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Petitioner: A & B FOOD INDUSTRIES LIMITED VS Respondent: COMMISSIONER OF INCOME TAX/SALES
Court Name: Supreme Court of Pakistan Judge(s): Saleem Akhter, Ajmal Mian, Zaffar Hussain Mirza Title:A & B FOOD INDUSTRIES LIMITED vs COMMISSIONER OF INCOME TAX/SALES,
JUDGMENT
Reported As: K.L.R. 1992 Tax & Custom Cases 42 Result: N/A Judgment JUDGMENT AJMAL MIAN, J.--The above three appeals are with the leave of this Court and by this common judgment, we intend to dispose of the same, which are directed against the judgment dated 26-4- 1984 passed by a Division Bench of the High Court of Sindh in S.T.R.No.105 of 1973 (which was followed in S.T.R.Nos.106 and 108 of 1973 and which were disposed of by short separate judgments) upon the respondent's applications made under section 17(1) of the Sales Tax Act, 1951, hereinafter referred to as the Act, whereby the opinion of the High Court was sought on the following question:- "Whether on the facts and in the circumstances, the Tribunal was justified in directing the sales tax officer to allow refund of sales tax on the amount of vegetable ghee consumed when vegetable ghee had suffered no sales tax at all? By the above judgments, the High Court recorded its answer to the above question in the negative. Leave to appeal was granted to consider the question, whether the appellants were entitled to the refund of the sales tax on the consumption of vegetable ghee in the manufacture of biscuits after the sales tax payable on vegetable ghee was merged with excise duty and the sales tax was exempted through a notification. 2. The facts to be noted are that the appellants are the manufacturers of biscuits which are subject to levy of sales tax. One of the ingredients for manufacturing of biscuits used is vegetable ghee. It
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seems that prior to the Finance Act; 1967, the vegetable ghee was subject to the levy of excise duty, sales - tax, defence surcharge and rehabilitation tax etc. Instead of levying the above taxes, the excise duty at an enhanced rate of Rs.45 per hundred weight on vegetable ghee on the basis of the assessed annual production capacity of the factories manufacturing the same was levied under the Finance Act, 1967, with effect from 11-6-1967 (It may be observed that originally excise duty at Rs.45 per hundred weight was imposed but subsequently its rate was reduced to Rs.40 per hundred weight. It further seems that the Central Board of Revenue, hereinafter referred to as the C.B.R., through a notification dated 16-6-1967 under section 7 of the Act exempted the vegetable ghee from the payment of sales tax with effect from 11-6-1967 (I).e. From the date on which the Finance ACC, 1967, was enforced). The appellants made claim for the refund of sales tax on the quantity of vegetable ghee consumed by them in the manufacture of the biscuits for the financial years 1968-69, 1969-70 and 1970-71 on the ground that the vegetable ghee purchased by them was subject to the payment of excise duty at the rate of Rs.40 per hundred weight, which included 12 sales tax on the value of the goods, and qs the C.B.R, exempted vegetable ghee from the payment of sales tax and as the same is partly manufactured goods for the purpose of manufacturing of biscuits, they were entitled to the refund of the sales tax at the rate of 12-1/2% on the value of the vegetable ghee out of the excise duty recovered from the manufacturers of vegetable ghee on the basis of their annual production capacity. The sales tax officer rejected the appellant's claim by his order dated 17-6-1972. However, upon three appeals filed by the appellants, the Income-tax Appellant Tribunal, hereinafter referred to as the Tribunal, by a common order dated 27-2- 1973 upheld the claim of the appellants, inter alia, for the following reasons:- "The apparent state of affairs in this case was not reflecting the true state of affairs and even in the so emergent capacity excise duty, the share of the Provincial Government to the extent of the allocable sales tax etc. Was in fact admittedly retained. If sales tax was totally abolished on vegetable products. And only Excise duty was to be levied, the Provinces were to lose their right to it automatically and were no) entitled to any by way of compensation. The real desire was to maintain intact the entire super scheme including the incidence of the Sales Tax and allied levies but as this levy was to be under the veil of Excise Capacity duty for the sake of administrative convenience, therefore, the Provinces could not be deprived of their share in these duties. If this cloak or veil of "Capacity Duty" is, therefore to be torn as under the stark reality of the correct composition of these various levies would stare naked, glaring at us and sales tax levy would be one of its identifiable elements though interwoven inextricably alongwith other duties into one consolidated "Capacity Duty". The issue of the Notification under section 7 exempting the vegetable ghee from the second levy in these circumstances had become all the' more imperative as, but for this exemption, the Sales Tax Officer was obliged under section 3 of the Sales Tax Act to charge the sales tax once again. Thus the Notification itself exempting the vegetable ghee from the levy of sales tax under the Sales Tax Act, 1951, clearly envisages the existence or the reality of a double levy once through the medium of excise duty and a second time through the medium of the Sales Tax Act. If, therefore, we have to follow the sequence of our findings above logically, the non-exclusion of the value of the vegetable ghee consumed in the manufacture of biscuits, would again result in a second levy of the sales tax on the vegetable ghee once on its subjection through the consolidated duty under the Central Excise Acts and a second time under the Sales Tax Act, 1951.In our view, therefore, while levying the sales tax on the biscuits the Sales Tax Officer was under an obligation to exclude the value of the vegetable ghee included therein, as otherwise the very exemption granted to it under section 7 would be rendered nugatory since, as we have explained above, this exemption was granted only to save a double taxation. The interpretation would also fit
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in the scheme of the Sales Tax Act as so heavily pronounced by their Lordship of the Supreme Court in the famous case of Noorani Cotton Corporation (reported as 1965-11 Tax 184) by observing that the various provisions of the Act show that intention was to levy only one tax on manufactured or produced goods which are offered for sale to the consumer (page 19)" 3. For arriving at the above conclusion, the Tribunal referred to and relied upon the speech of the Finance Minister made by him at the time of presentation of the Finance Bill for the year in question. Thereupon, the respondent filed the aforesaid Sales Tax References for soliciting the opinion of the High Court on the above question, which were disposed of in the above terms. Against the above' judgments of the High Court, the appellants filed three petitions for leave to appeal which were granted to consider the above question. 4. In support of the above appeals, Mr. Iqbal Naim Pasha, learned A.S.C, appearing for the appellants, has vehemently urged that the High Court was not justified in recording its opinion on the above as by merger of inter alia sales tax into the excise duty, the identity of the sales tax was not lost and the Court was entitled to lift the veil of excise capacity duty recovered on the vegetable ghee by referring to the speech of the Finance Minister and . Taking into consideration the conditions obtaining at the time of passing or Finance Act, 1967. On the other hand, Mr. Shaikh Haider, learned A.S.C, appearing for the respondent, has contended that the appellant's claim for refund of the sales tax on the quantity of vegetable ghee consumed in the manufacture of biscuits was misconceived as admittedly no sales tax was payable on the vegetable ghee during the financial years in question and admittedly the appellants had not paid any amount as the sales tax while purchasing vegetable ghee. His further submission was that the effect of the merger of the excise duty, sales tax, defence surcharge and rehabilitation tax etc. And the levy of the excise duty alone on the basis of the annual capacity was that inter alia sales tax had lost its identity. 5. Before dilating upon the other submissions, it may be pertinent to deal with the question, that, how far a speech made in a Parliament while piloting the relevant bill for the relevant Act, can be pressed into service or used for interpreting a provision, of the statute. The Tribunal has relied upon the following observations made by this Court in the case of Government of West Pakistan v. Wali Muhammad Habib (PLD 1961 SC 215) quoted by this Court in a subsequent decision, namely, in the case of Commissioner of Income-tax Karachi v. Khatija Begum, Partner, Shakil Impex, Karachi reported in 1965 PTD 540:- "The main purpose of interpretation is to ascertain the mind of the Legislature from the words used by it, and in doing so it is a well accepted rule that we must read the words in the context in which they are used for, the meaning of a word read out of its context may well be totally different and in different context or in different association of words may equally well have a sense which has the effect of limiting or restricting its ordinary or popular sense. The rule of noscitur a sociis is too well established to be doubted now. Construction of words with reference to the company in which they are found, is not a method unknown to law. Thus words, which precede or succeed the word to be interpreted, may legitimately be looked at to ascertain its true meaning, for, we are likely to know it better from the associate terms in the company of which the word has been used." 6. Whereas, the High Court has relied upon the judgment of this Court in the case of Messrs Abbasi Textile Mills Ltd. v. The Federation of Pakistan and others (PLD 1958 SC (Pak) 187), wherein this Court
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made the following observations:- "Mr. Chundrigar in this respect drew our attention to some of the speeches in the British House of Commons when the Bill which became the Constitution Act was being debated, and his contention was that those speeches indicated that there was anxiety on the part of the British Government to avoid a multiplicity of Constitutions within the Federation. He, therefore, argued that it could never have been the intention to enable the Princes to deviate from the pattern of Government in British India. But speeches delivered in those debates are hardly relevant when the language of the enactment is clear and there is no ambiguity." 7. Mr. Shaikh Haider, learned counsel for the respondent, in addition to the above decision of this Court in the case of Messers Abbasi Textile Mills Ltd. (Supra), has relied upon the case of S. Muhammad Din & Sons Ltd., Lahore v. Sales Tax Officer, Special Circle 1, Lahore etc. PLD 1977 Lah. 1225, wherein K.MA Samdani, J.(as he then was), while repelling the contention, somewhat, similar to what has been urged before us by Mr. Iqbal Naim Pasha, has observed as follows:- "The second contention of the learned counsel for the petitioner is that although the electric fans were exempted from sales tax by the Notification dated 14th of June 1965, the sales tax continues nevertheless to be levied in the garb of the excise duty. According to him the Finance Minister while piloting the relevant finance bill, made it clear in his speech that the intention was in fact to merge the sales tax and the rehabilitation tax with the excise duty. In the light of this speech, he contends that the sales tax has not been abolished but it is still being recovered in the form of excise duty. In my opinion, however, such speeches are meant for the consumption of the lay public but cannot have any effect on the legal consequences of the relevant enactments, the rules made thereunder or the notifications issued in pursuance thereof. Excise duty is levied under a different Act altogether. The Sales Tax is independent of it. If sales tax is abolished under the Sales Tax Act, then it will react on all the relevant provisions of that Act even though the excise duty may have been enhanced under relevant Act, by exactly the same amount as the tax previously recoverable under the Sales Tax Act. So, in the present case due effect will have to be given to the fact that electric fans have been exempted from the sales tax under Sales Tax Act, therefore, under the provisions of that Act, the petitioner is not entitled to a licence under section 8 thereof and as such to the exemption from payment of tax on the raw material or the partly manufactured goods." 8. Reference may also be made to a recent decision of this Court in the 'case of Miss Benazir Bhutto v. Federation of Pakistan and another (PLD 1988 SC 416), wherein Nasim Hasan Shah, J. In his opinion with reference to the interpretation of the provisions of Article 270-A of the Constitution while examining the vires of certain provisions of Political Parties Act, 1962, has made following observations on the question, whether the proceedings of the Parliament can be referred to while interpreting a provision of a statute:- "In the United Kingdom, reference to the proceedings of the Parliament for interpreting the provision of an Act passed by it is not favoured, though examples exist of resort to the proceedings as an aid to the construction while examining the "surrounding circumstances" in which the legislation came to be passed; see Macmillan v. Dent (1907) Ch.107 at p.120; and River Wear Commissioner v. Adamson (1877) 2 A C 743 wherein at p.763 the following observations by Lord Blackburn are instructive:-
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"But from the imperfection of language it is impossible to know what that intention is without inquiring further and seeing what the circumstances were with reference to which the words were used and what was the object appearing from those circumstances which the person using them had in view. For the meaning of words varies according to the circumstances with respect to which they are used." However, Courts in Pakistan, India and the United States have taken a broader view and have often referred to the proceedings of the legislature when the words of the statute were ambiguous as an aid to construction of a statute for discovering the real intention of the law makers. The Federal Court of Pakistan in Federation of Pakistan v. Moulvi Tamizuddin Khan (PLD 1954 FC 240) referred to the replies given by the Attorney General to the queries raised by Members of the Parliament, for explaining the purport of the provisions of sections 6 and 8 of the Indian Independence Act, 1947 (see pages 287 and 288 of the Report wherein the replies given by the Attorney General occurring at p.440 H.C.Deb, 5th series 1946-47, Column 122 and Column 118, are reproduced). Similarly, the learned Judges of the Dacca High Court in A. KM. Fazlul Quader Chowdhury v. Government of Pakistan and another (PLD 1957 Dacca 342) while examining and construing Article 145 of the 1956-Constitution observed, at p.361 of the Report:- In some instances the Courts have referred to debates of the members of Legislatures particularly where such debates are available when the law is being construed. Reference may be made to Tamizuddin Khan's case (PLD 1955 FC 240). In that case, the Hon'ble the Chief Justice of Pakistan referred to the debates in the House of Commons, on the Indian Independence Act. Thus, in the interpretation of Article 145, it is permissible to refer to the opinions and motives of the legislators before the Electorate Bill was passed by the Legislature." 9. Nasim Hasan Shah, J. In his above opinion also pointed out that the view of the Indian Courts is more or less in line with the view obtaining in Pakistan. Reference was made to Bindra's "Interpretation of Statutes"(8th Edition) at page 381, wherein the author has commented upon the above subject as follows:- "Whether or not it is permissible to have recourse to the debates in the Legislature for the purpose of understanding a statute, it is certainly permissible to look into the legislative history of the enactment. Matthew, J. Observed in Kesvanada Bharati v. State of ' Kerala (AIR 1973 SC 1461): "If the purpose of construction is the ascertainment of meaning, nothing that is logically relevant should, as a matter of theory, be excluded. The rigidity of English Courts in interpreting language merely by reading it, disregards the fact that enactments are, as it were, organisms which exist in their environment. It is, of course, difficult to say that Judges who profess to exclude from their consideration all extrinsic sources are confined psychologically as they purport to legally. A Judge who deems himself limited to reading the provisions of the Constitution without the awareness of the history of their adoption in it would be taking a mechanical view of the task of construction." It was further pointed out by Nasim Hasan Shah, J. In his aforesaid opinion that the view of the Courts in United States is also not as strict as obtains in the United Kingdom. Reliance was placed on the decision of the Supreme Court of United States in the case of United States of America v. America Trucking Associations (1940) 310 US 534), wherein the following observations were made;- "Legislative debates have been frequently asserted to be of little worth in the interpretative process.
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This conclusion finds some support in the reasoning that the view expressed by a few members of the Legislature may or may not have been entertained by others who gave no expression. It would appear that the force of this conclusion is lessened and the value of such an aid increased in instances where statements in debates are made by chairman of standing committees by which the Bill in question had been considered, or by the floor leaders of either House in Matters of party legislation. To one who understands the legislative process, the statement in debate of the Chairman of the Committee that had charge of the Bill may be highly significant in understanding the law enacted. Legislative bodies place great reliance upon the work and judgment of their committee; a very high percentage of all Bills enacted into law are passed in the identical form in which they are reported out of Committee. The Courts have excepted from the operation of the general rule with respect of statements of the members of the Committee that had charge of the Bill" 10. We are inclined to hold that reference to the proceedings of the Legislature can be resorted to when the words of a provision of a statute are ambiguous with the object to discover the real intention of the law makers but when there is no ambiguity in the language employed in the relevant provisions of the statute, recourse to the proceedings of the Legislature cannot be made in order to construe the same in violation of the language employed therein. It may be observed that by the Finance Act, 1967, the Item No.11 of the First Schedule to the Central Excises and Salt Act, 1944, was amended as follows: - In item No.11 in column (3) for the word "seven" the word "forty five" shall be substituted." The above item No.11 of the above First Schedule after the amendment read as under:- Item No. Description of goods Rate of duty (1) (2) (3) 11- VEGETABLE PRODUCT Forty-five per cwt Vegetable product" means Forty- five per cent, any vegetable oil or fat which, whether by itself or in admixture with any other substance, has by hydrogenation or by any other process been hardened for human consumption." {{TABLE MISARRANGED}} 11. The above-quoted Item No.11 of the First Schedule to the Central Excises and Salt Act is not ambiguous as to warrant the recourse to the speech of the Finance Minister which he made while piloting the Bill of Finance Act, 1967. If we were to accept the contention of Mr .Iqbal Naim Pasha, we would have to construe the above unambiguous provision of item No.11 of the First Schedule to the Central Excises and Salt Act, 1944, in violation of the, language used in it by holding that though Rs.45 per hundred weight excise duty on the vegetable products has been imposed by it but at it should be read as to include 12-1/2% of the sales tax on the value of the goods, which is not permissible under the well settled principles of interpretation of statutes. In this behalf, reference may be made to the case of the Commissioner of Agricultural Income Tax, East Bengal v. B.W.M. Abdur Rahman, Manager, Toki Bara Taraf Wards Estate (1973 SCMR 445), wherein Cornolius, J.(as his Lordship then was) made the following observations:-
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"But indeed, in determining whether or not a particular matter comes within a taxing statute, it is only the letter of the law which must be looked to. There is ample authority for the proposition that in a fiscal case, form is of primary importance, the principle being that if the person sought to be taxed comes within the letter of law, he must be taxed, however great a hardship may thereby be involved but on the other hand if the Crown cannot bring the subject within the letter of the law he is free, however a apparent it may be that his case is within what might be called the spirit of the law. As was said by Rowlatt, J., in Cap Brandy Syndicate v. Inland Revenue Commissioner (1921) 1 K.B.64): "In a Taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about tax. There is so presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can only look fairly at the language used." "In Tenant v. Smith (1892 A.C. 150) Lord Halsbury said: In a Taxing Act it is impossible, I believe to assume any intention, any governing purpose in the Act, to do more than take such tax as the statute imposes cases, therefore, under the Taxing Acts always resolve themselves into the question whether or not the words of the Act have reached the alleged subject of Taxation." In the light of these pronouncements with which I hereby express my spectful agreement, it is clear that it is not possible to look either to the amending statute of 1951 or to the alleged collection allowance said to be included in the scheme of the case, in order to determine whether the words in clause(7) of section 6 provide for an allowance to be made in respect of the amount of cess received by the assessee. That question must be decided solely on a consideration of the very words of the clause, although in interpreting those words it is permissible to look generally at the rest of the statute, and in particular to consider whether the words in question have been used elsewhere and if so in what sense. Before proceeding to consider the wording of clause (7) in this manner, however, it will be convenient to deal briefly with the Patna authority mentioned above." 12. Having held that in the present case resort cannot be made to the speech of the Finance Minister which he made while piloting the Finance Bill, we may now revert to the first submission of Mr. Iqbal Naim Pasha, namely, that merger of the sales tax into the excise duty does not amount to extinction of the former, but in fact it amounts to combining of the two taxes and it would not result into a death of the sales tax but would rather result into a marriage. Reliana; has been placed by him on the definitions of the words "merge" and "merger" given in Corpus Juris Secundum, Vol.57, pages 1067 and 1068, which read as follows:- "Merge" The verb "to merge" has been defined as meaning to sink or disappear in something else; to be lost to view or absorbed into something else; to become absorbed or extinguished; to be combined or be swa llowed up; to lose identity or individuality: It has also been defined as meaning to sink the identity or individuality of; to cause to disappear; to make to disappear in something else; to cause to be absorbed or engrossed; to swallow up. It is frequently used with the word "in or "into" Nowhere in the various definitions of the word is an extinction suggested but, rather a joining together, an addition, a combining of the qualities of one with another; not a death but rather a marriage.
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"Merge" has been held to be synonymous with, or belonging to the same class as, "combine" see 15 C.I.S. p.241 Note 64, and "incorporate" see 42 C.(I).S. p.543 Note 51.2." "Merger" is defined generally as the absorption of a thing of lesser importance by a greater, whereby the lesser ceases to exist, but the greater is not increased; an absorption or swallowing up so as to involve a loss of identity an individuality. In law it is the absorption or extinguishment of one estate or contract in another. It is said that merger is an operation of Jaw not…
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