COMMISSIONER INLAND REVENUE, ZONE-I, LARGE TAXPAYER UNIT-II, KARACHI VS ORI TECH OIL (PVT.) LTD.
2019 P T D 1342
[Supreme Court of Pakistan]
Present: Maqbool Baqar and Sajjad Ali Shah, JJ
COMMISSIONER INLAND REVENUE, ZONE-I, LARGE TAXPAYER UNIT-II, KARACHI
Versus
Messrs ORI TECH OIL (PVT.) LTD.
Civil Petition No. 407-K of 2017, decided on 05/04/2019.
(On appeal against the judgment dated 05.7.2017 of the High Court of Sindh, Karachi passed in C.P. No. D-2358 of 2015)
Sales Tax Special Procedures Rules, 2007---
----R. 58B, proviso (i)---Sales Tax Act (VII of 1990), S. 2(17)---Value Addition Tax (VAT), levy of---'Manufacturer', definition of---Scope---Rawmaterialimported by a "manufacturer" for his own consumption---Respondent-company, imported certain base oil and additives for use as raw material, which raw material they got blended into lubricants under their brand name by a vendor under a Toll Blending Agreement---Respondent (importer) supplied the imported raw material along with their packaging material to the vendor and received back the raw material in the form of lubricants, duly packed in their packaging, for them to sale the same in the market---Processing/blending by the vendor was done under the Toll Blending Agreement with the formulation/specification of the respondent, and was paid by the respondent, the blending/conversion charges @ Rs.7 per litre---Contention of the tax department was that since the respondent (importer) neither had any manufacturing facility, nor had they undertaken any manufacturing themselves, and were also not registered as a 'manufacturer' with the sales tax authority, thus, they could not claim themselves to be a 'manufacturer', to enable them to avail the exemption extended through proviso (I) to R. 58B of the Sales Tax Special Procedures Rules, 2007 '(the Rules of 2007')---Held, that reading of proviso (I) to R. 58B of the Rules of 2007 showed that the VAT levied through said rule, was not chargeable in respect of the goods imported by a "manufacturer" for his own consumption---For availing the said exemption, the importer had to show that in the first place, he was a "manufacturer" and, secondly, that the said goods had been so imported by him for his own consumption i.e. for manufacturing/producing of his own product---Although the respondent did not have any manufacturing facility, however, the same did not denude it of the status of a "manufacturer" in the context of theSales Tax Act, 1990 ('the Act') , and as defined by S. 2(17) thereof---Section 2(17) of the Act gave much broader meaning to the word "manufacturer" by including those who owned, held, claimed, or used any patent, proprietary or other rights to the goods being manufactured whether in their name or on their behalf---Admittedly imported raw material was delivered to the vendor in his capacity as a bailee only, for it to blend it for the respondent, whereafter it returned the same to the respondent blended into lubricants at a cost paid by the respondent---Such process of delivery of the subject goods to the vendor could not by any stretch of imagination be termed as a taxable supply---At no point in time, during the entire process any dispossession of the imported goods was affected from the respondent to, or in favour of the vendor and at no time during the course of such transaction the respondent lost ownership of the imported goods, or the product made thereof, nor did the vendor acquire any proprietary rights therein as such---Manufacturing/blending, of the subject imported material into lubricants was carried out under the orders of, for and on behalf of the respondent, and in their name---Brand name appended to the packaging and attributed to the lubricants under which name the lubricants were sold, and marketed, was registered in the name of, and was owned by the respondent---Respondent thus possessed all the attributes of a 'manufacturer' as prescribed through sub-clause (c) of clause 17 of S. 2 of the Act, and, therefore, was fully entitled to the exemption from payment of VAT provided for under R. 58B of the Rules of 2007---Petition for leave to appeal was dismissed in circumstances.
Syed Mohsin Imam, Advocate Supreme Court and Mazhar Ali B. Chohan, Advocate-on-Record for Petitioner.
Syed Naveed Amjad Andrabi, Advocate Supreme Court and K.A. Wahab, Advocate-on-Record for Respondent.
Date of hearing: 5th April, 2019.
ORDER
MAQBOOL BAQAR, J.---Through the instant petition, the petitioner, Commissioner, Inland Revenue, Zone-I, Larger Taxpayer Unit-II, Karachi, has sought to challenge the judgment dated 05.7.2017 rendered by a learned Division Bench of the High Court of Sindh in C.P. No.D-2385 of 2015.
2.Through his petition, the present respondent, Messrs ORI Tech Oil (Pvt.) Ltd., had challenged the demand of Value Addition Tax (VAT), purportedly levied under Rule 58B of the Sales Tax Special Procedure Rules, 2007 ('the Rules'), on the ground that being a "manufacturer", in terms of clause (17) of the section 2 of the Sales Tax Act, 1990 ('the Act'), and the subject material having been imported by them for "in house consumption", are, in terms of proviso (I) of the very same rule, exempted from such VAT. The learned Division Bench after hearing the parties allowed the respondent's petition through the impugned judgment.
3.We have heard learned the counsel for the parties, and have perused the relevant record.
4.The respondent before us, a private limited company, imports certain base oil and additives for use as raw material, which raw material they get blended into lubricants under their brand name, 'ORI Tech', by Messrs Orient Oils (Pvt.) Ltd., (the vendor) under a Toll Blending Agreement. They supply the above raw material along with their packaging material to the vendor and receive back the above raw material in the form of lubricants, duly packed in their packaging, for them to sale the same in the market. The processing/blending by the vendor is done under the above agreement with the formulation/ specification of the respondent company, and are paid by the respondent company, the blending/conversion charges @ Rs.7 per litre. However, the contention of the petitioner is that since the respondent-company neither have any manufacturing facility, nor have they undertaken any manufacturing themselves, which certainly they cannot, because of lack of any such facility with them, and are thus also not registered as a 'manufacturer' with the sales tax authority, they cannot claim themselves to be a 'manufacturer', to enable them to avail the exemption extended through proviso (I) to Rule 58B of the Rules.
5.In order to resolve the controversy, it would be appropriate to peruse the provisions of the above rule which reads as under:-
"58B. Payment of sales tax on account of minimum value addition.---(1) The sales tax on account of minimum value addition (hereinafter referred to as value addition tax in this Chapter), shall be levied and collected at import stage on goods as specified aforesaid at the rate of three per cent of the value of goods in addition to the tax chargeable under section 3 of the Act or a notification issued thereunder:
Provided that the value addition tax shall not be charged on,--
(i)the goods as are imported by a manufacturer for in-house consumption;
(ii)...................;
[(iii) ...................;
(iv)...................;
(v)...................;
(2)..................."
6.What emerges from the reading of the above rule, particularly, proviso (i) thereof, is that the VAT levied through said rule, is, in terms of the said proviso, not chargeable in respect of the goods imported by a "manufacturer" for his own consumption. Now for availing the above exemption, the importer has to show that in the first place, he is a "manufacturer" and, secondly, that the said goods have been so imported by him for his own consumption i.e. for manufacturing/producing of his own product.
7.Indeed it is true that the respondent company does not have any manufacturing facility, however, the same does not denude them of the status of a "manufacturer" in the context of the Act, and as defined by section 2(17) thereof, which reads as under:-
"2. Definitions.-
(17) "manufacturer" or "producer" means a person who engages, whether exclusively or not, in the production or manufacture of goods whether or not the raw material of which the goods are produced or manufactured are owned by him; and shall include -
(a) a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages, repackages or prepares goods by any other manner;
(b) ...................; and
(c) any person, firm or company which owns, holds, claims or uses any patent, proprietary, or other right to goods being manufactured, whether in his or its name, or on his or its behalf, as the case may be, whether or not such person, firm or company sells, distributes, consigns or otherwise disposes of the goods
Provided ..................."
8.A plain reading of the above definition clearly reveals that the Act give much broader meaning to the word "manufacturer" by including those who owns, holds, claims, or uses any patent, proprietary or other rights to the goods being manufactured whether in their name or on their behalf and thus broadens the canvass to portray the above category of persons/entities within the meaning of the word "manufacturer".
9.Admittedly the raw material used for preparing lubricants including the base oil and additives, are imported and owned by the respondent company, the blending thereof into lubricants is done by the vendor as per the specification of the respondent company, for which blending the respondent company pays to the vendor an agreed amount of Rs.7 per litre. The material having been blended into lubricant is packed by the vendor in the packaging provided by the respondent company, and the product so packed is delivered to the respondent company, for them to market it as their product and under their brand name. The imported raw material as is evident from the foregoing is delivered to the vendor in his capacity as a bailee only, for them to blend it for the respondent company, whereafter he returns the same to the respondent company blended into lubricants at a cost paid by the respondent company. The delivery of the subject goods to the vendor as above, cannot by any stretch of imagination be termed as a taxable supply. At no point in time, during the entire process any dispossession of the imported goods is affected from the respondent company to, or in favour of the vendor and at no time during the course of such transaction the respondent-company looses ownership of the imported goods, or the product made thereof, nor does the vendor acquire any proprietary rights therein as such.
10.It is also obvious that the manufacturing/blending of the subject imported material into lubricants is carried out under the orders of, for and on behalf of the respondent company, and in their name. It is also not disputed that the brand name, 'ORIO Tech', appended to the packaging and attributed to the lubricants under which name the lubricants are sold, and marketed, is registered in the name of, and is owned by the respondent company. It hardly needs to be reiterated that throughout the process the respondent company, holds and possesses the proprietary right to the subject imported goods, and the product made thereof, and thus there remains absolutely no ambiguity that the respondent company possess all the attributes of a 'manufacturer' as prescribed through sub-clause (c) of clause 17 of section 2 of the Act, and thus clearly falls within the definition of the word "manufacturer" as defined thereby. Furthermore the imported goods as noted hereinabove are used by the respondent company for their 'in house consumption', inasmuch as same are blended into lubricants for sale/marketing by the respondent company under their brand name and as their product. The respondent company is therefore undoubtedly and fully entitled to the exemption from payment of VAT provided for under rule 58B of the Rules, as rightly held by the learned Division Bench of the High Court through the impugned judgment, which judgment is upheld. Leave to appeal is therefore refused. The petition stands dismissed.
MWA/C-7/SCPetition dismissed.