1990 PLP 513 (PTD)

(On appeal from the judgment dated 12‑4‑1987 of the High Court of Sindh, Karachi, in I.T.R. No. 94 of 1984.) Sales Tax Act (III of 1951)‑‑‑ ‑‑S.2(12)‑‑‑Constitution of Pakistan (1973), Art, 185(31‑‑‑Expressions "Subject to tax" and "Subject to payment of tax"‑‑‑Connotation‑‑‑Leave to appeal was granted to examine the interpretation of S.2(12) of the Act. ORDER ZAFAR HUSSAIN MIRZA, J.‑‑‑The petitioner Dada Soap Factory Ltd. is, company engaged in the business of manufacture and sale of washing soaps an' detergents. Washing soap was exempted from sales tax, the detergent was taxable under the Sales Tax Act, 1951 (hereinafter referred to as Act) up to the charge year 1969‑

70. Those taxes were leviable on wholesale price of detergents. However, from 1‑1‑1989, according to the petitioners, sales tax was merged with excise duty, the levy whereof was fixed at the rate of 20 per cent on retail price. For the assessment years 1973‑74, 1974‑75, and 1975‑76 the petitioners applied under section 27 of the Act claim on the ground Of sales tax paid by them on the purchase of raw materials used in manufacturing detergents. The Sales Tax Officer rejected the claim on the ground that there is no levy of sales tax on detergents and only excise duty is payable and no claim for ground can be entertained. Additionally it was hold that the petitioners were not entitled to claim refund of sales tax paid on raw materials used in non‑taxable goods. The appeal filed by the petitioners was, however, accepted by the Appellate Assistant Commissioner. On a second appeal filed by the department, the Tribunal reversed the appellate order and restored that of the Sales Tax Officer. Upon this the petitioners submitted an application under section 17 of the Act for reference. Which was accepted and the following question was referred to the Sindh High Court: "Whether on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the goods manufactured by the assessee were not subject to tax payable under the Sales‑tax Act and hence refund of tax could be allowed under section 27 of the Act?" The decision of this question turned on the interpretation of the expression "subject to tax" as it occurs in the definition of the term "partly manufactured goods" in Section 2(12) of the Act as under: "2(12): "Partly manufactured goods" means only goods which are to be incorporated into and form a constituent or component part of an article which is subject to the tax;" As the claim for refund set up by the petitioner was rejected by virtue of the fact that no sales tax was payable on detergents during the relevant period, the main contention advanced on behalf of the petitioner was that there exists distinction between chargeability and playability of a tax. The contention was that if the product manufactured was chargeable or leviable wish sales tax then it was immaterial whether such tax was in fact payable or exempted from payment, for the purpose of refund as tax paid on partly manufactured goods used as constituents in the final product. The Division Bench of the High Court however, construed the aforesaid expression subject to tax to mean subject to payment of the tax or in other words where the goods are subject to actual payment of tax and not the goods, surely chargeable to tax under the charging section but exempted from tax by competent authority under the provision of statute empowering the grant of such exemption. In this view of the matter, the learned Judges held that since the article in question was exempted from tax it was clearly not subject to tax within the m hearing of section 2(12) of the Act. Accordingly the goods did not qualify as "partly manufactured" goods, therefore the refund under section 27 was not claimable. The reference was thus answered in the affirmative by the judgment dated 12‑4‑1987. The petitioners being aggrieved by the judgment of the Division Bench of the High Court seek leave to appeal by this petition. Mr. Nurul Hassan appearing in support of the petition has repeated the contentions that were urged before the Division Bench and has urged that the distinction between "charge able or leviable" and "payable" of tax was very material and relevant for the interpretation of section 2(12) of the Act. He relied heavily on 1974 P T D 20 Commissioner of Sales‑tax v. H. Muhammad Hussain and Co. in which the Lahore High Court repelled the contention that the words "subject to the tax" in section 2(12) actually mean subject to the "payment" of the tax, by exhaustively reviewing the relevant case‑law and the concept of distinction between chargeability and payable. It was held in that case that this distinction was recognised by the provisions of the Sales Tax Act and governs its provisions. Thus the argument of the learned counsel was that the Division Bench were not justified in holding that merely because the tax was not payable on the goods, they did not fall within the purview of section 2(12) although they were covered by the charging section. Learned counsel further relied on the case of Muhammad Hussain & Co. (supra; for distinguishing the remarks of this Court in Noorani Cotton Corporation v. Sales Tax Officer, Lyallpur (P L D 1965 S C 161) on which the learned Judges of the Division Bench placed reliance. Further reliance was placed by the learned counsel on Latif Bawany Jute Mills Ltd. and others v. Sales Tax Officer, Companies Circle, Dacca 1970 D L C 716 and other cases from the Lahore High Court. Mr. Shaikh Haider learned counsel appearing on behalf of the department stated that there was no direct decision of this Court on the interpretation of section 2(12) of the Act. After hearing the learned counsel for the parties we feel that substantial questions of general importance relating to interpretation of section 2(12) of the Act have been raised in this petition which require consideration. Leave is accordingly granted. Security Rs.5,

000. The appeal shall be prepared on the same record but the parties are directed to file all relevant documents, on which they rely for the decision of the appeal. M.B.A./D‑75/S Leave granted.