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Petitioner: Haji SULTAN AHMED VS Respondent: CHAIRMAN, CENTRAL BOARD OF REVENUE, ISLAMABAD JUDGMENT
Court Name: Lahore High Court Judge(s): Syed Hamid Ali Shah Title:Haji SULTAN AHMED vs CHAIRMAN, CENTRAL BOARD OF REVENUE, ISLAMABAD
JUDGMENT
Reported As: 2008 PTD 103 Result: Petition allowed Judgment 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(1)/2004, dated 12-4-2004, S.R.O. 522(1)/2005, dated 6-6-2005 and S.R.O. 5600(1)/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(1)/2007, dated 6-7-2007 of the Federal Government,
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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 Hach 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 Cai. 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).
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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 others 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
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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 c 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 subsections (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 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
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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 lacs. 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
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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 unrepresented 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 All 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
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documentation, to rule out the chance of evasion'. He has submitted that special procedure was introduced (S.R.O. 484(1)/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…
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