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Petitioner: Coca-Cola Beverages Pakistan Ltd. VS Respondent: The Customs, Excise & Sales Tax Appellate Tribunal, etc.
Court Name: Lahore High Court Judge(s): Shahid Karim, Tariq Saleem Sheikh Title:Coca-Cola Beverages Pakistan Ltd. vs The Customs, Excise & Sales Tax
Appellate Tribunal, etc. Case No.: S.T.R. No. 11 of 2007 Date of Judgment:2017-08-29 Reported As: 2017 LHC 2964 Result: Appeal Allowed Judgment Tariq Saleem Sheikh, J:- By this single judgment we propose to decide STR No. 11/2007 and the Sales Tax References/Appeals mentioned in the Schedule-B attached hereto as they involve common questions of law. Although the facts in these cases are quite similar , we give their short resume for the sake of completeness. 2. In STR No. 11/2007 the Petitioner (Coca-Cola Beverages Pakistan Limited) is an unlisted public company. It is one of the leading manufacturers of aerated beverages, including Coca-Cola, Diet-Coke, Fanta, Sprite, Sprite-Zero, Sprite-3g, and bottled water namely Kinley, and has six bottling plants in Pakistan. During its audit for the year 2004-2005, the auditors observed that the Petitioner purchased "Visi Coolers and Chest Coolers" (hereinafter referred to as the "Appliances") and claimed input tax adjustment but failed to charge and pay the sales tax leviable thereon at the time of supply to its customers which resulted in short realization of sales tax. On the basis of the said audit report the Petitioner was issued Show Cause Notice dated 06 11-2006 to explain as to why the short-paid sales tax alongwith additional tax under Section 34 (1) of the Sales Tax Act, 1990 (the "Act"), and penalty under Section 33 thereof may not be recovered from it. The Petitioner contested the show cause notice on the ground that there had been no "taxable supply" of the Appliances to the customers (who were all retailers) within the meaning of Section 2(41) of the Act and it had placed them at the retail outlets only to facilitate the sale of its products. The Adjudicating Officer rejected the stance of the Petitioner and ruled against it vide Order in-Original dated 28-11-2006. The Petitioner assailed that order before the Collector (Appeals) and the erstwhile Customs, Excise & Sales Tax Appellate Tribunal (the "Tribunal") but remained unsuccessful. The Tribunal held that the supply of the Appliances was in furtherance of business and it was a taxable supply as contemplated by Section 2(41) and was thus chargeable to sales tax under Section 3(1) of the Act. It further held that input tax adjustment on the Appliances was not admissible as they neither directly contributed to nor had any
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proximity with the manufacturing of taxable supplies. The Petitioner then filed this reference by way of an application under Section 47 of the Act before this Court against the Tribunal's Order dated 15-05-2007. 3. In STR No. 12/2007 also the Petitioner is Coca-Cola Beverages Pakistan Limited and the period involved is the year 2004-2005 during which it provided the Appliances to the retailers. In this case too the Tribunal upheld the orders of the authorities below holding that the Petitioner had contravened the provisions of the Act and it was liable to pay the short paid sales tax alongwith additional tax and penalty . The Tribunal advanced the same reasons in support of its order as in STR No. 1 1/2007. 4. In STR No. 53/2007 and STR No. 76/2007 the Petitioner [Riaz Bottlers (Private) Limited] is the manufacturer of beverages under the brand name "Pepsi Cola" and holds an exclusive franchise for its territory. The period involved is the year 1999-2000. The Revenue issued two separate show cause notices to the Petitioner for claiming inadmissible input tax adjustment against purchase of coolers and deep freezers respectively. These show cause notices were separately adjudicated and separate Orders-in-Original were passed. Resultantly, there were two appeals before the Collector and the Tribunal. In both these matters the Tribunal ruled against the Petitioner. On the issue of admissibility of input tax the Tribunal held that it could not be claimed in respect of the Appliances on two grounds. First, it was repugnant to the provisions of Section 8(1)(a) as the said goods neither directly contributed nor had close proximity to the production or manufacturing of taxable supplies, i.e. beverages and bottling products. Secondly, electric appliances were excluded from the purview of input tax adjustment vide SRO No. 578(1)/98 dated 12-06-1998 issued by the Federal Government in terms of Section 8(1)(b). 5. STR No. 45/2012 and STR No. 44/2012 pertain to the years 2005-2006 and 2006-2007 respectively. In these two cases the Tribunal agreed with the Petitioner, Coca-Cola Beverages Pakistan Limited, that the placement of the Appliances at retail outlets did not constitute a "supply" as movement of goods to another's premises without any element of "disposal or parting with ownership and associated risks and rewards" did not fall within the ambit of the term "disposition" used in Section 2(33) of the Act. On the question relating to the application of Section 8(1)(a), the Tribunal held that since the Appliances were used for the purpose of taxable supplies, input tax was admissible thereon. As the Tribunal decided the issue against the Revenue, it is the Revenue which has filed reference applications STR No. 44/2012 and 45/2012 before this Court. In STR No. 44/2012 there is an additional issue as to whether the registered person was entitled to claim input adjustment on furniture, office equipment and other miscellaneous items mentioned in the Show Cause Notice dated 13-09-2008. On this question as well the Tribunal returned a finding in favour of the registered person vide Order dated 08- 12-2011. 6. STA No. 130/2003 relates to the tax period 1998-1999. In this case the Petitioner, Riaz Bottlers (Private) Limited, claimed input tax adjustment on the Appliances as also spare parts of the vehicles of the company. On both the issues the Tribunal found against the Petitioner. 7. STR No. 5/2007 pertains to the period 2003-2004. ThePetitioner , Coca-Cola Beverages Pakistan Limited, has assailed the Tribunal's Order to the extent it has disallowed its input tax claim with respect to spare parts, tyres and batteries used in the company's delivery vans. 8. The following questions of law arise in the above- mentioned cases that require determination by this Court: I. Whether placement of the Appliances, i.e. visi-coolers and chest-coolers, at retail outlets by the registered persons for the sale of their goods constitutes "supply" in terms of Section 2(33) of the Act? II. Whether under the scheme of the Act input tax in relation to the Appliances is hit by the mischief of Section 8(1) (a) of the Act? III. Whether the Tribunal was justified in disallowing the input tax claim of the registered person (in STA No. 130/2003) in respect of vehicle spare parts in view of the law laid down by the Hon'ble Supreme Court of Pakistan in "Attock Cement Pakistan Ltd. vs. Collector of Customs, Collectorate of Customs and Central Excise, Quetta and 4 others" ( 1999 PTD 1892 )? IV. Whether the Tribunal was justified in law to deny the input tax claim of the registered person (in STR No.5/2007) in respect of spare parts, tyres and batteries of delivery vans used for taxable supplies under SRO No.578(I)/98
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and SRO No.490(I)/2004? V. Whether the Tribunal was justified to allow input tax adjustment on furniture, office equipment and other miscellaneous items mentioned in the Show Cause Notice dated 13-9-2008 to the registered person in STR No.44/2012 in view of SRO No.490(I)/2004? VI. Whether the registered persons in STR No.11/2007, 12/2007, 53/2007, 76/2007, 44/2012 and 45/2012 are liable to pay additional tax under Section 34(1) of the Act and penalty under Section 33 thereof ? 9. We take up these questions seriatim. Question I 10. Mr. Jahanzeb Inam, Advocate, who represented the registered person in STR No.11/2007 & 12/2007 submitted that a combined reading of sub-sections (33), (35) and (41) of Section 2 shows that the charge for sales tax presupposes a =supply of goods'. He contended that the registered person had placed the Appliances at its retail outlets to facilitate/promote the sale of its taxable goods, viz., beverages and mineral water. Despite the said placement the Appliances were still in the ownership of the company and this fact could be established from the Chiller Licence Agreement that the company executed with every retailer. Learned counsel referred to Clause-3 of the said agreement (a copy whereof is available on the record) to substantiate his point. He further contended that the above fact could also be proved from the company's books wherein the Appliances were reflected as its assets. To support his arguments he placed reliance on ?Collector, Customs, Central Excise and Sales Tax Karachi (West) v. Novartis Pakistan Ltd." (2002 PTD 976), "Messrs Amie Investment (Pvt.) Ltd. through Director v. Additional Collector-II and 4 others" (2006 PTD 1459), "Messrs Sarwar & Co. (Pvt.) Ltd. v. Customs, Central Excise and Sales Tax, Appellate Tribunal, Lahore and another" (2006 PTD 162) and ?Avery Scales (Private) Ltd., Karachi v. Additional Collector (Adjudication III) Karachi and another? (2006 PTD 2150). 11. Mr. Shoaib Rashid, Advocate, who appeared on behalf of the registered person in STR No.44/2012 and 45/2012 adopted the arguments of Mr. Jahanzeb Inam, Advocate. However, while referring to the definition of "supply" in Section 2(33) he emphasized that mere placement of the Appliances at retail outlets did not constitute "disposition of goods" as contemplated in the said sub-section and would not attract charge under Section 3. 12. On the other hand, learned counsel for the Revenue controverted the aforementioned contentions raised on behalf of the registered persons. Mr. Sarfraz Ahmad Cheema, Advocate, argued that under Section 3 of the Act sales tax is charged, levied and paid when taxable supply is made by a registered person in the course or furtherance of any taxable activity carried on by him. The registered persons made a supply of the Appliances to the retailers within the meaning of Section 2(33) in consequence whereof the transaction was chargeable to sales tax under Section 3. The supply of the Appliances was in the course or furtherance of business activity . It was not a mere placement of taxable goods at the retail outlets as the registered persons attempted to suggest. It was a "disposition of goods" as contemplated in Section 2(33) inasmuch as the registered persons received consideration from the retailers by way of security or otherwise. 13. The above controversy involves interpretation of Section 3 and sub-sections (33), (35) and (41) of Section 2. Since numerous amendments have been made in the Act over the years, it is necessary to know what was the applicable law during the relevant period , i.e. 1998 to 2007, before we consider the respective contentions of the parties. 14. Section 3 is the charging section. Originally when it was incorporated in the Act its sub-section (1) read 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 twelve and half per cent of the value of-- (a) taxable supplies made in Pakistan by a registered person in the course of furtherance of any business carried on by him; and (b) goods imported into Pakistan. It was amended by the Finance Act, 1996 after which it read: 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 sixteen percent of the value of--
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(a) taxable supplies made [***] by a registered person in the course or furtherance of any [taxable activity] carried on by him; and (b) goods imported into Pakistan. 15. A bare reading of the above provision shows that sales tax under Section 3(1)( a) would be chargeable when (i) a registered person (ii) makes taxable supplies (iii) in the course or furtherance of (iv) a taxable activity . Therefore, amongst other things, twin conditions of making taxable supplies and taxable activity must exist simultaneously . In "Salfi Textile Mills Ltd. v. Collector of Customs (Appraisement) Karachi " [(1993) 67 Tax 300 (H.C. Kar)] , the Court observed: "The expression `taxable supply' and `taxable activity' both operate in their own fields. The quantum of tax liability is determined on the basis of the value of taxable supply, but the liability to pay tax under the charging section would arise only when such supply is made in furtherance of taxable activity. The taxable activity defined in the Act meant any activity involving in whole or in part, the supply of goods to any other person." 16. "Taxable supply" is defined in Section 2(41). It read as under during the relevant period: {{FN}} "(41) "taxable supply" means a supply of taxable goods made {{FN}}[***] [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;" 17. The term "taxable activity" during the period relevant for our present purposes was defined by Section 2(35) as: 1. {{FS1}}The words "in Pakistan" omitted by the Finance Act, 2003. {{FE1}} 2. {{FS2}}The words "in Pakistan" omitted by the Finance Act, 2003. {{FE2}} "(35) "taxable activity" means any activity which is carried on by any person, whet her or not for a pecuniary profit, and involves in whole or in part, the supply of goods {{FN}} [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;" 18. The Hon'ble Supreme Court of Pakistan explained the meaning of "in course of" and "in furtherance of" in the case reported as "Collector of Customs, Sales Tax and Central Excise and others v. Messrs Sanghar Sugar Mills Ltd. Karachi and others " (PLD 2007 SC 517 =PTCL 2007 CL 565) as under: "15.The main thrust of the learned counsel for the respondents was on the interpretation of section 3(1)(a) and in their view the sales tax is to be imposed on the supply of the goods in which the assesse continuously, regularly deals with, i.e., the items produced or manufactured by them and not casually, occasionally, incidentally or sometimes. By contending so, they have lost sight of the fact that it is not only the business or the taxable activity which has been referred to or mentioned in the section but the important role is to be played by the words "in the course or furtherance of" which have prefixed the word business or taxable activity. The meaning of "in the course of" can be taken to mean as connected with, related to and having some nexus with the business/taxable activity and similarly "in furtherance of" is indicative of the fact that taxable supply had been made for the enhancement/further development of the business/taxable activity. The word furtherance has been defined in the advanced Law Lexicon, Third Edition, 2005, p.1953, as `act of furthering, helping forward, promotion, advancement, or progress.' In furtherance of has been interpreted as in promoting or advancing in the Oxford English Dictionary, Volume IV, p.619. Furtherance has been defined as `fact or state of being furthered or helped forward, the action of helping forward, advancement, aid, and assistance.' It is abundantly clear that the taxable supply has not been confined or limited to the one which is the product or the goods manufactured but also including those goods which involve in some way with the progress, promotion, advancement of business/activity/taxable activity." 19. The foremost question in the matters that we have before us is whether there was a "taxable supply". In order to constitute taxable supply the transaction must qualify to be a 2 3. {{FS3}}The word inserted by the Finance Act, 2003. {{FE3}} "supply" as defined in Section 2 (33) which read as under at the relevant time:1 1 2 3
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"(33) "supply" includes sale, lease {{FN}} [***] or other disposition of goods {{FN}} [***] carried out for consideration and also includes-- (a) putting to private, business or non-business use of goods acquired, produced or manufactured in the course of business; (b) auction or disposal of goods to satisfy a debt owed by a person; [and] (c) possession of taxable goods held immediately before a person ceases to be a registered person [:] {{FN}}[(d) ***] {{FN}} [Provided that the Federal Government, may by notification in the official Gazette, specify such other transactions which shall or shall not constitute supply]" 20. While defining the term "supply" the Legislature has used the word "includes". In "Malik Muhammad Inam and others v. Federation of Pakistan and others" [(2007) 95 Tax 3 (S.C.Pak.)], the Hon'ble Supreme Court of Pakistan explained that "where in defining anything, the Legislature uses the word `included' or `includes', the rule of interpretation is that it used a word of enlargement and it ordinarily implies that something else has been included, which falls outside the general meaning of the word. It also be used to give a comprehensive description that includes what is not obvious, what is uncertain and what is in the ordinary sense, not impossible." In "Commissioner of Sales Tax, Rawalpindi Zone, Rawalpindi v. Abdul Razzaq Zia-ul-Qamar" [(1973) 27 Tax 99 (H.C. Lah.)], this Court found that the word "including" is used for "enlarging the scope and for bringing in species which would otherwise not be covered." In a nub, when the word "include" is used in a definition clause it is meant to enlarge and extend the scope of the term and there is an express indication that it is not restrictive. 4. {{FS4}}The brackets and words [exclu ding financial (or operating) lease] omitted by the Finance Act, 2006. {{FE4}} 5. {{FS5}}The words "in furtherance of business" omitted by the Finance Act, 2003. {{FE5}} 6. {{FS6}}Sub-clause (d) omitted by the Finance Act, 2004. {{FE6}} 7. {{FS7}}Proviso added by the Finance Act, 2004.{{FE7}} In view of the foregoing, the term "supply " as used in Section 2(33) should be given an enlarged meaning which would be in addition to its ordinary dictionary meaning. Let us see how the dictionaries define it: Black's Law Dictionary (T enth Edition): "The amount of goods produced or available at a price" . Chambers Concise Dictionary . "To provide or furnish (something believed to be necessary)" . P. Ramanatha Aiyar's Advance Law Lexicon (Fourth Edition): "Shorter Oxford English Dictionary gives a large number of definitions for the word `supply' and they have a common feature, viz, that in the word `supply' is inherent the furnishing or providing of something which is wanted R.V. Delgado, (1984) 1 All ER 449, 452". In 2005 PTD (Trib) 1882, it was pointed out that the concept of supply postulates furnishing or providing something on a demand by someone. As such, supply is connected with demand. Production of something or providing something without a demand or a counter purchase, therefore, is not a supply. According to one author, "supply involves a kind of continuity of relationship in which one person sells some items to other on an agreed rate on demand. It involves a kind of continuity or relationship in deal, i.e. purchase and sale. The most important factor in `supply' is that the product is provided on demand and most of the time it is furnished at the place earmarked by the buyer". In our opinion, this interpretation/explanation comprehensively explains the term supply. There is little doubt that the disputed transaction does not fall within the ordinary meaning of the term. We now proceed to look at the inclusions made by the Legislature in Section 2(33) of the Act. 21. The term "sale" and "lease" are well understood and do not require deliberation, more particularly because the parties did not dispute that the placement of the Appliances was neither a sale nor a lease. However , the controversy centered around the expression "other disposition" used in Section 2(33). 23. The term "disposition" came up for consideration before the Supreme Court of India in "Goli Eswariah v. Commissioner of Glft Tax, Andhra " (AIR 1970 SC 1722) and it was held that it was not a term of law and had no4 5 6 7 3
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precise meaning and that its meaning had to be gathered from the context in which it was used. In that case the Supreme Court was considering Section 2 (xxiv) of the Indian Transfer of Property Act. The Court held that "the word `disposition' is used alongwith words `conveyance', assignment, settlement, delivery , payment or other alienation of property .' Hence it is clear from the context that the word `disposition' therein refers to a bilateral or multilateral act. It does not refer to a unilateral act." 24. Reference is also invited to "Messrs Amie Investment (Pvt.) Ltd. through Director v. Additional Collector -II and 4 others" (2006 PTD 1459 ) wherein it was observed as under: "Since the word `disposition' has not been defined in the Act, the ordinary meaning of the word which is of wide connotation is to be adopted. It is used only as an expression of transfer inter vivos or by operation of law and for such purpose an element of ownership must exist upon the goods/property under disposition or at least the person acquiring the goods must possess some right or title in the goods in order to dispose it of at his will." 25. If we look at the context in which the expression "disposition" has been used in Section 2(33) of the Act, we would find that it occurs after the words "sale" and "lease". As such, it should be construed in a manner that it should have the same attribute of transfer of right as those words have. In the cases before us, the registered persons placed the Appliances at the retail outlets by way of bailment under an express covenant that no interest whatsoever therein shall pass to the retailers. Therefore, we are inclined to agree with the learned counsel for the registered persons that such placement cannot be reckoned as a supply within the meaning of Section 2(33). Inasmuch as the transaction does not qualify to be a supply , it does not come within the ambit of taxable supply and is not liable to the levy of sales tax. Accordingly , we answer the above question in the "negative ". Question II 26. Under the scheme of the Act, a registered person is entitled to deduct input tax paid for the purpose of its taxable supplies from the output tax subject to the conditions and restrictions set out in the Act. The issue is whether input tax was admissible on the Appliances. Mr. Jahanzeb Inam, Advoc ate, submitted that a combined reading of Section 7 and 8(1)(a) shows that claim for input tax is admissible only in respect of goods (or services) which are used or to be used for the purpose of taxable supplies. He contended that the term "purpose" had a wide connotation and could not be confined to the goods which are directly used for taxable supplies. Under these provisions, input tax adjustment on goods which related indirectly to the taxable supplies could not be disallowed. He argued that the Appliances actually contributed to the enhancement of the supplies made by the registered persons. As such, input tax in relation thereto was not hit by the mischief of Section 8(1)(a). 27. Mr. Shoaib Rashid, Advocate, contended that input tax could not be disallowed to the registered persons on the basis that no output tax was paid on the alleged supply . This was contrary to the scheme of law. He argued that under the Act the determinant for admissibility of input tax was whether the goods in respect of which it was claimed were related to the "purpose" of taxable supplies. He further contended that input tax and output tax operate in their own respective realms. As such, the adjustment of input tax could not be made subject to the supply of those particular goods in respect of which input tax was paid or claimed. 28. On the other hand, learned counsel for the Revenue contended that the registered persons could not claim input tax adjustment as the Appliances as they had no nexus with the taxable supplies. He argued that the Appliances contributed to the taxable activity of the retailer and not the registered persons. 29. Since the controversy the controversy involves the interpretation of Sections 7(1), 8(1)(a) and 8(1)(b), we reproduce them hereunder for ready reference: 7. Determination of tax liability --(1) Subject to the provisions of Section 8B, for the purpose of determining his tax liability in respect of…
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