1982 PLP 273 (PTD)

MUHAMMAD AKRAM, J.‑‑The Income‑tax Appellate Tribunal Pakistan, Lahore, has eferred the following question of law said to arise out of its appellant's order passed in S. T. A. No. 3 of 1968‑69, to the High Court for its opinion:‑ "Whether on the facts and circumstances of the case, the Tribunal was justified in holding that cotton constituted raw material for mazri cloth and not the yarn consumed in the manufacture of mazri cloth ?"

2. Briefly the relevant facts are that the respondent‑assessee is a licensed manufacturer and during the year under consideration manufactured cloth which was exempt from levy of sales tax. On the strength of the manufacturing licence the assessee had purchased cotton from the dealear without paying any sales tax for the manufacture of yarn utilized in the production of the mazri cloth. In the opinion of the Sales Tax Officer, Co. Ward III, Lahore, vide his order 10th June, 1967, the mazri cloth was exempt from tax, but the assessee was liable to be taxed on the raw material. He treated the yarn consumed in the production of the mazri cloth as the raw material, which was brought to tax. .The assessee went up in appeal against the order before the Appellate Assistant Commissioner of Sales Tax, B' Range, Lahore, who on 11th April, 1968, upheld the contention of th; assessee and ordered that the sales tax should be levied on the purchase of the cotton and not on the estimated value of the yarn consumed in the production of the mazri cloth. This gave rise to the appeal (S. T. A. No. 3 of 1968‑69) filed by the Department against the order before the Income‑tax Appellate Tribunal Pakistan, Lahore, which was disposed of on the 6th of July, 1971. The Tribunal agreed with the order of the Appellate Assistant Commissioner in holding that the sales tax should be levied on the purchase of cotton, which constituted the raw material in manufacturing the mazri gloth and not the yarn consumed in its production. On this at the instance of the Commissioner of Sales Tax, Lahore, the above question of law arising out of the appellate order was referred to the High Court.

3. We have heard the arguments of the learned counsel for the parties on the above question referred to this Court for its opinion. In this connection already reported in The Commissioner of Sales Tax, Lahore v. M/s. Crescent Taxtile Mills Ltd., Lahore (T R No. 25 of 1967), on a similar reference, a Division Bench of this Court of which one of us (Muhammad Akram, J.) was a member, has held that the raw material for manufacturing the mazri cloth was the ginned cotton from which it is manufactured. The manufacture of yarn from the ginned cotton was merely a stage in the manufacture of the end product, namely, the maze cloth. In the hands of the assessee properly speaking ginned cotton and not the yarn constituted the raw material for the manufacture of ‑the mazri cloth. ,

4. In these circumstances, and for our detailed reasons recorded in the above cited case die have no hesitation in answering the question referred to us in this case in the affirmative. In our opinion the Tribunal was justified) in holding that in this case cotton constituted the raw material for manufacturing the mazri cloth. But there is no order as to costs in the circumstances of this case. Reference answered affirmative.