1981 PLP (Trib (PTD)

ABRAR HUSSAIN NAQVI (MEMBER).‑

These are four departmental appeals relating to the assessment years 1972‑73 to 1975‑

76. In all the four years only one common question is involved and therefore the appeals are being disposed of together. The question involved is as to whether the assessee is entitled to refund of sales tax paid on the raw material used by the assessee notwithstanding the fact that the end product is exempt from the sales tax.

2. The relevant facts of the case are that the assessee manufactures soap. The raw material used in the soap on which sales tax had been paid were soda caustic, Talo oil and Coconut oil sales tax paid on these partly manufactured goods was as follows:‑- Rs. 1972‑7 3 1,25,407 1973‑74 11,507 1974‑75 1,23,863.89 1975-76 1,29,497 The assessee claimed refund of these amounts under section 27(1) of the Sales Tax Act which reads as follows‑ 27.‑(1) Where partly manufactured goods are purchased by a manufacturer and tax has been paid on those goods on importation or on any previous sale, a refund of the amount of the tax so paid shall be made to the manufacturer. The S. T. O. disallowed the claim on the ground that the raw material on which the sales tax was paid, was not partly manufactured goods as defined under section 2(12) of the Act inasmuch as the soap was exempt from payment of sales tax. The A. A. C. on appeal allowed the refund relying upon the following cases:‑ (1) C. S. T. v. H. Muhammad Hussain & Co. 1974 P T D 20, (2) Messrs Shafiq Corporation v. C. S. T. (1974; 29 Taxation 103. (3) C. S. T. v. Combined Industries Ltd. (1973) 28 Taxation 176. (4) Latif Bawany Jute Mills v C. S. T. 1971 P T I?

26. The Department has come up in appeal against the order of the A. A. C.

3. The D. R. contended before us that refund is allowable to a manufacturer if he satisfied the two conditions, (i) If the partly manufactured goods are purchased by the manufacturer and (ii) tax has been paid on such goods. Admittedly the tax has been paid by the assessee who is a manufacturer. However, it was contended by the D. R., that "partly manufactured goods" have been defined by the Act under section 2(12) as under‑ "2(12).‑"partly manufactured" goods mean only goods which are to be incorporated into and form a constituent or component part of an article which is subject to the tax." The significant words to bring any goods within the definition of "partly manufactured goods" are the words 'subject to the tax'. If any goods are to be considered as partly manufactured goods the end product should be subject to tax. The soap being exempt from tax it cannot be called 'subject to the tax' and therefore the constituent parts on which sales tax had been paid by the assessee could not be regarded on partly manufactured goods. Since the sales tax had not been paid on partly manufactured goods, as defined in section 2(12), section 27(1) of the Sales Tax Act is not applicable to this case and therefore the assessee is not entitled to the refund of sales tax paid on the raw material used by the appellant. The learned A. R. on the other hand vehemently contended that the words `subject to tax' refers to the chargeability of tax and not payability of tax. The learned A. R. tried to draw distinction between 'chargeability' and payability of tax in order to show that what is exempt is payaability and not chargeability. The exemption granted by the Central Government is in regard to payment of the sales tax and the chargeability still continues notwithstanding the exemption. Therefore, he concluded, notwithstanding the fact that the soap had been exempted from the payment of sales tax it still remains subject to tax within the meaning of section 2(12) and thus the raw material used by the assessee does come within the definition of partly manufactured goods and therefore section 27(l) was applicable to the case of the assessee. The learned A. R. also relied upon the cases quoted by the A. A. C. in his order reproduced above.

4. We have gone through the cases relied upon by the A. A. C. and the A. R. However none of the cases are relevant. The facts of the present case are distinguishable. In the C. I. T. v. Muhammad Hussain & Co. the facts of the case were that the assessee was holding a manufacturing license under section 8 of the Sales Tax Act and had imported certain chemicals free of sales tax as they were required for the use and consumption of the manufacturers. After manufacturing the goods the assessee also exported some of the manufactured goods which were also exempt from payment of sales tax under another Notification of the Central Government. The S. T. O. taxed the originally imported goods. The A. A. C vacated the order of the I. T. O. which was upheld by the Tribunal. In these circumstances a reference was made to the High Court. While dealing the case in the facts and circumstances of that case that High Court made the following observation‑ "On this interpretation it can be ultimately argued that the finished goods and the end product manufactured and produced by the use of partly manufactured goods are subject to tax although the actual payment of tax due to them was in fact exempt under section 7 of the Act. In other words partly manufactured goods do not loose their character as such and cease to be so merely because the end product was eventually granted exemption from payment of tax. As is clear from the facts narrated above the facts of the case in which observation was made by the High Court were different from the facts in the present case. In the case under consideration question of refund is involved while in the case relied upon no such question was involved. It is pertinent to note that chargeability and payability are two different concepts. Section 3 of the Sales Tax Act and other sections as well do recognise this distinction. Section 3 of the Sales Tax Act lays down "there shall be levied and collected tax on the value . . . . . . . . . ." It is obvious that levying and collecting of tax have been clearly recognised by the Act. The various clauses of section 2 lay down payability of tax by various categories of persons. Under section 7 of the Sales Tax Act what is exempt is payability and not chargeability. The High Court has rightly observed that when an exemption is granted to certain goods the exemption is from payability and it is still charged to tax. However charge to tax is not the same thing as subject to tax. The words 'subject to tax' used in section 2.(12) are referable to the payment of tax. It is pertinent to note that the word 'tax' had also been defined in the Sales Tax Act under section 2(18) as follows: "tax means the tax payable under this Act." Therefore when we read the words 'subject to the tax' in section 2(12) it would read 'subject to the tax payable under this Act'. Admittedly the soap being exempt from the payment of sales tax it is not subject to tax payable under this Act. Therefore the Raw Material used in manufacturing of soap on which sales tax had been paid by the assessee could not come within the four corners of partly manufactured goods as defined by section 2(12) of the Sales Tax Act. It therefore follows that section 27 has no application on the facts and circumstances of this case. The next case relied upon by the A. R., was Messrs Shafiq Corporation distinguishable from the facts of the present case. No refund question was involved in that case. In that case the question involved was as to whether the partly manufactured goods already consumed in the manufacturing of fans could be brought back to tax when the fans themselves were exempt. The third case relied upon by the A. R. was that of the assessee itself and reported as C. S. T. v. Combined Industries Ltd. ((1973) 28 Taxation 178). In that case the assessee had imported goods as a licensed manufacturer free of sales tax and the imported goods were sold for being used in the manufactur ing process. The question was as to whether such sales were liable to sales tax and it was held in the negative. The last case relied upon by the A. R. was that of Latif Bawany Jute Mills v. C. S. T. (1971 P T D 26). The facts of that case have no relevancy whatsoever for the purpose of this case. In that case interpretation of section 3(4) of the Sales Tax Act was involved and no question of refund, as in the present case, was under consideration.

5. The next contention of the A. R., in the alternative, was that by the Finance Act, 1967 the sales tax was merged in the excise duty under the Central Excises and Salt Act, 1944. The soap manufactured by the assessee, though exempt under section 7 from the payment of sales tax, in fact the sales tax was paid by the assessee in the garb of excise duty. The assessee relied upon certain portions of the budget speech of the then Finance Minister while proposing the relevant amendments at the time of presenting Finance Rill of 1967. The learned A. R. in this context relied upon Circular No. 12/72 dated 23‑11‑1972 and Circular No. 7/69 dated 2‑7‑1969 issued by the C. B. R. The learned A. R. also placed reliance on a decision of Division Bench of the Tribunal reported as (1974) 29 Taxation

7. As for the budget speeches of the then Finance Minister they have no relevancy whatsoever. A budget speech is at best an opinion of the Finance Minister. The Courts have to interpret the law and for interpreting law they opinions of the legislators, including the Minister, have no relevancy'. The Circular No. 12/72 relied upon the A. R. is irrelevant. Circular No. 7/69 is the one under which the soap has been exempted. The relevant words are reproduced below: "Following items had been exempt from sales tax w. e. f. 28‑6‑1969 under Notification S. R. O. No. 127(1)/69 dated 28‑6‑1969, the sales tax thereon being merged with central excise duty with effect from the same date." It may be pertinent to note that S. R. O. 127(1)/69 dated 28‑6‑1969 under which, inter alia soap has been exempted from payment of sales tax, does not mention or refer to the merger of the sales tax with the central excise duty. That S. R. O. only exempts, amongst other items, soap from the payment of tax. The mention of the words `sales tax thereon being merged with central excise duty' in Circular No. 7/69 issued by the C. B. R. is only opinion of the C. B. R. as perhaps, factually it might be correct that sales tax had been merged with the central excise duty. However a distinction must be drawn between the position in fact and the position in law. Factually it maybe true that sales tax was merged in the excise duty and with the intention of consolidating various taxes excise duty was increased by the Finance Act, 1967. However without making corresponding changes and modifications in the Sales Tax Act it could not be said that payment of excise duty amounted to payment of sales tax or that the total amount of excise duty included payment of sales tax. As has been mentioned above the tax has been defined under section 2(18) of the Sales tax Act meaning thereby the tax payable under the Sales Tax Act. Therefore notwithstanding the presumption that sales tax had been included in tale excise duty under the law no sales tax would be deemed to have been paid. As for the case decided by the Tribunal and relied upon by the A. R. firstly the facts of that case are distinguishable. In that case the assessee was a manufacturer of biscuits in which vegetable ghee had been used as one of the raw materials. The claim of the assessee was that since excise duty which was inclusive of sales tax on vegetable ghee the sales tax could not be imposed on the biscuits to the extent of vegetable ghee used in the manufacture of biscuits. It was in that context that the Tribunal held that the excise duty paid was inclusive of sales tax. With utmost respect to the observations of the Bench we regretfully cannot contribute to that view. The Central Excises and Salt Act is entirely a different statute and any duty paid under that Act could riot be said to be inclusive of tax paid under any other law. The same view has been taken by the Lahore High Court in the case of S. Muhammad Din & Sons Ltd., Lahore v. S. T. O., Spl. Cir. I, Lahore (P L D 1977 Lah. 1225). The relevant portion of High Court's order is reproduced below:‑ "The second contention of the learned counsel for the petitioner is that although the electric fans were exempted from sales tax by the Notification dated 14th of June, 1965, the sales tax continues never theless to be levied in the garb of the excise duty. According to him the Finance Minister while piloting the relevant finance bill made it clear in his speech that the intention was in fact to merge the sales tax and the rehabilitation tax with the excise duty. In the light of this speech, he contends that the sales tax has not been abolished but it is still being recovered in the form of excise duty. In my opinion however such speeches are meant for the consumption of the lay public but cannot have any effect on the legal consequences of the relevant enactments, the rules made thereunder or the notifications issued in pursuance thereof. Excise duty is levied under a different Act then it will react on all the relevant provisions of that Act even though the excise duty may have been enhanced under relevant Act, by exactly the same amount as the tax previously recoverable under the Sales Tax Act. So in the present case due effect will have to be given to the fact that electric fans have been exempted from the sales tax under Sales Tax Act. Therefore under the provisions of that Act, the petitioner is not entitled to a license under section 8 thereof and as such to the exemption from payment of tax on the raw material or the partly manufactured goods. For the foregoing reasons I am of the view that there is no good ground for interference with the refusal of the respondents either to grant a licence or to refund the tax so far paid by the petitioner on the partly manufactured goods." It would be interesting to note that under the Central Excises and Salt Act the duty on soap is mentioned at Item No. 23 of the Ist Schedule of the aforesaid Act. The Finance Act, 1967, amended the Ist Schedule of the Central Excise and Sale Act 1977, in the manner specified in the 4th Schedule to the Finance Act. However on perusal of IV Schedule to the Finance Act. However on perusal of IV Schedule it appears that Item No. 23 of the 1st Schedule to the Central Excises and Salt Act, 1944, has not been mentioned in the amending Schedule. Therefore, it appears, that no change was made in the excise duty so far as the soap was concerned. In this context the argument of the learned A. R. appears to be only hypothetical.

6. As is evident from the discussion above we are of the view that the words `subject to the tax' occurring in section 2(12) mean subject to the payment of tax. Soap being exempt from payment of sales tax, the raw material used by the assessee in manufacturing soap, does not come within the definition of 'partly manufactured goods' within the meaning of section 2(12 and therefore the assessee is not entitled to refund of sales tax paid on the raw material used in the manufacturing of soap within section 27(1) of the Sales Tax Act. We therefore vacate the order of the A. A. C. for all the year and restore the orders of the Sales Tax Officer.

7. In the result all the four departmental appeals succeed. A. A. ZUBERI (MEMBER).‑I agree; with the conclusion reached by the‑ learned Judicial Member via. the raw material used by the res pondent in the manufacture of soap is not covered by the definition of "partly manufactured goods" and hence they are not entitled to refund of sales tax under section 27(1) of the Sales Tax Act. However, with respect to my learned brother, I would like to express that I do not agree with his views about the reported decision of this Tribunal (1974) 29 Taxation 7, wherein it was held that after merger of sales tax with Excise Duty (vide Finance Act, 1976) those assessee who were entitled to refund were supposed to have paid sales tax in the garb of Excise Duty. I strongly feel that it is neither right nor sound to turn our back on the decision of our fore bearers when no full‑dressed arguments were addressed to us on this issue. I further do not see eye to eye with the learned Judicial Member who observes that the budget speech by the Finance Minister is at best the opinion of the Minister. To my mind immediately comes the decision by the Supreme Court of Pakistan in Hamdard Dawakhana v. C. I. T. (PLD 1980 SC 84), wherein their Lordships while interpreting the provisions of section 4(3) eloquently spoke as under:- "...In this background, even if the presumption generally made as to the genesis of the introduction of the Proviso is accepted as correct, in the absence of the relevant record of the Parliamentary debate proceedings ... It is not possible to say what exactly was in the mind of the legislators when they chose to replace . . . and it certainly cannot be predicted with certainty as to how far they were prepared to destroy the exemption . . . The historical background of a statute may serve as a useful guide in ascertaining the intention of the legislator . . . only if the words are capable of more than one interpre tation It is manifest that to understand the genesis of a legislation, the "record of parliamentary debate" and "the historical background of a statute" are a sure and safe guide particularly when the words are capable of more than one interpretation. I, therefore, see no hazard in subscribing to the opinion that the budget speech by the Finance Minister, explaining the genesis oil merger of sales tax with Excise Duty cannot be easily overlooked. Although I do not share those views of my learned brother which go contrary to this Tribunal reported decision yet our conclusion about the fate of the present appeal is unanimous for I fully endorse the several other reasons assigned by him for declaring it successful. Appeal accepted.