1973 PLP 544 (PTD)

MUHAMMAD AKRAM, J.‑

This is a reference made by the Hunza Central Asian Textile and Woollen Mills Ltd.. Rawal pindi directly to the High Court under section 17(1) of the Sales Tax Act III of 1951 (As amended) for its opinion. It S, arises out of the order dated the 15th of April 1971, passed by the Appellate Tribunal, Peshawar Bench, Peshawar against the petitioner in S. T. A. 202 of 1970‑71 in respect of the assessment year 1964‑65.

2. The petitioner‑assessee is a private limited company and manufactures hosiery goods and woollen hosiery yarn which is also known as knitting yarn. In the return filed by the assessee under the Sales Tax Act the company disclosed a total turn over of Rs. 3,20,495 only for the period from 1‑7‑1964 to 30‑6‑1965. Bat the assessee claimed total exemption from sales tax in respect of its products manufactured by the company. After enquiry on 16th May 1970, the Sales Tax Officer, Company Ward I, Rawalpindi held is at the "Hosiery goods" manufactured by the assessee were exempt from sales tax under item No. 17 of the Government of Pakistan, Ministry of Finance (Revenue Division) Notification (Sales Tax) No. 9, dated the 27th of June 1951 added by the Government of Pakistan Ministry of Finance (Revenue Division) Notification (Sales Tax) No. S. R.O. 289 dated the 1st of July 1959. He was, however, of the opinion that the petitioner was not entitled to any exemption from sales tax on the hosiery yarn manufactured by it. He observed that the hosiery yarn manufactured by the assessee was not the same thing as the "knitting wool" which was exempt from the tax under item No. 17‑A of the Government of Pakistan, Ministry of Finance (Revenue Division) Notification (Sales Tax) No. 9, dated the 27th of June 1951, added by the Government of Pakistan, Ministry of Finance (Revenue Division) Notification (Sales Tax) No. S.R.O. 504(K)‑64, dated the 11th of July 1964. He found that the petitioner manufactured a total of 21725 lbs. of hosiery yarn during the relevant yarn. Out of this the as3essee consumed 20705 lbs. of the yarn in manufacturing hosiery goods in its own mills and the remaining 1020 lbs. of the yarn was sold to the other hosieries. The Sales Tax Officer estimated the cost of the entire yarn manufactured by the assessee at the rate of Rs. 15 per lb. at Rs. 3,25,875 in all. To this he added Rs. 27,525 for unaccounted sales. In the result he computed the taxable sales by the petitioner at Rs. 3,53,400 and brought them to charge to sales tax at the rate of 15 % prescribed under the law.

3. The assessee was not satisfied with the order passed by the Sales Tax Officer and went up in appeal claiming total exemption from the tax in respect of the manufactured hosiery yarn as well. At the hearing before the Appellate Assistant Commissioner of Solos Tax, A‑Range, Rawalpindi the assessee advanced a two‑fold argument in support of its appeal. The petitioner asserted that the hosiery yarn manufactured by it was the same think as the "knitting wool" exempt from sales tax and they were not different and separate commodities. The petitioner also contended that the hosiery yarn manufactured by the assessee and consumed in its own mills in manufacturing the hosiery goods could not be Wally brought to tax at all. But the learned Appellate Assistant Commissioner did not go into the first plea and straightway accepted the appeal of the assesses on the second contention advanced before him. He was of the opinion that the consumption and use of the hosiery yarn by the assesses in Its own mills for manufacturing the hosiery fabrics did not constitute a sale of those goods and they could not be legally charged to tax under the Act. On this finding alone the Appellate Assistant Commission disposed of the appeal before him on the 13th of November 1970.

4. This order gave rise to two further cross‑appeals by the parties. Tae assesses was not satisfied with the order of the Appellate Assistant Commissioner in that he failed to record his finding on Its plea to the effect that the hosiery yarn manu factured by It was altogether exempt from the sales tax. On the other hand the department was dissatisfied against the finding to the effect that the hosiery yarn consumed by the assesses in manufacturing the fabrics in its own mills could not be brought to the tax. The two appeals were disposed of by a consolidated order passed by the Income‑tax Appellate Tribunal, Peshawar Bench, Peshawar on 15‑4‑1971. The Tribunal accepted the appeal preferred by the department and rejected that of the assessee. In the result the Tribunal set aside the order passed by the Appellate Assistant Commissioner of Sales Tax and restored that of the Sales Tax Officer. In the opinion of the Tribunal the hosiery yarn produced by the assessee was a different commodity from the "knitting wool" which was exempt from sales tax under Item No. 17‑A of the Notification No. 9, dated the the 27th of June 1951. As such no exemption from the tax was allowed the yarn manufactured by the assessee. The Tribunal also agreed with the departmental representative in holding that the hosiery yarn produced from the raw wool constituted the raw material for the manufacture of the woollen fabrics and was liable to sales tax under section 3 (6) (d) of the Sales Tax Act. In this connection the Tribunal relied on the pronouncement of the Supreme Court in Noorani Cotton Corporation v. Sales Tax Officer, A‑ Ward, Lyallpur (P L D 1965 S C 161).

5. In these circumstances, on the 7th of August 1971, the assessee filed the above‑reference application under section 17(1) of the Sales Tax Act in the High Court for its opinion on the follow ing four questions of 13w said to arise out of the aforesaid order dated the 15th of April 1971, passed by the Tribunal :‑ "

1. Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that for purposes of Notification No. 9, dated the 27th June 1951, woollen yarn processed from raw wool constitutes 'raw material' in the process of manufacture of woollen fabrics and as such liable to sales tax tinder section 3 (6) (d) of the Sales Tax Act, 1951, without there being any mention of this section in sections 2(15) and 3(4) of the Act which came to be amended much later by Finance Act, 1966, without retrospective effect? (2) Whether fn contradistinction to subsection (1) and (4) of section 3, section 3(6) (d) of the Act is ‑a charging section so as to justify levy of sales tax thereunder and also make It payable? (3) Whether in the absence of any definition of the term 'raw material' contained in the Sales Tax Act, 1951, woollen yarn, which underwent an act of processing from the stage of raw wool can be taken to be 'raw material' in Its plain meaning for purposes of charging sales tax under Notification No. 9 dated 27‑6‑1951, while manufacturing woollen fabrics which are exempt from sales tax under the said Notification. (4) If the answar to question at No. 3 above is in affirmative, whether the goods constituting "Raw material' such as raw wool, exempt from sales tax under Notification No. 7 dated 27‑6‑1951 can be brought back to tax under Notification No. 9 dated 27‑6‑1971 ?"

6. During the pendency of this case here, on the 3rd of July 1972, the petitioner filed a miscellaneous application (C. M. No. 48‑Com of 1972) for an early date of hearing. In this the petitioner alleged that recently in another case in S. 'P. A. No. 155 of 1970‑71 the Income‑tax Tribunal Pakistan, Lahore has expressed a contrary opinion and held that the knitting wool and woollen yarn were synonymous terms and that there was no justification for holding that the woollen yarn in question was not exempt from the sales tax. It was also pointed out that similarly in the case of the present petitioner in S. T. A. No. 54‑A for 1971‑72, in respect of the next assessment year 1965‑66, the Tribunal has exempted the woollen yarn produced by the assessee, from the sales tax. Copies of these two orders were also produced by the petitioner in the High Court along with the application. In these circumstances the petitioner alleged that there was no justification whatsoever for the levy of the sales tax, for the assessment year 1964‑65, on the hosiery yarn produced by the assessee and the demand for Its payment was unwarranted and illegal. The petitioner, there fore, prayed for fixing an early actual date of hearing in the main application, Afterwards on the 24th of November 1972, the petitioner moved another miscellaneous application (C. M. No. 126‑Com of 1972), to the effect that In the light of those latest orders passed by the Tribunal in the aforementioned two appeals (S. T. A. No. 155 of 1970‑71 and S. T. A. No. 54‑A of 1971‑72) the following question of law had also arisen out of the impugned order passed by the Appellate Tribunal in this case and, therefore, prayed that this additional question of law may be allowed to be raised at the hearing before us :‑ "Whether in the circumstances of the petitioner's case the 'woollen yarn' used for the knitting of woollen hosiery goods by the petitioner‑Company were liable to the sales tax?" In the course of the hearing in this case the petitioner moved yet another application (C. M. 127‑Com of 1972) challenging the vires of the sales tax imposed on the consumption of woollen yarn by the assesses and prayed for permission of the Court to raise the following further question of constitutional Importance going to the root of this case :‑. "Whether Federal Legislature is at all competent to Impose sales tax on the woollen yarn consumed by the petitioner Company for the manufacture (knitting) of the woollen hosiery goods?"

7. Before us on behalf of the petitioner Mr. A. K. Brohi argued his case with great vehemence on the main petition as well as on the subsequently made miscellaneous applications for permission to raise the now and additional questions of law before us. But Muhammad Afzal Lone on behalf of the department tried his best to meet these arguments in reply. He also raised a preliminary objection and dwelt at length to con tend that the petitioner could not be permitted to advance these new pleas and raise additional questions in these proceedings before the High Court in this manner not warranted under the law.

8. Before proceeding to answer the questions referred to the High Court It is necessary to dispose of the preliminary objection. In this connection the learned counsel for the respondent tenaciously argued before us that under the limited powers vested in the High Court in this behalf on reference this Court has no jurisdiction to entertain any new question of law not raised before and not dealt with by the Income‑tax Appellate Tribunal in its order. According to the learned counsel, this Court must not permit these new and additional questions raised on behalf of the petitioner fn these proceedings.

9. In this connection in order to fully appreciate the arguments advanced before us it is necessary to examine the true scope and nature of this jurisdiction vested in the High Court under section 17 of the Sales Tax Act, 1951. This section provides for reference to the High Court of any question of law arising out of the order passed on appeal by the Appellate Tribunal under section 15 of the Act. This section was amended and radical changes were introduced into it by section 6(6) of the Finance Ordinance XIV of 1971. Before It subsection (1) of section 17 of the Sales Tax Act, in Its unamended form., provided that by an application made, within the prescribed time, the assessee or the Commissioner of Sales Tax may require the Appellate Tribunal to refer to the High Court "any question of law arising out of" its appellate order. In this connection subsection (2) further provided that if on an application made under subsection (1) the Appellate Tribunal refuses to state the case for the opinion by the High Court on the ground that no question of law arises, the assessee or the Commissioner, as the case may be, within the time allowed by the law, apply to the High Court, and the High Court may, if it is not satisfied about the correctness of the decision of the Appellate Tribunal require the Tribunal to state the case and to refer it and on receipt of any such requisition the Tribunal shall state the case and refer it accordingly. Subsection (4) empowers the High court to refer the case back to the Commissioner by whom it was stated to make such additions thereto or alterations therein as the Court may direct in that behalf. 9‑A. The old section 17 of the Sales Tax Act was exactly similar to the corresponding provisions contained in section 66 of the Income‑tax Act, 1922, in force in Pakistan and India arid valuable assistance can be derived in the interpretation of this section on reference to same of the leading cases reported under the Income‑tax Act. There was a considerable divergence of opinion on the interpretation of the term any question of law "arising out" of such order of the Appellate Tribunal in the context of the section. In Raja Bahadur Sir Rajendra Narayan Bhanji‑Deo v. Commissioner of Income‑tax, Bihar and Orissa (A I R 1940 P C 158) their Lordships of the Privy Council observed that the function of the High Court in cases referred to it under section 66 of the Income‑tax Act, 1922, is advisory only and is confined to considering and answering actually the question referred to it. In this connection a Full Bench of the five Judges of the Lahore High Court in Gurmukh Singh v. Commissioner of Income‑tax, Lahore (A I R 1944 Lah. 353) was of the opinion that a new question of law cannot be raised by the High Court Itself though the High Court may restate a question propounded by the Commissioner. if considered necessary. The High Court must confine itself to the statement of the case drawn up by the Commissioner so far as the substance of the question is concerned and can decide that question only which is raised thereby. The Court also observed that the powers of the High Court on reference are similar to those in second appeal. Under the Indian Jurisdiction the majority of the High Courts of Madras, Calcutia, Patna and Punjab have held that under this section questions of law not raised before the Appellate Tribunal and not dealt with by it in its order, cannot be said to arise out of its order even if on the facts of the case stated in the order the question fairly arises (See page 851 of the Law and Practice of Income‑tax by Kanga, 4th Edition). But Chagla, C. J, in Mandanlal Dharnidharka v. Commissioner of Income‑tax, Bombay City ((1948) 18 I T R 227) in liberally interpreting the section observe, that:‑-- "Now looking at the plain language of the section apart from any authority, I should have stated that a question of law arose out of the order of the Tribunal if such a question was apparent on the order itself or it could be raised on the facts found by the Tribunal and which were stated in the order. I see no reason to confine the jurisdiction of tins Court to such questions of law as have been argued before the Tribunal or are dealt with by the Tribunal. The section does not say so and there is no reason why we should consider the expression id arising out of such order" in a manner unwarranted by the ordinary grammatical construction of that expression. This Court has no jurisdiction to decide questions which have not been referred by the Tribunal. If the Tribunal does not refer a question of law under section 66(1) which arises out