2003 PLP (Trib (PTD)

Abdul Latif Yousafzai and Mian Faiz Muhammad, Senior Manager (Accounts) for Appellant. Ishtiaq Ahmad, Law Officer of the Collectorate for Respondents. Dates of hearing: 14th, 24th January: 20th February, 22nd May and 1st July, 2002. S. M. KAZIMI, MEMBER (TECHNICAL).‑‑This judgment disposes of the appeal, dated 1‑8‑2001 filed on 1‑8‑2000 by Messrs Cherat Cement Co. Ltd. against the Order‑in‑Original No. 49/2000, dated 21‑6‑2000 (dispatched on 24‑6‑2000) passed by the Additional Collector of Sales Tax, Peshawar. As regards the delay of 8 days in filing of appeal, the appellants have presented the original of the envelope in which they had sent this appeal under postal registration No.1373, Khyber Bazar P.O. dated 15‑7‑2000 but it was received back an 29‑7‑2000 undelivered with the postal remarks "refused to accept". Accordingly, the appellant submitted it in person in the Tribunal on 1‑8‑2000 vide Diary No. 5908. Accordingly, they prayed for condonation of delay. In view of the circumstances explained and the postal envelope produced before us, we admit this appeal in relaxation of the time limitation for filing of such appeals.

2. Briefly, the facts of the case are that vide C. No. 4769, dated 10‑8‑1998, Messrs Cherat Cement Company was asked by the Collectorate of Sales Tax, Peshawar to pay sales tax on limestone, gypsum, clay and other material used in the manufacture/packing of "Cement", then exempt from sales tax. Instead of responding to that letter, Messrs Cherat Cement Co. Ltd. filed a Writ Petition No. 1498 of 1998 before the Honourable Peshawar High Court. The Honourable Peshawar High Court disposed of .the Writ Petition No. 1498 of 1998 alongwith C.M. No. 1970 of 1998, as withdrawn with direction to the petitioner to approach the competent authority (respondent) for adjudication and to associate with the adjudication process without any delay on his part. Accordingly, the Additional Collector of Sales Tax, Peshawar, issued a notice C. No. 726, dated 30‑8‑1999" requiring Messrs Cherat Cement Co. Ltd. to show cause why, besides taking penal action under section 33 of the Sales Tax Act, 1990, the amount of sales tax due on such goods‑should not be recovered from them under sections 11 and 36 of the said Act. After considering party's written reply No.FCF/005/185, dated 13‑9‑1999 and hearing the party's arguments, the learned Additional Collector of Sales Tax, Peshawar, passed the impugned Order‑in‑Original No. 49/2000, dated 21‑6‑2000 holding that gypsum, clay and limestone are not exempt from sales tax and its excavation and supply for self‑consumption by Messrs Cherat Cement Co. Ltd. in the manufacture of cement (exempt from. sales tax is not exempt. He, therefore, directed audit of the record of Messrs Cherat Cement Co. Ltd. for determination of the sales tax due and not paid by Messrs Cherat Cement Co. Ltd. on such gypsum, limestone and clay excavated by them and consumed in‑house for the production of non taxable cement. Hence this appeal.

3. During the course of hearing before us, it was urged that excavation of gypsum, limestone and clay is not covered by the terms/words "imported", "manufactured", "produced", "retailed", "wholesale", etc., and, therefore, its in house consumption in the manufacture of cement cannot be termed as "supply" or "taxable supply". Reliance was placed on the Lahore Bench‑I of this Tribunal's judgment of Sept/October, 2001 (Pioneer Cement, Ltd., Chenky v. Deputy Collector of Sales Tax, Sargodha and another) where after the judgment of the Referee Member, the Tribunal held that levy of sales tax on "minerals" was illegal and, therefore, the appeal against levy of sales tax on limestone, clay, bauxite, latrito and gypsum was accepted by the Tribunal. It was argued that "self‑supply" was not a "supply" and "self sale" was not a "sale" within the meaning of the Sales Tax Act, 1944. In the final hearing on 1‑7‑2002, the learned Senior Manager (Accounts) of the appellant‑company stated that they have submitted written arguments, dated 22‑5‑2002 and have nothing to add to it. He stated that the appellant reiterates the same and these may be treated as their oral arguments too and the case may be decided on merits as they do not want any further hearing. In reply to a query, he admitted that the appellant was exempt from‑ sales tax on its manufacture and supply of cement during the period involved but they excavated the minerals themselves and self‑consumed these in the in‑house production of cement. He, however, reiterated that minerals are exempt from sales tax, excavation of minerals is not a process of production or manufacture and itself consumption for the manufacture of cement does not constitute a supply. He prayed for the acceptance of appeal.

4. The learned Departmental Representative opposed the appeal on the ground that in the judgment, dated 9‑1‑2002, in Civil Appeal No.11‑S of 2001, the Honourable Lahore High Court has set aside a similar judgment, dated 22‑12‑2000 passed by the Lahore Bench of the Customs; Excise and Sales Tax Appellate Tribunal and has held that gypsum", after excavation became taxable good (moveable property) not exempt from sales tax. He also cued the Honourable Supreme Court 4 Pakistan's judgment dated 27‑2‑2001 (2001 PTD 2097 = 2001 SCMR 376) where it is held that "once a taxable goods has been supplied by a person to itself it would fall within the definition of taxable supply." The said judgment had held that bagasse obtained by a sugar mill and consumed in‑house as fuel in the further manufacture of sugar (then exempt from sales tax) was a taxable supply of bagasse in furtherance of taxable activity and, therefore, such bagasse was liable to sales tax being ,tot exempt. The learned Departmental Representative argued that in the light of the aforesaid judgments, the precedents and cases cited by the appellant was their written arguments, dated 22‑5‑2002 are of no avail. He prayed for dismissal of the appeal.

5. Having heard the parties and on perusal of record of the case, we find that the Honourable Lahore High Court has settled this issue in their judgment, dated 9‑1‑2002 in Civil Appeal No. 11‑S of 2001 and has held that "the Tribunal has misdirected itself. Neither Punjab Miner Mineral Concession Rules, 1986, or 1990 nor the provision of the Regulation of Mine and Oilfields and Mineral Development (Government Control) Act, 1948, are relevant in the controversy". The said judgment further held that "Taxable goods mean all goods other than those which have been exempted under section 13 and goods include every kind of moveable property other than actionable claim, money, stocks, shares and securities. Gypsum, therefore, falls within the ambit of moveable property. Further, it is provided that whenever taxable goods made in Pakistan are further supplied it constitute taxable supply and section 3 of the Sales Tax Act, 1990 contemplate that sales tax shall be charged and levied on taxable supplies made in Pakistan by a registered person in the course of furtherance of any taxable activity carried on by him." The said judgment concluded "we, therefore, hold that the Tribunal was not correct to hold that the levy and charge of sales tax on Gypsum was ultra vires. The gypsum was a taxable goods and the petitioner made a taxable supply which was subject to the incidence of sales tax." The Honourable Supreme Court's judgment (PTCL 2001 CL 333) is very clear in holding that in‑house consumption of taxable goods constitutes a taxable supply and has to pay sales tax when not exempt under section 13 of the Act. In the light of the aforesaid specific and relevant judgments, the judgment, dated 5‑2‑1968 of the Indian Supreme Court in C.A. Nos. 289‑311 of 1965, 999‑101 of 1967 and W. P. No.212 of 1966 (South Bihar Sugar Mills Ltd., etc. v. R.M. Desai, inspector of Central Excise and others), as reported in PTCL 1996 CL 227, or in Govind Saran v. CST (1985) 155 ITR 144) and the Honourable Sindh High Court, Karachi's judgment in Collector, Customs, Central Excise and Sales Tax (West), Karachi v. Novartis Pakistan Ltd. (PTCL 2002 CL 50) and Honourable Lahore High Court's judgment, dated 4‑12‑2002 in W.P. No. 6147 (WAPDA v. Collector of Central Excise and Sales Tax and others) are either not relevant to the appellant's case or are of no avail to the appellant. The excavation of gypsum, clay and limestone by the cement factories is done essentially for the disposition (self‑consumption) thereof in furtherance of the business (manufacture of cement) carried out by them. The cement factories or the excavating units, as the case may be, engaged in such excavation and production of the moveable property (gypsum, clay and limestone) are liable to be registered under section 2(25) of the Sales Tax Act, 1990 read with Chapter‑III thereof since these gypsum, clay and limestone are not exempt from sales tax under section 13 of the Sales Tax Act, 1990. Like the sales tax paid by the appellant on the bags/sacks (whether manufactured by the appellant or procured from outside) for packing of exempt cement produced, appellant also has to pay sales tax on the gypsum, clay and limestone excavated by the appellant and consumed in the factory of the manufacture of exempt cement and/or supplied by the appellant for consumption by persons other than the appellant. It is not worthy that during the period involved in this case, cement was not "a taxable goods, within the meaning of section 2(39) of the Sales Tax Act, being exempt under section 13 thereof. However, its supply was not zero‑rated under sections 2(48) and 4 of the Act read with the Fifth Schedule thereof. It is to be borne in mind that while sales tax paid on taxable inputs of zero‑rated supply also become exempt (or refundable), the tax on taxable inputs of exempt goods (or supplies) are not automatically exempt (or refundable) unless such inputs are also specifically exempted under section

13. Therefore, the tax payable on taxable inputs of exempt cement have to be paid as cement is not a zero- rated goods under the Act. However, the appellant used such sales taxable inputs (gypsum, clay and limestone) in the manufacture of some taxable goods (if any) and also in the manufacture of non‑taxable cement as well, the appellant shall be enticed to the benefits of section 8(2) of the Sales Tax Act, 1990, read with the Appointment of Input Tax Rules, 1996, issued under Notification No. S.R.O. 698(I)/96, dated 22‑8‑1996. For the reasons given above in this paragraph, we confirm the impugned order and the appeal stands disposed of as dismissed.

6. Inform all concerned accordingly.

7. Announced. C.M.A./581/Tax (Trib.) Appeal dismissed.