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Petitioner: SHEIKHOO SUGAR MILLS LTD. and others VS Respondent: GOVERNMENT OF PAKISTAN and JUDGMENT
Court Name: Supreme Court of Pakistan Judge(s): Iftikhar Muhammad Chaudhry, Mian Muhammad Ajmal Title:SHEIKHOO SUGAR MILLS LTD. and others vs GOVERNMENT OF PAKISTAN and
JUDGMENT
Reported As: 2001 PTD 2097 Result: petitions dismissed Judgment JUDGMENT IFTIKHAR MUHAMMAD CHAUDHRY, J.---By this judgment we intend to dispose of Civil Appeals Nos.1805 to 1811 of 1998, 1392, 1417, 1418 of 1999, 2 and 22 of 2000 and Civil Petitions No. 386/L, 526-L and 700-L of 2000 as these matters are directed against common judgment passed by Lahore High Court, Lahore in writ petitions PM instituted by the appellants and petitioners involving identical questions of law. 2. We don't consider it necessary to marshall the facts of each case in detail except mentioning that the appellants/petitioners are dealing in manufacturing and producing sugar in their respective industrial units as it is evident from narration of fact mentioned in all the appeals and petitions. Whereas department's claim against appellants/petitioners is that they are liable to pay sales tax on 'Bagasse' with effect from 1st July, 1996 to 13th June, 1997, therefore, Collector/Additional Collector Sales Tax called upon them to make payment of evaded sales tax alongwith the additional tax failing which action as contemplated under the law shall be taken. The appellants/petitioners without approaching departmental functionaries against the issuance of show-cause notices to them instituted writ petitions before Lahore High Court, Lahore but without any success because vide impugned orders, dated 14th April, 1998 relief sought for was declined to them. Thus civil petitions for leave to appeal were filed by them which were allowed and leave was granted to file appeals vide order, dated 16th October, 1998 whereas C.P.L.As.
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Mentioned in title of the judgment without granting leave were clubbed with the appeals to dispose them of as well jointly with the appeals. 3. Leave to appeal has been granted among others to examine following questions:-- "(a) Whether in view of the admitted position that all the petitioners are consuming 'Bagasse' and further that no 3rd person is involved in the sale of 'Bagasse' in all cases, the petitioners are liable to the payment of disputed sales tax on 'Bagasse'? (b) Whether within the ambit of section 3 of the Sales Tax Act, 1990, being the charging section, 'Taxable activity', 'taxable supply', time of supply'; and value of supply' respectively defined in section 2(35), (41), (44) and (46) of the Act ibid can be equated with the process of 'sale' even notionally? (c) Whether the learned Judge in Chambers was correct in observing that the effect of joint reading of Items Nos.49 and 59, Part I of the Federal Legislative List in Fourth Schedule of the Constitution of Pakistan is that petitioners can be made to pay sale tax on 'Bagasse' in the presence of the exemption to take effect during the financial year in question i.e. 1st July, 1996 to 30th of June, 1997 in that the same was rescinded during its currency, to it on 30-6-1997? 4. Learned A.C.Ss. Who appeared on behalf of appellants/petitioners argued their cases from different dimensions to persuade us that no sales tax can be levied on 'Bagasse'. Their respective contentions shall appear hereinbelow alongwith contra arguments of learned counsel for official respondents. 5, Before focusing on the question putforward by the appellants through their counsel it would be appropriate to reproduce the Dictionary meanings of the word 'Bagasse' hereinbelow:-- (Words and Phrases Permanent Edition 5) " 'Bagasse' Patent product claims and process claims relating to manufacture of hardboard from 'wood or woody material' held not infringed by manufacture of hard board from Bagasse." (The Oxford English Dictionary) 'Bagasse' Bagasse ad. Sp. Bagazo, hushs of olives, grapes etc. After pressing; perh. A variant of baggage 'lumber, trash' with augmentative suffix. The refuse products in sugar-making, whether from the cane or from beet. The huge, square, red brick Bagasse burner, into which the residuum of crushed sugar cane passes.' (The Concise Oxford Dictionary). 'Bagasse' the dry pulpy residue left after the extraction of juice from sugarcane, usable as fuel or to make paper etc. (The New Encyclopaedia Britannica Volume 1 page 791). " 'Bagasse' also called MEGASS, fibre remaining after the extraction of the sugar bearing juice from sugarcane. The word Bagasse, from the French Bagage via the Spanish bagazo, originally meant 'rubbish', 'refuse' or. 'trash'. Applied first to the husks of olives, palm nuts, and grapes after pressing, use of the word was extended to mean residues from other processed plant materials such as sisal, sugarcane, and sugar beets. In modern use, the word is limited to the end product of the sugarcane mill. Bagasse may be used as fuel in the sugarcane mill or as a source of cellulose for manufacturing animal feeds. Paper is produced from Bagasse in several Latin-American countries, in the Middle East, and in all sugar-producing countries that are deficient in forest resources. Bagasse is the essential ingredient for production of pressed building board, acoustical tile, and other construction materials. " The above dictionary meanings of word "Bagasse' suggest that it can be termed as intermediary, marketable produce used as fuel for burning boliers containing juice of sugarcane or for making soft or hard building board. We were informed by learned counsel for appellants that Bagasse
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caters 70/80% requirement of energy required to be consumed for manufacturing sugar. In other words by use of Bagasse as a fuel in process of manufacturing sugar the appellants are relieved from financial burden to this extent. Besides it Bagasse and other derivatives of the sugarcane procured during the process of manufacturing sugar like cane molasses, can wax etc. Are considered as bye-products of the sugar as per the New Encyclopaedia Britannica Vol. Page 378. It is needless to observe that the cane molasses is also used in preparation of livestock feed, alcoholic drinks etc. Similarly cane wax is used in manufacturing polish, polishes, cosmetics and paper coatings. Thus Bagasse cannot be considered a residue of the sugarcane but a useable product as noted above. 5-A. It would not be out of context to point out that Central Board of Revenue has assigned a separate head to Bagasse for the purpose of levying customs duty, sales tax etc. Alongwith other residues and waste of Food Industries. But the Federal Government had been granting exemptions on the levy of sales tax by issuing notifications from time to time earlier under subsections (1) and (2) of section 7 of the Sales Tax Act, 1951 (III of 1951) and later on its amendment under subsection (1) of section 13 of the Sales Tax (Amendment) Act, 1990. Such exemption, however, was not allowed for the period commencing from 1st July, 1996 to 13th June, 1997 as the same was not reflected in the Finance Act, 1996. However, by a Notification No. SRO 437(1)/97, dated 13th June, 1997 the Federal Government extended exemption of sales tax on the Bagasse, if used in house as fuel. The notification was to operate till 30th June, 1997 but in the Finance Act, 1997 exemption of sales tax was again granted on the same conditions as it has been mentioned in the notification referred to hereinabove. 6. The edifice of arguments of Mr. Ali Sibtain Fazali learned A.S.C. Was that the Sales Tax Act, 1990 (hereinafter referred to as the "Act") is meant to levy taxes on the sale of goods i.e. Transfer of property from one person to other person and in absence of essential ingredients of the sale, the sales tax cannot be charged, therefore, adopting its definition exhaustively in view of the words "means" and "includes" used in section 2(35) of the Act it may be declared that sales tax cannot be recovered on Bagasse consumed by the appellants in their factories as fuel while manufacturing sugar. Reference in this behalf was made by him to the judgments reported in AIR 1977 SC 90, AIR 1989 SC 335 and AIR 1995 SC 1395. In continuation of his above arguments he stated that unless it is established that sale of Bagasse had taken place between two persons the sales tax cannot be levied on the quantity of Bagasse which the appellants have kept for themselves to use as fuel in manufacturing of sugar. To substantiate the definition of word "sale" of goods reliance was placed by him on AIR 1958 SC 560, AIR 1964 SC 1037 and AIR 1968 SC 838. Mr. Hamid Khan learned A.S.C. Substantiated the above contentions and stressed for physical transferring of the goods from one person to other person against a consideration as per the agreement to complete the transaction of sale. He also relied on AIR 1954 SC 459 and AIR 1978 SC 449. Raja Muhammad Akram learned A.S.C. Advancing the case of the appellants argued that as admittedly the appellants are consuming Bagasse as fuel, therefore, its such consumption cannot be deemed self-sale to them. He has also referred to the judgments noted above. Learned counsel further stated that as per interpretation of the statute the word used by the legislature are required to be defined in the true sense instead of stretching them to achieve the object beyond the intention of law as held in 1999 PTD 1892 and 2000 PTD 3715. 7. Whereas learned counsel for the official respondents argued that as per the scheme of the Act, sales tax is not only leviable on profit and loss oriented transaction between two parties but it can be charged on all taxable supplies in respect of taxable goods, manufactured, consumed during a
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taxable activity notwithstanding the fact of pecuniary profit as per the definition of the expression taxable activity and taxable supplies under sections 2(35) and 2(41) of the Act. 8. The Act has been re-enacted to consolidate and amend the law relating to levy of tax on the sale of goods, importation, exportation, production, manufacture or consumption of goods. There cannot be a cavil at all that ordinarily concept of sale of goods represents to a sale transaction between two persons under an agreement as held in the case of the State of Madras v. M/s. Gannon Dunkerley & Co., (Madras) Ltd. (AIR 1958 SC 560) that it is necessary that there should be an agreement between parties for the purposes of transferring title to goods which pre-supposes capacity to contract, that it must be supported by money consideration, and that as a result of the transaction property must actually pass in the goods. In the case of Deputy Commercial Tax Officer, Saidapet Madras and another v. Enfield India Ltd. Cooperative Canteen Ltd. (AIR 1968 SC 838) it has been held that if the element of transfer of property from one person to another is lacking in any transaction there is no sale and the Legislature cannot by treating it as a sale by a deeming clause bring it within the ambit of the taxing authorities. Similar interpretation was assigned by other judgments of Indian Supreme Court cited at the bar by learned counsel Mr. Ali Sibtain Fazli, Mr. Hamid Khan and Raja Muhammad Akram Like AIR 1968 SC 838, AIR 1954 SC 459, AIR 1978 SC 449 and in the case of Keith Raymond Pine (Appellant) v. Commissioner of Inland Revenue (Respondent) by the High Court of Appeal of Newsland. However, in one of the judgments from Indian jurisdiction in the case of Bhopal Sugar Industries Ltd. M.P. And another v. D.P. Dube, Sales Tax Officer, Bhopal Region, BhOpal and another (AIR 1964 SC 1037) it was held that consumption by an owner of goods in which he deals, therefore, is not a sale within the meaning of the Sales of Goods Act. 8-A. Although as per the title of the Act it should be meant for tax on the sales and not on any other transaction but as per its preamble and definition clause as well as under section 3 of the Sales Tax Act which is a charging action the sales tax is leviable on taxable supplies and taxable activities. For convenience relevant part of section 3(1) of the Act is reproduced hereinbelow:-- "3. Scope of tax.--(1) Subject to the provisions of their 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 of furtherance of any taxable activity carried on by him; and (b) goods imported into. Pakistan." The above quotation reveals that as per clause (a) of subsection (1) of section 3 of the Act two conditions are essential to levy sales tax namely the taxable supplies and taxable activities. Both these expressions have been defined under sections 2(35) and 2(41) of the Act which reads thus:-- "(35)'Taxable activity' means any 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 to any other person, for any consideration or otherwise, and includes any activity carried on in the form of a business, trade or manufacture." "(41)'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." 8-B. As per the contention of the learned counsel appearing for the appellants/petitioners particularly Mr. Ali Sibtain Fazli 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 own 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
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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. 9. It may be noted that the intention of the Legislature can be gathered from the arrangement of different parts of section 2(35) of the Act which appears to be disjunctive and not conjunctive. Its careful study suggests that taxable activity means any activity which is carried out by any person which may include one or more than one person with pecuniary profit or without pecuniary profit with regard to supply of goods to any person for any consideration or supply of goods otherwise and the supply of goods includes any activity carried on in the form of business, trade or manufacture meaning thereby that if supply of goods has been made in the course or furtherance of business carried out for consideration putting to private business or non-business use of goods acquired, produced or manufactured in the course of the business it would fall within the definition of taxable activity. At this juncture reference may also be made to the definition of manufacturer or producer under section 2(17) of the Act, according to which a person who engages whether exclusively or not, in the production or manufacture of goods whether or not the raw material of which the goods are produced or manufactured are owned by him and shall include a person who by any process or operation assembles, mixes, cuts, dilutes, bottles, packages, repackages or prepares goods by any other Manner etc. Will be considered to have manufactured or produced identifiable goods which can either be consumed independently or can be incorporated in the finished product of any item. Admittedly the intermediary produce of Bagasse which is procured during the process of extracting juice from sugarcane can be considered a marketable and identifiable goods which can be supplied by a corporate or incorporate person to itself in the course of business. While making such supply it is not necessary that it should be against money consideration to a third person because as we have noted that the definition of word "supply" under section 2(33) includes putting to private business etc., therefore, instead of defining the expression taxable activity extensively if it is defined exhaustively it covers any form of those activities which are even carried out by one person in his own business. As it has been observed hereinabove that Bagasse as per its definition is an identifiable/marketable goods on which tax can be levied, therefore, concluding so we feel no hesitation that o ,ce a taxable goods has been supplied by a person to itself it would fall with in the definition of taxable supply. Thus notwithstanding the fact whether the sale has taken place or not between two persons but fact remains that by supplying Bagasse the appellants will be doing a taxable supply during the process of taxable activity. As such it is liable to sales tax under the Act unless otherwise it is exempted by the Federal Government to provide incentive to the traders dealing in the sugar manufacture so they may reduce the price of the sugar by saving the price incurred by them on the fuel by burning Bagasse because if they have to consume other energy i.e. Electricity, gas etc. They have to pay its price independently. 10. Mr. Shaukat Jawaid, learned A.S.C. Contended that Bagasse does not fall within the definition of manufacture or produce, under section 2(16) of the Act, therefore, the appellants/petitioners are not manufacturer or producers under section 2(17) of the Act. To further elaborate his argument he referred to the definition of manufacture under section 2(f) of the Central Excises and Salt Act, 1994. According to him in the tax laws those meanings of expressions are to be accepted which are
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ordinarily understood by people as held in AIR 1977 SC 597. He has also placed reliance on 1980 ELT (Bombay) 146, 1980 ELT 99 (Calcutta) and 1980 ELT 789 C.B.E. & C. Mr. Hamid Khan learned counsel also argued in this behalf and contended that as Bagasse is obtained as residue during the process of consumption of sugarcane for preparing sugar as such it does not fall within the definition of manufacture or produce thus no sales tax can be levied on it. Reliance in this behalf was placed by him on 1992 PTCL (CL) 38, PLD 1986 SC 731, 1989 PTD 42, AIR 1968 SC 922. 11. Learned counsel for the respondents, however, controverting the above arguments of the appellants/petitioners' counsel contended that sugarcane is transformed into juice during a mechanical process for preparing sugar and Bagasse is obtained as intermediary product which has got its own identity and is also taxable as it is used in place of fuel as well as for preparing building material as such being an identifiable item falls under the definition of manufacture or produce as such is liable to sales tax. 12. It may be noted that under section 2(16) of the Act the words manufacture or produce has been defined as follows:-- "(16) 'manufacture' or 'produce' includes--- (a) any process in which an article singly or in combination with other articles, materials, components, is either converted into another distinct article or product or is so changed, transformed or reshaped that it becomes capable of being put to use differently or distinctly and includes any process incidental" or ancillary to the completion of a manufactured product; (b) process of printing, publishing, lithography and engraving; and '(c) process and operations of assembling, mixing, cutting, diluting, bottling, packaging, repackaging or preparation of goods in any other manner." The above definition clearly suggests that the sugarcane during its extrusion produces Bagasse, which is admittedly capable of being put to use differently. Therefore, squarely it falls within the definition of manufacture. As far as the authorities cited by learned counsel for appellants/petitioners are concerned they are distinguishable on facts as well as the law interpreted therein. In the case of Indian Aluminium Co. Ltd. And another v. A.K. Bandyopadiyay and others (1980 E.L.T. 146 Born.) it was held that refuse or scum thrown off during the process of manufacture cannot by any stretch of imagination be considered as a by-product and merely because such refuse or scum may fetch some price in the market they cannot be said to be finished excisable goods. First distinction in this case is that this judgment has been delivered under the Central Excises and Salt Act, 1944, the scheme of which pertained to charging of excise, which is different than the scheme of the Act. Secondly those refuse or scum were liable to be thrown off during the process of manufacture whereas the Bagasse as it has been noted hereinabove is not a refuse liable to be thrown away but it is an intermediary product of sugarcane which is separately identified and can be used differently. In the case of Messrs I.C. & E. Morton (India) Limited and others v. Superintendent of Central Excise, Chapra and others (1980 ELT 99 (Cal.) the question for consideration before a Single Judge of the High Court was with regard to interpretation of section 2(f) and Item IC of the Central Excises and Salt Act, 1944, therefore, while determining that the scraps are broken parts of the boiled sweets, certainly, it comes within the definition of 'confectionery' and excise duty is liable to be paid. However, it was held that the scrap cannot be taxed as finished product if it is obtained in the course of manufacture and not out of manufacture of finished product because if the raw material undergoes some change in the process of manufacture it cannot be equated with the finished product. In the instant matter there is no question of charging sales tax on the finished product, therefore, the judgment for such reason is distinguishable. Similarly the judgment Wirecond Delhi (Pvt.) Ltd. (1980 ELT 789 (C.B.E. & C.) is distinguishable from the instant case because while interpreting the definition of manufacture
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under the Central Excises and Salt Act, 1944 it was held that under section 2(f) of the Central Excises and Salt Act, implies a change whereby a new and different article must emerge having a distinctive name, character or use. Since the scrap of aluminium process is not useable until and unless it is re-melted, it can only be termed as 'aluminium in crude form' covered by item 27(a) of the Central Excise Tariff and cannot be said to be goods of a distinct and separate identity and character as envisaged by section 2(f) of the said Act. Likewise the judgment reported in case of Union of India and another v. I. Delhi Cloth and General Mills Co. Ltd. (AIR 1963 SC 791) is distinguishable because in this case as well it was held that the substance produced by the manufacture at an intermediary stage is not put in the market would not make any difference to the chargeability of the substance to excise duty if it is covered by an item in Schedule I of the Act. As per the facts of this case during the manufacturing of hydrogenated oils known as vanaspati from the raw materials, new substance has been brought into existence by the application of processes one or more of which are with the aid of power and that substance is the same as 'refined oil' as known to the market, and excise duty may be leviable. However, it was further observed that in view of the Indian Standard Institution as regards what it, refined oil as known to the trade in India must be preferred. As the raw oil though purified in the process of manufacturing vanaspati, is not deodorised before its hydrogenation it does not become at any stage refined oil as is known to the consumers and the commercial community and no excise duty is leviable on it. It may be observed that this judgment has also not advanced the case of the appellants/petitioners in any manner because as it has been held that sugarcane after passing through the process of extrusion does produce an intermediary product known as Bagasse which has an independent identity, status and character known to the consumer and it is also marketable in view of its utility as discussed hereinabove. Likewise the judgment cited by Mr. Hamid Khan reported in the case of the Commissioner of Sales Tax v. Messrs. Shaiq Corporation Limited (PLD 1986 SC 731) is…
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