P L D 1967 Karachi 3331 (PLP)

ABDUL KADIR SHAIKH, J.‑This order will dispose of five Civil Reference Cases Nos. 73, 74, 137, 138 and 212 of 1961 referred to this Court under section 17 (1) of the Sales Tax Act as in each case the following two common questions of law are involved : "(1) Whether on the facts of the case the Tribunal was right in holding that doors, windows, cement blocks, etc. manufactured by the assessee for use in the construction of building could not be regarded as 'sale' within the meaning of section 3 (6) (d) of the Sales Tax Act, 1951 ?" and (2) Whether the Tribunal was right in holding that section 3 (6) (d) is ultra vires of the powers of the Federal Legislature?" The facts of each individual case may, however, be stated separately. In Reference Case No. 73 of 1.961, the assessee is a firm of works‑contractor and in the course of construction of buildings, they manufacture doors, windows, cement blocks, etc. For the assessment years 1951‑52, 1952‑53 and 1953‑54, the Sales Tax Officer assessed the firm as a "manufacturer of doors, windows, cement blocks, etc. under the provisions of section 3 (6) (d) of the Sales Tax Act, 1951. The assessee objected to the levy of the sales tax mater alia, on the ground that the firm curried on business of construction work and it was not a "manufacturer" of the articles, by trade or profession, and therefore it was not liable to pay the tax. The Sales Tax Officer rejected this contention and the assessee's three appeals to the Appellate Assistant Commissioner in respect of each assessment year, also failed. The assessee then took the matter further before the Income‑tax Appellate Tribunal on number of grounds which may be stated by reproducing the relevant portion of the order dated the 9th of April 1960 passed by the Income‑tax Appellate Tribunal: "(i) The assessee must first be shown as a manufacture before the operation of section 3 (6) (d) can be attracted . . . . . the assessee is not a manufacturer by trade and therefore, he is not a person who is 'engaged' whether exclusively or not, in the manufacture of goods, within the meaning of section 2 (11) of the Act. . . . a person who is engaged in works contract cannot be called a manufacturer, within the definition in respect of assessories which are used in the construction of a building ... .. The relationship between the building owner and the contractor is that of employer and employee and, therefore, the manufactured materials should be taken to have been 'used' not by the manufacturer, who is just an employee, but by the owner who is the employer. (ii) . . . . . whenever the Legislature has thought fit to levy a tax on a contractor it had done so in express words. In the Madras Sales Tax Act of 1939 there was no provision for levy of tax in respect of goods used in execution of a works contract. In 1947 the Madras Sales Tax (Amendment) Act was passed and a specific provision was made in respect of such manufactured goods. The amendment in this behalf was, however, held to be ultra vires because something was included in the definition of 'sale' which in fact had no element of sale . . . . . that one should have expected that some such provision would exist in our Sales Tax Act if the intendment of the Act were to levy a tax on a manufacturer in respect of accessories of a building. In Pakistan there was a specific provision in the Sales Tax Act of 1948 but no such provision exists in the General Sales Tax Act of 1951. It is, therefore, pointed out that the intention of the Legislature was to dropt it altogether. (iii) . . . . in any case, section 3 (6) (d) is ultra vires of the legislative powers of the Federal Legislature. .when section 3 (6) (d) has enacted that such 'use' should be regarded as a 'Sale,' the Legislature has gone beyond its powers to legislate as circumscribed by the limits imposed by the Government of India Act of 1935 . . . . . the definition of 'sale' as given in the Act must, to that extent, be declared ultra vires."

2. The appellate Tribunal relying on an earlier decision of its larger Bench held that section 3 (6) (d) of the Sales Tax Act, 1951 was ultra vires of the powers of the Federal Legislature and also rejected the contention of the Department that irrespec tive of the above provision of law, the assessee was liable to pay the tax as there was a "sale" of the manufactured goods by the assessee to the owners of the building. The last contention was repelled in these words: "It is alternatively argued by the Departmental Representative that irrespective of section 3 (6) (d), there was in fact and in law, a sale of the manufactured assessories by the manu facturer to the building owner. Reference is made to clauses (6) and (15) of section 2, for the purpose of showing that when there is a transfer of property in goods from one person to another, it is a transaction of sale. In our opinion, the contention is not well‑founded. There is no sale of 'goods' in the present case. The manufactured goods have merged in the building which, if at all, is transferred to the owner. The owner gets title to the goods by the law of accretion. The materials supplied by the builder or contractor, as soon as they are axed to the land belonging to the building owner or employer, become annexed to and form part of the freehold (Halsbury's Law of England 2nd Edition, Vol. 3, p. 191). There is no element of sale of the materials in a building contract which is one and entire and is indivisible. We are further supported in our view by the decision of the Madras High Court reported as Gannan Kunkerley & Co. Madras Ltd. v. State of Madras A I R 1954 Mad. 1130 approved by the Supreme Court in State of Madras v. Gannan Kunkerley A I R 1958 S C

560. It cannot, therefore, be pretended that there were sales of cement blocks, doors and windows, etc. as such."

3. The appeals of the assessee accordingly succeeded and were allowed by order dated the 9th of April 1960. At the instance of the Department the Appellate Tribunal referred the two questions of law mentioned above to this Court under section 17 (1) of the Sales Tax Act by an order dated the 30th of November 1960. It may also be stated that on the 30th of June 1960 the President of Pakistan promulgated Order No. 16 of 1960, the provisions of which would be reproduced at the relevant stage later on. The Tribunal did not consider the effect of this retrospective legislation on its decision dated the 9th of April 1960, and left the whole matter to be considered by this Court.

4. The relevant facts of the next case, i. e. Reference Case No. 74 of 1961 may now be stated. The assessee in this case is also a works contractor who, in the course of construction of buildings, manufactured doors, windows, cement blocks, etc. for the owners of the buildings. He was assessed as `manu facture of these articles under section 3 (6) (d), for Sales Tax Assessment years 1951‑52, 1952‑53, and 1953‑54 corresponding to accounting years commencing from the 1st of July 1951, and ending 17th of December 1953. The assessee objected to the levy of tax on the ground that he was not a manufacturer within the meaning of this word as defined in the Sales Tax Act, 1951 and that his relationship with the owners of the buildings was that of an employee and an employer. The Sales Tax Officer rejected his pleas and his appeals to the Appellate Assistant Commissioner also failed. He then challenged the orders further in appeals to the Income‑tax Tribunal on the same grounds as the assessee in Civil Reference Case No. 73 of

101. For the same reasons as in that case, the Appellate Tribunal allowed these appeals by an order of the same date, i.e. 9th of April 1960. Similarly the matter has been referred to this Court under section 17 (1) of the Sales Tax Act at the instance of the Department. The legal questions involved are also the same.

5. In Civil Reference Case No. 137 of 1961, the respondents are Messrs. Umar Jan Muhammad & Co., works contractors, who in the process of construction also manufactured doors, windows, cement blocks, etc. The Sales Tax Officer assessed the respondent firm as manufacturers in respect of these articles under the provisions of section 3 (6) (d) of the Sales Tax Act, 1951 for sales‑tax‑assessment year 1953‑54, corresponding to accounting year ending on 17th December 1953. The‑assessee resisted the levy of the tax on the ground that he was not a manufacturer in the meaning of the Act and his relationship with the owner of the buildings was that of an employee and employer. The Sales Tax Officer rejected these contentions by an order dated the 12th of March 1958 and an appeal to the Appellate Assistant Commissioner also failed on the 13th of September 1958. The assessee then challenged these orders before the Income‑tax Appellate Tribunal who for the same reasons as stated in the order passed in Reference Case No. 73 of 1961, upheld the contentions of the assessee by an order dated the 9th of April 1963. At the request of the Department the same two questions of law were referred to this Court by an order dated the 30th of November 1960.

6. In Civil Reference Case No. 138 of 1961 the assessee is also a firm of works contractors who, in the course of construc tion, manufactures door, windows, cement blocks, etc. The firm was assessed as a manufacturer in respect of these articles under section 3 (6) (d) of the Sales Tax Act, 1951 for the Sales Tax Assessment years 1951‑52 and 1952‑53 for accounting period ending on the 17th of December 1953. The assessee resisted the levy of sales tax on the same grounds as urged by the assessees in the Income Reference Cases mentioned above. The contentions were however, rejected by the Sales Tax Officer and the appeals to the Appellate Assistant Commissioner also failed. The assessee firm then approached the Income‑tax Appellate Tribunal in a further appeal which was allowed on the 9th of April 1960, on the same grounds as mentioned in the above referred cases. At the request of the Department the same two questions of law have also been referred to this Court.

7. In Civil Reference Case No. 212 of 1961, the assessee, a firm of works contractor, was treated as manufacturer under the same provisions of law as in the course of construction the firm manufactured doors, windows, cement blocks, etc. The assess ment years concerned are 1951‑52 and 19j2‑

53. The objections of the assessee that he was not a manufacturer engaged in the business or trade of manufacture of the articles were rejected. His appeal before the Appellate Assistant Commissioner having failed a further challenge was taken in an appeal before the Income‑tax Appellate Tribunal. The Appellate Tribunal accepted the appeal by an order of the same date as in the earlier cases, i. e. the 9th of April 1960, and for the same reasons. The two legal questions have similarly teen referred to this Court at the instance of the Department.

8. In order to resolve the legal issues involved in all these cases, it would be relevant to reproduce the relevant provisions of the Sales Tax Act, 1951. Section 3 reads as follows: "(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 Central Govern ment may, by notification in the official Gazette, specify in this behalf which are exported from Pakistan, payable by the exporter. (2) (3) (4) (5) (6) Where the goods are produced or manufactured 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 a 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 transactions shall, for the purposes of this Act, be regarded as sales." The Order No. 16 of 1960 promulgated by the President of Pakistan en the 30th of June 1960 may also be reproduced hereunder: In pursuance of the Proclamation of the seventh day of October 1958, and in exercise of all powers enabling him in that behalf the President is pleased to make the following order:‑ 1. (1) This order may be called the Taxation of Goods (Sales and Purchases) Order, 1960. (2) It shall come into force at once.

2. Where at any time since the thirty‑first day of March 1948, a power has existed or has been conferred, in whatever form of words, to impose taxes on the sale of goods or taxes on sales and purchases, the power shall be deemed always to have been a power to impose taxes on the sale, purchase, consumption, importation, exportation, manufacture and production of goods, and no law made in exercise of the power to impose taxes on the sale of goods or taxes on sales and purchases shall be called in question on the ground that it imposes taxes on the sale, purchase, consumption, importation, exportaion, manufacture or production, of goods. Following the promulgation of the Order, the Central Government amended the Sales Tax Act, 1951 (III of 1951). Section 8 of the Finance Ordinance of 1960 provides as follows: (1) The following amendments shall be made in the Sales Tax Act, 1951 (III of 1951), namely: (a) In the long title and the preamble, after the words, 'sales', a comma and the words and commas, 'importation', exportation, production, manufacture, shall be inserted. (2) The amendments made by clause (a) of subsection (1) shall be deemed to have been made on the first day of April 1951, and, notwithstanding anything to the contrary contained in any law for the time being in force, no assessment, re assessment, collection or deposit of the tax, penalty or any other sum made, or other proceedings taken, under the Sales Tax Act, 1951 (III of 1951) shall be questioned in any Court or Tribunal or before any other authority merely on the ground that at the time the assessment, re‑assessment, collection or deposit was made or the proceeding was taken, sales tax was not leviable on the importation, exportation "Production or manufacture of goods."

9. Mr. S. A. Nusrat, the learned counsel appearing on behalf of the Department in support of these references frankly conceded that in the meantime, the Supreme Court of Pakistan in the case of "Messrs Noorani Cotton Corporation v. The Sales Tax Officer" (PLD1965SC161) has taken a contrary view on the question of the competency of the Federal Legislature to enact the Sales Tax Act III of 1951, than the one taken by the Tribunal. Their Lordships of the Supreme Court while upholding the intra vires of this legislation has observed: "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 'taxes on the sale of goods' was inserted in the Federal Legislative List. The insertion of this entry, however, was to be operative only upto the 31st March 195J. 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 law 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 Act 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".

10. In this case question also arose whether provisions of section 3 (6) (d) of the Sales Tax Act apply to the case of a person who himself manufactures the goods and then incorporates them into another articles, i.e. whether in such a situation 'sale' of the first manufactured goods takes place in the meaning of the Act. Their Lordships of the Supreme Court observed : "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 incor porated 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. That 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 deter mine 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 cane be no doubt at all as to the intention of the Legislature in subsection (6). It has clearly been provided that .alt 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 manufac tured 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." Mr. S. A. Nusrat also pointed out that the Income‑tax Appellate Tribunal later on in S. T. A. No. 15 of 1956-57 reported as P T D 1961 (Trib.) 19 have held that "the competency or the vices of the Sales Tax Act, 1951. cannot now be questioned after the promulgation of Order No. 16 of 1960 as the effect of this legislation is that the Government of India Act stood amended retrospectively and the Federal Legislature would be deemed to have had the necessary power to levy taxes on the sale, purchase, consumption, manufacture and production of goods, etc. The result that would follow is that the basis and the grounds of attack on which this legislation was impugned have since disappeared".

11. Mr. S. A. Nusrat the learned counsel appearing for the Department and the learned counsel appearing on behalf of all the assessees agreed that the answer to the second question referred to in all the cases does not now present any difficulty. We have no hesitation in agreeing with them. In view of the law laid down by their Lordships of the Supreme Court of Pakistan in the case Messrs Noorani Cotton Corporation v. The Sales Tax Officer and also the retrospective legislation referred to above, namely the Taxation of Goods (Sales and Purchases) Order, 1960 there cannot be any doubt as to the competency of the Federal Legislature to enact the Sales Tax Act, 1951. A Full Bench of the Income‑tax Appellate Tribunal in S. T. A. 15 (1956‑57) has also taken the same view. Accordingly we answer the second question referred to this Court in negative.

12. The answer to the first question would not have likewise posed any difficulty in view of the same decision of the Supreme Court of Pakistan, i.e. in the case of Messrs Noorani Cotton Corporation v. The Sales Tax Officer. In that case, as stated above it was held that where an assessee himself manufactures certain article and then incorporates it into another or where he keeps the first manufactured article with himself `sales' within the meaning of Sales Tax Act, 1951 takes place. 1n the cases before us, however, the contentions of the assessees were that they are neither the manufacturers by trade or profession, nor are they engaged in, whether exclusively or otherwise, in the manufacture of doors, windows, cement blocks, etc. It was further contended that they were works contractors in respect of construction work which included these articles and their relationship with the owners of the buildings was that of an employee and employer. These contentions were not examined by the Tribunal as the appeals of the assessees succeeded on other questions of law. In fact that Tribunal has stated in its order dated the 9th of April 1960 by which the appeals were allowed that it was unnecessary for them to discuss and deal with these objections. The result is that a situation has arisen in which we are being called upon to answer a question which has not even been dealt with and decided by the Appellate Tribunal itself. In these circumstances it is impossible to give a satisfactory answer to the question. In similar circumstances Patna High Court in the case of Hassan Kassam and others v. Commissioner of Income‑tax, Bihar 'Orrisa' (1948 I T R 19), referred the case back to the Tribunal under section 66 (4) of the Income‑tax Act so that it may, after hearing the parties, submit its finding on the question. We have tried to examine the facts of each case, as can be gathered from the statement of cases forwarded by the Tribunal and the relevant records before us. We find that the relevant and material facts are completely lacking. One of the contention of the assessees is that they are not 'manufacturers' of the articles in question. They acted only as employees of the owners of the building. The question also involves examination of the relevant facts to see if the assessees are, by trade or profession, manufacturers of doors, windows, cement‑blocks, etc. and in the course of construction work undertaken by them, they first manufactured these articles and then incorporated them into another article. In this connection, among other material, the contracts executed by them with the owners of the buildings or their Principals would be extremely relevant. We have no doubt that the appellate Tribunal would have gone into these facts for itself, bad it found it necessary to do so for the disposal of the appeals. This was not done and we entirely agree that to do so would have been quite futile on the view that the Tribunal took other question of law raised before it. But the result ultimately is that for want of the relevant and material facts and specially when the Tribunal itself has not dealt with question in the first instance, we find it extremely difficult to give a satisfactory answer to the first question referred to us. We have therefore no other alternative but to take action under subsection (4) of section 17 of the Sales Tax Act, 1951 and remit the case back to the Tribunal so that after bearing all the parties concerned, arid taking such further evidence as may be found necessary, the Tribunal may in the first instance give its own findings on the question. Both the learned counsel appearing on behalf of all the parties also agreed that, in the circumstances, action under this provision of law would be in the best interest of all the parties concerned. We, therefore, order accordingly. S. Q. Order accordingly.