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Petitioner: Messrs MASTER FOAM (PVT.) LTD. and 7 others VS Respondent: GOVERNMENT OF PAKISTAN JUDGMENT
Court Name: Supreme Court of Pakistan Judge(s): Nazim Hussain Siddiqui, Abdul Hameed Dogar, Shakirullah Jan Title:Messrs MASTER FOAM (PVT.) LTD. and 7 others vs GOVERNMENT OF PAKISTAN
JUDGMENT
Reported As: 2005 PTD 1537 Result: Appeals dismissed Judgment JUDGMENT NAZIM HUSSAIN SIDDIQUE, C J.---The present appeals involve interpretation of a purely legal question, hence detailed narration of facts in each case is not called for. Suffice it to state that the appellants, viz. M/s. Master Foam (Pvt.) Ltd. (C.A. No.435 of 1999), M/s. Diamond Polymers (Pvt.) Ltd. (C.A. No. 499 of 2000), PAV Industrial Co (C.A.No.819 of 2000) M/s English Copper (Pvt.) Ltd. (C.A.No.1344 of 2000),. M/s Shadabia Industries (Pvt.) Ltd (C.As. Nos.1345, 1346 and 1348 of 2000), M/s. Sunny Industries (C.As. Nos.63, 64 and 65 of 2001), M/s. Martial Enterprises (C.A.No.1852/2002) and M/s. Metro Flex Industries (Pvt.) Ltd. (C.A. No.1674 of 2003) all are industrial concerns incorporated as such under the Companies Ordinance, 1984. They have their industrial units set up in the Azad Jammu and Kashmir territory. They import raw materials from abroad for manufacturing their respective products. 2. The appellants, aggrieved of the levy of duties/taxes by the Collector of Customs/Collector of Sales Tax, Karachi on the goods imported by them, filed writ petitions at different points of time before the Lahore High Court, some at its Principal Seat at Lahore while others at its Rawalpindi Bench. All the writ petitions were dismissed on different dates through the judgments impugned herein. 3. In C.A. No.435 of 1999, leave to appeal was granted by this Court through order dated 4-5-1999 to consider the following contentions:- (i) Whether section 3(b) of the Sales Tax Act, 1990 is repugnant to Item No.49 of the Federal Legislative List?
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(ii) Whether the Customs Act, 1969 and the Sales Tax Act, 1990 are not applicable to the territories of Azad Jammu and Kashmir and the goods in transit are not subject to payment of taxes? The above leave granting order formed the basis for granting leave in the rest of the appeals. 4. S.M. Zafar, learned Senior Advocate Supreme Court, appearing on behalf of appellant in C.A.No.499 of 2000 contends that the State of Azad Jammu and Kashmir (AJK) is not part of Pakistan, that the exemption granted to the appellant by the AJK Government would stand nullified if the Government of Pakistan imposes sales tax and customs duty on the goods in transit and actually consumed in Mirpur, AJK, that the goods imported and transported to Mirpur, AJK were in fact consumed for production of foam and foam products in AJK, that under the laws of AJK, appellant is liable for tax subject to exemption in terms of Notification No.FD/Tax 1145-1245/95 dated 8-2-1995 of the Azad Government of the State of Jammu & Kashmir, which reads as follows:- - "Muzaffarabad. Dated:8-2-1995 NOTIFICATION No.FD/Tax 1145-1245/95. In exercise of the powers conferred by subsection (10 of section 13 of the Sales Tax Act, 1990 as in force in Azad Jammu and Kashmir) the Azad Government of the State of Jammu & Kashmir is pleased to direct that all goods produced or manufactured by such industries except these indicated below at serial number 1 to 5 which are set up on or after the 1st day of July, 1994 in Azad Jammu and Kashmir shall be exempted from the tax payable under the said Act for a period of 5 years from the date the unit starts commercial production:--- 1. Cigarettes manufacturing 2. Steel re-rolling & electric furnaces 3. Flour Mills & rice husking units 4. Stone crushers 5. Oil blending units Explanation: For the purposes of this notification the expression, `the date of commercial production' shall mean the date intimated in writing by an intending manufacturer to the Assistant Collector of Sales Tax having jurisdiction irr the area at least 15 days before commencing such production. (Sd.) (Abdul Rashid Baig) Additional Secretary Finance Explaining his contention, S.M. Zafar referred to Article 1 of the Constitution of 1973, which states that the territories of Pakistan shall comprise the four Provinces of Baluchistan, North-West Frontier Province, Punjab and Sindh, Islamabad Capital Territory (Federal Capital), Federally Administered Tribal Areas and such States and territories as are or may be included in Pakistan, whether by accession or otherwise. He submitted that although the status of AJK has not been finally determined as is enunciated in the Constitution, yet the AJK has its on President, Legislature, Judiciary, which is different/independent from the President, Legislature and Judiciary of Pakistan, that both the Supreme Courts of Pakistan and AJK have already determined that the AJK is not part of Pakistan. For this purpose, reliance is placed on the case reported as Noor Hussain v. State (PLD 1966 SC 88). Suffice it to say that neither learned Attorney General for Pakistan nor learned counsel appearing for the respondents disputed above assertion of learned counsel for the appellant. As such, it cannot be said that territory of AJK is a part of Pakistan. ' 5. Learned counsel for the appellant strenuously argued that the Sales Tax Act, 1990 (hereinafter called "the Act of 1990") is not applicable to the goods in question as the same were neither sold nor consumed in Pakistan and that the goods were meant for being used in territory now under the control of Government of AJK, as such not liable to sales tax in Pakistan. Learned counsel contends
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that the goods shall, for all practical purposes, be treated as the "goods in transit" till they reach Mirpur, AJK. Further, he submitted that the Act of 1990 does not confer any jurisdiction on any authority in Pakistan to impose sales tax on goods, which are not consumed, sold or used in Pakistan. In support of above plea, he referred to Articles 141 and 142 of the Constitution, according to which the Parliament of Pakistan can make laws with respect to any matter included either in the Federal Legislative List or the Concurrent Legislative List. He specifically referred to Item 49 of said list, which is as follows:-- "49. Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed." It is significant to mention here that originally said item read as follows:-- "Taxes on sales and purchases" Learned counsel maintained that the Act of 1990 has to be read in conjunction with the powers of Parliament given as per Item 49. Section 3(1)(b) of the Act of 1990 levies sales tax. The relevant portion is as under:-- "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 fifteen per cent of the value of ---- (b) goods imported into Pakistan." It is urged that when there is potential conflict between an identifiable Constitutional standard on the one hand and a statute on the other, the only way a statute can escape invalidation is by including in it the required substantive content, i.e. Adding the condition of natural justice as a part of the statute on the principle that natural justice is to be read in a law affecting a vested interest. He referred to section 3 of the Imports and Exports (Control) Act, 1950 (hereinafter called "the Act of 1950"), which defines the word 'import' as 'bringing into Pakistan'. . 6. Learned counsel emphasized that mere 'bringing into' is not a taxable event; sale and purchase of such goods is an essential ingredient conferring jurisdiction on the Parliament of Pakistan to impose tax. For this proposition, reliance is placed on the case reported as Pakistan v. Public at large (PLD 1987 SC 304). Giving further argument in support of his contention, he heavily relied upon a case from Indian jurisdiction reported as the Central India Spinning and Weaving and Manufacturing Co. v. The Municipal Committee, Wardha (AIR 1958 SC 341) in which reliance was placed on the case reported as Brown v. State of Maryland (6 L Ed 678). In the latter case, Justice Marshal dealing with the word, `importation', held that 'import' is not merely the 'bringing into', but comprises something more, i.e. Incorporating or mixing of goods with the mass of the property in the local area, quoted in para. 23 of the judgment at page 346 of the report. Learned counsel also placed reliance on the case reported as Timber Traders Association v. District Board (AIR 1965 Punjab 97) in which the above view was followed. Learned counsel further referred to the case reported as *M/s Najib Zarab v. Government of Pakistan (PLD 1993 Kar. 93) wherein it was held that the term, 'import' is derived from Latin word Importare', which lexicologically does not have reference to the goods in transit. It generally contemplates 'pause and repose' of goods. Learned counsel also contended that the two Acts; i.e. Act of 1950 and the Act of 1990 are not pari material, inasmuch as the former deals with prohibitions on export and import of goods whereas the latter deals with imposition of sales tax on imported goods. In other words, the Act of 1950 prohibits or restricts import and export of goods whereas section 3 of the Act of 1990 deals with charging a tax known as sales tax. He states that the objects and subject-matters of the two Acts are entirely different, therefore, the definition of the word, 'import' given in the Act of 1950 cannot be relied upon for defining the word 'import' used in the Act of 1990. 7. Mr. Abid S. Zuberi, Advocate Supreme Court, appearing in C.A. No.435 of 1999 adopted the arguments of S.M. Zafar with regard to goods brought into Pakistan for the purpose of their eventual transportation to AJK. Further, submits that there is no other available method for onward
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transport of goods to Mirpur AJK as the latter is landlocked and 'the imported goods have no other access to reach the manufacturers of AJK. He placed reliance on the notification dated 8-2-1995 quoted above to contend that the appellants are entitled to benefit of exemption from sales tax. Like S.M. Zafar, he also referred to section 3 of the Act 1990 and Item 49 quoted above. He vehemently contended that the goods can only be termed as 'import' when said goods are brought into Pakistan for the purpose of home consumption within the territory of this country and that the goods in question do not fall within the ambit of 'import'. He also submitted that Sales Tax authorities at. Karachi charged the appellant advance sales tax for the goods, which would be manufactured at AJK, which was illegal. According to him, it amounted to double taxation. He repeated the assertion of S.M. Zafar that the Acts of 1950 and 1990 are not pari materia. 8. M/s. Najamul Hassan Kazmi and Jawahar A. Naqvee, Advocates Supreme Court, appearing for the appellants in C.A. No.819 of 2000 and C.As. Nos. 63 to 65 of 2001 respectively adopted the arguments advanced by S.M.Zafar, Senior Advocate Supreme Court and Mr. Abdi S. Zuberi, Advocate Supreme Court. 9. Mr. Fakhruddin G. Ebrahim, Senior Advocate Supreme Court, appearing for the respondents (Collectors of Customs & Sales Tax, Karachi) submitted thai this Court has already considered the competency of the Legislature to enact laws for the purposes of levying sales tax in - view of Item 49 referred to above in the case reported as Commissioner of Sales Tax v. Hunza Central Asian Textile & Woolen Mills Ltd. (1999 SCMR 526). Relevant paragraph of it reads as under:-- "25. The deeming provision created a legal fiction that in the aforesaid restricted parameters, the use or consumption of independently identifiable goods would be considered to be sale so as to bring such goods within the tax net. For the reasons mentioned above, we are of the view that, in the aforesaid restricted sense, the use and consumption of intermediary goods could be treated as sale by legal fiction so as to bring such goods under the levy of sales tax where the final product was not subject to sales tax when sold and that the use or consumption of intermediary goods in such circumstances have a rational nexus with sale. Federal Legislature was, therefore, competent to enact the deeming provisions under entries of 'sales of goods' in the Constitutional documents." Learned counsel argued that the sales tax is leviable not only on profit and loss oriented transactions, but it can be charged on all taxable supplies in respect of taxable goods manufactured or consumed during a taxable activity, notwithstanding the fact of pecuniary profit as per definition of the expressions 'taxable activity' and 'taxable supply' occurring in sections 2(35) and 2(41) of the Act of 1990. He further argued that the preamble to the Act shows that it has been re-enacted to Consolidate and amend the law relating to the levy of tax on the sale, importation, exportation, production, manufacture or consumption of goods. Under section 3 of the Act of 1990, which is a charging section, sales tax is leviable on taxable supplies and activities-. According to the learned counsel, two conditions are essential to levy sales tax, namely, 'taxable supply' and 'taxable activity' and both these expressions have been defined in sections 2(35) and 2(41) of the Act as under:-- "2(35). 'taxable activity' means an activity which is carried on by any person, whether or not for a pecuniary profit, and involves in whole or in part, the supply of goods (or rendering of services on which sales tax has been levied under the respective Ordinance and use of goods acquired for private purposes or for the manufacture of exempt goods without making supply) to any other person, whether for any consideration or otherwise, and includes any activity carried on in the form of a business, trade or manufacture. 2(41)."taxable supply" means a supply of taxable goods made [***] [by an importer, manufacturer, wholesaler (including dealer), distributor or retailer] other than a supply of goods which is exempt
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under section 13 and includes a supply of goods chargeable to tax at the rate of. Zero per cent. Under section 4." He referred to the case reported as Sheikhoo Sugar Mills Ltd. v. Government of Pakistan (2001 PTD 2097 = 2001 SCMR 1376) and relied upon the following paragraph:- "8-B. As per the contention of the learned counsel appearing for the appellants/petitioners particularly Mr. Ali Sibtain Full the expression taxable' activity has to be interpreted exhaustively and not extensively and the transaction of sale of goods is to be confined only in between two persons as per definition of word `sale' and if it has been produced and consumed by the same person for his on use it would not be sale to himself. We are not inclined to disagree with him to interpret the expression "sales of goods" has to be interpreted exhaustively because definition clause of taxable activity i.e. Section 2(35) has used the words means and includes but simultaneously other expressions used in this clause as well as clause 2(41) have to be taken into consideration broadly to ensure the objects for which the Act has been promulgated. It may be noted that as far as word "sale" is concerned it has not been defined anywhere in the Act rather it has been used as one of the component of `supply' under section 2(33) of the Act, according to which "supply" includes sale or other disposition of goods in furtherance of business carried out for consideration and also includes putting to private business or non-business use of goods acquired, produced or manufactured in the course of business etc." He also referred to the case reported as Pakistan Industrial Development Corporation v. Pakistan (1992 SCMR 891) as to the interpretation of Constitution, particularly entries in the Fourth Schedule. The following was held therein:- "The Constitution provides governance to the country, confers rights, privileges and liabilities on the citizens and also controls the working in all fields of life. It is a living document and is to be interpreted in a widest possible manner to ensure continuity and balance in the several constituents and organs of the State. The item in the list in respect of which power of taxation can be exercised should not be interpreted in a restricted and pedantic manner. In this regard Mr. A.A. Fazeel, the learned Advocate Supreme Court, has pointed out that the appellant's counsel had referred to United Provinces v. Mst. Atiqa Begum and others AIR 1941 Federal Court 16, where it was observed that:- "None of the items in the list is to be read in a narrow or restricted sense, and that each general word should be held to extend to all ancillary or subsidiary matters, which can fairly and reasonably be said to be comprehended in it." 7. In this background we have to consider Entry No.43 (c), which authorized the Central legislature to levy tax on income and Corporations. The definition of the word 'income' in the Act is inclusive in nature and is not exhaustive. In this state of statutory affairs the word 'income' has not to be given its literal and dictionary meaning but it is to be expanded to all possibilities and amplitude, which may be covered by it in a wider and liberal sense particularly to save the purpose for which the statute has been enacted. According to the judgments referred above income is a receipt in the hands of assessee not necessarily a recurrent return from a definite source but generally in the light of the Act it is a periodical monetary return from known or unexplained source. But the determination of receipt as income depends upon the facts and circumstances of the case." He also referred to the case reported as Riaz Bottles (Pvt.) Ltd. v. Federation of Pakistan (2000 PTD 485) wherein entry 49 was read in context of entries 58 and 59 of the Fourth Schedule. It was held therein as under:- "Item No.49 in the Federal Legislative List provides for framing of laws to impose taxes on sales and purchases of goods etc. Such power includes the power to legislate on the charging, machinery, recovery as well as penalty provisions. Item No.49 when read with Items Nos. 58 and 59 makes it
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otherwise clear that the legislature is competent to legislate not only on a particular subject but also on matters incidental or ancillary to those enumerated in the list." 10. For meaning of word 'import', he placed reliance on Pakistan Textile Mill-Owners' Association v. Administrator of Karachi (PLD 1963 SC 137) and East and West Steamship Co. v. Collector of Customs (PLD 1976 SC 618) and strenuously argued that the moment the goods enter into the territory of Pakistan, they are subject to sales tax unless it is shown that the goods in question have been granted exemption in terms of section 13 of the Act of 1990. He also referred to the case of M/s. Tahseen (Pvt.) Ltd. v. Additional Collector of Customs Dry Port, Rawalpindi (1998 PTD 2561) and relied upon the following paragraph:-- "8. For the present controversy the relevant provisions of the above quoted section 3 are clause (b) of subsection (1) and clause (b) of subsection (3) thereof. Under these provisions, sales tax is leviable at the rate of 12-1/2 per cent. On the goods imported into Pakistan and payable by the person importing such goods. There is no denial that the goods imported by the petitioner enter Pakistan at Karachi or Islamabad/Rawalpindi. The goods may be, later on, transported to Azad Jammu and Kashmir, but the fact remains that for the first time such goods enter territory of Pakistan and not of Azad Jammu and Kashmir. Section 3 of the Imports and Exports (Control) Act, 1950, defines the term "import" to be bringing into Pakistan. This definition is without any qualification or rider and is most relevant for the purposes of import. It even does not exclude the goods, which are, later on, transshipped to any other territory/country. The transshipped goods or goods in transit to any other territory may be allowed exemption, levy of any tax or duty but such goods will not loose the character of their import through Pakistan." 11. Learned counsel also submitted that for attracting section 129 of the Customs Act, 1969, there must be a transit trade agreement between two countries, as is the case of Pakistan and Afghanistan. He contended that in the present case, the appellants have not pleaded any such agreement between Pakistan and AJK. Learned counsel also argued that the appellants have not even referred to the Customs Export Transit Rules, 1974. He contended that the appellants pleaded that they had established their industries in AJK in view of incentive provided by the Government of AJK and the incentive so provided could not be withdrawn and the notification dated 8-2-1995 rendered totally ineffective. He concluded on this point that the moment the goods entered into the territory of Pakistan, same were subject to duties and taxes as per Pakistan laws and the tax exemptions granted by AJK Government are of no help to the appellants to avoid duties and taxes, which they are bound to pay under the. Pakistan laws. 12. M/s. Izharul Haq, Sohail Akhtar and Malik Itaat Hussain, appearing for the respondents In C.As. Nos.819 of 2000 and 63 to 65 of 2001, C.As. Nos. 1344 to 1346 and 1348 of 2000 and C.As. Nos.1852 of 2002 and 1674 of 2003 respectively adopted the arguments advanced by Mr. Fakhruddin G. Ebrahim, Sr. Advocate Supreme Court for the respondents. 13. Mr. Makhdoom Ali Khan, learned Attorney General for Pakistan opened up the arguments by stating that in these matters precise question for determination is whether the bringing of goods into Pakistan (import) is an independent taxable event attracting sales tax under section 3 (1) (b) of the Act of 1990 and is not contingent on the ultimate destination of the goods (in this case AJK), or in other words, sales tax would, constitutionally and lawfully be levied on goods brought into Pakistan at the time they were brought in (imported) and is not dependent on a further event happening in respect of goods in Pakistan, such as mixing of the goods or the sale thereof in Pakistan. 14. In fact, above is the precise point, which has been raised in these appeals and is to be resolved in accordance with the Constitution and the laws related thereto. 15. Admitted facts in these cases are that the appellants operate manufacturing units in AJK, which is not part of Pakistan and that they import raw material for said manufacturing units through
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Karachi. The goods so imported arrive at the Port of Karachi, are unloaded there, sometimes even stored there for a while, and then re-loaded for AJK. It is significant to note that the Act of 1990 has been adopted by the AJK Government vide the Sales Tax (Adoption) Act, 1993 (Act No. IV of 1993) and its section 2(4) reads as follows:- "In determining the input tax under subsection (1) the amount paid as input tax at the import stage to the customs authority in Pakistan shall be deemed to have been paid in Azad Jammu and Kashmir for the purpose of adjustment against the tax liability on the finished goods." 16. It is also a fact that in Pakistan there is no exemption from sales tax on the goods imported by the appellants herein. AJK has not levied or collected any sales tax at the import stage on goods imported by the appellants into AJK from Pakistan. The appellants are aggrieved of the demand by the Tax Authorities in Pakistan that sales tax be paid on the raw material imported by them through Karachi. 17. Learned Attorney General reiterated the case of the respondents (Government) that even if all the imported raw material is taken to AJK by the appellants, even if all imported raw material is used by the appellants in their factories in AJK and even if the finished goods produced by the appellants using the said raw material are sold in AJK alone, yet the appellants are liable to pay sales tax on the import of raw Material in Pakistan and this is because 'import' is an independent taxable event under section 3(1)(b) of the Act of 1990 as well as Entry 49 as quoted above. Emphasizing it further, learned Attorney General stated that import of goods is complete as soon as they enter into the territorial waters of Pakistan irrespective of what happens to such goods subsequently. According to him, it is not necessary for 'import' .To be complete that the goods shall subsequently be sold or got mixed with other goods in Pakistan. 18. The taxable event in case of impotted goods is 'import' and not the 'post importation sale etc.' in. Pakistan. Natural and Ordinary meaning is to be given to the word 'importation' and not artificial and contrived version, which is manifestly neither ordinary nor natural. The meaning given by the appellants to the word 'import' is not the ordinary dictionary meaning, rather it is a technical and artificial meaning of that word, which as consistently…
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