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Petitioner: DAWOOD HERCULES VS Respondent: COLLECTOR OF SALES TAX
Court Name: Lahore High Court Judge(s): Mian Allah Nawaz Title: DAWOOD HERCULES vs COLLECTOR OF SALES TAX Case No.: Writ Petition No,15851 of 1996 Date of Judgment:1997-09-16 Reported As: 2007 PTD 1161 Result: Petition dismissed
JUDGMENT
JUDGMENT MIAN ALLAH NAWAZ, J.---The sole point, falling for determination in this constitution petition, is whether polythene liners/ plastic bags, manufactured by the petitioner and used for packing and product/fertilizers produced by the petitioner, are immune from levy of Sale Tax under Notification No, S.R.O. 492(1)/93, dated 14-6-1993 now superseded by Notification No, S.R.O. 555(1)/94, dated 9- 6-1994. 2. The facts, briefly stated, giving rise to this petition may, at the outset, be described Messrs Dawood Hercules Chemicals Ltd./petitioner manufactures and produces fertilizers. This product was exempted from Sales Tax vide entry No,39 of Notification No, S.R.O. 492(1)93, dated 14-6-1993 which was superseded by yet another Notification No, S.R.O. 555(1)/94, dated 9-6-1994. There Notifications were issued under section 13(1) of the Sales Tax Act, 1990 and were designed to give a boost to agriculture sector. The fertilizer, so produced, was packed in poly theneliners/plastic bags which were put into cotton gunny-bags. The petitioner had been paying Sales Tax as well as Excise and Custom Duty on these bags. However, it was felt that these were exempt from incidents of Sales Tax and Excise duty. Petitioner so sent a memorandum to the Collector, Central Excise and Sales Tax, Custom House Lahore on 15-8-1996/stating therein that polythene bags/liners were manufactured by the petitioner and the fertilizer was packed therein; that the petitioner did not market this product, and that it was only produced for the purpose of packing fertilizer and so these were part and parcel of the fertilizer and were so exempt from Sales Tax and Custom duty under the above mentioned notification. This view was not accepted by the Collector, Sales Tax and it was held that the plastic bags/liners were separate and independent items and so they
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were not immune from chargeability of the Sales Tax as well as Customs Duty. This was embodied in following words:--- "The manufacture of plastic bags and use thereof in the manufacture of Fertilizer falls within the plastic bags is not exempt from the levy of Sales Tax. As per S.No,34 of sixth Schedule of Sales Tax Act, 1990, partly manufactured goods if used within the same factory to manufacture goods in respect of which Sales Tax is leviable on their supply are exempt from the levy of Sales Tax. It is, however, clarified that if in future any of the above clarification is found, in any case in conflict with the Sales Tax Act, 1990 then legal provisions of the said Act shall prevail." Feeling dissatisfied, the petitioner has invoked the constitutional jurisdiction of this Court on the following grounds:- Firstly: that the polythene liners/bags were/are manufactured for the purpose of using as liner packing material for fertilizer and so these bags are part and parcel of fertilizer and not liable to incident of Sales Tax and Excise duty. Reference was made to Champion Clocks Co. v. C.B.R. (1991 PTD 778 (Lahore), Commissioner Income Tax v. Messrs Shaiq Corporation Ltd. (PLD 1986 SC 731), Noorani Cotton Corporation v. Sales Tax Officer (PLD 1965 SC 161), Commissioner of Sales Tax v. Messrs Lah. Textile and Gen. Mills Ltd. (PLD 1992 SC 39) and Latif Bawany Jute Mills Ltd. v. S.T.O. (1971 PTD 26). Secondly: that the object of aforementioned Notification was/is to give a protection to fertilizer industry so as to make the fertilizer available to farmers at reasonable price. According to the learned counsel, levy of Sales Tax and Excise duty on these bags so would be irrational and a burden on farmers. 3. On the contrary, Mr. Izharul Haq Sheikh, learned standing counsel for the respondents contended that the polythene bags/liners were/are not fertilizers and are different entity from the end- product; that these bags were/are manufactured independently on different machinery by so many parties and so these cannot be treated as part and parcel of the end-product i,e, the fertilizer. It was further maintained that the assessment of Sale Tax on these bags was subject to incidents of appeal under section 12 of the Sales Tax Act, second appeal under section 46 and Reference to the High Court under section 47 of the Sales Tax Act, 1990. On the strength of above, it was maintained that the petitioner has come to this Court without exhausting the aforesaid statutory remedy and so the petition was not competent. 4. As regards the preliminary objection, it is to be noted that the same is grounded upon the principle of exhaustion/that no one is entitled to invoke the constitutional jurisdiction of this Court against any supposed/threatened injury/adverse order/proceedings adios until the said aggrieved party has availed of remedies available to him under the relevant statute. This rule, however, does not bar the jurisdiction but regulates its exercise. This rule was enunciated by a Division Bench of West Pakistan High Court in Shamas Din and Bros. v. Income Tax and Sales Tax Officer (PLD 1959 (W.P.) Lah.955). Speaking for the Bench his lordship Mr. Justice Shabir Ahmed (as he then was) said as under:-- "Before dealing with the petition on merits, It will dispose of the second of the above-mentioned contentions raised on behalf of the respondent. It is correct that ordinarily the discretionary power of this Court to issue a writ should not be exercised if the relief sought by the petition for issue of the writ can be obtained by resorting to other proceedings under the law, but this is not an inflexible rule. If in a certain case it appears to this Court that the issue of a writ would ensure to the benefit and the convenience of the parties, and will save time, this Court will not hesitate to issue a writ in spite of the fact that the person who prayed for the writ could obtain the relief he seeks by resorting to some other proceedings. Whether or not the Court will exercise writ jurisdiction where another remedy is open will depend on the facts and circumstances of each case and no hard and fast rule can be laid down. In the present cases, it appears to me that the mere fact that the relief
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sought by petitions can be obtained by the petitioners by resorting to appeals and references under the Sales Tax Act should not stand in the way of issuing writs if the petitioners can show that they should issue in their favour. My reason for this view is that if a decision is given by this Court, at this stage, it will shorten the proceedings which would have to be followed if resort is bad to the provisions contained in the Sales Tax Act. I would, therefore, proceed to consider whether or not the petitioners or any of them is entitled to the grant of the writ prayed for." The aforesaid view was enunciated by Supreme Court of Pakistan in the Murree Brewery Co. Ltd. v. Pakistan through the Secretary to Government of Pakistan, Works Division and 2 others (PLD 1972 Supreme Court 279). It was held therein:-- "It is thus evident that the appellant challenged the very jurisdiction of the Capital Development Authority (hereinafter referred to as the C.D.A.) to make the impugned acquisition under the Ordinance. If it had succeeded in establishing that the impugned acquisition was ultra vires the Ordinance, its appeal under section 36 would have been an exercise in futility. It was held by the Supreme Court in Lt. Col. Nawabzada Muhammad Amir Khan v. Controller of Estate Duty and others PLD 1961 SC 119 that the rule that the High Court will not entertain a writ petition when other appropriate remedy is yet available is not a rule of law barring jurisdiction but a rule by which the Court regulates its jurisdiction. It was further observed that one of the well-recognized exceptions to the general rule is a case where another is attacked on the ground that it was wholly without authority." The above rule was reiterated in Syed Ali Abbas and others v. Vishan Singh and others (PLD 1967 SC 294), Ali Muhammad v. Hussain Bakhsh and others (PLD 1976 SC 37) and Mst. Hussain Bibi v. Haji Muhammad Din and 3 others (1976 SCM R 395). The same point was examined by the Division Bench of Karachi High Court in Hydri Ship-Breaking Industries Ltd. v. Sindh Government and others (2007 M LD 770). I am tempted to quote Paras Nos.8, 9 and 10 of this judgment. After masterly analysis of relevant law/precedents His Lordship Mr. Justice Nasir Aslam Zahid (as he then was) said:-- "(8) A review of the case-law-referred to hereinabove shows that in certain cases the superior Courts of our country did not allow the petitioners to invoke the writ jurisdiction on the ground of availability of an alternative remedy by way of appeal or otherwise, but on the other hand, in other cases, notwithstanding the pendency of an appeal or availability of an alternate remedy, the Courts did not hesitate to exercise such writ jurisdiction and in fact granted relief to the petitioners. It may be expressed as a generally accepted principle, however, that just because an alternate remedy by way of appeal or otherwise is available to a petitioner the High Courts will not invariably decline to exercise their extraordinary constitutional jurisdiction. The mere availability of an alternate remedy does not debar the High Courts from exercising such jurisdiction. But as observed by Dorab Patel, J. In 1930 CLC 412 (Hassan Ali v. Muhammad Ahsan Baloch) the question whether a writ should be entertained when an alternate remedy is always one within the discretion of the Court. In cases of total lack or absence of jurisdiction of authority, or apparent excess of jurisdiction, the Courts in general would not hesitate much in entertaining a constitutional petition although an alternate remedy may well be available. In other cases, the Courts would generally direct the party to avail and exhaust the alternate remedies available first before entertaining the writ, if in the opinion of the Courts the alternate remedy is an adequate remedy. (9) Whether the alternate remedy available to the applicant, who is seeking the constitutional remedy, is adequate or not depends on the special or particular circumstances of the individual case, and it is precisely for this reason that in one case the High Court may not entertain the petition under its constitutional jurisdiction and in another case the same may be entertained. In taking a decision whether the alternate remedy in a given case is adequate or not to enable the High Court to take the further decision relating to entertaining the constitutional petition, the Court,
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in the background of the particular facts of the case before it, considers several factors. The question of speed and expense of the alternate remedy may be considered. Whether the alternate remedy is an effective or efficacious as the constitutional remedy is also a relevant factor. Whether, in the circumstances of the case, the alternate remedy or the writ would the appropriate remedy can also be a pertinent consideration. (10) In the instant cases an alternate remedy by way of appeal under Rules 48 and 216 of the 1964 Octroi Rule is available to the petitioners. In some cases, the petitioners have in fact, filed appeals which are pending before the concerned officer of K.M.C. In other cases appeals have not been filed and the. Petitioners have straightaway approached this Court. Nevertheless we have decided to entertain these constitutional petitions and the following reasons have prompted us to take this decision:-- (a) The vires of the relevant Octroi Rules have been challenged in these petitions and it 'could not be reasonably expected that an officer of KMC, the designated appellate authority, would decide that the Rules were ultra vires. (b) On merits the point involved in those petitions is the interpretation of the words" consumption, use or sale within the octroi limits" used in the 1964 Octroi Rules. (c) Nearly two years have passed and not a single decision by the appellate authority has apparently been given. Huge amounts are involved and practically the entire ship breaking industry is affected. A speedy decision on the question involved was not only necessary but desirable to clarify the legal position. (d) If the petitioners are now directed to go back and file appeal or pursue them, as the case may be, the final decision would be further delayed by some years. If KMC were very serious about their objections in this regard, the point about the maintainability should have been taken immediately the first petition was filed and the Court asked to decide the question. (e) The point involved for decision in these petitions is a matter of general importance and is going to affect a very large number of citizens. (f) The question being decided does not involve an inquiry into any disputed facts. In fact the decision being given is- based on admitted facts only. In the circumstances of the present cases and for the reasons recorded above, we are of the view that constitutional petition was the appropriate remedy in these cases and the appeal under Rules 48 and 216 of the 1964 Octroi Rules is not an adequate and efficacious remedy." Reference also be made to Messrs Julian Hoshang Dinshaw Trust and others v. Income Tax Officer, Circle XVIII South Zone, Karachi and others (1992 SCM R 250). 5. The ratio, deduced from the aforesaid discussion, is that doctrine of exhaustion embodied in Article 199 of the Constitution (1973) is not absolute bar to exercise of jurisdiction under Article 199 of Constitution. This rule is regulatory in nature and ordinarily this Court insists that aggrieved person must, in the first instance, avail of the statutory remedies available to him and invoke the constitutional jurisdiction of this Court after undertaking that exercise. However, this rule is not absolute and if this Court comes to conclusion that assailed order/action/proceedings is/are wholly without jurisdiction or in excess of jurisdiction or is/are manifestly unjust and oppressive, then this. Court has power to come to rescue of aggrieved party and keep functionaries of the State within defined sphere of their powers. 6. Applying the aforesaid principles to the facts and circumstances of the case, it is quite clear that petitioner had been paying the sales tax on plastic bags/liners till 15-8-1996; that on this date, the petitioner sent a memorandum to Collector Central Excise and Customs and Sales Tax, Lahore/complaining therein that the polythene bags/liners were exempt from payment of sales tax; that this view was not accepted by the learned Collector; and found that plastic bags were not subject to incident of sale tax; that the interpretation of 'law is within exclusive domain of this Court.
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On this view, this Court is entitled to examine the sole question. Seen from every angle, I do not find any merit in this contention and so, preliminary objection, raised by the learned counsel for the respondent, is repelled. 7. Having disposed of the challenge to maintainability of petition, now I turn to the sole point. Answer to the above point hinges upon section 3 of the Sales Tax Act, 1990 which was made effective from 1st July, 1990. This substituted Sales Tax Act (Act III of 1951). Conceptually, the Sales Tax is a levy on sales of goods and services. However, this theoretical premises has not been strictly adhered to in the above Statutes. Chronologically, Pakistan Sales Tax Act, 1948 was the first Statute which provided for levy of general tax on the sales of goods in the Provinces of Pakistan. This was repealed by Act III of 1951. This Statute was also substituted by Sales Tax Act, 1990. Incidentally, the charging sections in both Statutes bear the same number i,e, section 3. It will be highly advantageous to refer to these sections:-- Section 3 of the Act 1951. Section 3 of the Act, 1990. 3. (1) There shall be levied and collected a tax on the value of---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 twelve and half per cent of--- (a) all goods produced or manufactured in the Provinces of Pakistan or the Capital of the Federation payable by the manufacturer or producer:--(a) taxable supplies made in Pakistan by a registered person in the course of furtherance of any business carried on by him; and Federation, payable by the importer:- (b) all goods imported into the Provinces or the Capital of the goods imported into Pakistan.(2) Notwithstanding the provisions of subsection (1) the Federal. Government may, by notification in the official Gazette, declare that- (c) all goods sold by a licensed wholesaler, payable by the licensed wholesaler.(a) in respect of any goods or class of goods imported into or produced in Pakistan or any taxable supplies made by registered persons the tax shall be charged at such rate or rate as may be specified in the notification; (d) such goods or classes of goods as the Central Government may, by notification in the official(b) in respect of any goods or class of goods the tax shall be charged
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Gazette, specify in this behalf which are exported from the Provinces or the Capital of the Federation payable by the exporter.on the whole sale or retail price as may be specified.
(2)************** (3)************** (4) The tax in respect of the goods mentioned in clauses (a) and (c) of subsection (1) shall be payable on the occurrence of the first of the following events:--(3) The liability to pay the tax shall be,-- (i) when the goods are delivered to the purchaser or(a) in the case of supply of goods in Pakistan, of the persons making the supply, and (ii) when the property in the goods passes to the purchaser, or(b) in the case of goods imported into Pakistan, of value; the person importing the goods. (iii) when the goods are sent, consigned or exported to any place outside the Provinces and the Capital of the Federation, and for the purposes of this clause the goods shall be deemed to have been sold when they are sent, consigned or exported to any such place as aforesaid. (5) The tax in respect of the goods mentioned in clauses (b) and (d) or subsection (1) shall be paid on importation or exportation, as the case may be, as provided hereunder--- (i) where the goods on importation are directly cleared for home consumption before the order
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for such clearance is made by Customs Officer; (ii) Where the goods on importation are taken out of bond for home consumption before the goods are removed from the warehouse; (iii) where the goods are exported by sea-before the shipping bill is passed by the Customs Collector; (iv) where the goods are imported or exported by land before the permit for the passage of the goods out of or into foreign territory is issued, and the provisions of the Sea Customs Act, 1878, and of the Land Customs Act, 1924, relating respectively to the clearance, shipping and removal of goods and the passage of goods out of or into foreign territory shall, so far as may be, apply to the payment of the tax under this Act as they apply for the purposes of those Acts. (6) Where goods are produced or manufactured in the Provinces or the Capital of the Federation under such circumstances or conditions as render it difficult to determine the value thereof for the tax because- (a) a lease of such goods or the right of using the same but the right of property therein is sold or given; or (b) such goods having royalty imposed thereon the royalty is uncertain or is not from other causes a reliable means of estimating the value of the goods; or
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(c) such goods are manufactured by contract for labour only and not including the value of the goods that enter into the same or under any other unusual or peculiar manner or conditions; or (d) such goods are for use by the manufacturer or producer and not for sale the Sale Tax Officer may determine the value for the tax under this Act and all such transactions shall, for the purposes of this Act, be regarded as sales. (7) If any person other than the manufacturer, producer or importer or licensed wholesaler or exporter herein before mentioned acquires from or against anyone of these persons the right to sell any goods, whether as a result of the operation of law or of any transaction not taxable under the next succeeding section, the sale of such goods by him shall be taxable as if made by the manufacturer or producer or importer or licensed wholesaler or exporter as the case may be, and the person so selling shall be liable to pay the tax."
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The bare reading of section 3 of Act of 1951 postulates (i) that it was a charge on the value of the goods (ii) that those goods were subject to tax which were either manufactured, imported, exported or disposed of in wholesale and (iii) that it was payable in the immediately preceding case by manufacturer, importer, exporter and wholesalers respectively. Section 7 of this Act empowered Government to grant exemption of goods from levy of tax. At this stage, I deem it necessary to refer five precedents cited by learned counsel for petitioner. The first case is Noorani Cotton Corporation v. Sales Tax Officer (PLD 1965 SC 161). In this case the question arose before Supreme Court as to whether partly manufactured imported goods/raw material used in final product/fan was exempt from leviability of tax. Section 3 of the Act was considered by Supreme Court along with exemption clause and it was held:-- "Now what is the device adopted for ensuring that sales tax is paid only one stage in spite of what is contained in the charging section making all manufactured goods when they go to the purchaser to the payment of tax? The device adopted, as will appear from section 4 is, that the sale of 'property manufactured goods to a manufacturer is not liable to the charge of tax. It may be clarified here that the Sales Tax Act does not recognize a manufacturer who has not obtained a licence under it for manufacture. The provision in section 4 is that the sale by a licensed manufacturer to another licensed manufacturer of partly manufactured goods is not liable to the incidence of tax. The definition of 'partly manufactured goods is that they are goods which are to be incorporated into another articles. So, these provisions are sufficient guarantee that the tax will be paid only with respect to the last state of manufacturer of goods. However, there is one difficulty which had to be removed. Suppose the manufactured article into which partly manufactured goods are to be incorporated is for some reason not liable to the payment of sales tax? In that
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case if no tax is paid on partly manufactured goods no tax will be paid at all. Therefore, in the definition of 'property manufactured goods a limitation has been introduced that the article into which the goods are to be incorporated should be one which is liable to the payment of sales tax. It is not liable to payment of tax then the goods which are incorporated into it are also manufactured goods on which sales tax has to be paid." The learned Judge went on to say:-- "But suppose that the last article is not liable to the payment of sales tax. Unless a special provision was made that person would not be paying any tax on the production of the first article too. This situation is met by the general provision in the last part of section 3(6) that the keeping of goods by the manufacturer for his own use would be regarded as a sale." And that:-- "In fact learned counsel for the appellants began his argument by saying that cottonseed oil was admittedly exempt and his contention was that as cottonseed oil was exempt any article which is incorporated into it should also be exempt, a contention which is clearly not sustainable in view of what is contained in the Sales Tax Act. If the cottonseed oil was not exempt from the payment of sales tax, then admittedly the 'manufacturer or production of cotton seed itself which is being used for the making of cottonseed oil would not be liable to payment of sales tax for though the keeping of cottonseed by the manufacturer for extracting cotonseed oil was a sale, it was a sale of partly manufactured goods and, therefore, not subject to the payment of tax." This point was examined by Dacca High Court in Latif Bawany Jute Mills Ltd. v. Sales Tax Officer (1971 PTD 26) and it was found that partly manufactured material used in the end-product was exempt from the incident of Sales Tax as the end product was not subject to that levy. Again this point cropped up before Supreme Court in Commissioner of Sales Tax v. Shaiq Corporation Ltd. (PLD 1986…
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