1990 PLP 688 (PTD)

SALEEM AKHTAR, J.‑‑This reference relates to assessment years 1970‑71 and 1971‑72 in respect of which same questions have been referred. The common question is as follows: "Whether, on the facts and in the circumstances of the case, the learned Tribunal was justified in holding that Rules 19 and 22‑A of the Sales Tax Rules, 1951 were inapplicable?" The respondent is a company which carries on business of manufacturing of radios etc. and sells them on wholesale basis to an associate company namely, Philips Electrical Company Pakistan Limited. The assessing officer held that as the sales were made to a sister company the sales of such sister company were to be treated as sales of the assessee‑company i.e. the respondent under rule 19 read with rule 22A of the Sales Tax Rules, 1951. By this treatment the sale made by the Philips Electrical Company Ltd. was treated to be sale by the respondent and the same was subjected to sales tax. The respondent filed an appeal and it was contended that sales tax should have been charged on the price which the respondent realized from its associate company and not the price which the associate company charged from its own purchaser. The learned Tribunal accepted this plea and allowed the appeal. It was on the application of the department that the aforesaid question has been referred to us. Mr. Nasrullah Awan the learned counsel for the applicant and Mr. Ali Athar the learned counsel for the respondent have referred to Commissioner of Sales Tax (East) Karachi v. Messrs Philips Electrical Industries, Karachi 1984 P T D 42 where the assessments relating to the years 1961‑62 and 1962‑63 were under consideration and it was held as follows: "It is contended by Mr. Nasrullah Awan, learned counsel for the Commissioner of Sales Tax, that as it is admitted by the assessee that the Company and the assessee were interrelated, associated or affiliated concerns, rule 19 is applicable to the case of sales made by the assessee. In our view a reading of rule 19 shows that it is applicable in two situations. It is firstly applicable where a manufacturer or producer sells his taxable goods to wholesalers and others in which case the tax is payable on the wholesale price. This is not the situation here as the case of the assessee for the assessment years in question, which is an admitted position, is that sales were not made by the assessee to wholesalers and others. In fact sales were only made to one concern, namely the Company. Then the other situation where rule 19 is attracted is where the vendor or purchaser are interrelated/associated or affiliated concerns or where one is subsidiary to the other. In such a situation the wholesale price established by either of them by sales to independent wholesalers is taken as the value on which the tax is payable. This is also not a case as far as the assessee is concerned as no sales were made either by the assessee or by the Company to any independent wholesalers. As observed earlier, the Company, for the assessment years in question, has made sale directly to consumers and not to independent wholesalers. In the circumstances we are of the view that the Income‑tax Tribunal was correct in holding that rule 19 was not applicable to the assessee as far as the assessment years in question are concerned." As Rule 22‑A was not applicable same was not considered. Rule 22‑A was made applicable with effect from 1‑7‑1963 which reads as follows: "(22‑A) Notwithstanding anything to the contrary contained in rules 18, 19, 20, 21 and 22, where a manufacturer or producer sells goods to any person other than a bona fide independent wholesaler, the tax shall be payable on the price at which the goods are actually sold except where otherwise determined by the Sales Tax Officer." Taking into consideration the facts of the case and the observations quoted above applicability of Rule 19 is completely ruled out. The only question remains whether Rule 22‑A is applicable or not. Under this rule notwithstanding the earlier rules where a manufacturer or producer does not sell the goods to any bona fide independent wholesaler but to any other person then the tax shall be payable on the price at which the goods have been actually sold. However exception has been provided which is left to the discretion of the Sales Tax Officer who may if he thinks proper decide otherwise and may not follow the course provided by Rule 22‑A. The Sales Tax Officer has been vested with a discretion to determine and levy sales tax on a price other than the price at which the goods have been actually sold by the manufacturer. Such a course of action can be adopted by the Assessing Officer if he has valid and reasonable grounds for exercise of discretion. Such deviation is permissible provided substantial grounds are available on record. Discretion cannot be exercised on whims, fancies or caprices. There may be cases where the manufacturer may sell to any person other than bona fide independent wholesalers on a collusive or fraudulent price and thus declare the sale at a very low price. In such cases the Assessing Officer will have the discretion to investigate and if he comes to such a finding he may determine the price which the circumstances of the case warrant. In the present case no such finding has been given. The respondent has sold it to Philips Electrical Company Ltd. but the Tribunal has not given the finding that this company is a wholesaler. Therefore this company falls within the category of `any person other than a bona fide independent wholesaler: The respondent will thus be charged on the price at which the goods were actually sold to the company. The case will thus be governed by Rule 22‑A. We answer in the affirmative. M.B.A./C‑157/K ??????????????????????????????? ??????????? Reference answered in the affirmative.