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Petitioner: Messrs COCA-COLA BEVERAGES PAKISTAN LIMITED, MULTAN VS Respondent: COLLECTOR OF SALES TAX, MULTAN
Court Name: Appellate Tribunal Inland Revenue Judge(s): Nazir Ahmad, Abdul Rauf Title:Messrs COCA-COLA BEVERAGES PAKISTAN LIMITED, MULTAN vs COLLECTOR
OF SALES TAX, MULTAN Case No.: F.E.As. Nos.18/LB, 19/LB, 26/LB, 27/LB, 34/LB, 35/LB and 37/LB of 2009, Date of Judgment:2011-09-05 Reported As: PTCL 2012 CL. 492, 2012 PTD (Trib.) 278 Result: Appeal accepted Judgment ORDER ABDUL RAUF (ACCOUNTANT MEMBER).---The appellant, in these even appeals which have been filed under the provisions of Central Excise Act, 1944/Federal Excise Act, 2005, is a manufacturer of aerated beverages which are marketed under the brand names 'Coca-Cola', Tanta' and 'Sprite'. It carries on its manufacturing activities at six different bottling plants located in Lahore, Gujranwala, Faisalabad, Multan, Rahim Yar Khan and Karachi. For the purpose of levy of sales tax and Federal Excise Duty all these plants have been registered under separate sales tax/Federal Excise registration numbers. In view of the fact that a common issue is involved in all these appeals and since there is no difference in facts and circumstances (except the amounts) cf all the appeals, they are disposed of through this consolidated order. 2. Briefly stated, the facts leading to the instant appeals are that the appellant was served with a show-cause notice under the relevant provisions of law, alleging that it had mis-declared the assessable value of 1000ML and 1500ML bottles (also termed as PET bottles in commercial parlance) and had not, thus deposited the due amount of Excise Duty. In all the show-cause notices, which were issued on different dates, it was highlighted by the Revenue that the appellant had illegally reduced the notified consumer price of the said products by five per cent, on account of 'chilling charges' as the said bottles were not sold in chilled form. It was, therefore, required to deposit the federal excise duty on the Consumer price. For Issuance of these show-cause notices the Revenue, relied upon the decision of the Supreme Court of Pakistan dated 10-12-2003 and claimed that the departmental stance, on the issue, had already been upheld by the highest appellate forum of the country.
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3. In response to the said show-cause notices, the appellant filed rebuttals to support the treatment which it had adopted in the declarations/returns and attempted to establish that the implications of the judgment of the Supreme Court dated 10-12-2003 were not the same as inferred by the Revenue. In the process the appellant, inter-alia, relied upon an earlier judgment of the apex court dated 13-2-2001 (reported as 2001 PTD 1854), whereby the same controversy had been resolved in favour of the taxpayer appellants by the apex court. The respective adjudication officers, however, did not feel convinced by the submissions made by the appellants and enforced the liabilities as confronted through the respective show-cause notices. Besides, the appellants were also burdened with the levy of additional duty/default surcharge and penalty under the relevant provisions of law. The appellant, upon issuance of the orders-in-original, assailed them before the first appellate authority but without any success. Feeling still dissatisfied, they have come up in further appeal before us. 4. Initiating the arguments on appeals, the learned counsel for the appellants reiterated the submissions made before the authorities below. He summed up the back ground of the controversy which can be summarised as under:-- (i) Aerated beverages are subject to both Sales Tax and Excise Duty on the basis of 'Retail Price', which has been defined under the respective statutes. Under the provisions of respective Statutes, both Sales Tax and Excise Duty are levied and charged by the 'manufacturers' at the retail price; (ii) The learned counsel further explained that in the case of collection of tax on 'aerated beverages', there was another dimension which occurred because of the 'change' in the 'nature' of product from the stage of manufacturing till the time the product was ultimately available to the consumers. This change related to the fact that goods available to the consumer were in 'chilled' form, whereas, at the time of delivery by the manufacturer at various outlets (sale points) the products were `unchilled'. In this situation, an 'allowance' on account of an 'additional activity' i.e. Chilling had to be made by way of deduction of chilling charges from the consumer price for the reason that the chilling activity was performed by the retailer exclusively at his on cost and at his on premises. The manufacturer, as a matter of fact, had nothing to do with the chilling activity and precisely for this reason the retail price for the purpose of levy of Federal Excise Duty both in the case of 250 ml bottles and economy packs fixed and notified by the manufacturer was for the unchilled bottles. (i.e) Proceeding further, the learned counsel highlighted a special feature in the case of beverages and stated that all other products at the time of their sale are sold to the consumers in the same condition in which they leave the manufacturing facility. For example ice cream is a product for which a cooling environment has to be provided in order to preserve the condition in which it leaves the manufacturing facility. On the contrary aerated beverages are not sold to the consumers in the same condition in which they are taken out of the factory. Only chilling makes them fit for consumption. (iv) Keeping this important factor in consideration, the Federal Board of Revenue (F.B.R.) vide its letter 1(20)CEB/94 dated 10-10-1994 directed that an allowance for chilling charges equal to 10 and 5 per cent of the consumer price be allowed for 250m1 and larger packs respectively at the time of calculating retail price for the purpose of charging Excise Duty. (v) Allowance for chilling charges, in the manner laid down in the aforesaid circular letter continued without any problem till 1999. In 1999, the F.B.R., through its Letter No. 1(7)-CEB/99 dated 12-6-1999 withdrew the earlier letter dated 10-10-1994 referred to above, which effectively meant that the F.B.R. With.Drew the deduction of chilling charges from the consumer price for the purpose of determining 'Retail Price' for the aerated beverages without realizing that the ultimate retail price so determined would be inclusive of the cost of an activity not undertaken by the manufacturer at
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the manufacturing premises/facility. This act of the F.B.R. Was discordant with the relevant provision i.e. Section 4(2) of the Central Excise Act, 1944 which envisaged inclusion of only those charges in the retail price which were incurred by the manufacturers. (vi) Aforesaid circular of the F.B.R. Dated 12-6-1999 (withdrawing the benefit of deduction of chilling charges) was challenged and declared to be of no legal effect and without lawful authority by the Lahore High Court (LHC) in its judgment reported as 2000 PTD 353 thereby restoring the earlier circular (C.No. l(20)-CEB/94 dated 10-10-1994), which provided for the benefit of deduction of chilling charges. Aforesaid judgment of the LHC was later on applied to the case of the appellant through another decision in Writ Petition No. 3543 of 2000, on 20-3-2000. These judgments of the LHC were subsequently also upheld by the Supreme Court of Pakistan through its judgment dated 13-2-2001, wherein the apex court ruled that the chilling charges were to be allowed as a deduction for the purpose of determining the 'Retail Price'. (vii) This order of the Supreme Court, the learned AR submitted, is based on correct appreciation of the fact that nature of products when available to the ultimate consumer is different from the one in which it leaves the manufacturers' premises. Therefore, an allowance has to be given for that additional activity because it is not performed by the manufacturer. The honourable Judges of the Supreme Court have appreciated the fact that chilling is done by someone else other than the producer of the goods and, therefore, the manufacturer could not be burdened with the levy of tax for an activity not performed by it. The legal position that the bottler is not to be burdened with the impact of chilling charges for the purpose of computing the assessable value for payment of duty and tax was confirmed by the apex court in the aforesaid judgment dated 13-2-2001; (viii) The learned AR also referred to the judgment of the Supreme Court dated 10-12-2003 in the case of Messrs Riaz Bottlers (Pvt.) Limited, Lahore, on which the Revenue also places reliance, and explained that in the said case the dispute between the Revenue and the taxpayer pertained to mis-declaration on the point of chilling charges, however, the apex court declined to interfere in the matter for the reason that the dispute pertained to "facts" determination of which was not within the domain of the Court. 5. In the backdrop of the aforesaid evolution vis-a-vis the issue involved in the subject appeals, the learned counsel for the appellant submitted that in all these appeals the cases for mis-declaration have fundamentally been framed against the appellants on the strength of the judgment of the apex court dated 10-12-2003. The primary contention of the department, the learned counsel submitted, is that after the aforesaid decision of the apex court F.E.D and sales tax in respect of 1000ML and 1500ML .Packs are to be paid on consumer price without making any deduction for the incidence of chilling activity, which, as stated earlier, is undertaken by the retailers. It has been further submitted by the learned counsel that in the case of appellants the department does not dispute that no chilling activity was carried out by the appellants and the goods were sold to the distributors and retailers in unchilled form. There is also no dispute between the Revenue and the appellant that the price charged by the manufacturer from its customers did not include the incidence of cost for the chilling activity. In view of these admitted facts, the learned counsel argued, the decision of the Lahore High Court dated 2-9-1999 and the decision of the apex court dated 13-2-2001 not only remain relevant bat also favour its position. 6. The learned counsel for the appellant also briefly explained the mechanism of duty/tax structure and determination of price of the produce vis-a-vis the applicable legal provisions in the following tabulated form:-- 250 ml Until (Regular "bottle) (Rupees)1,500 ml Unit (PET bottle) (Rupees)
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Consumer Price (Chilled) 10,000 40,000 Less: Chilling charges allowance 01.000 02.000 09.000 38.000
Retail Price under the law (inclusive of excise duty) 7.826 33.043 Sales Tax @ 15 % 1.174 4.957 09.000 38.00
7. In the context of the above tabulated figures, the learned counsel submitted that although the authorities did not dispute the payment of duty and taxes on regular bottle (250 Ml) vis-a-vis the circular of the Board, they asserted that the-payment of duty was not in accordance with law so far as the PET bottle was concerned. He explained that the Revenue authorities were of the view that for the PET bottle, deduction of chilling charges, from "consumer price" to arrive at the 'retail price', - was against the law and the appellant was not justified in reducing the chilling charges for the purpose of computation of duty. The authorities were of the view that duty and taxes should have been deposited on the basis of Rs.40 as against Rs.38 per unit adopted by the appellant. 8. The learned. AR of the company, during the course of proceedings also produced copies of notifications issued by the manufacturer from time to time in connection with the fixation of retail price. Copies of the said notifications, the learned AR stated, were also endorsed to the concerned Collectorates upto the year 2005 as doing so was a statutory requirement. For the sake of reference some of the price declarations, notifications issued by the manufacturer pertaining to the years in appeal are reproduced hereunder:-- Price Declaration January, 07, 2004 Package Bottle Per caseRetail Price (Rs.)Excise Duty (12%)Sales Tax (15%)Consumer Price Per Bottle un Chilled (Rs.) 175 MLRGB New Price 24 5.478 0.657 0.822 6.300 Old Price 24 4.696 0.563 0.704 5.400 Price Declaration January, 05, 2005 Package Bottle Per caseRetail Price (Rs.)Excise Duty (12%)Sales Tax (15%)Consumer Price Per Bottle un Chilled (Rs.) 1000 MLRGB New Price 12 20.65 2.48 3.10 23.75 Old Price 12 16.52 1.98 2.48 19.00 Price Declaration January, 25, 2005
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Package Bottle Per caseRetail Price (Rs.)Excise Duty (12%)Sales Tax (15%)Consumer Price Per Bottle un Chilled (Rs.) 1500 MLRGB New Price 6 33.04 3.97 4.96 38.00 Old Price 6 37.17 4.46 5.98 42.75 9. The learned AR explained that the department never raised any objection with regard to the fixation of retail price in respect of any size or brand of bottle produced by the manufacturer although the said retail price, as notified by the manufacturer to the concerned Collector, from time to time did not include the component of cost of chilling as chilling was an activity which was never carried out by the manufacturer and also because the concept of retail price as defined in section 4(2) of the Central Excise Act, 1944 and 12(4) of the Federal Excise Act, 2005 and as explained by the Supreme Court of Pakistan in its judgment reported as 2001 PTD 1854 was to include only those charges and expenses which were "incurred" by the manufacturer. Advancing his argument further, the learned AR explained that by levelling the charge of deduction of chilling charges against the appellant the department has, as a matter of fact, distorted the whole issue. He clarified that as a matter of fact the department insisted upon the "inclusion" (addition) of chilling charges to the retail price declared by the manufacturer from time to time and as such the case of the department was precisely for increasing the declared retail price by including the cost of chilling activity rather than deduction of chilling charges from the declared retail price. 10. The learned counsel further submitted that the judgment of the apex court dated 10-12-2003 had been misinterpreted and wrongly applied to the facts of the appellants' case. The said judgment, it was asserted , did not decide any question of law; rather this was an order whereby the apex court declined to entertain the appeal on the ground that the said appeal involved only a question of fact which was not within the domain of the court to dilate upon. The learned counsel explained that as far as the legal position was concerned, the earlier judgment dated 13-2-2001 reported as 2001 PTD 1854 was the only relevant judgment in the field as it had been neither reversed nor modified by the latter judgment. Since the facts of the appellants' case were identical to those regarding which the legal position had been determined by the apex court through its judgment dated 13-2-200'1, the liabilities adjudged against the appellants were liable to be annulled in the light of the said judgment of the honourable Court. 11. The learned DR, in his turn, supported the orders of the authorities below. During the course of arguments, the learned DR conceded that the latter judgment of the apex court dated 10-12-2003 did not decide any legal question nor did it resolve any factual controversy and could not, therefore, be regarded as a legal precedent in strict sense and for all practical purposes the decision of the apex dated 13-2-2001 retained its sanctity as it had not been overruled or modified by the subsequent judgment. He, however, submitted that it was a known fact that bottles of 1000ML and 1500ML are always sold in unchilled form, and as such duty and tax remain payable on "consumer price" without deducting the margin for chilling activity. The learned DR was of the view that if a product was sold in unchilled form, how could an allowance for chilling be allowed for the purpose of determining the assessable value for the payment of duties and taxes? The orders of the authorities below, for these persons, did not suffer from any factual or legal infirmity so as to warrant any, interference by this Tribunal. 12. The learned DR also placed before us certain documents in which the PET bottles were publicized with reference to the price at which the product was available to the general body of consumers. It was emphatically asserted by him that the publicized price did not make a separate reference to the chilling margin and as such, for all practical purposes, the publicized price was to
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be taken for unchilled unit and for this reason the case made out by the Revenue was legally and factually justified. The learned DR also submitted that the PET bottles, being economy packs are, without exception, sold in unchilled form. Hence there was no logic or justification for determining the retail price after deducting the margin for chilling. 13. The learned DR also made a reference to the case of juices which are chargeable to sales tax on the same basis as is applicable to aerated beverages. It was argued that the manufacturers of juices did not make deduction on account of chilling charges claimed to be admissible under the aforesaid circular of the Board and this practice also supported the case of the Revenue as far as deduction of chilling margin on economy packs by the appellant was concerned. It was contended that the basis adopted by the appellants for payment of sales tax and Federal Excise Duty was not in line with' market practice and by now it is almost well settled 'that no deduction on account chilling activity is legally justified on products which are economy packs. 14. Finally the learned DR placed before us one invoice issued by the distributor (not pertaining to the relevant period involved in the subject appeals) in which the price billed to the retailer was almost equal to price relevant to unchilled product. On the basis of this invoice, it was submitted that since the margin left for the retailer was so little, the retailer was bound to sell the product unchilled at the price relevant for the chilled product. The learned DR thus concluded that the authorities were fully justified to infer that the consumer price publicized by the appellant had rightly been adopted by the Revenue authorities as price for the unchilled product. 15. The learned counsel for the appellant, exercising the right of rejoinder to the arguments advanced by the learned DR contended, that the arguments advanced by the learned DR were not based upon correct appraisal of the issue in hand in proper perspective. He stated that the price advertised in the newspaper as well as the hand bills was consumer price and was aimed at disseminating information to the general body of consumers about the price at which the PET bottles should normally be available to the general body of consumers as instant drink. It was further stated by him that the price so advertised was also a regulatory mechanism to keep the price within control in order to make the product competitive vis-a-vis similar products available in the market. He further explained that the impression of the Revenue authorities that the PET bottles were always sold in unchilled condition was also not correct. The appellant company had, at its on cost, installed over two lac specially designed refrigerators at various retail outlets in order to enable the retailers to sell PET bottles in chilled condition to some of their customers. To substantiate his assertion the learned AR also produced some photographs of these refrigerators/chillers to demonstrate that they had been got specially manufactured and substantial space had been specially created/ designed therein for the PET bottles. In this way, the company bore some of the chilling cost indirectly but never burdened the owners of the retail outlets even by way of obtaining any security deposit for the refrigerators/chillers, although it had all,the justification to do so. The learned counsel also produced sale invoices issued in favour of distributors and retailers to demonstrate that the company had, as a matter of fact, adopted the policy of allowing discount/incentives to them depending upon the quantities purchased by them. From these invoices the learned counsel explained that the normal price charged by the company from the distributors/retailers was always lower than the retail price printed on the bottles. The learned AR was also critical of the learned DR who, on the basis of invoices issued by the distributors to the retailers sought to establish that the price charged by the appellant from the retailers was not the same as printed on the invoices of the company. He explained that the price charged by distributor from the retailers was bound to be higher than the one charged by the company from the distributor because of the reason that the distributor had also to account for the cost borne by him in the form of transportation of the stock from place to place as well as his on margin of profit. The learned AR stated that the invoices issued by the distributors of the
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company were not at all relevant with reference to the retail price fixed by the company which was also printed on the bottles. 16. Lastly, the learned counsel for the appellant submitted that the consumer price advertised in the newspapers/hand bills was not in respect of only PET bottles; it was also in respect of 250m1 bottles and the advertisement did not specify whether it was for the chilled or unchilled bottles. The learned counsel vehemently contended that on the basis of same advertised price, the department had been allowing margin for chilling cost in respect of the small bottles but denying the same in respect of PET bottles which was not only unjust but also illogical. He further submitted that the fixation of retail price, as per law, is the sole prerogative of the manufacturer, which has all along adopted the practice of determining the retail price of the product in an unchilled condition both in respect of 250 ml bottles and the PET bottles. In this context he also referred to the retail price notifications/ letters issued from time to time and stated that copies of the said notifications/letters were also endorsed to the concerned Collectorates. He vehemently asserted that the company has been determining retail price without including the component of the chilling cost. He further contended that the determination of the chilling cost did not fall within the domain of the manufacturer for the simple reason that the manufacturer could not determine the cost of an activity which was not undertaken by it. Since this activity (chilling) was not performed by the manufacturer, there was not justification on its part to include its cost in the retail price because doing so would militate against the express language of law which envisages inclusion of only such charges in the retail price as are incurred by it (manufacturer). 17. On the basis of above submissions, the learned AR of the appellants contended that the department, by levelling the charge of deduction of chilling charges against the appellants, had distorted the whole issue because the question of such deduction did not arise at all for the simple reason that the retail price fixed by the manufacturer form time to time and also notified to the concerned Collectorate did not include the component of chilling cost at all. The case of the department was rather hinged upon the addition of the "chilling margin" to the declared retail price, which was not only illegal but also illogical because it amounted to compelling the manufacturer to include the cost of an activity which it had not performed at all. As such, insistence of the department was against the express provisions of law as well as judgments of the honourable Court and Supreme Court referred to in the `earlier part of this order. 18. Commenting upon the argument of the learned D.R relating to juices, the learned counsel for appellant referred to the order of the Supreme Court dated 21-12-2005 and stated that the issues under consideration of the apex court pertained to economy packs of juices and the Revenue's counsel was allowed to withdraw the appeal filed by the Revenue against the order of the High Court favouring the juice company. It was further argued that if the position regarding economy packs was settled by the Supreme Court in order dated 10-12-2003, the line of argument taken by the learned DR before us, then there was no reason for the revenue to withdraw the appeal. Rather the revenue would have pleaded before the apex court for decision in terms of order dated 10-12- 2003. It was emphasized by the learned counsel for the appellant…
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