2004 PLP 942 (PTD)

3. The Company appealed to the Customs, Central Excise and Sales Tax Appellate Tribunal, Islamabad. The Tribunal agreed with the Adjudicating Officer by holding that since the manufacturing and sale was being done by the same entity, that is Company, there was no transaction between them and, therefore, the sale point could not be dissociated from the Company's manufacturing unit. From this point of view the Tribunal held that the Company was liable to pay sales tax on the supplies made at, the sale points and not when the manufactured goods leave the factory. The Tribunal however, held that since under section 36(1) of the Sales Tax Act, 1990 account of short recovery can be made within 5 from the Company on barred in respect of the period prior to 13‑5‑1996. The Tribunal further reduced the additional sales tax to be charged under section 34 of the Act to Rs.1,00,000 only and remitted the penalty of 5% imposed under section 33(2)(ee) of the Act. This order of the Tribunal, dated 15‑5‑2001 has been assailed by the Company as well as the Collector of Sales Tax.

4. Mr. Isaac Ali Qazi, the learned counsel appearing for the Company submitted that both the forums have erred in holding that since the Company is the manufacturer as well as the distributor there can be no transaction by the Company with itself. The learned counsel referred to sections 2(33), (35) and (41) of the Act and contended that supply of manufactured goods by he Company from the factory to its sale points is a taxable activity and the time of supply is to be determined when the goods are delivered and, therefore, the goods are the subject to sales tax the moment the goods leave the Company's factory. Relying upon the judgment in Commissioner of Sales Tax v. Hunza Central Asian Textile and Woolen Mills Ltd. (1999 SCMR 526) and Sheikhoo Sugar Mills Ltd. v. Government of Pakistan (2001 SCMR 1376) the learned counsel submitted that since the meaning of the word "supply" in subsection 33 of section 3 is not confined to sales a single entity can make supplies to itself when it carries out 2 different businesses. He pointed out that during the relevant period, 1994 to 1998 the Company was also a distributor, but not registered as such, as distributors were not subject to sale tax during the said period. In this context the learned counsel submitted that demand of sales tax at the sale points would be discriminatory in that tax would be paid also on the expenses incurred between manufacturing and distribution whereas those manufacturers who are not distributors would pay sale tax only on the manufacturing.

5. The learned counsel representing the Collector Sales Tax, Mr. Abdur Rauf Rohaila, Advocate, re‑enforced the reasons advanced by the Collector and the Tribunal that the same entity cannot transact with itself and the sales tax is to be determined when the Company distributes its goods at the sale points. He further relied upon section 16 of the Act, which provides that a registered person carrying out taxable activities in different branches or divisions may make separate applications for its registration in the different branches or divisions. It was the Company has not made such application.

7. Two questions require to be resolved in this writ petition Firstly, whether the Company as a manufacturer was making taxable supplies within the meaning of the Sales Tax Act to its sale‑points and secondly, whether the Company as manufacturer could make supplies to itself in the capacity of distributor.

8. For the determination of the first question, reference may first be made to the charging section, that is section 3(1) of the Act, which provides for the levy of sales tax on "taxable supplies" made in Pakistan by a registered person in the course or furtherance of any "`taxable activity" carried on by him. "Taxable supply" has been defined in clause (41) of the section 2 to mean "a supply of taxable goods made in Pakistan by ...manufacturer... distributor or retailer". It may be stated that distributor has been included in the said definition by the Finance Act, 1998 and its inclusion is not relevant for our purposes as the material period in this case is the year 1994‑95. 9. "Taxable Activity" has been defined in clause (35) of section 2 of the Act as follows:‑‑ "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, whether for any consideration or otherwise, and includes any activity carried on in the form of a ?? Furthermore, the "time of supply", according to clause (44) of section 2 is the time of delivery of goods or the time when any payment is received by the supplier, whichever is earlier. The Company undoubtedly, manufactured wires and cables at Peshawar and made supplies to its sale points. The delivery of the manufactured goods was a taxable activity on which sales tax was leviable at the time of the delivery. While, interpreting the above statutory provisions, this Court has in the case of F.S. Tobacco v. Superintendent Central Excise and Sales Tax (1995 PTD, 874) and in an unreported judgment, Messrs Ambar Tobacco Company v. Additional Collector Sales Tax (Writ Petition No.1960 of 1999) decided on 22‑11‑2002 held that the sales tax becomes payable at the time the manufacture goods leave the factory premises. Thus the Company was liable to pay sales tax when its products left the factory premises for further distribution at the sale points. Obviously the sales tax would be leviable on the value of the supplies the company would receive when it delivers the goods.

10. For the determination of the second question reference is to be made to the definition of "supply" in clause (33) of section 2 of the Act, which states:‑‑‑ "Supply includes sale, lease (excluding financial or operating lease) or other disposition of goods in furtherance of business carried out for consideration and also includes: (a) putting to private, business or non‑business use of goods acquired, produced or manufactured in the course of business. (b) .................... (c) .................... (d) ...................". The sales tax is on supplies, which is not restricted as the definition would show, to sale between two parties but includes disposition of goods in furtherance of business and putting to business used goods manufactured in the course of business. The question as to whether a person can transact with himself in order that the transaction be subjected to sales, tax came up before the Hon'ble Supreme Court in the two cases cited by the learned counsel for the petitioner. In the latter case of Sheikhoo Sugar Mills Limited the question before the Hon'ble Supreme Court was to whether the petitioners which consumed bagasse as fuel for its manufacture of sugar, is liable to pay sales tax on the production of such bagasse. It was argued before the Court on behalf of the petitioner that since the petitioner was the manufacture of bagasse and also its consumer there was no transaction that was amenable to the levy of sales tax. It was contended that unless sale of bagasse was established between two persons sales tax could not be levied. Repelling this contention the Hon'ble Supreme Court, after making reference to the definitions of "taxable activity" and "taxable supply" appearing in the Sales Tax Act held:‑‑ "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 of furtherance of business 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". The Supreme Court further observed:‑‑ "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 definition 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".

11. Although the Hon'ble Supreme Court had held that the manufacture of bagasse was liable to sales tax though it was consumed by the manufacturer, the ratio of the case is that for the purpose of levy of sales it is not essential that two persons be involved in some transaction and that tax can still be levied even if one person alone carries out some taxable activity. The holding of the Collector and the Tribunal that one person cannot transact with himself so as to be amenable to sales tax is not in conformity with the pronouncement or the Hon'ble Supreme Court. The Company supply of its manufactured products to the sale points established by the Company was, therefore, a taxable activity and liable to sales tax. Since distributors at the relevant period were exempt from payment of sales tax the Company was not liable to pay tax on the value‑added to the products on account of their distribution at the sale points.

12. Even otherwise the afore-stated interpretation would avoid discrimination against the petitioner, vis‑a‑vis those manufacturers competitors who do not have their own sale points and sell products to the distributors at their factory premises. Such manufacturers were taxed on the value of the products at the time of their removal from the factory premises. It would be fair that the Company be also treated in the same manner and they be subjected to sales tax on the value of the products at their removal from the factory.

13. For the reasons afore-stated, Appeal No. 104 of 2001 is allowed. The impugned orders of the Collector and the Appellate Tribunal are set aside and the show‑cause notice, dated 12‑5‑1999 is declared to be illegal and, therefore, quashed. Resultantly, the appellant Company is held not liable to pay the, sales tax mentioned in the show‑cause notice and the same, if paid, be refunded to the appellant. Consequently, F.A.O. No. 175 of 2001 is dismissed. M.B.A./11/P Order accordingly.