GUJRANWALA STEEL FURNACE, SIALKOT through Authorized Representative VS CHAIRMAN, FEDERAL BOARD OF REVENUE, ISLAMABAD, 2009 PTD-LAHORE-HIGH-COURT-LAHORE 431 (2009)

(a) Interpretation of statutes---

----Fiscal statute---Charging provision of a fiscal statute must be strictly construed and applied.

(b) Taxation---

----No tax can be imposed, levied and recovered beyond the scope, ambit and the parameters of the charging provisions of a particular fiscal statute.

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

----Ss.3, 2(46) & 7---`Taxable supply', `taxable activity' and `value of the supply'---Provision of S.3, Sales Tax Act, 1990 enables the charge of sales tax on the "taxable supply" made by a registered person in the course of furtherance of any "taxable activity" carried on by him upon the "value of supply"---Melting and the conversion of the scrap into ingots/billet is a "taxable activity" on, part of the melters and when such product is supplied, it falls within the purview of `taxable supply' and there is no reason to give any other meaning to the `value of supply' as defined in S.2(46) of Sales Tax Act, 1990---Notwithstanding the sales, etc, of the scrap and that of manufactured item by the registered person as an independent taxable activity, one fails to comprehend the argument that on account of the, above, the tax should be charged from them only on the basis of value addition---No provision of the Sales Tax Act, 1990 exists on the basis of which it can be held that if the sales tax has been paid on the raw material of whatever nature it may be the sales tax on the final/finished product shall be minus the value of the material, meaning thereby that the tax shall be restricted to `value addition' only---Procedure for determining `tax liability' is provided by S.7 of the Act, which clearly specifies that a registered person shall be entitled to deduct input tax from output tax, that is due from him in respect of the tax period---Neither S.7, Sales Tax Act, 1990 nor any other provision of the Act allows that in case any taxable supply is charged at zero rate and is used as a raw material for another taxable supply, the value of the later supply shall be restricted to the value addition only--Zero rated tax cannot be equated to the actual payment of tax, but is notional in nature---Present case thus does not fall within the purview of S.7A of Sales Tax Act, 1990 which envisages the concept of `value addition'---Contention that since the scrap is generated out of a finished taxable supply, upon which the sales tax already stands paid, therefore, to impose tax on the product manufactured from it shall amount double taxation, does not fall within legal concept---Double taxation means, "if the tax has already been charged on a subject, it cannot be subjected to tax again"---Scrap itself being independent tax supply, irrespective as to how it generates, when no tax has been paid upon it, it cannot be considered to be a case of a double taxation.

(d) Sales Tax Special Producer Rules, 2007---

----R.58MA [as inserted by S.R.O. 862(I)/2008 dated 20-8-2008]---Option to pay sales tax on ad valorem basis---Impact of R.58MA, Sales Tax Special Procedure Rules, 2007 from the aspect of decision of Supreme Court in Civil Appeals Nos.120 to 257 and 289 of 2008 dated 27-5-2008 stated.

Kh. Saeed-uz-Zafar and Mian Mehmood Rasheed for Appellant.

Izhar ul Haq Sheikh, Ahmer Bilal Soofi and Ms. Kausar Parveen for Respondents.

Date of hearing: 14th January, 2009.

JUDGMENT

MIAN SAQIB NISAR, J.---The instant appeal i.e. I.C.A. No.489 of 2008 as also I.C.A. No. 437 of 2008, I.C.A. No.438 of 2008, I.C.A. No.440 of 2008, I.C.A. No.441 of 2008m I.C.A. No.442 of 2008, I.C.A. No.443 of 2008, I.C.A. No. 463 of 2008, I.C.A. No.464 of 2008, I.C.A. No.465 of 008, I.C.A. No.466 of 2008, I.C.A. No.474 of 2008, I.C.A. No.475 of 2008, I.C.A. No. 476 of 2008, I.C.A. No.477 of 2008 I.C.A. No.478 of 2008, I.C.A. No.479 of 2008, I.C.A. No.480 of 2008, I.C.A. No.481 of 2008, I.C.A. No.482 of 2008, I.C.A. No.483 of 2008, I.C.A. No.484 of 2008 and I.C.A. No.485 of 2008, are being disposed of together, as all involve common questions of law and facts.

2. This is a second round of litigation, which the appellants being aggrieved of the levy and charge of sales tax on the basis of special procedure has agitated the matter through invoking the constitutional jurisdiction of this Court. At this stage, it may be pertinent to mention that during the pendency of such writ petitions, another Notification No. S.R.O. 862(I)/2008 dated 20-8-2008 was issued, through which Sales Tax Special Procedure Rules 2007, were amended by inserting clause 58-MA, reading as below:--

"58MA. Option to pay sales lax on ad valorem basis:--

(1) The steel melters and re-rollers may opt to pay sales tax on ad valorem basis at the rate specified in subsection (1) of section 3 of the Act after deduction of input tax paid on their inputs subject to limits and conditions as specified under the Act or notifications issued thereunder. Such melters and re-rollers shall discharge their liability in the manner as indicates below, namely:--

(a) such registered persons opting to pay sales tax under this rule shall inform the Collector having jurisdiction and the option so exercised shall remain in force till the end of the financial year;

(b) the Collector shall coordinate with the electricity distribution companies to ensure that sales tax amount at the rate specified in sub-rule (1) of rule 58H is not included in the electricity bills of those registered persons who opt to pay sales tax under this rule;

(c) the production subject to sales tax liability shall be determined at one metric ton of billets or ingots per 800 KWH of electricity consumed for steel melters and at one metric ton of mild steel products per 130 KWH of electricity consumed for steel re-rollers;

(d) such registered persons shall pay sales tax on the production as determined as above at minimum value of forty-seven thousands rupees per metric ton of billets or ingots or at minimum value of fifty-four thousand rupees per metric ton of re-rolled mild steel products, as the case may be; and

(e) steel melters and re-rollers operating under this rule shall be entitled to input tax credit subject to limitation provided in sections 7, 8, 8B and 73 of the Act and other applicable provisions, provided and input goods are meant for taxable supplies."

Thus feeling further aggrieved of the above, the appellants after seeking permission of the Court, amended their petitions and challenged the notification as well, asserting that by virtue of the above, the relief granted to the appellants under the judgment of this Court dated 23-11-2007 passed in Writ Petition No.7781 of 2007 read with the judgment of the Honourable Supreme Court of Pakistan dated 27-5-2008 in C.As. No.120 to 257 and 289 of 2008 on account of which, where they were permitted to opt for the normal regime, has been frustrated; the special procedure, which has been declared ultra vires stands restored and the judgment of the Honourable Supreme Court violated. All these petitions have been dismissed by the learned Single Judge in Chamber vide a consolidated judgment dated 26-9-2008. Hence these appeals.

3. The broader facts of the cases which are relevant for the understanding of the propositions involved are:--

The appellants are the steel melters and manufactures of ingots/ billet. For the purpose of charging sales tax from them, special procedure was enforced since 2004 as per which, the sales tax was levied on the basis of the consumption of the electricity at a specified rate. This process continued till 2007, when S.R.O. 678(I)/2007 dated 6-7-2007 was issued, which introduced a special regime for the payments of sales tax on the basis of the consumption of the electricity @ 4.75 per unit consumed. This notification was challenged by the Steel Melters including all the appellants and in the Writ petition No.7781 of 2007, etc, the notification was declared by this Court to be ultra vires vide judgment dated 23-11-2007. Against the above, the matters were agitated by the Department before the Honourable Supreme Court of Pakistan through C.As. Nos.120 to 257 and 289 of 2008, in which the following order was passed on 27-5-2008:---

"FBR shall provide option to the clients of Mr. Ihsan ul Haq Ch., learned ASC in Civil Appeals Nos.129,136-38, 140, 148, 154, 158, 163, 187, 230, 232, 235, & 238 of 2008 to pay the sales tax under the normal tax regime @ 15% on the taxable supply as reduced by any sales tax paid as an input tax on raw material etc. Others are already paying tax under special procedure vide S.R.O. No.687/2007, shall continue to pay thereunder till any amendment in substantive law or rule is made. The option so exercised shall remain valid for at least one year. Any other tax payer may approach the FBR for exercising option for paying the sales tax @ 15%. Adjustment due under the law shall be with effect from 6th February 2008 on production and sales".

In view of above arrangement, all the captioned appeals and civil petition are disposed of accordingly."

Thereafter the Notification No.646 (1) 2007 dated 27-6-2007 was issued whereby remeltable scrap was directed to be charged at zero rate. Thus on the basis of the judgment of the Honourable Supreme Court of Pakistan dated 27-5-2008, claiming that they have opted for the normal regime, the appellants states to have filed their tax returns accordingly; those returns according to them, were not acceded to by the Department, constraining the appellants to file various writ petitions, which as mentioned above, were subsequently amended and were decided by the learned Single Judge in Chamber, through the impugned judgment dated 26-9-2008.

4. Learned counsel for the appellants contends that section 3 of the Sales Tax Act 1990 (the Act), is the charging provision and under the law it has to be strictly construed and applied. Reference in this behalf has been placed on the judgments reported as Collector, Customs, Central Excise & Sales Tax, Karachi, v. Novarits Pakistan Ltd. (2002 PTD 976) and Collector Sales Tax & Central Excise Rawalpindi v. Messrs Wah Nobel Chemical Ltd. Wah Cantt. (2008 PTD 1693). On account of the above, the sales tax can only be charged, if there is (i) tax-able activity; (ii) taxable supply on the basis (iii) value of supply. In the instant cases, sales/purchase/supply of the scrap, as the raw material, is an independent taxable activity, which has its own value, whereas after melting of the scrap and the manufacturing of ingots and billets, it attains the character of a distinct taxable supply, therefore, upon the activity of such manufacture, the levy of tax should be minus the value of the supply of the scrap. It is also submitted that as per the provisions of section 2 (48) and section 4 of the Act, the sales tax on the scrap is charged at zero rate, meaning thereby that the tax at the prescribed rate shall be deemed to have been paid on the value of its supply, therefore, the appellants shall only be legally required to pay the tax on the "value added" and not on the basis of the value of their manufactured product (taxable supply). It is further argued that the scrap is either locally generated or imported and in both the cases it generates as a waste of a used produced, upon which the tax already stands paid, therefore, a "taxably supply" on which tax has already been paid, cannot be subjected to the tax, as it shall amount to "double taxation" which is impermissible under the law; besides, it shall be the withdrawal of the benefits of "zero rate" given to the appellants for their raw material on the one hand but taken away on the other. It is finally argued that vide judgment dated 26-9-2008, this Court has already declared that the charging of sales tax on the basis of consumption of electricity is ultra vires and the judgment has not been set aside by the Honourable Supreme Court of Pakistan, rather the law declared, still holds the field but in the garb of the clause 58MA, which was subsequently inserted through the S.R.O. No.862 (I)/2008, same illegality has been repeated, which is liable to be struck off; moreover, the S.R.O. was issued on 20-8-2008, but has been applied retrospectively w.e.f. 1-7-2008, which is not permissible under the law.

5. Heard. There is no cavil with the proposition that the charging provision of a fiscal statute must be strictly construed and applied. It also is the settled law that no tax can be imposed, levied and recovered beyond the scope, ambit and the parameters of the charging provision of a particularly fiscal statute. In the present case, section 3 of the Act primarily is the relevant provision, which enables the charge of sales tax on the "taxably supply" made by a registered person in the course of furtherance of any "taxable activity" carried on by him upon the "value of the supply". It is not disputed that the melting and the conversion of the scrap into ingots/billet is a "taxable activity" on part of the melters and when such produced is supplied, it falls within the purview of "taxable supply". There also is no reason to give any other meaning to the value of the supply as defined in section 2 (46) of the Act, thus notwithstanding the sales, etc. of the scrap and that of the manufactured item by the appellant as an independent taxable activity, we fail to comprehend the argument of the learned counsel for the appellants that on account of the above, the tax should be charged from them only on the basis of the value addition; no provision of the act has been referred to us on the basis of which it can be held that if the sales tax has been paid on the raw material of whatever nature, it may be, the sale tax on the final/finished produced shall be minus the value of the material, meaning thereby that the tax shall be restricted to the value addition alone. Rather the procedure for determining "tax liability" is provided by section 7 of the Act, which clearly specify that a registered persons shall be entitled to deduct input tax from output tax, that is due from him in respect of the tax period. Section 7(2) particularly enunciates that "he shall not be entitled to deduct input tax from output tax unless (i) in case of a claim for input tax in respect of a taxable supply made, he holds a tax invoice in his name and bearing his registered number in respect of such supply for which a return is furnished-(ii) in case of goods imported into Pakistan, he holds bill of entry or goods declaration in his name and showing his sales tax registration number, duly cleared by the customs under section 79 or section 104 of the Customs Act, 1969. (iii) in case of goods purchased in auction, he holds a treasury challan in his name and bearing his registration number, showing payment of sales tax." Neither the above nor any other provision of the Act allow that in case any taxable supply is charged at zero rate and is used as a raw material for another taxable supply, the value of the later supply shall be restricted to the value addition only. Moreover, the zero rated tax cannot be equated to the actual payment of the tax, but is notional in nature.

6. The concept of the value addition in fact is envisaged by the provision of section 7-A of the Act, which provides that "Notwithstanding anything contained in this Act or the rules made thereunder, the Federal Government may specify by notification in the official Gazette, that sales tax chargeable on the supply of goods of such description or class shall, with such limitation or restrictions as may be prescribed, be levied and collected on the difference between the value of supply for which the goods are acquired and the value of supply for which the goods, either in the same state or on further manufacture, are supplied." It is an admitted position that the case of the appellants does not fall within the purview of section 7-A of the Act.

7. As regards the arguments that the scrap is generated out of a finished taxable supply, upon which the sales tax already stands paid, therefore, to impose tax on the product manufactured from it shall amount to double taxation does not fall within the legal concept. The double taxation means, if the tax has already been charged on a subject, it cannot be subjected to the tax again. As the scrap by itself according to the appellants' own case is independent taxable supply, thus irrespective as to how it generates, but when no tax has been paid upon it, it cannot be considered to be a case of a double taxation.

8. Now examining the case from the aspect of the decision of the Honourable Supreme Court, according to its paragraph reproduced above, the appellants had the option to pay the tax under the normal regime; their case that they have opted in this behalf, is not spelt out in all the cases except Allah Towakal I.C.A. No.438 of 2008, Shaheen Steels I.C.A. No.443 of 2008, Chaudhry Steels I.C.A. No.441 of 2008 and Ibrahim Steels I.C.A. No.442 of 2008, regarding which the application and other documents such as sales tax return, etc. have been filed, however, material regarding the other cases even though asked by this Court, has not been placed on record, therefore, as the judgment of the Honourable Supreme Court allowed them choice which even today has not been controverted by the department, resultantly to the extent of the four appellants, they shall be entitled to be charged sales tax on the basis of normal regime and therefore, sales tax imposed and charged from them by the department on the basis of the special procedure, obviously, is not in accordance with the judgment of the Honourable Supreme Court, rather is violative thereof. It is thus declared that the Department should charge from the appellants in I.C.As. Nos.441, 442, 443 and 438 of 2008, the sales tax w.e.f. the date when they opted for the normal regime. It has been pointed out by the learned counsel for the Department that they too have not filed the returns in accordance with law, however, we do not want to enter into this controversy and leave it to the department to proceed according to the law for the recovery of the amount of the sales tax from the said appellants from the date when they made the choice exactly and strictly on the basis of normal procedure.

9. As regards the other appellants, it may be reiterated that no document has been placed on the record, showing the exercise of choice by them, therefore, we direct that the choice of the appellants shall be taken w.e.f: 1st of January, 2009 and they should be taxed for the future under the normal regime. However, tax charged, levied, paid and recoverable from them prior to 1st of January 2009 under the special procedure, shall be hit by the rule of past and closed transaction; the above rule shall attract particularly, for the reason that the option has not been established on their part and no tax returns are placed on the record on their behalf, therefore in the absence of the above, it shall be impossible to recover any sales tax from them in the normal course prim to 1st January, 2009 and they cannot be allowed to go escort free.

In the light of above, these appeals are disposed of.

M.B.A./G-4/LOrder accordingly.