2004 PLP 2267 (PTD)

(1A) Where taxable supplied are made in Pakistan to a person other than a registered person there shall be charged, levied and paid a further tax at the rate of three per cent of the value in addition to the rate specified in (subsection (1), clause (c) of subsection (2) and subsection (4) and (5). (2) Notwithstanding the provision of subsection (1)... (a) omitted (b) omitted (c) Taxable supplied specified in the Third Schedule shall be charged to tax at the rate of fifteen per cent of the retail price which alongwith the amount of sales tax shall be, legible, prominently and indelibly printed or embossed by the manufacturer on each article, packet, container, package cover or label, as the case may be; . The perusal of subsection (2)(c) of section 3 of the ibid Act itself provided that the retail price should be indelibly and prominently printed and embossed on each article, packet, container, package cover or label, as the case may be. The petitioners who are manufacturers of aerated waters and cigarettes and their products fall within the third schedule to the Sales Tax Act, 1990 which are chargeable to sales tax on retail price, i.e., the price to be paid by ultimate consumers. Retail price has been defined in section 2(27) of the ibid Act which is reproduced hereunder for convenience:‑‑ "with reference to the Third Schedule, means the price fixed by the manufacturer, inclusive of all charges and taxes (other than sales tax) at which any particular brand or variety of any article should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest of such price." Since the petitioners in view of subsection 2 of section 3, are under obligation to pay sales tax on retail price at the time of removal of goods from their premises and as per a requirement of aforequoted section after printing or embossing the retail price on their products there is no room left for the petitioners to collect any additional amount from the market i.e., the possibility of value addition no more exist once the goods are removed from the factory premises of the petitioners, therefore, the application of section (1‑A) to subsection (2) appears to be without any rationale and the said insertion is against the basic structure of the Act. Secondly; the distinction of two categories has been judicially recognized. This Court in W.P. No. 1713 of 1998 (Messrs Northern Bottling Co. (Pvt.) Ltd. v. Government of Pakistan etc.) held:‑‑ ."The petitioner's product of aerated waters are chargeable to sales tax under section 3 (2)(c) of the Act as aerated waters or beverages are included in the third schedule to the Act. The reading of section 3(1) and 3(2)(c) shows that under the former provisions, sales tax is levied at 12 % of the value of the taxable supplies whereas under section 3(2)(c) the tax is levied at the same rate on the retail price if the goods manufactured are those specified in the third schedule. Now section 3 (a‑A) provides for further one per cent tax on the value of taxable supplies and not on the retail prices. Furthermore, at the end of section 3(1A) it is expressly provided that the one per cent is not addition to the rate specified in subsection (1). Thus the further tax of one per cent under section 3(1‑A) is confined to taxable supplies charged to sales tax under section 3(1), even the framers of the law must have been alive to the fact that the further tax was not leviable on taxable supplies under section 3(2)(c) and that is why an amendment was brought about by section 16 of the Finance Act, 1999 in subsection (IA) of section 3 whereby at the end of the subsection for the expression "subsection (1) the expression "subsection (1) clause C of subsection (2), and subsection (4) and (5)" was substituted, thus subjecting the taxable supplies under section 3(2) to further tax under section 3 (1‑A) of the Act. We thus hold that the petitioners were not, during the relevant period, subject to further tax under section 3(1‑A)." The above quoted judgment of this Court which had been very ably authored by his Lordship Mr. Justice Nasirul Mulk was upheld by the Full Bench of august Supreme Court of Pakistan reported in 2001 PTD 2636. (Assistant Collector Sales Tax Peshawar and 2 others v. Northern Bottling Company (Pvt.) Ltd. It was observed:‑‑ "It is quite clear that the sales tax is leviable at the rate of 12.50 per cent both under section 3(1) as well as section 3(2) of the Act. It is not disputed before us that the aerated water manufactured by the respondents is mentioned in the third Schedule to the Act. The learned Judges of the High Court rightly came to the conclusion that rye rationale behind levy of sales tax under clauses (1) and (2)(c) of section 3 of the Act is different. A plain reading of the above section will show that under section 3(1) of the Act the tax at the rate of 12.50 per cent is recoverable on the taxable supplies by a registered person while the sales tax is recoverable under clause (c) of subsection of section 3 of the Act at the same rate on the retail price of the product which is to be prominently, legibly and indelibly printed or embossed by the manufacturer on each packet, container, package, cover or label of goods. It is, therefore, quite clear that the sales tax under subsection (2)(c) of section 3 ibid, is not payable on the basis of taxable supplies but on the retail price while under section 3(1) the sales tax at the same rate of 12.50 per cent is recoverable on the taxable supply. Subsection (1‑A) which was added in section 3 after sub section (1), makes an additional tax payable at the rate of one per cent of the value on the taxable supplies in addition to the tax payable under subsection (1) in respect of all supplies made in Pakistan to a person other than a registered person. It may also be mentioned here that through Finance Act IV of 1999 subsection (1‑A) of the Act has been further amended as follows: "M in subsection (1‑A), ........ (a) for a word "one", wherever the word "three" shall be substituted and (b) for the expression "subsection (1)" the expression "subsection (1)", clause (c) of subsection (2), and subsection (4) and (5) "shall be substituted and". The above amendment introduced in subsection (1‑A) of the Act supports the conclusion that the cases falling under clause (c) of subsection (2) were not previously within the mischief of subsection (1‑A) of the Act. We are, therefore, of the view that the conclusion reached by the learned Judges of the Peshawar High Court does not suffer from any legal infirmity. No case for interference with the judgment of High Court is made out. The petition is, accordingly, dismissed and leave is refused." The perusal of the afore‑quoted except of the august Supreme, Court shows that the apex Court had termed this levy as "addition tax" which term finds mention in Chapter 7 under heading "Offences and penalties". Thirdly, subsection (2) of section 3, on the one hand, has expressly barred the applicability of the provisions of subsection (1). The barring of applicability of subsection (1) of subsection (2) has necessarily the effect of barring the applicability of subsection (1A) also to the provisions of subsection (2) because after insertion of subsection (1‑A) subsection (1) stands extended. Subsection (1‑A) being subservient to subsection (1) cannot survive independently, more particularly when operation of subsection (1) itself was barred. It is by now settled that every clause of a statute should be construed with reference to the context and other clauses of Act, so far as possible to make consistent of the whole statute. The true meaning of any passage is to be found not merely in the words of that passage but in comparing it with every part of the law, ascertaining also the circumstances with reference to which the words were used. What was that subject appearing from these, circumstances which the legislature had in view. It was held in Muhammad Mumtazul Hasan v. Ata Ullah Mehar 1984 SCMR 1499. Fourthly, there is no logic necessitating the said insertion because subsection (1A) of section 3, as mentioned above, is in fact an extension of subsection (1). The scope and applicability of the provisions of subsection (1‑A) are confined to subsection (1) and the effect of its provisions cannot travel beyond to override the provisions of subsection (2) which definitely has an overriding effect upon subsection (1), therefore, the provisions of subsection (2) cannot be controlled or regulated by subsection (1‑A) which is an extension o subsection (1). Moreover, section 3 of the ibid Act contains two separate provisions dealing, with two distinct situations, each provision operates in its allotted field independently. In Pir Sabir Shah v. Federation of Pakistan and others PLD 1984 SC 738 it was held:‑‑ "It is well‑established principle of interpretation that if an Act contains two separate provisions dealing with two distinct situations, each provision operates in its allotted field independently." Fifthly, the application of section 3(1‑A) to the supplies charged under section 3(2)(a) is punitive and arbitrary because tax is charged on retail price i.e. the price to be paid by the ultimate consumer. In the case of Sales Tax the Government collects this tax well in advance at the time of removal of goods from the premises of the petitioners. The petitioners being collecting agent of treasury, having done its duty under the law i.e. by printing and embossing retail price and paying the same at the rate fixed by the Government, if afterwards is subjected to pay additional tax @ 3% under section 3(1‑A) for making supplies to other than registered person. The same would obviously amount to punishment for making supplies to other than registered person i.e. to unregistered persons. It may be mentioned here that the learned counsel representing the Sales Tax Department at the fag‑end of his arguments stated that the said amendment was introduced to discourage the supply of goods to unregistered person, but this argument of the learned counsel is not tenable because the law makers have themselves nullified by providing criteria for registration under section 14 of the ibid Act. Under the provisions of section 14 a retailer whose value of supply during the last 12 months ending any tax period does not exceed 20 million are not required to be registered under the Act, therefore, when the Act itself expressly does not require a retailer whose value of supplies are less than 20 millions during the last 12 months, to be registered, then imposing a further levy on the petitioners to supply goods of such retailer would be punitive and arbitrary. Sixthly the insertion of the said section has restricted the choice of the buyer. The petitioners have been with impugned insertion restricted to make supplies to only registered person and in case they choose to make supplies to unregistered person, they will be subjected to further 3 per cent Tax. To avoid further tax the petitioners would not have the universal market. Its market would be limited to registered person only which would hardly constitute meager percentage of the market, as on the one hand law does not require compulsory registration of all and on the other hand with the recent amendment for the retailers whose supply during the last 12 months does not exceed 20 millions are not required to be registered under the Act. Seventhly, the said insertion has provided a discriminatory treatment to the petitioners. On the one hand the petitioners who are manufacturers of daily consumptions items and whose products have been specified in (IIIrd) third schedule of the Act and who have been registered under section 14 of the Act as manufacturers have already been paying tax at the rate of 15% at the retail price. If they are made to pay 3 per cent further/additional Tax for making supply to other than registered person, they would be put into disadvantageous position because they would not be able to transfer the incidence of burden o additional tax of 3% (further tax) to consumers and this further tax would be paid by them from their own pockets. Eighthly, the imposition of further/additional tax by the above mentioned insertion would amount to confiscatory tax under section 8(1)(c) of the ibid Act and as per proviso to section 3(1‑A), the petitioners are not authorized to charge further tax from the end buyers. Besides, the charging section, as mentioned above, itself provides that the retail price should be indelibly and prominently printed and embossed on each article, packet, container, package cover or label as the case may be so in such case there would be no room left for petitioners to collect the "additional tax" from the market. In Devkumarsinghji Kastruchandji v. State of Madhya Pradesh and others AIR 1967 Madhya Pradesh 268 wherein the property tax on lands and buildings was challenged, it was observed:‑‑ "There are no doubt limits to taxation. If those limits are crossed, then apart from the evils following in the field o economics and public finance, a tax may become invalid in law because of its confiscatory character and effect. If the magnitude of the tax is such as to eliminate the owner or to compel him to part with the taxed property for the payment of the tax assessed on him, or if it destroys the businesses of the persons taxed, then such a tax would be confiscatory in character and invalid." Similarly in Kunnathat Thathunni Moopil Nair etc. v. State of Kerala and another AIR 1961 SC 552 the constitutionality of the. Travancore‑Cochin Land. Tax Act, 1955 was challenged and it was observed:‑‑ "One of the grounds urged in assailing the Act as un‑Constitutional was that the whole Act has been conceived with a view to confiscate private property, as no compensation was being paid to those who may be expropriated as a result of the working of the Act. This argument was based on the assertion that the tax proposed to be levied on private property in the State of Kerala has absolutely no relation to the paying capacity of the persons sought to be taxed, with reference to the income they could derive or actually did derive from the property. In accordance with the majority opinion, the Court held, upon examining the acts of the case that the provisions of the Act, without proposing to acquire the privately owned forest in the State of Kerala, have the effect of eliminating the private owners M through the machinery of the Act. It was held that insofar as in actual operation, as demonstrated by the facts, the Act would result in imposing unreasonable restrictions on holding of the property, the same was clearly confiscatory in character and effect, accordingly the Act was declared as un‑Constitutional and in violation of the fundamental right to hold property.". While relying upon the above quoted judgments and other case‑law from Indian jurisdiction august Supreme Court of Pakistan in Government o Pakistan v. Muhammad Ashraf PLD 1993 SC 176 held:‑‑ "The aforesaid, the contention of Mr. Fakhruddin G. Ebrahim is fully supported by the case‑law cited by him, so far the Indian jurisdiction is concerned that any legislation whereby either the prices of marketable commodities are fixed in such a way as to bring them below the cost of production and hereby make it impossible for a citizen to carry on his business, or tax is imposed in such a way so as to result in acquiring property of those on whom the incidence of taxation fell, then such legislation would be violative of the fundamental right to carry on business or to hold property as guaranteed in the Indian Constitution and thereby be rendered un Constitutional. We were not referred to any case‑law contrary to what has been relied upon, by the learned Deputy Attorney General. There is no reason for taking a different view so far our Constitution is concerned and therefore, on the same principle the imposition b duty would be open to challenge qua its constitutionality' or validity". Ninthly, if the goods are supplied to other than registered person, it would in no case injure the Government treasury because the tax is charged on the retail price, i.e., price to be paid by ultimate consumer meaning thereby that the Government collects the ultimate tax (which it would have collected when supplied goods were actually sold in y the market) well in advance at the time of removal of goods from the factory premises of petitioners: The petitioners being collecting agents (of sales tax) of the Government treasury pay in advance the tax, therefore, if goods are supplied to other than registered person, it would not make any difference so far as sales tax collection is concerned. On the contrary if the supplies of goods are restricted only to registered persons, not only the sales of the petitioners would be affected but it shall also adversely affect the tax collection because the tax proceeds l0 would definitely reduce in that eventuality.

15. For the reasons stated above, all the writ petitions are accepted. The amendment brought by Finance Act, 1999 whereby clause (c) of subsection (2) in section 3(1‑A) of Sales Tax Act, 1990 was inserted, is declared to be un‑Constitutional, being discriminatory and imposing a penalty under the garb of taxation, and further being ultra vires of the very scheme of taxation laid down in the Act. The amendment is therefore, not enforceable against the petitioners. There shall be no orders as to costs. M.B.A./150/P Petitions accepted.