides the manner of payment. Inverse method of calculation is adopted to make the recovery of sales tax easy and possible. Additionally, according to him mode and time of payment has been prescribed under the provisions of Act.
13. Learned counsel has contended that in view of expanding business, drastic changes and complex trade system, the broad principles and guidelines are provided in the statute. To meet the difficulties and requirement of changing circumstances, it is left open to the subordinate functionaries to settle ancillary maters of procedure according to need. Cases of "Gujrat Punjab Bus Limited v. Province of Punjab and others" (PLD 1957 Lahore 345) and. "Messrs Sheikh Abdur Rehim, Allah Ditta v. Federation of Pakistan and others" (PLD 1988 SC 670) were referred to contend that limitations, on delegation of legislative powers to the "Executive", are well-known. The policy and framework is provided in the Act by the Legislature, while details are to be filled in, by the executive under the Act. There is no defect in delegation of legislative powers to the executive. It was submitted that submission of `Returns' has not been done away and the same are required to be filed under para. 58(1) of the impugned S.R.O. He has submitted that it has been wrongly contended that no refund is permissible in the existing regime of levy of sales tax, on the basis of electricity consumption. He has added that exports are zero rated and the documents for refund, are liable to be filed under prevalent Refund Rules. Learned counsel has summed up his arguments with contention that provisions of impugned S.R.O. are not in conflict with Electricity Act. Further that the discontinuation is not straightway. The period between reading of meter, its issuance and for payments, consumes three months time.
14. Mr. Mumtaz Sheikh, Member (Legal) of Federal Board of Revenue has also addressed the Court and submitted that the 'tax being calculated and imposed under S.R.O. is the government money. It. is being collected on fixed basis through the impugned S.R.O. on the basis of electricity consumed, to rule out the chances of tax evasion. Steel melters having small furnaces or limited production, can evade tax by changing their units from one place to another, time and again. To bring such' manufacturers within the tax bracket, instant procedure has been adopted, with the help and consensus of the association of steel melters. He has also submitted that the raw material used in the taxable supply is zero rated. Only such raw material, which is either smuggled or non?-receipted, is not zero rated. He has referred to the case of "Elahi Cotton Mills Ltd." (Supra) to contend that now due to advance technology and development in various areas, such changes require the pragmatic manner of levy of tax, thus such manner is permissible. He has submitted that the Apex Court has already held that levy on the basis of settlement between the taxpayer and the Revenue has to be followed. He has repeated the arguments, which Mr. Azhar ul Haq Sheikh, Advocate had already addressed.
15. Mr. Ahmad Bilal Soofi, Advocate while discussing the scope of section 3 of the Act, went through section 3(1), and submitted that for a taxable activity, the taxable supply has to take place, through change of hands. He then referred to section 3(2)(b) and submitted that this is an independent provision, which commences with non ostante clause. Later provision overrides subsection (1). He has repeated the arguments of Mr. Izhar ul Haq Sheikh, Advocate with regard to scope of section 3(6) of the Act. He has submitted that section 71 pertains to the special procedure for scope and payment of tax. Word "scope" has been used in the identical manner as it appears in section 3 of the Act. The object of issuance of the impugned notification' was to reduce the difference between the taxpayer and the Collector. A transparent procedure has been provided under the Rules. He has submitted that the electricity bill even in the absence of impugned S.R.O. can be looked into for determining the value of the taxable supplies. By referring to the case of "Muhammad Mubeen us Islam v. Federation of Pakistan, through Ministry of Defence and others (PLD 2006 SC 602). Learned counsel has contended that discomfort or enhance liability, is no ground to strike down substantive legislation. He has submitted that the questions raised by the petitioners are question of fact and cannot be gone into, in the constitutional jurisdiction. He found support from the case of "Collector of Customs, Lahore v. Universal Gateway Trading Corporation and another" (2005 SCMR 37). He has submitted that working out 800 units for the consumption of one metric Ton of the ingot etc. is in line with dictum laid down by the Apex Court in the case "Lahore Improvement Trust, Lahore through its Chairman v. The Custodian Evacuee Property, West Pakistan, Lahore and 4 others" (PLD 1971 SC 811).
16. Mr. Shaihd Jameel Khan, Advocate adopted the arguments of Messrs Ahzhar ul Haq and Ahmar Bilal Soofi, Advocates. He, however, added that a similar methodology adopted for collection of central excise (Federal excise) on bank accounts, has been held valid by the august Supreme Court in the case of "Federation of Pakistan through Secretary, Ministry of Finance and others v. Haji Muhammad Sadiq and others" (2007 PTD 67).
17. Heard learned counsel for the parties and record perused.
18. Section 3 is the charging provision in the Sales Tax Act, 1990. The petitioners as well as the Revenue, have mainly based their arguments, on this section, its scope and extent, for the imposition of sales tax. To better appreciate the respective contentions of the parties, relevant provision is reproduced as under:--
"(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 (fifteen) per cent of the value of-
(a) taxable supplied made [* * *] by a registered person in the course or furtherance of any (taxable activity) carried on by him; and
(b) goods imported into Pakistan
[(IA) * * *]
(2) Notwithstanding the provisions of subsection (1), --
(a) taxable supplies specified in the Third Schedule shall be charged to tax at the rate of fifteen per cent of the retail price which along with the amount of sales tax shall be legibly, prominently and indelibly printed or embossed by the manufacturer on each article, packet, container, package, cover or label, as the case may be [: ]
[Provided that the Federal Government, may, by notification in the official Gazette, exclude any taxable supply from the said Schedule or include any taxable supply therein; and]
(b) the Federal Government may, subject to such conditions and restrictions as it may impose, by notification in the official Gazette, declare that in respect of any goods or class of goods imported into of produced [* * *] or any taxable supplies made by a registered person or a class of registered persons, the tax shall be charged, collected and paid in such manner and at such higher or lower rate or rates as may be specified in the said notification.]
(3) -----------?
???????????
(4) -----------?
(5) -----------?
[(6) The Federal Government or the (Board) may, in lieu of the tax under subsection (1), by notification in the official Gazette, levy and collect such amount of tax as it may deem fit on any supplies or class of supplies or on any goods or class of goods and may also specify the mode, manner or time of payment of such amount of tax.]
(7) -------------
19. A bare perusal of the first part of the above provision, confirms that charge, payment and levy of sales tax is contingent upon the taxable supplies made in furtherance of taxable activity. To create the charge of sales tax under the Act, it is mandatory that two conditions must be fulfilled, namely the transaction of sale must constitute taxable activity and this must be a taxable supply. Three (3) expressions used in subsection (1) are:--
(i) Taxable Supply.
(ii) Taxable Activity.
(iii) Value.????????
These expressions are defined in the Act, in subsections (35), (41) and (46) of section 2, which read as follows:---
"(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 [or rendering of services on which sales tax has been levied under the respective Ordinance and use of goods acquired for private purposes or for the manufacture of exempt goods without making supply] to any other person, whether far any consideration or otherwise, and includes any activity carried on in the form of a business, trade or manufacture;
"(41) "taxable supply" means a supply for taxable goods made [***][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;"
"(46) "value of supply" means,--
(a) 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 tax:
Provided that---
(i)in case the consideration for a supply is in kind or is partly in kind and partly in money, the value of the supply shall mean the open market price of the supply excluding the amount of tax; [***]
(ii)in case the supplier and recipient are associated persons and the supply is made for no consideration or for a consideration which is lower than the open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax; [and]
(iii) in case a taxable supply is made to a consumer from general public on instalment basis on a price inclusive of mark-up or surcharge rendering it higher than open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax.]
(b) in case of trade discounts, the discounted price excluding the amount of tax; provided that the tax invoice shows the discounted price and the related tax and the discount allowed is in conformity with the normal business practices;
(c) in case where for any special nature of a transaction it is difficult to ascertain the value of a supply, the open market price;
(d) in case of imported goods, the value determined under section 25 [***] of the Customs Act, including the amount of customs-duties and central excise duty levied thereon; [***]
(e) in case where there is sufficient reasons to believe that the value of a supply has not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representatives of trade and the Sales Tax Department constituted by the Collector [; and]
[(f) in case the goods other than taxable goods are supplied to a registered person for processing, the value of supply of such processed goods shall mean the price excluding the amount of sales tax which such goods will fetch on sale in the market; excluding the amount of sales tax which such goods will fetch on sale in the market.
[(g) in case of a taxable supply, with reference to retail tax, the price of taxable goods excluding the amount of retail tax, which a supplier will charge at the time of making taxable supply by him, or such other price as the Board may, by a notification in the Official Gazette, specify.]
[Provided that, where the Board deems it necessary it may, by notification in the official Gazette, fix the value of any imported goods or taxable supplies or class of supplies and for that purpose fix different value for different classes or description of same type of imported goods or supplies:
Provided further that where the value at which import or supply is made is higher than the value fixed by the Board, the value of goods shall, unless otherwise directed by the Board, be the value at which the import or supply is made;]"
20. The expression, "taxable activity" came up for consideration before Hon'ble Sindh High Court, in the cases of "Messrs Usmani Associates" (Supra) and "Novartis Pakistan Ltd." (supra) and their Lordship observed that "any activity carried on in the form of business, trade and manufacture" which is carried on by any person and involves in whole or in part, supply of goods to another person, whether or not for any pecuniary profit, or for any other consideration or otherwise. It was observed that taxable activity clearly envisages the supply of goods to any other person. To create the charge of sales tax both the factors i.e. transaction of sale must constitute a `taxable activity' and it should be `taxable supply', must co-exist independently. If one factor is missing, the tax cannot be levied. The learned Court, in the above referred cases found that the transaction must first qualify to be `supply' to constitute "taxable supply" and after going through subsection (33), it was held that to constitute `supply' the transaction must be `in furtherance of business' and the `business' is to be construed as the activity recurring for' profit motive and must be in the nature of trade, commerce or manufacture.
21. The above view is based on, where two learned Benches of the Hon'ble Court, which have in scholarly manner interpreted various terms of Sales Tax Act, 1990 and determined the necessary factors/conditions, to create the charge of sales tax. I, therefore, 'do not feel that there is further need to dwell upon these issues. Hence the principles laid down in these judgments are applied, to the case in hand. Accordingly it is clear from the above discussion and narration of provisions of the Act that liability to pay tax under section 3 (charging section) arises only when a taxable supply is made by a registered person in furtherance of taxable activity. The law requires that tax must be levied or charged in clear, unambiguous and specific terms. Tax cannot be levied on presumption or on importing something which the legislature has not provided therein. Thus to create incidence of tax, the Revenue is duty bound to establish that a transaction falls within the scope and ambit of `taxable supply' and a `taxable activity' is involved in it. Additionally the sales tax, under the Act, has to be charged on the value of the supply.
22. "Value of supply" as it is defined in subsection (46) of section 2, can be ascertained in seven (7) different modes namely: consideration of money inclusive of duties but excluding the amount of tax which the supplier receives from the recipient for the supply; the discounted price excluding the amount of tax in the case of trade discounts; the open market price in the cases where it is difficult to ascertain value of supply in view of special nature of transaction; value according to section 25 of the Customs Act, in the cases of imported goods inclusive of customs duties and Federal excise duty; the value determined by Valuation Committee (comprising of representatives of trade and sales tax department) where value has not been correctly declared in invoice; price of goods which goods fetch on sale in open market in cases of goods other than taxable goods which are supplied to registered person for processing and in case of a taxable supply, with reference to retail tax, the price of taxable goods excluding the amount of retail tax or such other price which the Board may, by Notification in the official Gazette specify.
23. Determination of the value on the basis of consumption of electricity does not find mention in above referred provision, i.e. section 2(46) of the Act. The respondent-Revenue, however, has based the impugned value of the supply, on proviso to clause (g), where the Board has been authorized to fix the value of any imported goods or taxable supply or classes of supplies, through a notification in the official Gazette. This proviso is not attracted to the case in hand. Firstly the scope of the proviso is restricted to the ambit of main section, which in the instant case, is clause (g) which deals with retail tax. The petitioners are not retailers and tax imposed on them is also not a retail tax. Secondly, the value according to this proviso can be fixed by the Board, while the impugned S.R.O. has been issued by the Federal Government and in this way the value, which is fixed by the Federal Government cannot be considered as the one under proviso to clause (g) of section 2(46) of the Act.
24. Adverting to impugned S.R.O. (S.R.O. 678(I)/2007 dated 6-7-2007) where a mechanism has been provided under Chapter XI for charge and collection of sales tax, at rate of Rs.4.75 per unit of electricity consumed in the Units. Rules 58H to 58M (ibid), prescribe mode and manner of issuance of sales tax invoices, submission of sales tax returns, maintenance of specified record and penal consequences of non-payment of tax. It is reflected from the perusal of S.R.O. that it has been issued by the Federal Government, in the exercise of its powers under section 71 of the Act, 1990, read with clauses (9) and (46) of section 2, sections 3 and 4, subsection (2) of section 6, section 7, section 7A, clause (b) of subsection (1) of section 8, clause (a) of subsection (2) of section 13, subsections (2A) and (3) of section 22, sections 23 and 60 thereof. It will be appropriate to have a cursory look at the statutory provisions referred in impugned S.R.O. Section 71 of the Act empowers Federal Government to issue a notification in the official Gazette and prescribe special procedure for scope and payment of tax, registration, bookkeeping, invoicing requirements and returns etc. with reference to such supplies as are given in the notification. Similarly section 2(9) and (46) laid down the respective due date for filing of return and to give the value of supply at which the tax is to be discharged. Section 3 and section 4 are provisions, which relate to the levy of sales tax respectively. Section 6 relates to time and manner of payment of tax while section 7 relates to the determination of tax liability. Section 7A relates to levy and collection of tax on specified goods on value addition. Section 8 relates to tax credit not allowed under the Act. Section 13 relates to exemption from tax whereas section 22 pertains to record. Section 23 relates to tax invoice and section 60 refers to powers to deliver certain goods without payment of tax.
25. It would be advantageous to reproduce hereunder the provision of section 71 of the Act:--
"71. Special????? Procedure.---[(1)] Notwithstanding anything contained in this Act, the Federal Government may, by notification in the official Gazette, prescribe special procedure for scope and payment of tax, registration, bookkeeping and invoicing requirements and returns, etc. in respect of such supplies as may be specified therein:]
[(2) XXXXXX]
[(3) Notwithstanding anything contained in this Act or any other law for the time being in force or any decision of. any Court the trade enrolment certificate schemes immediately in force before the commencement of the Finance Act, 1999, shall be deemed to the validly made under this Act.]
Section 71(1), empowers Federal Government to prescribe special procedure for scope and payment of tax, registration, bookkeeping etc. by notifying the same in official Gazette. This power is to the extent of prescribing procedure and such power is subordinate to charging section (section 3 of the Act). Rules made under section 71, cannot take place of charging section. Rule making power conferred by the statute, is subordinate to the substantial provision of law. Rules made under section 71, cannot enlarge the scope of statutory provision, while holding so, I am fortified by the dictum of the judgment of august Supreme Court in the case of "Khawaja Ahmad Hassan" (supra).
In fact Special procedure for Ginning Industry Rule 1996 were framed under section 71 of the Act. Rule 6(ibid) made the buyer of cotton seed and ginned cotton, liable for sales tax. This S.R.O. was challenged on the ground that rule was substantive and not procedural in nature and inconsistent with the substantive provisions contained in section 3(3) of the Act. The Apex Court in the case of "Collector of SC 600 Sales Tax v. Superior Textile Mills Ltd." 2001 PTD 1486 = PLD 2001 has enunciated that:---
"A plain reading of subsection (3) of section 3 of the Act and Rule 6 of the Rules makes it manifest that rule 6 is not only substantive in nature but is also violative of subsection (3) of section 3 of the Act as it has squarely shifted the liability to pay sales tax from the person making the supply i.e. the ginner to the person receiving the supply. The "non obstante" clause is. section 71(1) of the Act, alluded to in the contentions of Mr. Izharul Haq, cannot offset the conflicting effect of rule 6 and make it intra vires for the short reason that it relates to the procedural provisions with regard to payment of sales tax. Rule 6 cannot take the place of subsection (3) of section 3 of the Act inasmuch as no deviation can be made from the substantive provisions is exercise of powers conferred by section 71(1) of the Act. It is by now firmly settled that in the event of conflict between a rule and a substantive provision of the parent Act the former is void or inapplicable to the extent of in-consistency."
The Act provides the charge, levy and payment of sales tax @ 15 per cent of the value of taxable supplies. The taxable supply within the contemplation of subsection (35) of section 2 involves in whole or in part the supply of goods. To create the incidence of sales tax, taxable activity is condition precedent which envisages the supply of goods to another person. The collection of tax through adopting impugned procedure under S.R.O. 678(I)/2007, the element of charging tax on taxable supplies made in furtherance of taxable activity, has been done away with. Rules under section 71, can be made and framed incidental to the substantive provision of law and can be made to deal with the details, following the parent statute but the fundamental intent of the Act cannot be changed. The impugned rules are in direct conflict with the charging provision of the Act, therefore, these are illegal and void for such inconsistency.
26. The Revenue has also justified charging of tax through impugned rules by resorting to section 3(2)(b) of Sales Tax Act, 1990. Although subsection (2) begins with non obstante clause but clause (b) referred to, by the respondent is of no help to Revenue, as careful perusal of this subsection demonstrates that it empowers Federal Government to impose lower or higher rates or rates as may be specified in the notification in respect of supply stipulated in subsection (1) of section 3 of the Act, 1990. The provisions of subsection 2(b) of section 3, relate to imposition of higher or lower rate of tax. It governs "rate" and does not alter the chargeability of sales tax on the basis of taxable supply in furtherance of taxable activity.
The respondent/Revenue has thirdly tried to justify the legality of impugned rules, relying upon subsection (6) of section 3. Sub-section (6) again confirms to levy and collection of such amount of tax, in lieu of tax under section 3(1), and its payment in a mode, manner and time as Federal Government or the Federal Board of Revenue may deem fit. Here again it is the amount of tax and manner of its payment, which the Board or the Federal Government can notify but mode and manner of payment is one prescribed within the ambit of section 3(1). The yardstick to charge and levy sales tax is the sale constituting a taxable activity for a taxable supply. Any other mode or manner deviating from this yardstick, is not presently permissible under the Act. However, this is permitted under item 52 of the Fourth Schedule to the Constitution of Islamic Republic of Pakistan, 1973 and unless the act is amended, the same is not permitted herein.
27. The Revenue has worked out the electricity consumed on various products at a uniform formula i.e. 800 units for production of one metric ton of steel. The Revenue has ignored the material fact that a product of a lesser gauge consumes more electricity for its production as against the product of thick gauge. The impact of price variation and fluctuation of rates, has also been ignored.
28. Any payment of duty or tax cannot work as estoppel. It has been held in the case of "Pakistan Tobacco Company Ltd." (supra) that constitutional petition cannot be defeated on such plea as cause of action is recurring as each transaction gives fresh cause. Further the tax can be levied under the authority of law and mere convenience of tax collector in recovering tax liability, is no ground to deviate from substantive provision of law. The respondents instead of streamlining the system for recovery of the tax, have adopted indirect method for impugned levy, by changing the statutory yardstick. Such procedure is not constitutionally permissible. Respondents, however, can consider consumption of electricity in manufacture of steel products, to detect tax fraud but it cannot be used to create charge of tax liability.
29. For the foregoing reasons, these petitions are allowed, the impugned Rules contained in Chapter XI of the S.R.O. 687(I)/2007 dated 13-6-2007 issued by the Federal ,Government are declared ultra vires, issued without any lawful authority and with no legal effect. The petitioners are/shall be liable to pay the sales tax at the rate of 15% on the basis of taxable supply, made in the course or furtherance of any taxable activity carried out by them under section 3(1) of the Act, 1990. This judgment, however, shall not affect the tax already paid or recovered under the impugned Rules, being past and closed transaction.
M.B.A./S-192/L????????????????????????????????????????????????????????????????????????????????? Petition allowed.