2024 PLP 1422 (PTD)

SYED ARSHAD ALI, J.

This consolidated judgment shall dispose of the instant Reference as well as the connected STR No.01-P/2021, STR No.02-P/2021, STR No.03-P12021, STR No.05-P/2021, STR No.07-P/2021, STR No.08-P/2021 and STR No.09-P/2021 arising out of the judgment of the learned Appellate Tribunal ("Tribunal") dated 05.10.2020 explaining and defining the term "manufacturer" in a manner allegedly prejudicial with the business activities of the applicants and has proposed the following questions of law for adjudication of this Court in terms of Section 47 of the Sales Tax Act, 1990 ("the Act"). Questions of Law (i) Whether under the facts and circumstances of the case, the indulgence and observation on merit per se is void ab initio after setting aside the orders impugned for being coram non judice? (ii) Whether under the facts and circumstances of the case, mere cutting the wood used by the applicant for manufacturing its goods fall within the ambit of Entry No.10 of Table-2 of Sixth Schedule to the Sales Tax Act, 1990? (iii) Whether under the facts and circumstances of the case, the Hon'ble Tribunal is erred for declaring the cutting of dislodging of tree from the earth as a process of manufacture sufficient to oust the purchased raw wood from the purview of Entry No.10 ibid?

2. It is the case of Applicant in STR No.06-P/2021 that the Applicant had purchased wood from unregistered persons during the period/month from July, 2013 to October, 2013 without withholding any sales tax under the regime of Sales Tax Special Procedure (Withholding) Rules, 2007 ("Rules"), therefore, through a show cause notice dated 10.05.2014 it was called upon to show cause as to why the amount not withheld be recovered from the Applicant.

3. The Applicant contested the show-cause notice mainly on the ground that wood purchased by the Applicant being a raw material for a chipboard industry is not subject to the incidence of sales tax being covered under Entry No.10 of Table-II of Sixth Schedule to the Act.

4. The assessing officer did not consider the explanation offered by the Applicant and has passed an order of assessment vide judgement dated 27.06.2014 holding the Applicant responsible for the amount of Rs. 1,591,808/- recoverable under Section 11(2) of the Act.

5. The said order was questioned before first appellate forum, the appellate forum through an Order-in-Appeal No.278/2014 dated 28.10.2014 and Order-in-Appeal No. 392/2015 dated 27.04.2015 confirmed the order-in-original. The same was further challenged before the Tribunal through STA No.102/PB/2014. It was the majority opinion of the Tribunal that the wood purchased by the Applicant being an agriculture produce was exempt from levy of sales tax vide judgment dated 14.05.2015. The matter was further brought before this Court through STR No.02-P/2016 which was disposed of by this Court vide order dated 07.11.2019 wherein; certain observations were made regarding the manufacturing of the woods and the matter was sent to Tribunal for decision afresh. The Applicant being aggrieved of the findings of this Court had questioned the judgement of this Court passed in STR No.02- P/2016 before the Apex Court through Civil Petitions Nos.4750 to 4753/2019 which was disposed of through a common judgement by the Apex Court vide order dated 25.06.2020 observing therein that the findings of this Court would be tentative in nature and the Tribunal would elaborately answer the issue albeit the questions of law.

6. Through the impugned order the Applicant was absolved by the Tribunal from the responsibility (failure to withhold sales tax on purchases during crucial period) on the ground that subsection (4A) to Section 11 was inserted through Finance Act, 2016, therefore, for the crucial period the Applicant had no responsibility to withhold sale tax on its purchase. However, the grievance of the present Applicant relates to the findings of the Tribunal defining and explaining the phrase "manufacturer" as it occurs in Entry No.10 of Table-II of Sixth Schedule to the Act relying upon the judgement of Hon'ble Lahore High Court in the case of "Malik Shams-ud-Din".1

7. Facts of the case are that the Applicant is company registered under Company Laws of Pakistan and has manufacturing unit where laminated sheets are manufactured for which the raw material is wood which is purchased from the market/farmer.

8. The matter would best be understood when we consider the import of the four terms, supply, taxable goods, taxable supply and taxable activity, as defined in the Act, which are reproduced here for ready reference:- 2(33) "supply" includes sale, lease (excluding financial or operating lease) or other disposition of goods in furtherance of business carried out for consideration and also includes - (a) putting to private, business or non-business use of goods acquired, produced or manufactured in the course of business; (b) auction or disposal of goods to satisfy a debt owed by a person; (c) possession of taxable goods held immediately before a person ceases to be a registered person; and (d) such other transaction as the Federal government may, by notification in the official Gazette, specify. 2(39) "taxable goods" means all goods other than those which have been exempted under section 13. 2(41) "taxable supply" means a supply of taxable goods made in Pakistan by an importer, manufacturer, wholesaler (including dealer), distributor or retailer other than a supply of goods which is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent under section 4. 2(35) "taxable activity" means any activity which is carried on by any person, whether or not for a pecuniary profit, and involves in whole or in part, the supply of goods to any other person, whether for any consideration or otherwise, and includes any activity carried on in the form of a business, trade or manufacture."

9. The careful reading of the aforesaid definitions in juxtaposition with the charging Section (Section 3) would lead to an inference that the charging Section would trigger only when there is a taxable supplies relating to taxable goods in furtherance of any taxable activities carried by a person. It is thus obvious from the definition of taxable goods that any goods which are exempt under Section 13 of the Act would not be subject to the incidence of the charging Section.

10. Having said, we now refer to the liability upon the person to pay the sales tax which is provided under Section 3(3) of the Act which says; "Section 3(3) The liability to pay the tax shall be, a. in the case of supply of goods in Pakistan, of the person making the supply, and b. in the case of goods imported into Pakistan, of the person importing the goods."

11. Any person making supply of the goods is charged and liable to pay the sales tax and in the event when the supply of the goods is exempt from payment of sales tax in terms of Section 13 of the Act, the recipient of the goods would not deduct/withhold any sales tax from the supplier of the goods.

12. In the present case admittedly after purchasing the wood, the Applicant process the same in its manufacturing unit which is subject to the incidence of taxation. However, the essential issue is "whether the supply of wood by a middle man or, a farmer to the Applicant would be subject to the incidence of taxation under the Act being an exempt supply."

13. Admittedly, agriculture produce of Pakistan not subjected to any further process of manufacture is exempt from payment of sales tax in terms of Entry No.10 of Table-2 of Sixth Schedule of the Act which is reproduced as under: - TABLE 2 (LOCAL SUPPLIES ONLY) Serial No. Description Heading Nos. of the First Schedule to the Customs Act, 1969 (IV of 1969) (1) (2) (3) 1 . 2 [ ] 6 . . 10 Agriculture produce of Pakistan not Subjected to any further process of Manufacture Respective headings

14. In order to attract the exemption clause relating to the purchasing of wood by the applicant it must be agriculture produce of Pakistan and at the time of purchasing it was not subjected to any further process of manufacture. What is agriculture produce, it has not been defined in the Act, however, the term manufacture has been defined and explained under section 2(17) of the Act.

15. In the present case admittedly, the applicant purchases the cut wood i.e. standing trees of "poplar" and "eucalyptus" which are cut into pieces by the farmer or the middle man so as to make it a marketable material for the chip industries. First we will endeavor to explain whether the "poplar" and "eucalyptus" trees are the agriculture produce of Pakistan. In absence of definition being provided under the Act, the safe course to hold that "poplar" and "eucalyptus" trees as agriculture produce of Pakistan, we will refer and construe the same in a sense in which they are understood in the trade by the dealers and customers when goods are marketable. This rule of interpretation was very well expounded by the Indian Supreme Court in the case of "Collector of Central Excise, Kanpur v. Krishna Carbon Paper Co

2. It was held: - "It is well settled, as mentioned before, that where no definition is provided in the statute itself, as in this case for ascertaining the correct meaning of a fiscal entry reference to a dictionary is not always safe. The correct guide, it appears in such a case, is the context and the trade meaning... ... The trade meaning is one which is prevalent in that particular trade where the goods is known or traded. If special type of goods is subject matter of a fiscal entry then that entry must be understood in the context of that particular trade, bearing in mind that particular word......"

16. It is a well settled principle of construction, as mentioned before, that where the word has a scientific or technical meaning and also an ordinary meaning according to common parlance, it is in the latter sense that in a taxing statute the word must be held to have been used, unless contrary intention is clearly expressed by the legislature. This principle is well settled by a long line of decisions of Canadian, American, Australian and Indian cases. Pollock, J. pointed out in Grenfell v. Inland Revenue Commissioner3, that if a statute contains language which is capable of being construed in a popular sense, such a statute is not to be construed according to the strict or technical meaning of the language contained in it, but is to be construed in its popular sense, meaning of course, by the words 'popular sense' that sense which people conversant with the subject matter with which the statute is dealing would attribute to it. The ordinary words in everyday use are, therefore, to be construed according to their popular sense. The same view was reiterated by Story, J in 200 Chests of Tea4, where he observed that the legislature does not suppose our merchants to be naturalists, or geologists, or botanists.5

17. Growing "poplar" and "eucalyptus" trees has now acquired the status of agriculture produce in various parts of the province of Khyber Pakhtunkhwa, Punjab and Sindh. Yield "poplar" and "eucalyptus" trees earns a high rate of income to the farmer being rapidly ready for harvesting within a period of 3/4 years.6

18. The Worthy Tribunal being influenced by explanation given by the Hon'ble Lahore High Court in the case of Malik Shamas Din and brothers has held that when the woods are cut into pieces, it becomes a manufacturing process. In the case of Malik Shamas Din and brothers, the Hon'ble Lahore High Court was dealing with the definition of "manufacturer" as provided under Section 2(11)7 of the Sales Tax Act, 1951.

19. It was held in Malik Shamas Din and brothers case by the High Court that no definition of the word "manufacturer" is given in the Act and thus resort was made to the dictionary meaning wherein; it was held that the petitioner in the case took a forest on lease, fell down tress, cut off the branches, removed the leaves and cut the wood thus obtained into pieces and sold those pieces in the market. The said process was held that in absence of any definition of the word "manufacture" this was covered by the dictionary meaning of the word and the process to which the petitioner resorted to make the trees marketable by turning them into what is called timber was a process of manufacture for the purpose of the Sales Tax Act, 1951.

20. With profound respect, the said judgement cannot be applied to the present case because the word "manufacturer" has been defined under Section 2(17) of the Act which has its own connotation and meaning. For sake of convenience, Section 2(16) is reproduced as under:- "2(16) "manufacture" or "produce" includes? (a) any process in which an article singly or in combination with other articles, materials, components, is either converted into another distinct article or product or is so changed, transformed or reshaped that it becomes capable of being put to use differently or distinctly and includes any process incidental or ancillary to the completion of a manufactured product; (b) process of printing, publishing, lithography and engraving; and (c) process and operations of assembling, mixing, cutting diluting, bottling, packaging, repacking or preparation of goods in any other manner;

21. The phrase "manufacturer" has remained subject matter of good number of Indian and Pakistani judgments and the Courts had tried to interpret the term "manufacturer" as it occurred in a particular statute in reference to the cases which the Courts were dealing. Therefore, we need not to refer to those judgements as it would not be of much help because in our opinion, the term "manufacturer" has to be defined in terms of the provisions of the Act.

22. The apex Court in the case of Messrs WAPDA Foundation8 was dealing with a matter when WAPDA Foundation a distinct entity entered with an agreement with WAPDA whereby; waste transformer oil, being provided free of cost by WAPDA to the WAPDA Foundation for reclamation of transformer oil. During the subsistence of the agreement, the title of waste transformer oil remained the property of the WAPDA and the WAPDA Foundation was only providing the services to re-claim the same. The Apex Court termed the said process to fall within the definition of "manufacturer" as defined under Section 2(25)9 of the Central Excise Act, (Act No.1 of 1944) (see para 21 of the judgment) whereas relating to the definition of "manufacturer" as defined in Section 2(17) of the Act, it was held that the same does not fall within the definition of "manufacturer" as defined under the Act. (See para 27 of the judgment). The distinction was drawn by the Apex Court for the obvious reasons that both the Acts i.e. Central Excise Act, 1944 and Sales Tax Act, 1990 had provided the definition of the word manufacturer distinctly in order to attract the provision of each Act.

23. Indeed, it is settled that definition clause is foundational, when construing provision of law. The definition given in the Act should be so construed as not to be repugnant to the context and would not defeat or enable defeating of the purpose of the Act. It must be read in the context and background of the scheme of statute and the remedy intended by it.10

24. In the case of Messrs Al-Technique Corporation of Pakistan Ltd., the apex Court was to answer as to whether the process of sterilization of the syringes/surgical products would fall within the definition of "manufacturer" under Section 2(17) of the Act so as to attract the levy of sales tax. In the context of the aforesaid process, the definition of "manufacturer" was very well explained in the following manner: - "A bare reading of the definition of 'manufacture' suggests that it is a process where:- (i) an article singly or in combination with other articles, materials, components, is either converted into another distinct article or product; or (ii) an article is so changed, transformed or reshaped that it becomes capable of being put to use differently or distinctly; and (iii) includes any process incidental or ancillary to the completion of a manufactured product. Does the process of sterilization of the syringes/surgical products convert them into a distinct article or product or is the article (syringes) changed, transformed or reshaped? The answer will depend on the meaning attributed to said words. It may be pointed out at this juncture that the part of Section 2(16) of the Act "any process incidental or ancillary to the completion of a manufactured product" is ejusdem genesis to the earlier part of the definition [paragraphs (i) and (ii)]. The alleged manufacturing activity must fall within the first two categories else the third category would have no independent application or legal significance. Returning to the issue at hand, the words 'convert', 'change', 'transform' and 'reshape' are important. Chambers 21st Century Dictionary has defined them as follows:- "Convert - to, change the form or function of one thing into another; Change - to make or become different; Transform - to change in appearance, nature, function, etc. often completely and dramatically; Reshape - to form or fashion or to give a particular form to something, again, or again and in a different way." The Concise Oxford Dictionary (1982 ed) has assigned the following meanings:- "Convert change; change in character or function; Change - making or becoming different; Transform - make change in the form, outward appearance, character, disposition, etc., Reshape -- create, form, construct, model, mould, fashion, bring into desired or definite figure or form once more, again, afresh." Further, 'sterilization' means "the treatment of food, surgical or laboratory equipment, etc. with heat, chemicals or radiation in order to destroy all living micro-organisms".

25. The explanation and definition given by the apex Court very clearly provides that any process incidental or ancillary to completion of manufacturer product is ejusdem genesis to the earlier part of the definition (para 1 and para 2). Mere fact that the wood plank/tree for the purpose of sale, if cut in pieces would not attract the manufacturing process as the said process is neither combined with another article nor the cut wood is so changed or transformed to an article being distinctly used.

26. The applicant is purchasing raw wood where the standing trees of "poplar" and "eucalyptus" are cut into pieces (admittedly an agriculture produce). The same does not in any manner transform into another product and remains as agriculture produce as long as it is not subjected to the further process of manufacture for manufacturing chipboard or laminated wood. Therefore, at the point of purchasing the raw "cut wood" stated above, it remains an agriculture produce and thus is exempt from the incidence of sales tax in view of Entry No.10 of Table-II of the Sixth Schedule. 27 Resultantly, this as well as connected Sales Tax References are answered in positive. Copy of the judgement be sent the learned Tribunal in terms of section 47(5) of the Act. MH/63/P References answered in positive.