2007 PLP (Trib (PTD)

SYED SULTAN AHMED, MEMBER (JUDICIAL).

An audit team of the Collector of Sales Tax, Gujranwala audited the record of the appellants for the years, 1994-95, 1995-96 and 1996-97 and allegedly detected certain discrepancies which appeared to have violated various provisions of Sales Tax Act, 1990 leading to short payment of sales tax, in all to the tune of Rs.3,275,

051. The details of the said discrepancies and resulting short payments were condensed in show-cause notice, dated 6-3-1998 which was served upon the appellants. The Additional Collector of Sales Tax, Gujranwala through Order-in-Original No.35 of 1998, dated 7-6-1998 ordered the appellants to pay sales tax amounting to Rs. 3,272,051 under section 36 of the Sales Tax Act, 1990 along with the additional tax as due and payable under section 34 ibid. The appellants feeling dissatisfied preferred appeal before Collector (Appeals) Central Excise and Sales Tax, Rawalpindi but that too failed. Further appeal by the appellants came up before the Tribunal which was decided on 15-11-2001 whereby the Order-in-Original No.35/98, dated 7-6-1998 was set aside. Assistant Collector of Sales Tax feeling aggrieved instituted Customs Appeal No. 14/2002 before the Honourable High Court, vide judgment, dated 28-3-2005 it was partly accepted and the issue of levy of sales tax on scrap remanded. The findings of Honourable High Court contained in para. (5) and para. (7) are reproduced below in original for understanding and resolving the crucial issue assigned to the Tribunal for decision after remittance of the case:-- "(5) According to the learned counsel for the Revenue-appellant as regards allowing of 6% wastage of concentrate in order to calculate that total number of bottles manufactured, the appellant-Revenue has no grievance. However, states that the levy of sales tax on scrap which included broken empty glass bottles, broken wooden cases, damaged crown cork and polly bags of sugar, the learned Members of the Tribunal decided the issue in a cursory and slipshod manner. The last sentence of the order of the Tribunal as reproduced above is specifically mentioned to bring home the point. Also the learned counsel for the Revenue-appellant relies upon judgment of Sindh High Court, Karachi in re: Collector of Customs, Central Excise and Sales Tax, Karachi (West) v. Novartis Pakistan Ltd. (PTCL 2002 CL 50) to contend that creation of the aforesaid scrap being an integral part of the manufacturing process of bottling, its disposal clearly amounts to taxable activity as well as taxable supply. (7) Having heard the learned counsel for the parties, we will readily agree with the learned counsel for the appellant-Revenue that the issue of sales of scrap was not considered by the learned Members of the Tribunal with the seriousness it observed. Also it appears that the issue of wastage of concentrate to calculate total production per unit was intermingled with the issue of disposal of scrap. Mere fact that the scrap comprised of the aforesaid material on which earlier sales tax had been paid did not by itself exempt it from the levy of sales tax if otherwise its disposal amounted to a taxable activity and taxable supply in furtherance of the business of the registered person. The submissions made at the bar for the Revenue are supported by the aforesaid judgment of the Honourable Sindh High Court while the reliance of the learned counsel for the respondent on the aforesaid judgment of this Court is not relevant inasmuch as the real issue in that judgment only related to claim of output tax in cases where some of the raw material was damaged or was completely lost. On the other hand, as noted above, the issue in hand .only revolves around the disposal of scrap and the levy of sales tax thereupon. Since the issue of taxability of scrap was not looked into in the manner it required, the impugned order of the Tribunal to that extent is set aside. They will re-consider and rule upon the issue of levy of sales tax on the scrap disposed of by the registered person during the financial year, 1996-97. Also learned Members of the Tribunal, if so required by any of the parties, will rule upon the admissibility of input tax in case they approve levy of sales tax on it."

2. After remand, we have attended the arguments put forth by both the sides and have also considered the written submissions. Case-law cited at bar has also been respectfully perused. Messrs Adil Beverages Company (Pvt.) Limited is involved in production of various brands of aerated beverages. Allowing of 6% wastage of concentrate in order to calculate the total number of bottles manufactured is a factum conceded in favour of registered person. The only dispute now existing between the parties is regarding the levy of sales tax on scrap which included broken empty glass bottles, broken wooden cases, damaged crown cork A and poly bags of sugar. The reference before the Honourable High Court by placing reliance on PTCL 2002 CL 50 was that creation of the aforesaid scrap being an integral part of manufactured process of bottling, its disposal clearly amounts to taxable activity as well as taxable supply.

3. The Honourable High Court while remanding the case observed that mere fact that the scrap comprised of the aforesaid material on which earlier sales tax had been paid did not by itself exempt it. To understand the real controversy it is mentioned, though at the cost of repetition, that Messrs Adil Beverages Co. (Pvt.) Ltd. (appellants) on the basis of different units of concentrate produce/manufacture various brands of aerated beverages. Scrap arising out of this exercise includes broken empty glass bottles, broken wooden cases, damaged crown cork and poly bags of sugar. The question is as to whether the levy of sales tax on these items collectively termed as "scrap" would be a lawful act or otherwise. The observation of Honourable High Court is that mere fact that the scrap comprised of the aforesaid material on which earlier sales tax had been paid did not by itself exempt from levy of sales tax. It must mean that some other factor must also co-exist with this fact so as to bring the "scrap" out of ambit of the sales tax failing which levy of sales tax would come into operation.

4. A perusal of section 3 of the Act, 1990, would divulge that in order to create the charge of sales tax, inter alia, two conditions must co-exist simultaneously which are as under: (i) the transaction of sales must constitute a "taxable activity"; and (ii) it should also to be a "taxable activity". Even if one condition is missing the charge of sales tax would not be leviable. This brings us to the conclusion that in order to constitute a "taxable supply" the transaction must first qualify to be a "supply" as defined under section 2(33) of the Act, 1990. After perusing the language of section 2(33) no big effort is needed to conclude that in order to constitute "supply", the transaction must be "in furtherance of business". Supreme Court of India in the case of State of Tamil Nadu and another. v. Board of Trustees of the Port of Madras (1999) 114 STC 520 (SC) defined the word "business" in the following words:-- Now the definition of "business" in section 2(d) and in most of the sales tax statutes is an inclusive definition and includes "trade or business or manufacture, etc.". This itself shows that the legislature has recognized that the word "business" is wider than the words "trade, commerce or manufacture, etc.". The word "business" though extensively used is a word of indefinite import, in taxing statutes, it is normally used in the sense of an occupation, a profession

which occupies time, attention and labour of person, normally with a profit-motive and there must be a course of dealings, either actually continued or contemplated to be continued with a profit-motive and not for sport or pleasure (State of Andhra Pradesh v. H. Abdul Bakshi and Bros. (1964) 15 STC 644 (SC); AIR 1965 SC

531. Even if such profit-motive is statutorily excluded from the definition of "business" yet the person could be doing "business". Against the expression "carrying on business" was highlighted in the following words:-- The word "carrying on business" requires something more than merely selling or buying, etc. Whether a person "carries on business" in a particular commodity must depend upon the volume, frequency, continuity and regularity of transactions of purchase and sale in a class of goods and the transactions must ordinarily be entered into with a profit-motive Board of Revenue v. A.M. Ansari (1976) 38 STC 577 (SC); (1976) 3 SCC 512). Such profit-motive may, however, be statutorily excluded from the definition of "business" but still the person may be "carrying on business". Then it was concluded that where the main activity is not "business", then the connected, incidental or ancillary activities of sales would not normally amount to "business" unless an independent intention to conduct "business" in these conducted, incidental or ancillary activities is established by the Revenue. It will then be necessary to find out whether the transactions which are concerned, incidental or ancillary are only an infinitesimal or small part of the main activities. In other words, the presumption will be that these connected, incidental or ancillary activities of sales are also not "business" and the onus of proof of an independent intention to do "business" in these connected, incidental, and ancillary sales will rest, on the Department. In re. Commissioner of Income Tax v. Messrs Habib Insurance Co. Ltd. (PTD 1969 Kar. 278) the term "business" has been defined in the manner that in order to constitute a business, there must be a continuous exercise of activity for the purpose of gain. 'This element of continuity is essential to constitute a business of investment.

5. Keeping in mind the above legal aspects, we will have to advert to the facts of the present case to see their applicability. The appellants manufacture various brands of aerated beverages. Scrap arising out of this exercise includes broken empty glass bottles, broken wooden cases, damaged crown cork and poly bags of sugar. Undoubtedly from the frequency, volume, continuity and regularity of transactions carried on with a profit-motive, no inference would arise merely because the price received by sale of discarded goods enters the accounts of the manufacturer and may on an overall view enhance his total profit, or indirectly reduce the cost of production of goods in the business of selling in which he is engaged. An attempt to sell discarded goods does not necessarily lead to an inference that business is intended to be carried on in those articles. Here we shall quote a passage from a judgment reported as The State of Gujarat v. Raipur Manu?facturing Company (AIR 1967 SC 1066) to elaborate this aspect further: "We are unable to hold that in disposing of miscellaneous old and discarded items such as stores, machinery, iron scrap, cans, boxes, cotton ropes, rags etc., the Company was carrying on business of selling those items of goods. These sales were frequent and the volume was large., but it cannot be presumed that when the goods were acquired there was intention to carry on the business in those discarded materials, nor are the discarded goods, by-products or subsidiary products of or arising in the course of the manufacturing process." Thus it is crystal clear that no test in-decisive of the intention to carry on the business, in the light of all the circumstances an inference that a person desires to carry on the business of selling goods may be 'raised. The- appellants who manufacture aerated beverages disposed of scrap in shape of broken empty glass bottles etc. thereby selling unserviceable items by not storing the same. This cannot be termed as "taxable supply" because there is nothing on record to dislodge the initial presumption existing in favour of the appellants. Disposal of discarded goods does not lead to the inference that business is intended to be carried on in selling c presumed that when the goods were acquired, there was an intention to carry on business, in those discarded materials nor are the discarded goods produced in the course of manufacturing process. Thus the scrap in shape of broken empty glass bottles etc. by no stretch of imagination comes within the ambit of "taxable supply". The natural consequence of this conclusion must be that the charge of sales tax is not leviable on this scrap.

6. The upshot of the above discussion is that this appeal is destined to succeed. The same is hereby accepted by ruling that the scrap which consists of broken empty glass bottles etc. cannot be charged as sales tax is not leviable thereon.

7. Announced.

8. All concerned be informed accordingly. H.B.T./181/Tax (Trib.)???????????????????????????????????????????????????????????? Appeal accepted.