1965 PLP 273 (PTD)

(a) Sales Tax Act (III of 1951), S. 3(4), (6) (d) read with S. 2(15)-Keeping of manufactured goods by manufacturer is a "sale" by virtue of S. 3(6) (d), which aspect, however, is not included in definition of "sale" as given in S. 2(15)-Such keeping being a "sale", property in goods does pass to purchaser, and goods so kept become liable to sales tax (unless they can be shown to be exempt on some other ground). While it has to be accepted that the correct way of bringing a transaction within the definition of "sale" was to make a provision in the definition, there can be no doubt at all as to the intention of the Legislature in section 3 (6) of the Sales Tax Act, 1951. It has clearly been provided that all such transactions are to be regarded as sales for the purpose of this Act. At the same time if such transaction is not regarded as a sale, subsection (6) (d) becomes wholly redundant for then no need will ever arise of assessing the value in a case -where manufactured goods are kept by the manufacturer. The need for such assessment arises only if tax is payable on goods which are kept by the manufacturer for his own use. There is however, one point which needs explanation. According to section 3 (4) of the Sales Tax Act, 1951, tax on manufactured goods is to be paid when goods are delivered to the purchaser or property in the goods passes to the purchaser. It does not say that tax is payable when there is a sale. Section 3(6) on the other hand does not use the word "purchaser" anywhere. It does not say that the keeping of goods for use by a manufacturer will amount to a delivery of goods to the purchaser or to the passing of property to the purchaser. However, it uses the word "sale" and according to the definition of sale in the Act, a sale occurs when property passes from one person to another. If the effect of subsection (6) (d) be that keeping of goods by the manufacturer becomes a sale then property does pass to the purchaser. Even otherwise the fact that value is to be computed in such a case necessarily involves that the keeping of goods by the manufacturer becomes liable to the payment of sales tax. (b) Government of India Act, 1935, S. 100 read with Item No. 48, Provincial Legislative List and Item No. 54-B, Federal Legislative List-Central Legislature's power to make laws includes power to make laws retrospectively as well as prospectively. Subject of sales tax transferred, by amendment of Government of India Act, 1935, from Provincial List to Federal List for two years expiring on 31-3-1952-Sales Tax Act (III of 1951) enacted on 20-4-1951, held, did not lapse on 31-3-1952 but remained in force beyond that date-(Interpretation of statutes)-Legislature invested with temporary powers to make laws Legislature in exercise of such power may make laws which remain operative beyond date of expiry of such temporary powers. (c) Sales Tax Act (III of 1951), Ss. 3 (1) (a) & 3(6) (d) read with Entry No. 23, Notification No. 9 under S. 7, Sales Tax Act (III of 1951)-Cottonseed manufactured by assessee and kept for manufacture of cotton-seed oil-Such cottonseed held to be exempt from tax, final product, i.e., cottonseed oil being itself taxable. Abdur Rashid Senior Advocate Supreme Court instructed by Khawaja Nazir Wali & Company Senior Attorneys for Appellants (in Civil Appeals Nos. 42 and 43 of 1964). Shabbir Ahmad Senior Advocate Supreme Court (Abdur Rashid Senior Advocate Supreme Court with him) instructed by Maqbul Ahmad Attorney for Appellants (in Civil Appeals Nos. 44 to 47 of 1964). Abdur Rashid Senior Advocate Supreme Court instructed by Khawaja Nazir Wali & Company Senior Attorneys for Appellant (in Civil Appeal No. 58 of 1964). Said Akbar Senior Advocate Supreme Court on record Absent and V. H. Naqvi Attorney present for Appellants (in Civil Appeals Nos. 63 and 64 of 1964). Karam Elahi Chauhan Senior Advocate Supreme Court instructed by M. Siddiq Senior Attorney for Appellants (in Civil Appeals Nos. 66 and 67 of 1964). Javed Hashim Advocate High Court under rule 5, Order IV Supreme Court Rules, 1956 (Asad Ali Rizvi Advocate Supreme Court with him) instructed by Siddiq & Company Attorneys for Appellants (in Civil Appeal No. 68 of 1964). Abdul Haq Advocate Supreme Court instructed by M. B. Khizar Tamimi Attorney for Respondents (in all Appeals except Civil Appeal No. 58 of 1964). Respondent Ex parte: in (Civil Appeal No. 58 of 1964). Date of hearing: 10th November 1964. B. Z. KAIKAUS, J.-This judgment will dispose of Civil Appeals Nos. 42 to 47, 58, 63, 64, 66, 67 and 68 of 1964, the points arising in which are common. The appellants in all these appeals are licensed manufacturers under section 8 of the Sales Tax Act. They all carry on the business of ginning cotton and extracting oil from the cottonseed obtained by ginning. The appellants had not previously been paying sales tax on the manufacture of cottonseed, but by virtue of a letter issued by the Central Board of Revenue on 19-12-1960, such a tax was demanded from them by the Sales Tax Authorities and then they all filed writ petitions in the High Court of West Pakistan challenging the legality of the tax. Two points were urged before the High Court, the first being that under the provisions of the Sales Tax Act the tax was not leviable and the second that the amendment of the Sales Tax Act by the Central Legislature on account of which amendment this tax was being demanded was ultra vires so far as the period under dispute was concerned because the power of the Central Legislature to enact laws in respect of sales tax was limited to a particular period which was not in dispute. The High Court rejected both the contentions and dismissed the writ petitions. For an appreciation of the points that arise it will be proper to start with the reproduction of section 3 of the Sales Tax Act which is the charging section. It runs: "3. (1) There shall be levied and collected a tax on the value of- (a) all goods produced or manufactured in (Pakistan) payable by the manufacturer or producer; (b) all goods imported into (Pakistan), payable by the importer; (c) all goods sold by a licensed wholesaler, payable by the licensed wholesaler; (d) such goods or classes of goods as the (Board) may, by notification in the official Gazette, specify in this behalf which are exported from (Pakistan), payable by the exporter. (2) The tax shall be a tax of (fifteen per cent.) on the value of the goods as aforesaid except in the case of goods specified in the Schedule to this Act in which case it shall be such percentage as may be fixed by the (Board) by notification in the official Gazette. (3) The value of the goods shall be- (i) in the case of goods falling under clause (a) of subsection (1)-the sale price; (ii) in the case of goods falling under clause (b) or clause (d) of the said subsection the duty-paid value; (iii) in the case of goods falling under clause (c) of the said subsection being imported goods-the duty-paid value; (iv) in the case of goods falling under clause (c) of the said subsection being goods manufactured or produced in (Pakistan)-the price for which the goods were purchased by the licensed wholesaler; (4) The tax in respect of the goods mentioned in clauses (a) and (c) of subsection (1) shall be payable on the occurrence of the first of the following events- (i) when the goods are delivered to the purchaser, or (ii) when the property in the goods passes to the purchaser, or (iii) when the goods are sent, consigned or exported to any place outside (Pakistan), and for the purposes of this clause the goods shall be deemed to have been sold when they are sent, consigned or exported to any such place aforesaid. Provided that (in the case of goods specified in the First Schedule to) the Central Excise and Salts Act, 1944 (1 of,1944), (hereinafter referred to as the said Act), the tax shall be payable at the same time and in the same manner as the (duty of excise irrespective of whether such duty is for the time being payable in respect of those goods or not) and the provisions of the said Act relating to the payment of duty and the removal of goods shall, so far as may be, apply to the payment of the tax under this Act as they apply for the purposes of the said Act). (5) The tax in respect of the goods mentioned in clauses (b) and (d) of subsection (1) shall be paid on importation or exportation, as the case may be, as provided hereunder- (i) where the goods on importation are directly cleared for home consumption-before the order for such clearance is made by the Customs Officer; (ii) where the goods on importation are taken out of bond for home consumption-before the goods are removed from the warehouse; (iii) where the goods are exported by sea-before the shipping bill is passed by the Customs Collector; (iv) where the goods are imported or exported by land-before the permit for the passage of the goods out of or into foreign territory is issued; and the provisions of the Sea Customs Act, 1878, and of the Land Customs Act, 1924, relating respectively ho the clearance, shipping and removal of goods and the passage of goods out of or into foreign territory shall, so far as may be, applied to the payment of the tax under this Act as they apply for the purposes of those Acts. (6) Where goods are produced or manufactured in (Pakistan) under such circumstances or conditions as render it difficult to determine the value thereof for the tax because- (a) a lease of such goods or the right of using the same but not the right of property therein is sold or given; or (b) such goods having or royalty imposed thereon, the royalty is uncertain, or is not from other causes a reliable means of estimating the value of the goods; or (c) such goods are manufactured by contract for labour only and not including the value of the goods that enter into the same, or under any other unusual or peculiar manner or conditions; or (d) such goods are for use by the manufacturer or producer and not for sale; the Sales Tax Officer may determine the value for the tax under this Act and all such transaction shall, for the purposes of this Act, be regarded as sales. (7) If any person other than the manufacturer or producer or importer or licensed wholesaler or exporter hereinbefore mentioned acquires from or against any one of these persons the right to sell any goods, whether as a result of the operation of law or of any transaction not taxable under the next succeeding section, the sale of such goods by him shall be taxable as if made by the manufacturer or producer or importer or licensed wholesaler or exporter, as the case may be, and the person so selling shall be liable to pay the tax." The sales tax by its name should be a tax on sales, but that is not quite in accord with the provisions of this section. It is a tax on goods produced or manufactured or imported or exported. However, so far as the manufactured or produced goods are concerned the tax becomes payable only when the goods are delivered to the purchaser or when the property in the goods passes to the purchaser. We are concerned in the present case with manufactured or produced goods only. It will be proper to explain here the scheme of the Act. As the various provisions of the Act show the intention was to levy only one tax on manufactured or produced goods which are offered for sale to the consumer. A process of manufacture may involve different stages or goods manufactured by one person may be purchased by another not for the purpose of consumption, but for being incorporated into another article on which sales tax is to be paid. A stage of manufacture or the manufacture of goods which are to be incorporated in another article is not liable to sales tax. To explain the point we may take as an illustration the very case with which we are dealing. Cottonseed is at first extracted from cotton. This is a manufacturing process and if this cottonseed is sold to the consumer sales tax will have to be paid on the manufacture of cottonseed. However, the manufacturer may use this cottonseed himself for the production of cottonseed oil. In its turn the cottonseed oil which is again a manufactured article may be sold to one who manufactures vegetable ghee for the purpose of being incorporated in the vegetable ghee. In a case where the cottonseed oil manufactured by a person from cottonseed extracted by himself from cotton goes into the vegetable ghee the intention of the law is that sales tax may be paid only on the manufacture of vegetable ghee and should not be paid either on the production of cottonseed or on the production of cottonseed oil which productions become in such a case only steps in the manufacture of vegetable ghee. Now what is the device adopted for ensuring that sales tax is paid only at one stage in spite of what is contained in the charging section making all manufactured goods when they go to the purchaser liable to the payment of tax` The device adopted, as will appear from section 4 is, that the sale of "partly manufactured goods" to a manufacturer is not liable to the charge of tax. It may be clarified here that the Sales Tax Act does not recognise a manufacturer who has not obtained a licence under it for manufacture. The provision in section 4 is that the sale by a licensed manufacturer to another licensed manufacturer of partly manufactured goods is not liable to the incidence of tax. The definition of "partly manufactured goods" is that they are goods which are to be incorporated into another article. So these provisions are a sufficient guarantee that the tax will be paid only with respect to the last stage of manufacture of goods. However, there is one difficulty which had to be removed. Suppose the manufactured article into which partly manufactured goods are to be incorporated is for some reason not liable to the payment of sales tax? In that case if no tax is paid on partly manufactured goods no tax will be paid at all. Therefore in the definition of "partly manufactured goods" a limitation has been introduced that the article into which the goods are to be incorporated should be one which is liable to the payment of sales tax. If it is not liable to payment of tax then the goods which are incorporated into it are also manufactured goods on which sales tax has to be paid. One further difficulty would still remain. What is to happen if a person himself manufactures goods and then incorporates them into another article? There is no sale of the first manufactured goods because the person producing them is only using them for manufacture of other goods. Tax is payable only when there is a sale. In a case where the article that is ultimately produced is liable to the payment of sales tax there would be apparently no need of a provision relating to goods that are to be incorporated in the last article. But suppose that the last article is not liable to the payment of sales tax. Unless a special provision was made that person would not be paying any tax on the production of the first article too. This situation is met by the general provision in the last part of section 3 (6) that the keeping of goods by the manufacturer for his own use would be regarded as a sale. As a matter of fact this last proposition has been contested by the appellants and is one of the points argued by them before the High Court. We are stating the ultimate conclusion and the reasoning will appear shortly. To take up the first contention raised before the High Court namely that subsection (6) of section 3 could not be the basis of the imposition of sales tax in a case where the article was kept for use by the manufacturer, it will be observed that according to subsection 6 (d) the Sales Tax Officer may determine the value for the tax in a case where the goods are kept for use by the manufacturer and such a transaction is to be regarded as a sale. The contention put forward on behalf of the appellants was that in the definition of "sale" there was no extension of its meaning so as to include a case where the manufacturer keeps the goods for himself, that subsection (6) related only to assessment of value for the purpose of charge of tax, and that as long as the definition of "sale" did not include such a transaction there would be no liability to pay sales tax. While it has to be accepted that the correct way of bringing a transaction within the definition of "sale" was to make a provision in the definition, there can be no doubt at all as to the intention of the Legislature in subsection (6). It has clearly been provided that all such transactions are to be regarded as sales for the purpose of this Act. At the same time if we do not regard this transaction as a sale subsection 6(d) becomes wholly redundant for then no need will ever arise of assessing the value in a case where manufactured goods are kept by the manufacturer. The need for such assessment arises only if tax is payable on goods which are kept by the manufacturer for his own use. There is one point which needs explanation here. According to section 3 (4) tax on manufactured goods is to be paid when goods are delivered to the purchaser or property in the goods passes to the purchaser. It does not say that tax is payable when there is a sale. Section 3(6) on the other hand does not use the word "purchaser" anywhere. It does not say that the keeping of goods for use by a manufacturer will amount to a delivery of goods to the purchaser or to the passing of property to the purchaser. However, it used the word "sale" and according to the definition of sale in the Sales Tax Act a sale occurs when property passes from one person to another. If the effect of subsection (d) be that keeping of goods by the manufacturer becomes a sale then property does pass to the purchaser. Even otherwise as we have stated the fact that value is to be computed in such a case necessarily involves that the keeping of goods by the manufacturer has become liable to the payment of sales tax. The second contention put forward before the High Court needs a statement of some legislative changes. Sales tax was under the Government of India Act, 1935, a Provincial subject being included in Entry No. 48 of the Provincial List. By the Government of India (Amendment) Act, 1948, the words "the sale of goods and on" were omitted from Entry No. 48 in the Provincial List and a new Entry No. 54-B "tax on the sale of goods" was inserted in the Federal Legislative List. The insertion of this entry, however, was to be operative only up to the 31st March 1950. Before 31st March 1950, that is, on the 27th March 1950, there was another amendment of the Government of India Act providing that the words "the sale of goods and on" would be omitted from Entry No. 48 of the Provincial List and an entry, "taxes on the sale of goods", would be inserted in the Federal List as Entry No. 54-B. Again this amendment was to last for two years expiring on the 31st March 1952. On the 25th March 1952, there was again a similar amendment, but this time there was no limitation as to period. The Sales Tax Act is an Act of 1951 and was passed on the 20th April 1951, by the Central Legislature. The contention on behalf of the appellants before the High Court was and before us is that the Central Legislature had power to enact laws with respect to sales tax only for a period of two years, that is, till the 31st March 1952, and that after that date the Sales Tax Act lapsed and was of no effect. We see no reason for accepting the proposition that the time for which a Legislature has been granted power to enact laws on a subject necessarily involves a competence to enact laws only for that period. As long as the power to enact laws remains in force it is a power to make laws for all time past as well as future, that is, with prospective as well as retrospective operation, unless of course there be some further limitation on the powers of the Legislature. Even if the power to legislate existed for a day the Legislature could have made laws for all time. The limitation was as to the time during which the power of making laws could be exercised and not as to the extent of their operation when they were enacted. The argument can be explained with respect to the provision in the Government of India Ac which bestowed power on the Legislature to make laws. Under section 100 of the Government of India Act the Central Legislature had the power to make laws with respect to items in the Federal List. As long as that list included a particular item there would be full power in the Central Legislature to make laws with respect to that subject, because the provision in section 100 that the Central Legislature had "power to make laws" implied a power to make laws for all times and without any limitation. That admittedly is the meaning of the words used in section 100 for it is from these words alone that the Central Legislature derived its power to make laws. While these two arguments fail there is a reason, which became apparent during argument on account of which these appeals should succeed. The assumption of both parties before the High Court was that cottonseed oil was not subject to the payment of sales tax. In fact learned counsel for the appellants began his argument by saying that cottonseed oil was admittedly exempt and his contention was that as cottonseed oil was exempt, any article which is incorporated into it should also be exempt, a contention which is clearly not sustainable in view of what is contained in the Sales Tax Act. If the cottonseed oil was not exempt from the payment of sales tax, then admittedly the manufacture or production of cottonseed itself which is being used for the making of cottonseed oil would not be liable to payment of sales tax for though the keeping of cottonseed by the manufacturer for extracting cottonseed oil was a sale, it was a sale of partly manufactured goods and therefore not subject to the payment of tax. In fact there is no contest on this point. If cottonseed oil be subject to the payment of tax it is admitted that the manufacture of cottonseed which is to be used for extraction of cottonseed oil does not require payment of any tax. Both the appellants as well as the Sales Tax Department appeal however to have been under the impression that Entry No. 23 of the Notification No. 9 of the Government under section 7 of the Sales Tax Act exempting the articles mentioned in the Notification from the payment of sales tax included cottonseed oil. This entry runs: "edible oils other than banaspati or vegetable products." According to this entry only such edible oils are exempt from payment of sales tax as are not included within "vegetable products". There is no other interpretation of this entry possible. Learned counsel who appears for the Sales Tax Officer contends that the words "vegetable products" mean only vegetable ghee. We are unable to place any such limitation on these words. If the intention was to refer to vegetable ghee only there was no reason for the use of the words "vegetable products". On the other hand Notification No. 7 of the Government under section 7 of the Saes Tax Act which is of the same date, that is, the 27th June 1951, makes a clear reference to vegetable ghee in its Entry No.

3. This entry runs: "Fresh cream, fresh butter (but not tinned or canned) and ghee (but not banaspati and vegetable ghee)." This clear reference is a further ground for rejecting the contention put forward by learned counsel for the respondents. As a result the orders of the High Court refusing writs are set aside and it is declared that on the manufacture of cottonseed which is to be used for extraction of cottonseed oil no sales tax is payable. There is no order however as to costs. A.H.???????????????????????????????????????????????????????????????????????????????????????????????????? Appeals accepted.