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Petitioner: Pakistan through Secretary, Finance and another VS Respondent: Kohat Cement
Court Name: Supreme Court of Pakistan Judge(s): Fazal Karim, Mamoon Kazi, Ajmal Mian Title:Pakistan through Secretary, Finance and another vs Kohat Cement
JUDGMENT
Reported As: PTCL1995 CL. 366 Result: Appeal allowed Judgment JUDGMENT MAMOON KAZI, J.--1 This appeal, by leave, has arisen in the following circumstances: 2. Respondent No. 1 which is a state-owned company was regularly paying sales tax on the wholesale cash price of cement produced by it. The respondent received a show cause notice from respondent No. 3 dated 13.6.1989, alleging that they had not included transportation and octroi charges which were leviable on their product in the wholesale cash price. Consequently, a demand was made for the payment of Rs. 14,05,443 as short-paid sales tax and Rs. 2000/- as penalty. The respondent appealed to respondent No. 2 but its appeal was only partially granted as supplies made by the said respondent to government agencies were assessed on the declared value but no relief was allowed in respect of the respondent's supplies to retail traders. Having failed to succeed in its revision, the respondent filed a petition before the High Court at Peshawar which was allowed as the learned Judges of the High Court were of the view thatr if no charges in respect of octroi or transportation were incurred by the respondent, the same could not be included in the price for the purpose of assessm ent of the sales-tax under section 4(1) of the Central Excises and Salt Act, 1944. 3. Leave was granted by this court to examine the effect of an earlier judgment of this court in Itehad Chemicals v. Islamic Republic of Pakistan (PLD 1993 SC 136 = PTCL 1993 CL. 620), wherein it had been observed that items of freight and octroi were to be included for the purpose of computing the price under section 4(1) for assessment of excise duty and sales-tax. 4. Mr. Saadat Hussain who has appeared on behalf of the Federal Government while challenging the correctness of the view taken by the High Court has contended that, as is clearly envisaged in
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section 4(1) of the Central Excises and Salt Act, value of articles for the purpose of duty under the said section is to be determined only by excluding the amounts of duty and sales-tax payable thereon, but no further deductions beyond the same are permissible. Consequently, expenses incurred on octroi and transportation beyond the factory premises up to the nearest wholesale market are to be included for computation of such value. Therefore, the appellants had clearly acted in consonance with the law as laid down by section 4(1) of the said Act and the judgment of the High Court is liable to be set aside. 5. Section 4(1) of the said Act around which the entire controversy revolves provides as under:- "Determination of value for the purposes of ditty.-(1) Where under this Act any article is. Chargeable with duty at a rate dependent on the value of the articles, such value shall be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold to the general body of retail traders or, if there is no general body of retail traders, the general body of consumers on the day on which the article which is being assessed to duty is removed from the factory or the warehouse, as the case may be, without any abatement or deduction whatever except the amounts of duty and sales tax then payable." The said sub-section came up for examination before this court in the case of Itehad Chemicals (supra) although, the main contention in the said case was that the learned Judge of the High Court had erroneously exercised powers of review. However, as in the present case, the controversy in the said case had arisen before the High Court on account of inclusion of freight or octroi charges by the department for the purpose of determination of value of the goods under section 4(1) of the said Act. In the said case, in the judgment which was delivered by one of us (Amal Mian, J) it was observed as follows:- - "We are inclined to agree with Ch. Muhammad Faruq, learned Deputy Attorney-General, that no case was made out by the appellants to review the finding concurred by the learned Judge in Chamber that the items of freight and octroi were to be included for the purpose of computing the price under section 4(1) of the Act of 1944 for the purpose of assessment of excise duty and sales tax." Although, it appears that, the attention of the learned Judges of the High Court was not invited to this case by the learned counsel then appearing for the parties but reference was made to the judgment of the Indian Supreme Court in the case of A.K. Roy v. Was Ltd. (AIR 1975 SC 225): In this case also provisions of section 4 of the Indian Central Excises and Salt Act which correspond with section 4 of such law applicable in Pakistan were the subject matter of review before the Supreme Court of India, The question which was being canvassed was whether the appellant was liable to be charged with excise duty on the basis of price of retail sales made by it directly to the consumers from its head-office and branch offices or whether it was liable to be charged on the basis of price payable by the wholesale dealers after deducting 22 per cent discount. After extensive reference to case law, the controversy was resolved by the Supreme Court by the following observations:- "21. Excise is a tax on the production and manufacture of goods (see Union of India. Delhi Cloth and General Mills, (1963) Sitpp 1 SCR 586- (AIR 1963 SC 791) Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post- manufacturing operation, namely selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved
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in the transport of the articles. As already stated it is not necessary for attracting the operation of section 4(a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position. "22. The appellant contended that 22 per cent discount allowed under the agreements with the wholesale dealers was not trade discount, on the ground that there was no evidence to show that the discount allowed was 'trade discount' within the meaning of the Explanation to section 4. There was no contention by the appellants before the High Court that the discount allowed to the wholesale dealers was not 'trade discount'. The whole argument before the High Court proceeded on the basis that direct sales by the respondent to consumers constituted the major portion of the sales and that the sales to the wholesale dealers only represented a minor portion and, therefore, the price charged for the sales to wholesale dealers would not represent the 'wholesale cash price' of the articles sold. No data was placed before the High Court by the appellant to show that the 22% discount did not represent "trade discount" for the purpose of the Explanation. A "trade discount" is a percentage, deduction from the regular list or catalogue price of goods. As there was no case for the appellants that there was any secret arrangement between the wholesale dealers and the respondent in respect of the sales to them or that the price of the articles was under- stated in the agreements or that any extra-commercial advantages to the dealers were taken into account in fixing the price, we do not think that we should go into the question whether the discount allowed to the wholesale dealers was "trade discount" or not for the purpose of the Explanation." Relying upon the above observations of the Supreme Court of India, the learned Judges have taken the view that in the present case there was nothing before the learned Judges to indicate that octroi or transportation charges had actually been incurred by respondent No. 1. On the other had, it had been shown that such charges had been borne by the retail traders to whom the cement produced by the said respondent had been sold. Consequently, it was held that the valuation made by the respondent after excluding such charges was correct for the purpose of section 4(1). The Writ Petition was, therefore, accepted and the orders passed by respondents No. 2 and 3 demanding the said additional amount were held to be without lawful authority. 6. Learned counsel for respondent No. 1 has further relied upon the case of Messrs Indian Oxygen Ltd. v. Collector of Central Excise (1989 M LD 490), wherein a similar question had once again been raised before the Supreme Court of India. In this case the appellant who was a manufacturer of compressed oxygen gas had claimed abatements on account of freight and handling charges in respect of which it had not produced any evidence. The Supreme Court held that where the wholesale price was ascertainable at the factory gate the question of transportation charges under section 4(1 )(a) had become entirely irrelevant. More or less similar view had prevailed with the Supreme Court of India in Collector of Central Excise, Madras v. Messrs Indian Oxygen Ltd. (1989 M LD 2454) as it was held that rental charged and deposit taken for safe return of gas cylinders could not form part of an assessable value under section 4(1 )(a). Our attention has also been invited to Artic Industries Lid. v. H.H. Dave (AIR 1975 SC 960) which is another case from the Indian jurisdiction, although, a plain reading of the facts of this case indicates that the case has no direct nexus to the point in issue in the present case. In this case goods were sold by the manufacturer to wholesale buyers. The price charged by the appellant/manufacturer was a uniform price described as "the basic selling price", less trade discount. The goods were then sold to certain distributors at a higher price but at lower trade discount. However, the distributors sold the goods at a slightly higher price. It was held that, m the circumstances, the assessable value of the goods must be taken to be the price at which they were sold to the wholesale buyers, less the trade discount, but not the price
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charged by the distributors. The next case cited before us by the learned counsel for respondent No. 1 was decided by this court and the case is reported as Pakistan v. Popular Tobacco Co., Karachi (PLD 1961 SC 66). Although, in this case on the interpretation of section 4(1) of the Central Excises and Salt Act, it was held that deductions could be permitted on account of trade discount retained by a wholesale dealer but thereafter section 4 of the said Act has undergone changes and therefore, the case can hardly be called in Sid to support the contentions raised on behalf of the said respondent. Two more cases reported as Atlas Battery Ltd. v. Superintendent, Central Excise and Land Customs (PLD 1984 SC 86 = PTCL 1984 CL. 250) and Atlas Battery Ltd v. Superintendent Central Excise and Land Customs (PLJ 1979 Karachi 79) have also been cited before us by the learned counsel for the appellants, but again the cases render little assistance as the question that was dealt with in the said cases is 'not germane to the present controversy. In both the cases, the question related to the interpretation of sub-section (2) of section 4 of the said Act which referred to fixation of retail price of articles chargeable with duty for the purpose of computation of rate of duty. Section 4(2) provided for fixation of retail price by a manufacturer as inclusive of all charges and taxes at which any particular brand or variety of such articles was to be sold to the general body of consumers. It was held that any artificial or arbitrary price which was fixed by the manufacturer having no reference to general body of consumers as in case of contract based on special business relationship between the parties would clearly not be their "retail price" as contemplated by section-4(2) and any such sale if considered as a sale to a general body of consumers where all charges were not included in the retail price fixed and printed, the manufacturer was not entitled to be assessed at a reduced level but on ad valorem basis under the schedule to the said Act. 7. It may be pointed out that reference to the case of A.K Roy and other cases decided by the Supreme Court of India can render little assistance in resolving the present controversy because the provisions of the Indian Central Excises and Salt Act do not fully correspond to those of section 4(1) as presently applicable in this' country. According to the Indian law, although the value of the articles is to be determined on the basis of wholesale cash price by virtue of a deeming provision inserted in section 4(l)(a) of the Indian Law, as is also the case in Pakistan, but the main distinguishing feature in the Indian Law, which is clearly evident on the face of section 4(l)(a) is that, such wholesale cash price for which an article of like kind and quality is capable of being sold, must be the price at the point of time of removal of such article from the factory or any other premises of the manufacturer for its delivery at the wholesale market. In such a case, when the goods are to be delivered outside the manufacturer's premises, the element of octroi or transportation charges would* naturally be excluded for the purpose of computation of the value. However, the law applicable in Pakistan is clearly distinguishable because although, the value of an article is to be determined on the basis of the wholesale cash price for which such article is sold or. Is capable of being sold, to the genera] body of retail traders or, as the case may be, consumers but no such provision exists in section 4(1) as the same is applicable in Pakistan, whereby sale of articles for the purpose of Computation of their wholesale cash price is contemplated outside the factory or premises of the manufacturer, as is the case in India. The expression "general body of retail traders or consumers" although, has not been defined either in the said Act or under the rules framed thereunder but reference to the same in section 4(1) would generally mean reference to traders or persons to. Whom articles chargeable with duty are sold in the wholesale market. Consequently, before the goods reach in the hands of any retail traders or consumers from the premises of the manufacturer, payment of octroi duty or transportation charges would also be involved. Further, the language employed by the Legislature in section 4(1) of the said Act to the effect: "without any abatement or deduction whatever except the amounts of duty and sale-tax then payable" represents emphasis on only such deductions which have been expressly made
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permissible by the statute itself. Therefore, the sub-section only contemplates deductions on account of any amount of duty and sales-tax payable on such articles, for the purpose of computation of their value under the said section but no provision exists therein from which the legislative intent' qua further deductions on account of octroi or transportation charges can be spelt out. By a legal fiction, value of such articles is to be determined not alone on the basis of the actual price for which such article may be sold but such value may be determined even on the basis of the price of which an article of like kind and quality is capable of being sold on the day when it is removed from the factory, to the general body of retail traders or consumers, as the case may be. The provisions of the law in Pakistan on the subject are, therefore, clearly distinct from those of the Indian' Law where the value is to be assessed on the basis of the wholesale price outside the manufacturer's premises. The amendments m?De in section 4(1) clearly signify an intention on the part of the Legislature to include the element of post-manufacture charges for the purpose of computation of whole-sale cash price, barning only what has been expressly provided for by the legislation itself, notwithstanding the fact that by some understanding between the manufacturer of articles and their retail trader octroi or transportation or any other such charges are to; be borne by the latter. Therefore, even if the contention raised on behalf of respondent No. 1 that the octroi or transportation charges were not borne by it but the same were borne by ifs stockists is believed, the same would be of little consequence to it. Consequently, we are of the opinion that the view taken by the learned Judges of the High Court is not correct as octroi and transportation charges could be included by respondent No. 3 while determining wholesale cash price of the cement manufactured by respondent No. 1 since the same was permissible under section 4(1) of the Central Excises and Salt Act, 1944. 8. In the result, this appeal is allowed and the order of the High Court is set aside. FAZAL KARIM, J.--1 The question requiring determination in this case is a question of great public importance; it is--what is the value of the goods produced or manufactured in Pakistan, for the purposes of sales tax payable by the manufacturers or the producers within the meaning of section 3 of the Sales Tax Act 1951. Does this value include, for the purposes of sales tax, the transportation, a;nd octroi charges? 2. The first respondent, Kohat Cement Company, are the manufacturers of Cement. They received a communication from the Superintendent Customs and Central Excise Kohat on 1.4.1989 alleging that they had undervalued its cement for the purposes of payment of sales tax in that the transport charges and octroi duty were not included in the wholesale cash price of the cement. It was found that fee value of cement Avas the whole-sale price, Rs. 10,510/-, per 10 tons, plus the excise duty, Rs. 3320/- paid thereon, plus Rs. 521 f-, on account of transport charges, loading charges, octroi receipt and road tax; that "this under valuation had caused short assessment of Sales Tax amounting to Rs. 6.58 per M.T. Of cement, as a result of which sales tax to the tune of Rs. 14,05,443:00 entailed against differential value of Rs.1,01,18,721,84 has been short paid for clearance of 2,13,568.30 M.T on cement made during the period from 28.6.1989 to 30.4.1989". The first respondent replied this case being and here I quote from the first respondent's writ petition in the High Court "that the petitioner did not charge any transportation charges or octroi duty from the stockists i.e., retail-traders as such the wholesale cash price declared by the petitioner was correct". According to the first respondent it was a State-owned company, "and price of its product is always fixed by the Federal Government through state cement corporation limited and is advertised as such". The authorities did not accept this explanation and ultimately the first respondent were required by communication dated 8.7.1989 to pay a sum of Rs. 14,05,443/- as arrears of sales tax and a sum of Rs. 2000/- as penalty.
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3. It was in these circumstances that the first respondent invoked the High Court's jurisdiction under Article 199 of the Constitution. In the comments filed by the respondents to the writ petition namely (1) Pakistan, through Secretary Ministry of Finance, Islamabad, (2) Federal 'Government of Pakistan, through Additional Secretary, Ministry of Finance, Central Board of Revenue, (3) the Collector (Appeals) Customs & Central Excise Northern Zone, Lahore and (4) the Assistant Collector, Customs & Central Excise, Kohat, it was asserted that the contention that the "charges of transportation, octroi, loading and un-loading etc., were not payable and could not be included in the assessable value runs contrary to the express provisions of law as contained under section 4(1) of Central Excises and Salt Act, 1944 read with section 2(16) and proviso of section 3(4) of the Sales Tax Act, 1951. According to them, "the said provisions admit the deduction of duty and sales tax only. All the rest of the expenses incurrable up to the point of delivery of the goods to the nearest market of whole sale retail traders are to be included in arriving at assessable value within the meanings of law, as explained above". They added that "it is immaterial that charges of packing, loading, transportation, octroi and un-loading etc., were not charged from the retail traders". 4. Section 3 of the Sales Tax Act, 1951, by its sub section (1), so. Far as relevant, provides that there shall be levied and collected a tax on the value of all goods produced or manufactured in Pakistan, payable by the manufacturer or producer. Sub-section (2) of section 3 fixes the rate of the tax. Sub-section (3) provides that the value of the goods shall be, in the case of goods produced or manufactured in Pakistan, the sale price. Sub- section (4) of section 3 enacts that in respect of the goods produced or manufactured in Pakistan, the tax shall be payable when the goods are delivered to the purchasers. The expression 'sale price' is defined in section 2, clause (16) of the Sales Tax Act 1951; it means (i) in relation to goods in respect of which tax is payable at the same time and in the same manner as the duty of excise under the Central Excises and1 Salt Act, 1944 (I of 1944), the value determined under sub-section(l) of section 4 of the said Act plus the said duty, if chargeable". There is a proviso to sub-clause (1) of clause (16) and there is also a sub-clause (2), but they are not relevant for the purposes of this appeal, for it appears to be common ground that the provision applicable to the facts of this case is sub-clause (i) of clause (16) of section 2 of the Sales Tax Act 1951. In other words, the sale price means the value determined under sub-section (1) of section 4, of the Central Excises and Salt Act, 1944 plus the duty of excise payable under the Central Excises and Salt Act 1944. 6. In this judgment the Sales /Tax Act 1951 will be described as the Act of 1951 and the Central Excises and Salt Act, 1944 (which is now called the Central Excises Act, 1944) will be described as the Act of 1944. 7. The learned Judges in the High Court observed that section 4 sub section (1) of the Act 1944 "would show that the value of article chargeable with duty at a rate dependant on the value, shall be deemed to be the wholesale cash price, for which the article is sold to the general body of retail traders on the day on which the articles which is being assessed to duty is removed from the factory without any abatement or. Deduction". The learned Judges noticed that in this case "value determined is not in dispute". What is in dispute "is the deduction of transportation charges, octroi duty etc",. In their view, "since there is no evidence to show that that wholesale cash price declared by the factory included the transport charges, loading charges, octroi duty etc., therefore, the question of deduction does not arise". They held, therefore, that the contention that "even if the charges are not incurred by the factory, those have to be included in determining the wholesale cash price is devoid of force". They then referred to the relevant provisions of the Act of 1951 and relying upon a case from the Indian jurisdiction 'A.K. Roy v. Was Ltd." (AIR 1973 S.C. 225), were not prepared "to accept the respondents contentions that even if the charges are not incurred, deduction is not allowed under section 4(1) of the *Act". In their view "while determining the wholesale cash price of the articles no
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abatement or deduction 'whatever except the amount of duty and sales tax then payable can be made provided it is proved that the transport charges, octroi duty etc; were borne by the petitioner. The charges were borne by the retail traders to whom the cement was sold in wholesale", and the writ petitioner, the first respondent herein, so held the learned Judges, "had correctly valued the articles for the period in question". Accordingly they declared the order of the Custom & Excise authorities "demanding the extra sales tax illegal, null and void without lawful authority and ineffective on the rights of the petitioner". 8. The nature of the duty of excise was considered on a number of…
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