1973 PLP 417 (PTD)

NOORUL ARFIN, J.‑

The following question has been stated to this Court by the Income‑tax Appellate Tribunal under section 17 of the Sales Tax Act, 1951: "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that in spite of the pro visions of Rule 6 of the Sales Tax Rules, and in view of the provisions of section 8(2) read with section 10(6) of the Sales Tax Act the Sales Tax Officer could not levy sales tax during the years 1958‑59 and 1959‑60 on the stock of taxable goods pro duced before but sold after the discontinuance of business?"

2. The assessee was a licensed manufacturer of cotton ropes, having obtained a licence under section 8(2) of the Act. The assessee discontinued this business as from the charge year 1958‑

59. During the time the assessee carried on business, he was not assessed to sale tax, as, under the Government of Pakistan Notification (Sales Tax No. 10) dated 27th June 1951, which was superseded later by Notification No. 2 (Sales Tax) dated 20th January 1956, the assessee's turn‑over did not exceed Rs. 60,000.00 a year. Rule 6 of the Sales Tax Rules, 1951, requires an assessee, who holds a licence under section 8 or under section 9 of the Act, to give notice of discontinuance of business to the Sales‑Tax Officer within fifteen days of the discon tinuance, and provides that tan shall then be payable by the assessee in respect of goods in the possession of the manufacturer or producer or whole‑Baler at the date of discontinuance of such business. It may be useful to re‑produce here the whole of this rule : "

6. Every licence issued under section 8 or section 9 shall be subject to the condition that where any business covered by the licence is discontinued, notice of discontinuance shall be given by the licensee to the Sales Tax Officer within fifteen days of the discontinuance, and tax shall be forthwith payable in respect of goods in the possession of the manufacturer or producer or wholesaler at the date of discontinuance of such business." The Sales Tax Rules were made in exercise of the powers confer red on the Central Board of Revenue by section 39 of the Sales Tax Act, 1951. Subsection (1) of this section provides that the Board may make rules to carry out the purposes of this Act. In clause (a) of subsection (2), It is provided that the rules may be made for assessment to tax in the case of a discontinued business or of a change In the ownership of a business. Admittedly, no notice of discontinuance of business was given by the assessee to the Sales Tax Officer. Consequently, for the charge year 1958‑59, Sale Tax was assessed on the net turn‑over of Rs. 14,719.00, and, for the charge year 1959‑60, on the net turn over of Rs. 7,100.00. It is clear that the turns‑over during 1958‑59 and 1959‑60 were both much below the limit of Rs. 60,000 prescribed by the notification referred to above. These assessments, however, were cancelled by the Appellate Assistant Commissioner by orders dated 18‑5‑1964 and 14‑12‑1964, and these cancellations were upheld by the Income tax Appellate Tribunal by order dated 5‑1‑1966 in the appeal preferred by the Department. The reference to this Court has also been made on the Department's application. Both the Appellate Assistant Commissioner as well as the Appellate Tribunal gave their finding in favour of the cancellation of Assess ments on the ground that the turns‑over for both these years were below the prescribed limit of Rs. 60,000.00. But a plea had, in fact, been taken before the Tribunal that the assessments were maintainable under rule 6 of the Sales Tax Rules, 1951.

3. The first question which attracts our notice is whether rule 6 is intra vires of the Sales Tax Act, 1951. Sale tax is a tax on sales and not on possession or stocks. This position is very clearly borne out by the provisions of the Act itself. We will refer to the definition of `sale' contained In section 2(15) of the Act, which is in these terms : "(15) "sale", with all its grammatical variations and cognate expressions, means every transfer of the property in goods from one person to another in the course of trade or business or for cash or for deferred payment or other valuable consideration and includes all such transactions and use of one's own goods as are specified In subsection (6) of section 3." The other relevant provisions are contained in section

3. Sub section (1) of section 3 provides that "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 ; (aa) all goods made wholly or partly of gold or silver sold in Pakistan, payable by the seller being a manufacturer of, or a person engaged in the business of purchasing and selling, such goods ; (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 Board may, by notification in the official Gazette, specify in this behalf which arc exported from Pakistan, payable by the exporter : (e) such goods or classes of goods purchased without pay ment of sales tax by a licensed manufacturer or producer of taxable goods as are not used in the manufacture or production of taxable goods, payable by such manufacturer or producer ;" Subsection (4) determines the terminal point at which the sales tax is leviable, and it is in these terms: (4) The tax in respect of the goods mentioned in clause (a), (aa), (c) and (d) of subsection (1) and clause (d) of subsec tion (6), shall be payable on the occurrence of the first of the following events : (i) when the goods are delivered to the purchaser, or (ii) when the property in the goods passes to the purchaser, or (iii) when the goods are sent, consigned or exported to any place outside Pakistan, and for the purposes of this clause the goods shall be deemed to have been sold when they are sent, consigned or exported to any such place as aforesaid ; or (iv) when the goods are actually used by the manufacturer or producer ;" We have reproduced the text of provisions of the Act and rule 6 from the Sale Tax Publication which contains amendments up to 31st December 1971, as it is agreed at the Bar that amendments in troduced subsequent to the charge years do not, for the purpose of the present case, make any material difference. It will be noted that under subsection (1)of section 3, sales tax is leviable and collected on goods manufactured, goods made, goods imported into Pakistan, goods sold by the licensed wholesaler and such goods as are export ed from Pakistan and goods or classes of goods purchased without payment of sales tax by a licensed manufacturer or producer of tax able goods as are used in the manufacture or production of taxable goods. If we were to confine our attention to subsection (1) only, then an impression may be created that sale tax is leviable on mere manufacture or making of goods or importation of goods without there being any act of sale. But this confusion is clarified in sub section (4) under which terminal points are prescribed for payment of sales tax, and except for the provision made in clause (iv) of subsection (4), all these terminal points relate to points in time when, in effect, property in goods passes from the seller to the buyer. However, in clause (iv) of this subsection, the concept of sale is artificially extended to cover cases where a manufacturer or producer manufactures or produces goods for use by him in manufacturing or producing other goods. Therefore, such use is treated by the statute as a sale notwithstanding the fact that no property in the goods passes from one person to another. But this is a statutory provision, and we believe that no exception can be taken to such artificial extension of the concept of sale to cases for which provision is made in clause (iv). The scheme of the Act, as we have noted, fully bears out the contention that sales tax is, in fact, tax on sales. But rule 6 levies, in cases of discontinued businesses, sales tax on stocks, that is, possessions irrespective of the fact whether sales have been made or not. It is, therefore, contended that, to the extent that rule 6 levies sales tax on possession, it is repugnant to the provisions and the whole scheme of the Sales Tax Act itself; and is, therefore, ultra vires. In this connection, Mr. Haziqul Khairi referred to a Karachi decision to which one of us was a party, Pir Ghulam Rasul Shah v. Chief Land Commissioner, Lahore (P L D 1967 Kar. 618), wherein the rule has been laid down that if there is a conflict between the main enactment and the rules made thereunder, then the main enactment would prevail. Mr. Haziqul Khalri brought to our notice an English decision on this point, Powell v. May ((1946) K B D 330), in which it was held that a by‑law, which is as much delegated legislation as a rule or regulation, is bad if it is repugnant to the general law of the land. Craies (Statute Law), Sixth Edition, page 297) has also discussed this question and has referred to some English decisions as authority for the proposition that a by‑law or rule repugnant to the main provisions of the statute cannot prevail. One of these cases is Nicholis v. Vistock Urban District Council ((1923) 2 Ch. 18), in which it was held that a by‑law prohibiting sales by auction in a market was invalid, as it was repugnant to the laws of that part of the United Kingdom in which Tavistock is situated. On these authorities, Mr. Haziqul Khairl argued that the present is a much stronger case for holding that Rule 6 is ultra vires of the Sales Tax Act, 1951. Under the rule laid down in the English cases to which Mr. Haziqul Khairi has referred, a by‑law or rule made in exercise of delegated legislative powers is bad if it is repugnant to the general law of the land. But Mr. Hazlqul Khairi contends that, in this case, rule 6 is repugnant to the provisions of the Sales Tax Act itself under which this rule purports to have been made, in that, unlike the main Act, the rule purports to levy sales tax on possession. There is much force in Mr. Haziqul Khairi contention. However, we may leave this question open at present, as we are answering the question stated to this Court by reference to other aspects of the case. It will have been noted that if a business is discontinued, sales tax is levied immediately on the whole of the stocks in the possession of the assessee, but this course was not followed. What the Assessing Officer did was to levy tax in the normal manner, that is, he levied sales tax on the net turn‑over for the charge year 1958‑59, and then again, for the next year, he levied sales tax on the net turn‑over. If the Assess ing Officer had proceeded under Rule 6, then it would not have been necessary for him to spread the assessment over two years and levy tax according to turn‑over for each year, but, instead he proceeded in the normal way as if the business had not been discontinued at all, and therefore adopted the test of turn‑over for each of the two charge years to levy sales tax. Therefore, when the Assessing Officer has not proceeded under rule 6, no question could arise to apply this rule at the appellate stage and both the Appellate Assistant Commissioner and the Appellate Tribunal acted rightly in refusing to accept the Department's contention that Rule 6 should be applied to the present case. The Assessing Officer levied tax in the normal way and, since, for each of the charge year, the net turn‑over was much below the limit prescribed by the Sales Tax Act, no tax could be levied under the notifica tion to which we have made reference above. Thus, for these reasons, our answer to the question is in the affirmative. Answered in affirmative.