1986 PLP (Trib (PTD)

SIKANDAR HAYAT KHAN (MEMBER).‑‑These three appeals at the instance of the department are directed against the Impugned orders of learned C.I.T.(Appeals) contained in Appeals Nos. 815, 953 and 884, dated 26‑2‑1981 and 9‑9‑1981. The only grievance of the department is that there was no justification with the learned C.I.T. (Appeals) to have allowed the respondent refund of sales tax on the purchase o: chemicals and explosives. It was stated that the respondent was not entitled to any exemption in view of Notification No.9 of 27th June, 1951 as cement was exempted from the levy of sales tax with effect from 11‑6‑1966. In this view of the matter, a prayer was made to restore the order of the Sales Tax officer in respect of the charge years 1973‑74, 1975‑76 and 1976‑77.

2. The respondent, a public limited company, derives income from the manufacture of cement. It is owned and run by the Government of Pakistan. In respect of this case the respondent was not allowed refund of sales tax on purchases of raw materials and explosives in view of Notification No. 9, dated 27‑6‑1951. However, the learned C.I.T. (Appeals) allowed refund on the purchases of chemicals and explosives. In this connection the relevant part of his finding in respect of the charge year 1973‑74 is set out below:‑ "Partly manufactured goods also serve as raw material for the manufactured goods. If the findings could be given that explosives are not raw material for the manufacture of cement as is desired by the appellant in ground No. 2, no refund can be available as envisaged under the Sales Tax Act, 1951. All the same as the finding goes in favour of the appellant as discussed above, the Sales Tax Officer is directed to give necessary refund to the appellant under section 27(1) of the Sales Tax Act, 1951."

3. As the department did not feel satisfied with the allowance of refund allowed by the learned C.I.T.(Appeals) on the purchases of chemicals and explosives, second appeals were filed before the Income‑tax Appellate Tribunal for the restoration of orders passed by the Sales Tax Officer in respect of the charge years 1973‑74, 1975‑76 and 1976‑77.

4. The learned D.R. at the time of hearing invited our attention to the fact that cement was exempted from the levy of sales tax by virtue of Notification No.9, dated 27‑6‑1951. This is set out below for facility of reference:‑ "In exercise of the powers conferred by subsection (1) of section 7 of the Sales Tax Act, 1951 (111 of 1951) the Central Government is pleased to exempt the goods or class of goods specified hereunder being goods manufactured or produced in Pakistan from the tax payable under the Act, but except In the case of goods specified In item 33 (a) nothing In this exemption shall affect the tax payable on the raw materials from which the goods are manufactured."

5. The learned D R argued that in view of Notification No. 9, dated 27‑6‑1951 except for goods specified in item 33(s) exemption on account of sales tax was not available on the raw materials from which the goods are manufactured. He, therefore, prayed for the with drawl of allowance on account of sales tax paid on the purchases of chemicals and explosives used in the manufacture of cement.

6. The learned counsel for the respondent on his part submitted that refund of sales tax on the purchases of chemicals and explosives was rightly allowed by the learned C.I.T. (Appeals). In support of his submission, he placed reliance on 1974 P T D (Trib.) 15.

7. By virtue of section 7 of the Sales Tax Act, 1951 the Federal Government may, by Notification in the official gazette, exempt any goods or class of goods or any person or class of persons from the tax payable under this Act and may also, by Notification as aforesaid, make a reduction in the rate of tax leviable in respect of any goods or class of goods. In exercise of the powers enjoyed by the Federal Government under section 7 of the Act, cement was allowed exemption from the levy of sales tax by virtue of Notification No.9, dated 27‑6‑1951. By virtue of the said Notification the Federal Government stated in rather unambiguous words that except for goods specified in item 33(a) nothing in this exemption shall affect the tax payable on the raw materials from which the goods are manufactured. Thus, in respect of items other than item No.33(s) exemption is not available to the raw materials from which the goods are manufactured. This is the only logical interpretation of Notification No.9, dated 27‑6‑1951 read with section 7 of the Sales Tax Act, 1951.

8. The learned counsel for the respondent in support of the fact that it was entitled to refund on the purchases of chemicals and explosives relied on 1974 P T D (Trib.)

15. Briefly speaking the facts of this case are that the assesses was a manufacturer of biscuits and in manufacturing the same it consumed vegetable ghee. In the sales tax assessment it claimed refund of sales tax In respect of vegetable ghee consumed in the manufacture of biscuits on the ground that vegetable ghee so consumed had already suffered sales tax through the imposition of capacity duty levied under the Excise Act, after promulgation of the Finance Act, 1967. The Sales‑tax Officer refused 'the assessee's claim on the main plea that by virtue of Notification Issued under section 7 of the Sales Tax Act the levy of sales tax was abolished on vegetable ghee with effect from 11‑6‑1967 and, therefore, no question of making any payment of sales tax in respect of this ingredient used in the manufacture of biscuits could arise. Held that:‑ (1) It would be wrong to contend that in levying the capacity duty the Incidence of excise duty alone was fixed by the Finance Act, 1967 at Rs.40 per cwt. as a matter of fact all the entities, namely, sales tax, Defence surcharge and Rehabilitatio4 tax were maintained but were only unified or consolidated and all duties including sales tax were ‑retained for all practical purposes. The new arrangement could not lead to the abolition altogether, on the vegetable products, of the sales tax and other allied taxes that were sought to be merged with the capacity excise duty; (ii) While levying the sales tax on biscuits the Sales Tax Officer was under an obligation to exclude the value of vegetable ghee included therein, as otherwise the very exemption granted to it under section 7 would be rendered nugatory, since, this exemption was granted only to save a double taxation."

9. After a careful perusal of 1974 P T D (Trib.) 15, it is not possible for us to subscribe to the views contained in it. A8 we find, in this case, claim for refund on the use of vegetable ghee in the manufacture of biscuits was entertained on the assumption that vegetable ghee had suffered sales tax through the imposition of capability duty. No such suggestion was, however, made in respect of the use of chemicals and explosives utilized for the manufacture of cement though admittedly according to the facts on record, such raw material had suffered sales tax. On account of this fact we tempted to say that the case before us in appeal is distinguishable from the case relied upon by the learned counsel of the respondent. 10, The claim of refund was allowed by virtue of 1974 P T D (Trib.) 15, on the assumption that excise duty continued to contain sales tax and other levies after merger with the said due. In this connection relevant part of the Tribunals order is set out below:‑ "We shall now come to the crux of the issue whether merger of this tax with the excise duty with effect from 11th June, 1967 can be equated with the total abolition of the sales tax on vegetable ghee. We find that the word "merger" apart from the meaning attributed to it by the Departmental Representative also means "extinguishment of a right, estate, contract, action etc. by absorption in another to be sunk in greater title. "It is difficult froth 'these meanings to come to the conclusion that by merger the levy of sales tax was altogether abolished or it got extinguished. We may pause here to illustrate and then analyse the case of merger or consolidation of number of existing duties into one specific item. In case of traveller to Haji, say the following taxes of duties are initially to be paid:‑ (a) Fare money. Rs.1,500 (b) Port Taxes. Rs.1,000 (c) Diet money. Rs.2,000 (d) Visa Fees. Rs. 500 (e) Miscellaneous duties, Medical Transport, Cooliage Passport fees etc. Rs.1,000 Rs.6,000 Now, if for the sake of facility, all these amounts are merged or consolidated into one "Haj Fee" of Rs.7,000 can it be said by any stretch of imagination that Haps do not pay fare money, diet money or port taxes, or that any of the above taxes have been abolished or done away with. In our view all taxes and duties will continue to exist but will be only absorbed in a unified "Haj Fee". So was the example, which the learned counsel for the appellant had advanced at one stage about the composition of water, which comes into existence by merger of Hydrogen and Oxygen in specified proportions. Can it be said that on merger, these two ingredients disappear or evaporate altogeher. They certainly lose their identity but not their very existence. In our view, therefore, the present mode of merging sales tax, excise duties etc., into one "Capacity Duty" to be administered by the Central Excise Authorities under the Excise Act, would not necessarily lead to the conclusion that any or either of these components has lost its existence."

11. From the above citation it is abundantly clear that claim for refund was entertained on the ground that excise duty after merger with sales tax and other levies did not abolish sales talc and other levies. In other words, sales tax and other levies retained their existence although such taxes lost their identity. This interpretation does not in our opinion appear either logical or natural. The fact of the matter is that sales tax and other levies were merged with excise duty. The word merger means extinguishment of a right, estate contract, action etc by absorption in another to be sunk in greater title. From this definition of the word merger in our opinion sales tax and other levies lost their identity as well as existence. In fact, with effect from 11th June, 1967 the only levy that remained on cement was excise duty.

12. The Tribunal in coming to the conclusion that sales tax and other levies after merger with excise duty had not lost their existence relied on an illustration given in 1974 P T D (Trib.)

15. This illustration for a number of reasons is not relevant to clinch the issue before us. First of all except for port taxes the other amounts payable by the Hajis directly relate to the services and facilities to be provided by the State. The payment of these amounts is, therefore, not on account of any taxes or duties. But if the amount payable by the Hails on account of various services and facilities and port taxes were to be realized through the financial proposals of a budget by lumping them under one head, then surely payment on account of such services and facilities would relate to one head only and not to a number of heads. The example on which the Tribunal has relied could be termed as an administrative convenience. This is different from the financial proposals of a budget, which become law after its approval by the national legislature. What is approved by the national legislature cannot be given any other name except the name assigned to it by the national legislature. In the present case sales tax and other levies were merged with the excise duty on cement, with‑ effect from 11‑6‑1967. Thus, in our view sales tax and other levies lost their Identity and existence, with effect from this date.

13. In arriving at the conclusion that sales tax and other levies still were in existence the Tribunal relied on the summary of the financial proposals. On a careful consideration of these proposals it is not possible for us to come to the conclusion that sales tax and other levies were retained by the national legislature. On the contrary, the only picture that emerges from the financial proposals of the national legislature points to the conclusion that sales tax and other levies after their merger with central excise duty on cement lost their identity as well as existence.

14. The Tribunal also held that while levying the sales tax on biscuits the Sales Tax Officer was under an obligation to exclude the value of vegetable ghee included therein, as otherwise, the very exemption granted to it under section 7 would be rendered nugatory, since this exemption was granted only to save a double taxation. Even this conclusion in the presence of Notification No.9, dated 27‑6‑1951 does not appear natural. Secondly, we have already held above that even on the end product i.e. cement no assumption of payment of sales tax could be roped in so as to create the myth of double taxation i.e. payment of sales tax on raw material and again on the end product. Here, admittedly raw material had suffered sales tax but on account of Notification No.9, dated 27‑6‑1951 the respondent was not entitled to claim any refund on it. Apart from it the myth of sales tax being included in the levy of central excise duty has not been approved by us. Thus, the only conclusion before us is that there was no double taxation. On account of these considerations we restore the orders of the Sales Tax Officer. Consequently all the departmental appeals succeed. M. Y. H. Appeals allowed.