P L D 1975 Lahore 631 (PLP)

MUHAMMAD AKRAM, J.-This is an application under section 17(2) of the Sales-tax Act made to this Court by the Commissioner of Sales-tax. Lahore Zone (West Pakistan), Lahore against Messrs Crescent Textile Mills Ltd., Lahore.

2. The respondent is a joint stock company. It is registered under the Companies Act, 1913 and is holding a manufacturing licence issued under section 8 of the Sales Tax Act. It manufactures yarn and cloth including the mazri cloth. In respect of the year relevant to the assessment year ? 959-60 it duly filed its quarterly returns under the Sales-tax Act. The Sales-tax Officer on the 25th of March 1964 showed the exemption from sales tax claimed by the respondent on the manufactured, moth and yarn exported abroad by the assessee. He also allowed exemption to the assessee on the sale of mazri cloth under item No. 19 of Notification No. S. R. O. 289 dated the Ist of July 1959. But at the same lime he was of the opinion that the raw materials used in the productions of these goods exported abroad must be charged to tax. In this connection be observed :

''The assessee-Company exported yarn and cloth abroad during the period relevant to the assessment under consideration. The raw materials purchased free of sales tax by virtue of the manufacturing licence and used in the production of goods exported are liable to sales tax." He therefore, imposed tax on the cotton consumed in manufacturing the exported yarn, and the yarn consumed in manufacturing the cloth, exported by the assessee. Similarly the Sales Tax Officer imposed the sales tax on the yarn consumed by the assessee in the production of the mazri cloth and in this connection he observed :- "The assessee-Company has claimed exemption on account of sale of "Mazri Cloth". The yam consumed in the production of this constitutes partly manufactured goods for the production of cloth, hence sales tax is chargeable on the value of the yarn consumed in the production of exempt item of cloth."

3. Dissatisfied with this order the assessee went up in appeal against it which was disposed of by Mr. Maqbool Elahi. Appellate Assistant Commis sioner of Income-tax and Sales Tax, B-Range, Lahore on the 27th of June 1964. He was of the opinion that there wag no justification for the Sales Tax Officer in subjecting the raw materials utilized in the manufacture of yarn and cloth exported by the assessee. The assessee had purchased the raw cotton and after dyeing and spinning utilized the yarn for manu facturing the mazri cloth. In these circumstances the Appellate Assistant Commissioner held that the raw material used in the manufactures of then mazri cloth was cotton and not the mazri yarn. Therefore, in terms of the Notification No. 9 dated the 27th of June 1961, the mazri cloth having been exampled from the tax, the tax should have been levied on cotton which was the raw material and not on the mazri yarn which was partly manufactured goods. In conclusion the Appellate Assistant Commissioner accepted the appeal of the assessee and directed that the value of the cotton consumed in the production of the mazri cloth should be ascertained and charged to the tax. The Sales Tax Officer went up in appeal (S. T. A. No. 40 of 1964-65). against the order. This was disposed of by the Income-tax Appellate Tribunal (Pakistan), Lahore on the 25th of May 1966, along with two other connected appeals between the parties relating to the assessment years 1957-r'8 and 1958-59. With respect to the imposition of the tax on the raw material utilized in the manufacture of mazri cloth the Tribunal observed that :- "The determination of this issue involved the interpretation of Notifica tion No. 9 (dated the 27th of June 1961), referred to above. This notification clearly exempts mazri cloth (Item No. 19) from the levy of Sales-tax, but also specifically provides for taxing the raw material out of which the mazri cloth is manufactured. Yarn is a stage in the production of cloth and while it may constitute partly manufactured goods the raw material is nothing else than cotton. The Appellate Assistant Commissioner's finding on the point appears to be unexceptionable and no interference with his order in this behalf' is called." But with respect to the raw material (purchased free of sales tax) used by the assessee in the manufacture of yarn and cloth exported abroad free of tax, the Tribunal relied on the pronouncement of their Lordships of the Supreme Court is Noorani Cotton Corporation v. Sales Tax Officer, A Ward, Lyallpur (PLD1965SC161). In the opinion of the Tribunal this controversy concerning the changeability to tax of the raw material used in the manufacture of goods exempt from tax was set at rest by the authoritative pronouncement of the Supreme Court in that case. In this connection the Tribunal observed :-- "As in the instant case where a person himself manufactures goods and then incorporates them into another article such a transaction has to be recorded as sale within the meaning of subsection 6(d) of section 3 of the Sales Tax Act. The orders of cancellation of assess ments on this point cannot, therefore, be sustained and are set aside. The assessment made by the Sales Tax Officer in so far as these concern the changeability to sales tax of the raw material (purchased free of sales tax) used in the manufacture of exported yarn and cloth which are not open to any objection in view of the provisions of section 3(6)(d) of the Sales Tax Act and the authoritative pronounce ment of the Supreme Court in the case of Noorani Cotton Corporation are accordingly restored."

4. The Commissioner of Income-tax, Lahore Region, Lahore then moved a reference application under section 17t1) of the Act against the first part .of the order before the Appellate Tribunal. But on the 29th of April 1967, the Tribunal rejected the application. It was of the opinion that Notification No. 9 dated the 27th of June 1961, imposing the tax on the raw material used in the production of the mazri cloth was clear and admitted of no doubt and any other interpretation. In these circumstances the petitioner made the above application in this Court under section 17(2) of the Act for a direction requiring the Tribunal to refer the following question of law said to arise out of its appellate order dated the 25th of February 1966, to the High Court;

"Whether on the facts and in the circumstances of the case the Tribunal was justified in treating cotton as the partly manufactured goods for mazri cloth and not the yarn although it has confirmed Sales Tax Officer's assessment on the value of yarn consumed in the manufacture of exported cloth?"

5. It may be mentioned at the outset that the assessee-respondent did not file any reference application against the order of the Tribunal. The Commissioner of Sales Tax alone agitated against it. We have heard the learned counsel for the parties in this case. In this case before us we are merely concerned with the first part of the appellate order passed by the Tribunal concerning the sales tax levied on the cotton (and not the yarn) consumed by the assessee in the manufacture of mazri cloth which was admittedly exempt from the tax. The relevant Notification No. 9 dated the 27th of June 1961 (as amended) under which the mazri cloth was exempt from the payment of the sales tax is reproduced below :

"Notification No. 9 dated 27th June 1951, in exercise of the powers conferred by subsection (1) of section 7 of the Sales Tax Act, 1951 (III of 1951), the Central Government is pleased to, exempt the goods manufactured or produced in Pakistan, from the tax payable under the Act, but except in case of goods specified in item 30(a) nothing in this exemption shall affect the tax payable on the raw materials from which the goods are manufactured :

1 to 18

19 mazri cloth.

20 to 52.

6. According to Webster's New International Dictionary of the English Language, the word "raw" means a thing in, or nearly in, the natural state, unwrought as, raw material not spun or twisted, as raw silk. The term "raw material" means a material in its raw or unwrought state, not yet subjected to any process of dressing or manufacture. Indeed as observed in Messrs Noorani Cotton Corporation v. The Sales Tax Officer, A- Ward, Lyallpur 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 incorporating them into another article. In this connection "partly manufactured goods" are defined in section 2(12) of the Act to mean goods which are to be incorporated into and form a constituent or component part of an article which is subject to the tax.

7. As a result of the above discussion prima facie we are of the opinion that the term "raw material" was used in the notification in question reproduced above in contrast to the term "partly manufactured good "known to the Act. In this view of the matter, in the hands of the assessee the raw material for manufacturing the mazri cloth was the ginned cotton. The production of the yarn from the cotton by the assessee was merely stage in the manufacture of the mazri cloth. In the hands of the assess it did not constitute the "raw material" for the manufacture of the mazri cloth within the meaning of the notification. In fact the yarn in the hand ' of the assessee was lying in a semi-manufactured form for further incorporating the same into the mazri cloth. In these circumstances in our considered opinion the Tribunal was justified in holding with the Appellate Assistant Commissioner that the raw material for manufacturing mazri cloth was cotton and that the production of the yarn was merely a stage towards the production of the cloth. Indeed in the circumstances of this case, the appellate order of the Tribunal does not give rise to any question of law. The order is concluded by the finding of fact recorded by the Tribunal to the effect that the raw material for the mazri cloth was the cotton.

8. It may be mentioned here the precise question as framed above is misconceived and does not even arise out of the Tribunal's order. The question agitated before the Tribunal, was as to whether the cotton or yarn constituted the "raw material" for the mazri cloth in terms of the above exemp tion notification. It was nobody's case before the Tribunal that the cotton constituted the partly manufactured goods for the purposes of manufacturing the mazri cloth. Therefore, the question as posed above is wholly irrelevant to the controversy that was raised before the Tribunal. Indeed in the connection the Tribunal in rejecting the reference application before it on 29-4-1967 rightly remarked as under;

"As observed by the Tribunal in its order the determination of the issue involved the interpretation of Notification No. 9 and according to that notification the raw material out of which mazri cloth His manufactured has been made liable to payment of sales tax. The terms in which the notification is couched leave no manner of doubt that only the raw material is to be taxed and not the partly manufactured goods as such which are consumed in the production of mazri cloth. The question formulated by the Commissioner is, therefore, based on a wrong assumption inasmuch as the Tribunal did not treat cotton as partly manufactured goods: what it held was that in terms of the notification referred to above the raw material is to be taxed and the cotton constituted raw material of mazri cloth. It would thus appear that it was not by treating the ginned cotton as partly manufactured goods that the same was held to be taxable. The question formulated by the Commissioner, however, implies as if the cotton was held taxable by the Tribunal on the basis that it constituted partly manufactured goods. This is clearly an incorrect assumption not borne out by record and as such the question posed by the Commissioner does not really arise out of the Tribunal's order. True that the determination of this issue involved the interpretation of a notification, but the notification in question is so clear that it does not admit of any interpretation other than that given to it by the Tribunal and as such it does not require further consideration by the High Court."

9. We agree with these observations by the Tribunal that no question of law arises out of its appellate order. In the circumstances we dismiss this petition. Parties to bear their own costs. K.B.A Petition dismissed