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Official Citation: 1999 SCMR 715
Court / Jurisdiction: Supreme Court of Pakistan
Year of Decision: 2000
Decision Date: 2000-12-31
Parties: ADDITIONAL COLLECTOR, SALES TAX, LAHORE and another vs RUPAFAB JUDGMENT
This judicial decision was delivered by the Supreme Court of Pakistan on 2000-12-31. The matter involves proceedings between ADDITIONAL COLLECTOR, SALES TAX, LAHORE and another and RUPAFAB JUDGMENT, officially reported as 1999 SCMR 715. The court reviewed applicable Pakistani statutes, procedural requirements, and governing case-law authorities. The full text below contains the complete facts, arguments, and legal reasoning rendered by the honorable bench.
Case cited as 1999 SCMR 715
Court Name: Supreme Court of Pakistan Judge(s): Iftikhar Muhammad Chaudhry, Hamid Ali Mirza Title:ADDITIONAL COLLECTOR, SALES TAX, LAHORE and another vs RUPAFAB
JUDGMENT
Reported As: 2001 PTD 2383 Result: Appeal allowed Judgment JUDGMENT IFTIKHAR MUHAMMAD CHAUDHRY, J.---This appeal by leave of the Court is directed against the judgment, dated 28th July, 1997 passed by Lahore High Court, Lahore whereby Writ Petition No.3982 filed by respondent No.1 has been allowed. 2. Briefly stating facts of the case are that respondent No.1 submitted applications before the Assistant Collector Sales Tax (Refund) claiming refund of input tax, details of the applications so submitted by the respondent No.1 are reproduced hereinbelow: Application Goods Sales Tax Claimed Rs. 7-6-1996 3/95 to 9/96Pumps, Street Light Boiler Chiller, Frame15% 8,02,812.85 2. 8-5-1996 8/94 to 6/96Imported & Local Machinery Equipment Transformer etc 15% 1,59,39,462.45 3. 11-7-1996 10/95 to 6/96Plant & Machinery 15% 1,33,84,442.00 Total: 3,01,28,717.30 3. The Assistant Collector Sales. Tax (Refund) instead of acceding to the request of respondent No.1 issued show-cause notice to it vide C. No.IVB(S) Refund/29/96/874, dated 22-8-1996 to explain as to why the claim of refund of sales tax shall not be rejected. The respondent No.1 submitted its reply
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on 27th August, 1996. However, after hearing respondent No.01 the Assistant Collector vide order, dated 20th January, 1997 rejected its claim. Relevant paras. From the said order read as under:- "7. As per C.B.R's. Letter C. No. 2(24) STP/85/pt, dated 14-12-1996 with reference to Collectorate's Letter C. No.01-ST/ Refund/Misc/P-II/112, dated 18th September, 1996 comparison between 'Rule' and 'Act' is, of no value, if a manufacturer has voluntarily opted to operate under some specific rule. Limitations under this rule do cover all rebates, remissions, refunds, adjustment and drawback of sales tax under any provision of the Act. The C.B.R's., has stated that case may be decided accordingly on merits. 8. I have gone through the records produced by the applicant, as well as clarification of C.B.R. And have been led to the conclusion that the case is hit by provision and rules 9 and 13 of S.R.O. 639(1)/94 and 636(1)/95 which reads as under:--- 'A manufacturer paying sales tax under the notification shall not claim any rebate, remission, refund, adjustment or drawback of sales tax under any provision of the Act or any other rules made thereunder.' 9. Therefore, the refund claim of input tax amounts to Rs.3,01,28,717 (Rs.8,02,818.85, Rs.1,59,39,462.45 and Rs.1,33,86,442) filed by M/s. Rupafab Limited, 30 KM Lahore Raiwind Road, Lahore, under section 10 of Sales Tax Act, 1990 vide their applications dated 7-5-1996, 8-5-1996 and 11-7-1996 cannot be acceded and the said amount of refund claim is hereby rejected. And if any amount of output tax is adjusted against the above sales tax (Input Tax), the same amount is to be recoverable alongwith additional tax and surcharge thereon." 4. The respondent No.1 preferred writ petition before Lahore High Court, which was allowed, vide impugned judgment. As such leave to appeal was granted vide order dated 20-7-1999 to examine the following questions:--- (1) Whether an importer/manufacturer opting to come under the Fixed Amount of (Processed Fabrics) Rules, 1995 will not be bound by the provisions of Rule 9 (ibid) to claim refund of input tax under section 10 of the Sales Tax Act, 1990? (2) Whether in view of amendment of section 8 of the Sales Tax Act, 1990 (which is to be read with section 10 (ibid) by the Finance Act, 1999 with retrospective effect, refund of input tax paid under the aforesaid Rules, 1995 can still be claimed? (3) Whether the refund of input tax can be claimed under the aforesaid section 10 in respect of goods imported before the enforcement of the Rules, 1995 or exercise of the option of the manufacturer to come under them?" 5. Learned counsel for appellants contended that as respondent No.1 had voluntarily opted to come under the Fixed Amount of (Processed Fabrics) Rules, 1995 (hereinafter referred to as the "Rules"), therefore, it had no entitlement to claim refund of input tax under section 10 of the Sales Tax Act, 1990 (hereinafter referred to as the "Act"). 6. On the other hand learned counsel for respondent No.1 contended that Rule 9 of the Rules is ultra vires to section 10 of the Act, therefore, a right which has been conferred on an importer by the Act cannot be taken away by framing the Rules being subordinate legislation. 7. It may be noted that the Rules were promulgated vide Notification S.R.O. 640(1)/95 on 2nd July, 1995 and it remained in force till 30th June, 1996. Its Rule 9 being relevant is reproduced hereinbelow:--- "9. Limitation for rebate, remission, refund, drawback or adjustment.---A manufacturer paying sales tax under the notification shall not claim any rebate, remission, refund, adjustment or drawback of sales tax under any provision of the Act or any other rules made thereunder." 8. It may also be noted that as per section 10 of the Act as it stood up to 1st July, 1995 when the Finance Act for the fiscal year 1995-96 was promulgated the excess amount was liable to be
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refunded to the registered persons subject to the conditions mentioned therein. Section 10 of the Act for convenience is reproduced hereinbelow:--- "10. Excess amount to be carried forward.---(1) Subject to the provisions of subsection (2), if in relation to a tax period the total deduction of input tax and other adjustments as specified in section 9 exceed the output tax, the excess amount shall be carried forward by the registered person to the next period and shall be treated as input tax for that tax period: "Provided that if the excess amount is not fully covered by the tax payable during a period of six months following the tax period in which the credit first arose, the balance outstanding at the end of that period shall be refunded to the registered person as may be prescribed. Provided further that the tax charged on the acquisition of plant and machinery shall be adjustable against the output tax in sixty equal monthly installments; 'Provided also that the tax charged on or after the 1st July, 1994, on the acquisition plant and machinery, spare parts of plant and machinery, and the machine tools shall be adjustable against the output tax in twenty-five equal monthly installments.' (2) In case of exports the amount of input tax not covered by the output tax shall be refunded to the exporter in such manner as the Board may determine' ." It is pertinent to point out here that during fiscal year of 1995-96 vide Ordinance (XXXVII of 1996) promulgated on 8th March, 1996 section 10 was amended. However, 2nd proviso of amended section being relevant as far as question for determination involved in the instant case is reproduced hereunder:--- "Provided further that the tax charged on the acquisition of plant and machinery, spare parts of plant, and machinery and machine tools shall be immediately adjustable against the output tax, and if the tax amount is not fully covered by the tax payable during the period of two months including the tax period in which the credit first arose, the balance outstanding at the end of that period shall be refunded to the registered person of filing of an application for such refund." 9. A perusal of above provision would show that a right to claim refund of Sales Tax to the taxpayer was conceded, however, it was subject to the conditions laid down therein. But the S.R.O. No.640(I)/95, dated 2nd July, 1995 denied the right of rebate, remission, adjustment, refund or drawback of sales tax to a manufacturer, therefore, the proposition of law requiring consideration would be as to whether such right can be denied to a manufacturer by means of a subordinate legislation or not. 10. Learned counsel for appellants contended that the respondent company voluntarily exercised option on 6th August 1995 to pay fixed sales tax in pursuance of Notification S.R.O. No.939(I)/94, dated 25th December 1994 and continued to avail the benefits of making payment of fixed sales tax even on promulgation of fresh Notification S.R.O. 640(1)/95 dated 2nd July, 1995, therefore, demand of refund of input tax by respondent No.1 at a subsequent stage was not entertainable merely for the reason that as per its stand, option to make payment of sales tax was due to bona fide mistake. 11. In this context learned counsel for respondent No.1 has cited number of judgments on the proposition of law that when there is inconsistency between the Act of Parliament and Rules then the latter will give way to the former being the parent law. 12. There is no cavil with the proposition put forth by the respondent's counsel. However, to re-affirm this principle of law a para. From the case of Harjina Salt Chemicals (Pak.) Ltd. v. Union Council, Gharo and others 1982 SCMR 522 is reproduced hereinbelow:--- "17. It is now a well-established principle of interpretation of statutes that Rules which are merely subordinate legislation, cannot override or prevail upon the provisions of the parent Statute and whenever there is an inconsistency between a Rule and the Statute, the latter must prevail. This,
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however, envisages that all efforts to reconcile the inconsistency must first be made and the provisions of the parent Statute prevail only if the conflict is incapable of being resolved." The above rule has been re-affirmed in the case of (1) Mian Ziauddin v. Punjab Local Government and others 1985 SCMR 365, (2) Federation of Pakistan v. Azam Ali 1985 SCMR 386, (3) The Chairman Railway Board v. M. Wahabuddin & Sons PLD 1990 SC 1034 and (4) Multiline Associates v. Ardeshir Cowasjee PLD 1995 SC 423. Besides these judgments there is plethora of case-law on the subject decided from time to time by the superior Courts. 13. The principle of law pronounced by this Court in Hirjina Salt Chemicals Ltd. (ibid) persuades us to hold that Rules have not to override the provisions of section 10 of the Act relating to the refund of the excess amount if it has been paid by a registered person after deduction of input tax. It may be noted that during existence of S.R.O. 640(1)/95, dated 2nd July, 1995 section 3(4) of the Sales Tax Act remained 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--- (a) taxable supplies made in Pakistan by a registered person in the course or furtherance of any business carried on by him; and (b) goods imported into Pakistan. (2) ................................................. (3) ................................................. (4) With the prior approval of the Federal Government, the Central Board of Revenue or the Collector may in lieu of levying and collecting the tax under subsection (1), by Notification in the official Gazette, levy and collect such fixed amount of tax as it may deem fit on any goods or class of goods, payable by any establishment or undertaking producing or manufacturing such goods. (5) ................................................. Subsection (4) of section 3 of the Act as it was applicable had conferred jurisdiction upon the Federal Government to collect fixed amount of tax as it may deem fit on any goods or class of goods in addition to or in lieu of levying or collecting tax under its subsection (1). Therefore, in pursuance of such powers read with section 50 of the Act, S.R.O. 640(1)/95, dated 2nd July 1995 was promulgated providing concession to a manufacturer to pay fixed sales tax which was in lieu of sales tax as it was due on such manufacturer or registered person as per section 3(1) of the Act. It may be observed that the registered person or manufacturer opting to pay fixed tax as per its option was not required to pay tax as per the rate mentioned in section 3(1) of the Act meaning thereby that in any case, sales tax was required to be paid whether at the rate prescribed by the Federal Government under section 3(1) of the Act or at the fixed rate in terms of section 3(4) of the Act and the Rules framed thereunder i.e., S.R.O. Under discussion. It is nobody's case that under section 3(1) of the Act, the sales tax was not liable to be paid by respondent No.1 but it has been illegally recovered from him by promulgating SRO, dated 2nd July, 1995. Had the case of respondent been otherwise there was no difficulty in holding that Rule 9 of the Rules had curtailed the right of manufacturer/ respondent to claim the refund of the tax which was not due at all. As has been observed hereinabove the sales tax in any case was due against the respondent notwithstanding the fact whether it should be at a rate fixed by the Federal Government under section 3(1) of the Act or under section 3(4) of the Act. To support this conclusion reference may be made to the case of Central Board of Revenue and 3 others v. Seven-Up Bottling Company (Pvt.) Ltd. 1996 SCMR 700. In this case vires of Excise Duty on Production Capacity (Aerated Water) Rules, 1990 issued under sections 3(4) and 37 of the Central Excise and Salt Act, 1944 (I of 1944) was under consideration before this Court because learned High Court vide judgment dated 11th December 1993 declared that the levy made and recoveries effected from the petitioner (Seven Up Bottling Company Ltd.) was without lawful authority etc. During the arguments it was pointed out that Government is competent to adopt different modes of levy of excise duty and if such procedure is adopted it would be mutually exclusive. The right of Central Board of Revenue to recover excise
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duty on produce either on the basis of actual production of the goods or on the production capacity of the plant determined under the Rules but its claim was that excise duty is leviable under the Rules on the basis of the duty last paid by them on the actual production of the goods produced by them in the producing area. Therefore, in this context it was held that "where the Government has decided to recover excise duty on the basis of production capacity of plant, machinery etc., it could not demand the excise duty on the basis of actual production of goods. Sections 3(1) and 3(4) of the Act enact these two alternative principles for levy of excise duty on goods envisaged by entries Nos.44 and 52 of the List of the Constitution." It was further observed that the rationale behind these two mutually exclusive modes of levy of excise duty on goods is quite obvious when the excise duty is recovered on the basis of actual production of goods under section 3(1) of the Act the production capacity of the plant, machinery etc., has no relevancy at all. Similarly, when excise duty is sought to be imposed on the basis of production capacity of plant, machinery etc. The actual production of goods becomes irrelevant " . Applying this principle in broader spectrum on the facts of the instant case we are inclined to substantiate above findings that both the modes of the recovery of sales tax i.e. Under section 3(1) of the Act or under S.R.O.No.640(I)/95 dated 2nd July, 1995 issued under section 3(4) of the Act are not mutually destructive to each other and the Federal Government under the law was competent to recover the fixed sales tax from the respondent because option was exercised by the respondent to come under the regime of payment of fixed sales tax voluntarily. 14. Learned counsel for the respondent heavily relied on the judgment of Pifzer Laboratories Ltd. v. Federation of Pakistan PLD 1989 SC 64 and argued with great vehemence that it was the normal duty of the appellants to refund the excess amount of sales tax. As far as the principles discussed in this judgment are concerned there is no cavil with them but question is whether this judgment has rendered any help to respondent No.1 or not. In this case this Court examined the effect of subsections (1), (2) and (3) of section 32 and section 33 of the Customs Act. As per subsection (1) of the latter section the refund of the customs duty or charges claimed to have been paid or over paid through inadvertence, error or misconstruction shall not be allowed unless the claim is made within six months of the date of payment and according to its subsection (2) in the case of provisional payments made under section 81 of the Customs Act, the period of six months shall be reckoned from the date of the adjustment of the duty after its final assessment. Therefore, in view of such provisions and after considering the case law on the subject and the treaties this Court deduced following principle:--- "15. In the instant case the imported item Salinomycin was exempted from payment of customs duty and sales tax under section 19 of the Act and section 7 of the Sales Tax Act, 1951. In para. (0 of the grounds of the above memo. Of appeal, it has been averred by the appellant that they, in good faith, genuinely believed that they could apply for refund after they could satisfy the authorities that they had consumed the raw material for the manufacture of medicines as pointed out hereinabove in para. 6. Be that as it may, the fact remains that they would not have been liable to pay the impugned amount by virtue of the aforesaid exemption, if they had fulfilled the conditions contained in the S.R.O. Inter alia referred to hereinabove . They would not have paid the amount involved if they would not have been under a mistake either as to the factum of exemption or as to the time of claiming refund of the same, thus the above amount was paid under a mistake as contemplated in section 72 of the Contract Act." In view of the above principle we feel no hesitation in holding that neither the sales tax at the fixed rate was paid under a mistake because it was due against the respondent nor the respondent paid the tax due to inadvertence, error or misconstruction more than the amount due against it because by exercising option respondent instead of paying tax at the rate of 15% agreed to pay due sales tax at the fixed rate. It is also not the case of the respondent that realization of the sale
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tax was outside the authority of the sales tax officer. Therefore, we are of the opinion that the judgment relied upon by the learned counsel for the respondent has not rendered any help to him because no case of illegally withholding of respondent's money paid by it as fixed sales tax has been made out. Undoubtedly the respondent had succeeded in making out a case in its favour if it had shown that the amount of the input/sales tax has been withheld without any justification. Thus, for such reasons the other judgments relied upon by the respondent's counsel reported in 1990 ALD 582, 1994 CLC pages 994 and 1612 and 1994 PTD 1324 need no discussion. Learned counsel has also relied upon the judgments from the Indian jurisdiction, effect of whereof case-wise is reproduced below:--- Messrs Shiv Shanker Dal Mills etc. v. State of Hirayana AIR 1980 SC 1037. In this case it was held that "where public bodies, under colour of public laws, recover people's moneys, later discovered to be erroneous levies the dharma of the situation admits of no equivocation. There is no law of limitation, especially for public bodies on the virtue of returning what was wrongly recovered to whom it belonged. Nor is it palatable to our jurisprudence to turn down the prayer for high prerogative writs, on the negative plea of alternative remedy since the root principle of law married to justice is ubi jus ibi remedium." The principle discussed in this judgment of course would not be applicable on the facts of this case because the sales tax was not recovered erroneously from the respondent by the appellants because the respondent itself voluntarily paid the same at the fixed rate instead of paying it at the rates prescribed under section 3(1) of the Act. "Aluminium Corporation of India Ltd. v. Union of India and others AIR 1975 SC 2279. In this case effect of Notification No.66/60,. Dated 20-4-1960 issued under Rule 8 of the Central Excise Rules (1944) imposing a single point levy at the ultimate stage of the manufacture was examined because the appellant company claimed refund of over levied excise duty as such it was held that as an intermediate products, i.e. Ingots, bars etc. Are used for manufacturing plates, sheets, circles etc. And 50% which become scrap although it had suffered duty as ingot, bar or block etc. And 50% which became scrap too was taxable as per notification, therefore, it was held that the appellant company was entitled to refund of the excess duty paid on the scrap which is not used in manufacturing end product. In the instant case admittedly the respondent has no case of partial refund of the sales tax in view of the argument on the basis of which the judgment relied upon has proceeded, therefore, it is not helpful to respondent in any manner. The Sales Tax Officer, Banaras and others v. Kanhaiaya Lal Makund Lal Saraf, Agra Bullion Exchange and others AIR 1959 SC 135. In this judgment with reference to the provisions of section 72 of the Contract Act it was held that true principle is that if one party under a mistake, whether of fact or law, pays to another party money which is not due by contract or otherwise that money must be repaid. The mistake lies in thinking that the money paid was due when in fact it was not due and that mistake, if established would entitle the party paying the money to recover it back from the party receiving the same. As it has been discussed hereinabove that the sales tax either at the rate prescribed under section 3(1) or under section 3(4) of the Act was due against the respondent, therefore, it has not been paid by mistake to the appellants. "Commissioner of Income-tax, Madras v. R.SV. Sr. Arunachalam Chettiar AIR 1965 SC 1216". In this judgment it was held that the doctrine of approbate and reprobate is only a species of estoppel. It applies only to the conduct of parties. As in the case of estoppel it cannot operate against the provisions of a statute. If a particular income is not taxable under the Income-tax Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. Equity is out of place in
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tax law; a particular income is either exigible to tax under the taxing statute or it is not. If it is not, the Income-tax Officer has no power to impose tax on the said income. In view of the ratio decidendi of this judgment the respondent has never pleaded that the sales tax was not due against it because in the instant case apparently there is a dispute in respect of the rate of the tax i.e. Either it should be at the rate specified under section 3(1) of the Act or under S.R.O. 640(1)/95 dated 2nd July 1995. As such the principle of law discussed in this judgment cannot be applied on the facts of the instant case. 15. Learned counsel for the appellants then contended that if there was any illegality in refusing to refund Sales Tax under the Act it has been cured by the legislature by adding subsection (5) to section 8 of the Sales Tax Act by giving it retrospective effect, therefore, Notification dated 2nd July, 1995 stands validated for all intent and purposes. He further contended that legislature is always competent to legislate retrospectively. Reliance in this behalf was placed by him on the judgments reported in 1986. SCMR 1916, 1993 SCMR 1081, PLD 1997 SC 582, 1999 SCMR 412 and 1999 SCMR 715. 16. On the other hand learned counsel for the respondent stated that section 8(5) of the Act cannot operate retrospectively because no such intendment is visible in the Finance Act, 1999 in pursuance whereof subsection (5) has been added in section 8 of the Act. According to . Him newly added subsection has effected the past and closed transactions, therefore, there must have been reasons in law to satisfy the Court that original law on basis of which a right has accrued in favour. Of respondent was defective, therefore, to remove such defect this subsection has been promulgated. Learned counsel further contended that in the case where amending Ordinance is going to reopen the past and closed transactions or if it nullifies the findings of the Court then it must expressly state that it applies to such cases specifically. He was also of the opinion that such amendment if is allowed to continue it would be void in the eye of law because it tantamounts to transgress the jurisdiction of the Court exercised under Article 185(3) or Article 199 of the. Constitution of Islamic Republic of Pakistan. 17. We have examined the respective contentions of both the parties counsel carefully and have also gone through subsection (5) of section 8 of the Act which wag added vide section 16…
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