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Petitioner: Messrs PREMIER DISTRIBUTORS VS Respondent: FEDERATION OF PAKISTAN and others
Court Name: Sindh High Court Judge(s): Ghulam Nabi Soomro, Muhammad Mujeebullah Siddiqui Title: Messrs PREMIER DISTRIBUTORS vs FEDERATION OF PAKISTAN and others Case No.: Constitutional Petition No.D-86 of 2000 Date of Judgment:2001-11-29 Reported As: 2002 PTD 654 Result: Petition allowed
JUDGMENT
JUDGMENT MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---In this petition under Article 199 of the Constitution of the Islamic Republic of Pakistan, following relief has been sought: "The petitioners accordingly pray that this Hon'ble Court be pleased to give, grant and issue to the petitioners appropriate writ, direction and order. (a) Declaring that the petitioners the (distributors) continue to derive unconditional exemption from Sales Tax on the biscuits/ goods produced by their Principals at Hattar (N.-W.F.P.), on the basis of terms clearly set-out in Notification SRO 580(1)/91, dated 27-6-1991 (Annexure A/1 hereto) even after amendments brought about by Finance Act, 1998. (b) Declaring that the impugned Order of respondent No.3 (marked 12) and letter, dated 29-6-1998 of the Central Board of Revenue, respondent No.2 herein (Annexure J) is without lawful authority, mala fide, illegal, unconstitutional and of no legal effect and unenforceable at law and that the respondents and all other persons claiming through or under them have no lawful authority to demand or levy, any Sales Tax on the petitioners, the distributors. (c) Declaring that the petitioners are not liable to pay any Sales Tax on supplies/products/biscuits/goods mentioned in the impugned order of respondent No.3 and letter, dated 29-6-1998 of respondent No.2 and, that the respondents have no lawful authority to nullify .Such exemption subsisting in favour of the petitioners and/or deprive the petitioners of the benefit of exemption from the payment of Sales Tax as purportedly alleged, implied and interpreted in the impugned order and the letter, dated 29-6-1998 of The Central Board of Revenue, respondent No.2 herein (Annexures "I" and "J" hereto).
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(d) That an appropriate direction/Injunction be given restraining the respondents 1, 2 and 3 their agents, officers and all other persons claiming through or under them from taking any steps or proceedings whatsoever or from demanding, collecting or recovering any amount by way of Sales Tax on the basis of the impugned order of respondent No.3 (Annexure "I") and letter, dated 29-6- 1998 (Annexure "J" hereto) from the petitioners on their supplies in the market. (e) For such other Order, Writ or directions, as the Hon'ble Court may deem fit and proper in the facts and circumstances of the case so as to keep alive in letter and spirit the subsisting exemption from Sales Tax for the benefit of the petitioners as contemplated in Notifications, dated 27-6-1991 and 9-6-1994 (Annexures "A" and "E" hereto)". 2. The facts giving rise to this petition, as contained in the memo. Of petition are that the petitioner is a partnership firm, engaged in the distribution of biscuits manufactured by Messrs Coronet Foods (Pvt.) Limited (hereinafter referred to as "Principals of petitioners" who are subsidiary of another corporate entity namely English Biscuit Manufacturers, having factory at Hattar, Haripur, Province of N.-W.F.P. Since the year 1995. According to petitioner the Province of N.-W.F.P. Being an underdeveloped area, the Federal Government with a view to encourage establishment of industries gave various incentives to the industrial sector in Pakistan to establish industries in the said Province. In pursuance of such policy, the Federal Government issued Notification SRO 580(I)/91, dated 27-6-1991 granting exemption from the payment of sales tax for a period of 5 years to the goods produced or manufactured by such industries which are set up in the Province of N.-W.F.P. Between 1st July, 1991 to 30th June, 1996. The period of 5 years was to commence from the date, the industry goes into production including trial production which shall be required to be intimated in writing by intending manufacturer to the Assistant Collector, Sales Tax having jurisdiction in the area at least 15 days before commencing such production. The relevant period of 5 yeas for the Principles of petitioners, commenced from 1st May, 1995 and was to end on 30th April, 2000. SRO 580(1)/91 reads as follows:- "Notification No.S.R.O 580(1)/91, dated 27th June, 1991.---In exercise of the powers conferred by subsection (1) of section 13 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that all goods produced or manufactured by such industries which are set up in the North-West Frontier Province between the 1st July, 1991, and the 30th June, 1996, shall be exempted from the tax payable under the said Act for a period of five years from the date the industry is set up. Explanation.----For the purpose of this Notification, the expression 'set-up' shall mean the date on which the industry goes into production including trial production, which date shall be intimated, in writing, by an intending manufacturer to the Assistant Collector of Sales Tax having jurisdiction in the area at least fifteen days before commencing such production." 3. The Principals of the petitioner's established Industrial Unit for the manufacturing of Biscuits at Hattar in order to avail the exemption granted under the above notification. Subsequently the respondents purportedly in exercise of the powers under subsection (1) of section 13 of the Sales Tax Act, 1990, and in super session of previous SRO 580(1)/91 issued SRO 561(I)/94, dated 9-6-1994 to the effect that, all supplies made by the manufacturers or producers of Industrial Units which are set-up in the Province of N.-W.F.P. Between 1st July, 1991 and 30th June 1994 shall be exempted from tax payable under the Sales Tax Act, 1990 for a period of five years from the date, the industry is set-up". According to petitioners this had effect, of curtailing the period of setting up Industry from period July, 1991 to June, 1996 to July, 1991 June, 1994. However, it was provided in the later SRO that the exemption shall also be available to such Units which had opened Letters of Credit, before 30th June, 1994 for import of machinery or had firmed up financial arrangement from Banks or Financial Institutions before the said date for the new unit which may be set up to 30th June, 1996. Another effect of the Notification was that the basis of exemption also stood changed which was the exemption to all goods manufactured' under the previous SRO, dated 27-6-1991 to the exemption of
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"supplies made by manufacturers of industrial units". The Principals of the petitioners were not effected by the assurances of the later SRO as they had already taken steps for establishing industrial unit and had opened L/C. As a matter of abundant caution, they obtained registration with the Central Board of Revenue, under SRO 561(1)/94 as well. The respondents informed the Principals of the petitioner that they were entitled to enjoy exemption from Sales Tax. 4. The petitioner has averred, that acting upon the exemption granted to their Principals, they were also enjoying exemption from the payment of Sales Tax from May, 1995 in terms of the two Notifications referred to above. The respondents allowed the exemption granted to the principals of the petitioner in the hands of Distributors and Dealers, through whom, as their Agents they market their goods for consumption at the price fixed by them for which services, they are given discount by the Manufacturers i.e. Petitioner's Principals. 5. However, the petitioners received notice from the respondent No.3, the Additional Collector Sales Tax-III East, Karachi calling upon them to show-cause as to why Sales Tax amounting to Rs.8,828,439 and further tax of Rs.860,883 on the supply of Biscuits of Messrs Coronet Foods valuing Rs.63,063,450 from 1-7-1988 to 30-9-1999 may not be recovered from them together with additional tax of Rs.5,027,444 under section 34 of the Sales Tax Act, 1990, on the ground that the exemption from payment of Sales Tax was available exclusively to Messrs Coronet Foods (Pvt.) Ltd. And was not extended to the wholesalers, retailers and distributors. The show-cause notice reads as follows:- "Where it has been reported to the undersigned by the Senior Auditor Audit Division-I Sales Tax East) Karachi that Messrs Premier Distributors is registered with the Sales Tax Collectorate (East) since 30-6-1998 as Distributor, Wholesaler, Retailer, Importer and Exporter. The registered person is actually engaged in the distribution of Consumers goods of various manufactures on payment of Sales Tax. 2. During the course of audit of sales tax record of the registered person it has been noticed by the audit team that the said unit is making exempted supplies of biscuits manufactured by 'Messrs. Coronet Foods (Pvt.) Ltd. Having manufacturing unit at Plot No.55 Road-1 Phase-III Industrial Estate, Hattar Haripur N.W.F.P. 3. Messrs Coronet Foods (Pvt.) Ltd., Hattar is availing exemption facility provided under SRO 561(I)/94, dated 9-6-1996 and making exempted supplies to Messrs Premier Distributors who in the misunderstanding, that the goods are exempted from Sales Tax sold the same to different wholesalers, retailers, and other unregistered customers without charging/paying sales tax and further section 3(1A), despite of the fact that item 'Biscuit' is a taxable commodity not covered under section 13 (Schedule 6th) of the Sales Tax Act, 1990. The aforesaid facility of exemption provided SRO 561(1)/94 is exclusively for the supplies made by manufacturers or producers of industrial units which are set up in the N.-W.F.P. And Balochistan (Except Hub Chowki Area) and not for the taxable supplies made by Distributors/ Wholesalers or retailer anywhere in Pakistan in terms of section 13 of the Act. No such facility has been granted as yet, by the Federal Government. 4. Thus Messrs Premier Distributors have failed to deposit the Sales Tax amounting to Rs.88,28,439 and further tax amounting to Rs.8,60,883 on their supplies of Rs.6,30,63,450 of Biscuits (for Messrs Coronet Foods (Pvt.) Ltd.) during the period from 1-7-1998 to 30-9-1999 which may now be recovered from them under section 36 of the Sales Tax Act, 1990 alongwith additional tax amounting to Rs.50,27,444 under section 34 (ibid) (Calculated up to November, 1999), punishable under section 33 (ibid). 6. Messrs Premier Distributors (Pvt.) Ltd. Karachi are, therefore, called upon to show cause in writing within seven days of the receipt of this notice as to why recoverable amount of the tax alongwith the additional tax may not be recovered from them under section 36 of the Sales Tax Act, 1990 and
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why action for contravention of the aforesaid provisions of law should not be taken against them under section 33 of the Sales Tax Act, 1990. 7. Hearing in this case has been fixed on 22-11-1999 at 11-00 hours. They or their authorised representative/counsel should appear before the undersigned in the office located at 81-C, Block- 6, P.E.C.H.S., Karachi. If nobody appears or no written defence is received the case will be decided on the basis of case record ex parte" 6. The petitioner explained that the exemption was available even to the distributors, wholesalers and retailers under SRO 580(1)/91 but the respondent No.3 did not accept the same and directed the petitioner to pay aforementioned amount of Sales Tax and a penalty of Rs.484,466 under section 33(7) for violation of sections 3 and 13 of the Sales Tax Act, 1990 vide order, dated 27-12- 1999. It is further stated in the memo. Of petition that the order of respondent No. 3 was made under the influence of letter, dated 29-6-1998, by the respondent -No.2, Central Board of Revenue, addressed to Messrs Pakistan Biscuit and Confectionery Manufacturers Group sating therein that the exemption from Sales Tax is available to supplies, made by the manufacturers/producers of industrial units which are set up in the Province of N.-W.F.P. But the exemption is not available on all subsequent supplies to or by wholesalers, dealers, distributors or retailers. 7. According to the petitioner the impugned order of respondent No.3 was appealable before the Collector (Appeals) but since the highest body, i.e., the Central Board of. Revenue has already expressed its opinion, against the petitioners, that remedy has become illusory in nature. No useful purpose will be served if the petitioners are required to avail of such remedy of appeal as has been held in the case of Gulistan Textile Mills Limited v. Government of Pakistan 1999 SCMR 1072. 8. It is contended that the order passed by the respondent No.3 is contrary to law null and void. 9. It is contended in the grounds of appeal that the impugned order of respondent No.3 and the impugned letter issued by the respondent No.2 has been purportedly issued in pursuance of SRO 561(I)/94 which is bad in law as it seeks to curtail vested right of the petitioner's Principals by prescribing new conditions for the entrepreneurs who acted on the open assurances held out under SRO 580(1)/91. The change of whole complexion of exemption from Sales Tax on goods manufactured/ produced at Hatter under the former SRO to the exemption from Sales Tax on "supplies made only by the manufacturers/producers of the industrial units in Hattar" under the later SRO," amounts to the infringement of vested right enjoyable by the petitioner's principals and through him by the petitioner. It is further contended that granting of exemption in the hands of manufacturer and depriving the exemption in the hands of petitioners who are merely agents for the distribution of their Principals goods is contradictory in terms and amounts to indirectly taxing the exempted goods. The petitioners have urged that what cannot be done directly by the respondents cannot be done indirectly as well. It is further contended that the respondent No.2 has no authority to interpret the notifications which is in the exclusive jurisdiction of the superior Courts. It is further contended that the imposition of Sales Tax through a process of interpretation by respondent No.2 amounts to levy of tax by an executive act which is not permissible under the Constitution. It is further contended that it also amounts to imposition of tax on Principals of the petitioner who admittedly enjoy the exemption because with the imposition of the Sales Tax, so to the imposed, the goods manufactured by the petitioner's Principals shall become less competitive in the market thereby reducing their receipts from sale. It is pleaded that the respondents are estopped by promissory estoppal, as they cannot wriggle out of the assurances given in SRO 580(1)/91, as it amounts to practicing a fraud on the statute and blatant breach of the promissory estoppel. It is further maintained that the interpretation of the respondent No.2, Central Board of Revenue is destructive of the vested right of the petitioners and their Principals as it amounts to abolition of the exemption from the payment of sales tax, granted to the petitioner's Principals. It is
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further pleaded that the Sales Tax can be levied on the taxable supplies which had been defined under section 2 (41) of the Sales Tax Act, to mean a supply of taxable goods made in Pakistan other than a supply of goods which is exempt under section 13 and, therefore, Sales Tax could not be levied on the supplies made by the distributors, dealers, wholesalers or retailers. 10. In their para-wise comments the respondents have raised preliminary objection to the maintainability of the petition for the reason that the petitioner has not exhausted remedies available under the sales Tax Act, 1990. It is contended that the impugned order in original is appealable before the Collector (Appeals) under section 45 of the Sales Tax Act, 1990, and the order of Collector (Appeals) is subject to appeal before the Tribunal under section 47 of the Sales Tax Act. On merits it is contended on behalf of the respondents that the principal of the petitioner obtained registration with the Central Board of Revenue under SRO 561(1)/94 whereby exemption was available exclusively for the supplies made by manufacturers or producers of industrial units which were set up in the N.-W.F.P. And Balochistan and not to the taxable supplies made by the distributors/wholesalers or, retailers any where in Pakistan, in terms of section 13 of the Sales Tax Act, 1990 as claimed by the petitioner. The respondents' plea is that Messrs Coronet Foods (Pvt.) Ltd., being manufacturer having Industrial unit located at Hattar, N.-W.F.P., their supplies are not chargeable to Sales Tax when made to their buyers, but when the supplies are made by their buyers i.e. Distributor, wholesaler or retailer, then the supplies enjoy no exemption as subsequent supplies do not enjoy exemption under SRO 461 which has been clarified by the C.B.R. It is further contended that the petitioner's claim of exemption- under SRO 580(1)/91, is not justified, as sales tax was leviable at the manufacturing stage and hence all rights and duties emerging out of the said SRO, including exemption to goods manufactured or produced were restricted to the manufacturer or producer. According to respondents the distributors/wholesalers were brought into tax net in July, 1998, vide Finance Act, 1998, and therefore, the exemption provided under SRO 580(1)/91 cannot be stretched to the persons who were made liable to tax subsequently, as in the instant case. It is urged that no exemption can be availed unless the language of the SRO expressly provides so, in the lighCof principals laid down by the Hon'ble Supreme Court in the case reported as 1999 SCMR 412. 11. It is further contended that the Sales Tax on supplies by distributors/wholesalers has been levied by the legislature vide Finance Act, 1998 and not through the process of interpretation by the respondents Nos. 2 and 3. It is vehemently denied that the respondent No.2 (C.B.R.) has exercised any judicial function or legislative function or has imposed any tax. According to respondents, in the Board's letter, dated 29-6-1999- a query has been replied in accordance with the Sales Tax Law, which just amounts to clarification of a legal position and not interpretation of any law. It is further contended that the tax demanded has been calculated in accordance with the provisions contained in subsection (46) of section 2 of the Sales Tax Act and in accordance with the rate specified in section 3 thereof. It is contended that taxable supply has been defined in subsection (41) of section 2 which reads as follows: "Subsection (41) of section 2, `taxable supply' means a supply of taxable goods made in Pakistan (by an importer, manufacturer, wholesaler (including dealer), distributor or retailer) other than a supply of goods which is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent. Under section 4." The words, "by an importer, manufacturer, wholesaler (including dealer), distributor or retailer were inserted by Finance Act, 1998. The respondents case is that the goods in the instant case are Biscuits and prior to 1st of July, 1998 the taxable supply was restricted to the supply of taxable goods by the manufacturer and tax was leviable at that stage but the virtue of amendments
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introduced by Finance Act, 1998 the definition of taxable supply has been extended whereby supply of taxable goods by wholesaler, dealer, distributor and retailer has been included in the definition of taxable supply. Thus no exemption can be availed by the wholesalers, dealers, distributors and retailers if exemption is granted to manufacturer only and the notification granting exemption under section 13 does not specify specifically wholesalers, dealers, distributors and retailers as well. The respondents have taken plea that the exemption was granted to protect and encourage the industry in the under development areas. According to respondents the claim of petitioner for exemption of Sales Tax is not tenable as it is available to the manufacturer who has taken steps like investment, buying of land, machinery, employing labour etc. For production of his goods and thus the exemption is restricted to the manufacturer whose goods are to be sold in the market. It is further stated that the distributors or retailer of the goods hold no stake in the taxation of the goods as they have to pay tax on the value addition only. 12. We have heard Mr. Abdul Aziz Memon, learned counsel for the petitioner, Mr. Syed Ziaudddin Nasir, learned Standing Counsel for the Federation of Pakistan and Mr. Raja Muhammad Iqbal, learned counsel for respondents 2 and 3. 13. Mr. Abdul Aziz Memon has submitted that the point in issue has been considered by a Single Bench of the Peshawar High Court in the case of Messrs Khyber Plastic and Polymer Industries (Pvt.) Ltd. v. Government of Pakistan 1997 PTD 1872. In the said case exemption was granted under SRO 529(1)/88 to all the goods produced or manufactured by such industries which hare set-up between the 1st July, 1988 and the 30th June, 1991 from the payment of tax payable under the Sales Tax Act, 1951 (the predecessor statute of the Sales Tax Act, 1990) in the Province of Balochistan except in Hub Tehsil and N.-W.F.P. Subsequently SRO 692(1)/92 was issued levying fixed amount of tax 2% of the landed cost in case of imported goods and 2% of the ex-factory. Price in case of locally manufactured goods at source on the items given in the table, in lieu of sales tax leviable on such goods supplied by the retailer under subsection (1) of section 3 of the said Act. This fixed tax was levied in exercise of the powers conferred by. Subsection (4) of section 3 of the Sales Tax Act, 1990. 14. Several petitions were filed in the Peshawar High Court challenging the levy of 2% fixed tax for the reason that the exemption granted under SRO No.529(I)/88 pertained to the goods produced or manufactured by the industries established in the Province of N.-W.F.P. 15. A plea was taken on behalf-of Revenue/Federal Government in their comments that the exemption from Sales Tax granted to the manufacturer was intact and the 2% tax was levied on the retailers of the goods manufactured by the petitioner, collection whereof was being made at source. The .Learned Single Judge of the Peshawar High Court observed that the exemption granted was to the goods manufactured by the petitioners, and the'refore, the concession was tied up with the goods, even when they reach the hands of the retailers. It was further held that, to interpret otherwise would negate the purpose of the concession, which is to keep the price of the goods low in order to make them competitive in the market and thus boost up the petitioners industries. The imposition on the retailer would add to the price of the goods, thus, nullifying the benefit of the exemption. It was further held that, "that which cannot be done directly cannot be allowed to be done indirectly". It was ultimately held that the cxcmption from the tax provided to the goods manufactured by the petitioners extended to the supply of goods in the hands of retailers , and therefore, the subsequent levy- of tax was without lawful authority and of no legal effect. 16. Mr. Abdul Aziz Memon has next contended that, in the show-cause notice, dated 12-11-1999, contradictory position has been taken by the department. On one hand it has been stated that the Principals of the petitioners. Namely Messrs' Coronet Foods (Pvt.) Ltd., is availing exemption facility provided under SRO 561(1)/94 and making exempted supplies to the petitioner and in the same
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breath it is stated that the petitioner in the misunderstanding, that the goods are exempted from Sales Tax, sold the same to different wholesalers, retailers, and other unregistered customers without charging/plying sales tax. Mr. Abdul Aziz Memon, further contended that this contradictory stand has been taken by the department on a misconception that the exemption under SRO 561(1)/94 is restricted to the supplies made by the manufacturers or producers of industrial units which are set up in N.-W.F.P. And Baluchistan (Except Hub Chowki) and not for the taxable supplies made by the distributors, wholesalers or retailers any where in Pakistan in terms of section 13 of the Act. According to Mr. Abdul. Aziz Memon, the respondents have missed the point that the exemption available to the principals of the petitioners is attached to the goods and supply thereof and not to the manufacturer alone. He has vehemently argued that once the goods are exempted from payment of Sales Tax the exemption shall continue, howsoever, hands it may change. He has submitted that the Principals…
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