2005 PLP (Trib (PTD)

MUHAMMAD WALI KHAN, MEMBER (TECHNICAL):--This judgment disposes of an appeal filed by Messrs SAB Polymer Industries (Pvt.) Ltd., Gadoon Amazai, Industrial Estate, District Swabi, (herein-after called the appellants) against the Order-in-Appeal No. CE/ST-117 of 1999, dated 24-11-1999 passed by the Collector of Customs, Central Excise and Sales Tax (Appeals), Northern Zone, Rawalpindi (hereinafter called the appellate authority).

2. Brief facts of the case as depicted from the impugned Order-in-Appeal are that the Federal Government put raw materials for manufacture of syringes and infusion giving sets under 5% concessionary rate of sales tax vide serial number 11 of the Second Schedule to the Sales Tax Act, 1990 (hereinafter called the Act) vide the Sales Tax (Third Amendment), Ordinance, 1996 effective from 29th December, 1996. The Second Schedule to the Act was omitted vide Finance Supplementary (Amendment) Act, 1997 and items at serial numbers 24 to 55 were added to the Seventh Schedule thereof. These items also included raw materials for syringes and infusion giving sets at serial number 32 and the concessionary rate of sales tax was enhanced to 10% effective from 2-11-1996 vide Sales Tax (Amendment) Ordinance, 1997. The appellants filed Bill of Entry No.140 of 1997, dated 22-3-1997 and cleared the goods on concessionary rate of 5% instead of 10%. Thus the net short payment as per this bill of entry comes to Rs.27,235.00. The Seventh Schedule was omitted by the Finance Act, 1997 and certain entries of the said Schedule were added to the Sixth Schedule of the Act. The entry pertaining to raw materials for the manufacture of syringes and infusion giving sets was not added to the Sixth Schedule vide Finance Act, 1997 meaning thereby that the items became liable to sales tax at the standard rate of 12.5% as per provisions of section 3 of the Act. After promulgation of the Finance Act, 1997 the appellants claimed erroneous exemption of sales tax with reference to an inapplicable serial number of the Sixth Schedule that matched with the serial number 30 of the Seventh Schedule so omitted. The matter regarding classification/ distinction of syringes and infusions giving sets and levy of sales tax was thereon clarified by C.B.R. vide letter No. 1/1-STT/97, dated 18-6-1997. Thus the appellants misused the concession of sales tax and failed to pay Rs.9,55,103.00 on this account. Additional Tax under section 34 of the Act was also leviable upto the date of payment. The appellants also claimed exemption under S.R.O. 108(I)/95, dated 12-2-1995 for polypropylene resin for which they were not entitled to. The concession under this notification was available to such industries which, were set up in the Industrial Estate of Gadoon Amazi upto 31-12-1995. The appellants' unit started production on 8-8-1996 i.e. after the cut off date. From the above it was clear that the appellants had not paid sales tax as under: (i) Short payment vide bill of entry : Rs.27,235.00 No.140 of 1997, dated 22-3-1997. (ii) Non-payment of sales tax with reference to Sixth Schedule. : Rs.955,103.00 (iii) Non-payment with reference to Rs.53,109.00 S.R.O. 108(I)/85, dated 12-2-1995. "Total : Rs.10,35,447.00

3. Accordingly, the appellants were charged through a show-cause notice bearing C. No. ST-(Adj) Addle: C-II/250/98/544, dated 28-10-1998 to have violated the provisions of sections 3, 6 and 11(2) of the Act and were called upon to explain as to why besides taking penal action against them under section 33 of the Act the short paid amount of sales tax shown above should not be recovered from them along with additional tax upto the date of actual payment as per section 34 thereof. After hearing the parties, the Additional Collector, Customs and Central Excise Peshawar vide his Order-in-Original No. 100 of 1998, dated 19-12-1998 found the appellants guilty of the offence charged and directed them to pay the short paid amount of sales tax along with additional tax upto the date of payment. He also imposed a penalty equal to 5% of the adjudged tax on the appellants under section 33(1)(d) of the Act.

4. Aggrieved of the decision of the Additional Collector, the appellants filed an appeal with the appellate authority. The appellate authority after affording hearing to The appellants and after scrutiny of record came to the following conclusion

"In view of the above observations, the demand of additional tax and the imposition of penalty against the appellant is declared to be un-warranted and harsh and is, therefore, remitted. The appellant shall also not be charged with the short payment of sales tax of Rs.53,109, as detailed against para. 1 (iv) of the impugned order. The appeal thus, partially succeeds. The impugned order is to be modified, accordingly."

5. Aggrieved of the decision of the appellant authority the present appeal has been filed with this Tribunal.

6. As is clear from para. 4 above, the appellate authority has partially accepted the first appeal of the appellants and has held that the appellants are not liable to additional tax and penalty. Similarly, he has not accepted the demand of Rs.53,109.00 of the respondent Collectorate of Sales Tax and Central Excise, Peshawar regarding non-payment of sales tax of Rs.53,109.00 with reference to S.R.O. 108(I)/95, dated 12-2-1995. No appeal has been filed by the respondent Collectorate with the result that the findings of the appellate authority attained finality. This leaves us to examine the legality or otherwise of the remaining demand of sales tax adjudged against the appellants by the appellate authority. The claim of the appellants is that they are manufacturers of infusion giving sets and the quantity of imported raw materials annually required by them stands determined under S.R.O. 457(I)/88, dated 26-6-1988 in terms of the capacity certificate C. No. 193 S& R-2/92, dated 29-11-1995 issued by the Chief, Survey and Rebate, Central Board of Revenue, Islamabad. According to the learned counsel for the appellants the raw materials required by the appellants N4ere initially exempt from customs duty in excess of 25% of the rate specified in the First Schedule to the Customs Act, 1969 and from the whole of the sales tax. The period in dispute in the present appeal according to him is the year 1997-98. Owing to amendment made in S.R.O. 457(I)/88, dated 26-6-1988 the customs duty in excess of 35% of the rate specified in the First Schedule to the Customs Act, 1969 was exempt during this period whereas sales tax in excess of 5% was exempt in terms of the Second Schedule to the Sales Tax Act, 1990 with reference to Bill of Entry No.140 of 1997, dated 22-3-1997. As regards the amount of R.955,103.00 claimed by the respondent Collectorate to be payable, he claimed that this demand is not maintainable since sales tax was in fact exempt under serial number 43 of the Sixth Schedule of the Act as it existed during the relevant period since infusion giving sets manufactured by his clients for which the raw materials were imported were drugs (pharmaceutical products) in terms of S.R.O. 324(I)/94, dated 19-4-1994 issued by the Ministry of Health under section 3 of the Drugs Act, 1976. He also relied upon the judgment of the Lahore High Court in the case of Messer Wislhire Laboratories (Pvt.) Ltd. v. Federation of Pakistan through Secretary Finance, Islamabad and 3 others reported as 1998 PTD 3061 and decision of the Lahore Bench of this Tribunal, dated 16-5-1998 in appeal No.107 of 1998 of Messrs Service Industries Ltd. Muridke v. Collector (Appeals), Lahore and Additional Collector Sales Tax, Lahore. It was claimed by the learned counsel that his clients have correctly discharged their tax liabilities under the Act and the demand being unjustified may be struck down and the decision of the lower for a may be set aside.

7. Learned DR opposed the appeal vehemently and argued that the arguments advanced by the learned counsel for the appellants are not maintainable for the reason that the raw materials for the manufacture of syringes and infusion giving sets were liable to the concessionary rate of 5% sales tax under serial number 11 of the Second Schedule to the Act. However, the Second Schedule to the Act was omitted vide Finance Supplementary (Amendment) Act, 1997 and the raw materials for manufacture of syringes and infusion giving sets were placed in the Seventh Schedule to the Act under serial number 32 thereof and were made chargeable to sales tax @ 10% effective from 2-11-1996. He explained that this Schedule (Seventh) of the Act was also omitted vide Finance Act, 1997. However, the raw materials mentioned in serial number 32 thereof were not shifted to the Sixth Schedule which means that after omission of the Seventh Schedule to the Act the appellants were not entitled to partial or full exemption from sales tax on the import of raw materials for the manufacture of infusion giving sets. He stated that despite the fact that S.R.O. 324(I)/94, dated 19-4-1994 was in the field when the Second, Sixth and Seventh Schedules of the Act were operative shows that C.B.R. did not, treat syringes and infusion giving sets as pharmaceutical products for the purpose of full or partial exemption of its raw materials because it did not club these raw materials with the raw materials of pharmaceutical products for which there remained a separate entry in the Second, Sixth and Seventh Schedules. To support his claim he relied upon the latter of C.B.R. bearing C. No.1/51-STT/97, dated 18-6-1997 which has been reproduced in the Order-in-Original No.100 of 1998 passed by the Additional Collector, Customs and Central Excise, Peshawar in the instant case and prayed that the appeal may be dismissed as it has no merits.

8. We have heard both the parties and examined record of the case carefully. Vide serial number 9 of the omitted Second Schedule to the Act raw materials imported for manufacture of pharmaceutical products were chargeable to a concessionary rate of 5% sales subject to similar conditions as are envisaged for the purposes of Customs Act, 1969 Similarly, vide serial number 11 thereof raw materials imported for the manufacture of syringes and infusion giving sets were chargeable to the same concessionary rate of 5% subject to the same conditions as were envisaged for the purposes of the Customs Act. It means that when the Second Schedule was operative the raw materials imported for the manufacture of syringes and infusion giving sets were covered by serial number 11 and not by serial number 9 thereof despite the fact that syringes and infusion giving sets were drugs (pharmaceutical products), within the meaning of section 3 of the Drugs Act, 1976 in terms of S.R.O. 324(I)/94, dated 19-4-1994. Serial number 11 of the Second Schedule was a specific law as against serial number 9 for the purpose of raw material imported for manufacture of syringes and infusion giving sets and serial number 9 was a general law for the purpose of pharmaceutical products. Therefore the specific law had precedence over the general law. It therefore, follows that during the period when Second B Schedule was operative the sales tax rate applicable to the raw materials imported by the appellants was the one meant for serial number 11 and not the one meant for serial number 9 if there were different rates applicable to the two. The same position prevailed when the Second Schedule was omitted and raw materials imported for the manufacture of pharmaceutical products and those imported for the manufacture of syringes and infusion giving sets were placed at serial numbers 30 and 32 respectively of the Seventh Schedule to the Act. Therefore, the same C principle of law would apply as has been held above in respect of serial numbers 9 and 11 of the Second Schedule regarding application of serial numbers 30 and 32 of the Seventh Schedule to the appellants' case. It may however be noted that effective from 2-11-1996 the concessionary rate of sales tax was 10% under the Seventh Schedule to the Act. The appellants are therefore liable to pay the differential amount of sales tax in respect of goods cleared under Bill of Entry number 140/1997, dated 22-3-1997. The position in respect of the Sixth Schedule is somehow different. It is an admitted position that syringes and infusion giving sets are drugs within the meaning of section 3 of the Drugs Act, 1976 in terms of S.R.O. 324(I)/94, dated 19-4-1994. The word "Drug" or the expression "Pharmaceutical product" have neither been defined in the Customs Act, 1969 nor in the Sales Tax Act, 1990. Therefore dictionary meaning of these expressions has to be found and followed. According to the Black's Law Dictionary, Sixth Edition, the word "Drug" means "An article intended for use in the diagnosis, cure, mitigation, treatment or prevention of disease in man or other animals and any article other than food intended to affect the structure or any function of the body of man or other animals. The general name of substances used in medicine; any substance, vegetable, animal, or mineral, medicines; any substance used as medicine." Similarly, "Product" according to this dictionary means "with reference to property, term refers to proceeds; yield; income; receipts, return. Goods produced or manufactured, either by natural means, by hand, or with tools, machinery, chemicals, or the like." So far as the word "pharmaceutical" is concerned, according to Butterworths Medical Dictionary, Second Edition (Page 1291), the word "Pharmacutical" means "Relating or belonging to drugs or pharmacy; or engaged in pharmacy." The Oxford English Dictionary, Volume VII terms the word "pharmaceutical" to mean "Pertaining to or engaged in pharmacy; Relating to the preparation, use or sale of medical drugs." Collins Dictionary of the English Language at page 469 shows the meaning of the word "pharmaceutical" to mean "of or relating to drugs or pharmacy." Longman Dictionary of the English Language terms the word "pharmaceutical" to mean "of or used in drugs, ointments medicines etc."

9. When all the words and their dictionary meanings are read together it becomes crystal clear that "pharmaceutical product" means "drugs" for the purpose of the present case. Keeping in view this position in mind when we look at the entries made in the Sixth Schedule to the Act we find that there was no specific entry for raw materials imported for the manufacture of syringes and infusion giving sets. However, serial number 43 of the Sixth Schedule as it existed then covers raw materials imported for the manufacture of pharmaceutical products subject to similar conditions as are envisaged for the purpose of the Customs Act, 1969. We have seen above that pharmaceutical product according to dictionary meaning means drugs. The products manufactured by the appellants are drugs under the Drugs Act, 1976 as notified vide S.R.O. 324(I)/94, dated 19-4-1994. These products also correspond to the meaning of drugs as defined in the Black's Law Dictionary. It therefore follows that in the absence of specific exclusion of syringes and infusion giving sets from serial number 43 of the Sixth Schedule to the Act in the same manner as certain medicaments and substances were excluded from the preview of serial numbers 36 and 37 of the said Schedule then applicable it is difficult for us to agree to the plea taken by the learned D.R. The infusion giving sets manufactured by the appellants are pharmaceutical products. Raw materials imported for manufacture thereof are clearly covered by serial number 43 of the Sixth Schedule to the Act and were exempt from sales tax subject, of course, to the observance of same conditions, as were envisaged for the purpose of the Customs Act, 1969 under S.R.O. 475(I)/98, dated 26-6-1998 as applicable during the relevant period of imports. In case the appellants did not fulfil those conditions they will not be entitled to the exemption of sales tax under serial number 43 of the Sixth Schedule then in vogue.

10. The above discussion leads us to conclude that the appellants were liable to pay sales tax on the raw materials imported and cleared by them under Bill of Entry number 140 of 1997, dated 22-3-1997 @ 10% instead of @ 5%. They shall therefore pay the differential amount if not paid earlier. They are however not liable to pay sale tax on imports covered under serial number 43 of the Sixth Schedule to the Act since the imported raw materials were exempt thereunder. The appeal partially succeeds. The impugned Order-in-Appeal passed by the appellate authority is modified to the above extent and the appeal is disposed of accordingly.

11. Announced.

12. Parties may be informed accordingly. S.A.K./448/Tax (Trib.) Appeal partly accepted.