1988 PLP (Trib (PTD)

FARHAT ALI KHAN (CHAIRMAN).--In these appeals an interesting point of law has arisen out of the following facts:

2. It Appears that the appellant, a private limited company, manufacturing and selling biscuits in assessment year 1981-82 gave 32 packets of biscuits to its permanent employees excluding officers and executives pursuant to an agreement reached at between the Management and Labour Union during the relevant assessment year. Mr. Sirajul Haq, the learned counsel for the appellant pointed out that during the period commencing from 25-4-1981 to 30-6-1981 the appellant gave biscuits to its employees worth Rs.1,42,

960. Similarly, according to Mr. Sirajul Haq for a period commencing from 1st July, 1981 to 30th July, 1982, the appellant gave biscuits worth Rs.7,29,

158. The Sales Tax Officer, however, did not impose any sales-tax on both the amounts for reasons, which are not emerging out of record. However, subsequently, a show-cause notice was issued on 7th September, 1982, calling upon the appellant to explain as to why sales-tax should not be imposed on both the amounts mentioned above. It was, however, contended before the Sales Tax Officer/ Assistant Collector that the biscuits were given on gratis to the permanent employees of the appellant pursuant to an agreement entered into between Management and Labour Union, hence no sale took place. The learned Assistant Collector, however, repelled his contention with the following observation: "I have carefully considered the written as well as verbal submissions made as has been pointed out in the preceding paras. M/s. English Biscuit Manufacturers are bound to pay sales-tax on all the goods cleared from the factory, which are liable to sales-tax irrespective of the purpose for which they are being cleared. I accordingly hold that there is no force in the contention of the party that they are bound to deliver a certain amount of biscuits as a result of an agreement reached at between the Management and the Labour Union. It is held that this is purely in internal agreement of the two parties and does not affect the position. Messrs English Buiscuit Manufacturers are, therefore, directed to pay sales-tax on all goods supplied to their staff free of cost within seven days of receipt of this order." She, therefore, calculated sales-tax at Rs.28,597 for the first period and at Rs.91, 144 for the second period, Having been aggrieved and dis-satisfied the appellant went up in appeal but the learned Collector (Appeals) rejected it with the short order as follows: "Heard Mr. Sirajul Haq, Advocate, who pleaded the case on behalf of M/s. English Biscuit Factory, and Mr. Buland Akhtar, Deputy Superintendent, Central Excise on the prosecution side. The distribution of biscuits to the staff of the appellants is not exempt and the views of the adjudicating officer are upheld. In regard to the period from 25th April, 1981 to 30th June, 1981, which has been assessed by the Sales-tax Department the prosecution have no objection for adjustment if due, and the appellants may approach the assessing officer in this regard." The appellant still feels aggrieved and has come up in second appeal before us.

3. Mr. Sirajul Haq, the learned counsel for the appellant, firstly argued that the learned Assistant Collector was not justified in issuing a show-cause notice. According to him, the case should have been re-opened under section 28 of the Sales Tax Act, hereinafter referred to as the 'Act". Mr. Asif Siddiqi, the learned Departmental Representative, however, vehemently argued that the show-cause notice was issued actually under section 28 of the Act. We have heard both Mr. Sirajul Haq Memon as well as the learned D.R. We think that the submission of Mr. Sirajul Haq is not supported by any material on record. There is nothing available in the impugned order as well as the original order to show that the objection raised by the learned counsel for the appellant before us was agitated at any forum. As such, we think that the submission of Mr. Asif Siddiqi that the notice was issued under section 28 of the Act appears to be correct. If Mr. Sirajul Haq wanted to agitate this ground before us, he should have firstly taken it in the grounds of appeal and secondly should have also filed an affidavit to aver before us that neither notice under section 28 was issued to the appellant nor the proceedings were drawn under that section of the Act, and in the absence of all this we are left with no alternative but to reject it and so we hereby do.

4. Mr. Sirajul Haq Memon further contended that sale of un-branded biscuits was also in dispute in this appeal. We are, however, afraid that this point again does not appear to be emerging out of the record. It has not been taken in the grounds of appeal either. This issue, therefore, also goes against the appellant.

5. Pressing his main argument Mr. Sirajul Haq vehemently argued that the distribution of biscuits on gratis to the permanent employees of the appellant in response to an agreement arrived at between the appellant and the Labour Union cannot be said to amount to "sale" as defined in section 2(15) of the Act. In this connection the learned counsel invited our attention to a case coming from no less an authority than the Indian Supreme Court reported as (1958) STC 353, The State of Madras v. Gannon Dunkerley & Co. (Madras) Ltd. together with a case authoritatively laid down by our own Supreme Court in the case of M/s. Noorani Cotton Corporation and others v. S.T.O., A-Ward, Lyallpur and others, and reported as 1965 PTD

273. He also relied upon a decision from the Dacca High Court, reported as (1971) PTD-26, Latif Bawani Jute Mills Ltd. and 4 others v. The S.T.O. Companies Circle 1, Dacca and another. Mr. Asif Siddiqi, the learned D.R., however, supported both the officers below.

6. We have heard both the learned counsel for the appellant as well as learned D.R. and have also perused both the impugned as well as the original order. We think that it would be advantageous to start our discussion with the definition of sale as contained in section 2(15) of the Act, and it reads: "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 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." From perusal of this definition it appears that before a transaction under the Act is designated as sale, it should consist of the following: "(1) That it must involve transfer of property; and (2) such transfer of property should be in the course of trade or business, and (3) such transfer of property should be for (a) cash, or (b) deferred payment, or (c) other valuable consideration." All transactions and use of one's own goods are also to be deemed as sale.

7. Since subsection (15) of section 2 of the Act has referred to subsection (6) of section 3 of the Act, let us also profitably reproduce it at this juncture; It reads: "(6) Determination of value for tax in certain circumstances.- Where goods are produced or manufactured in Pakistan 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 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, 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."

8. Now reverting to the facts of these appeals it appears that when the appellant gave biscuits on gratis to its employees the property in them passed on to the workers. However, every passing of the property in goods would not be a "sale" unless it happens in the, course of trade or business. In our judgment the expression "in the course of trade or business" would mean and imply, to the exclusion of manufacturing process, the stage in which the goods become deliverable. The reason, firstly, is that the transfer of property is to be for cash or for deferred payment or other valuable consideration and secondly, it cannot, unless there is an agreement to the contrary,, pass on to other person until it is out of manufacturing process and becomes deliverable (Please see sections 19 to 24 of the Sale of Goods Act, 1930). Though both the officers below have not recorded specific findings on the point as to on what stage the biscuits were to be given to the employees of the appellant. However from the order of learned Assistant Collector it appears that 32 packets were given to the employees. Thus, the use of packets suggests that the delivery was made when the biscuits had assumed deliverable condition in shape of packets. We would, therefore, hold that the property passed on to the workers in the course of trade or business. However, let its see as to whether the other ingredients of sale are also available. When we examine this issue, it becomes quite clear that the packets of biscuits were given to the workers of the appellant neither for cash, nor for deferred payment beat pursuant to an agreement entered into between the appellant and the Trade Union of the appellant An agreement Should have been entered into either to provide the workers with an additional benefit on top of the wages and other benefits or in order to refrain them from raising an industrial dispute. Thus, if the definition of consideration as given in clause (d) of section 2 of the Contract Act, is kept into consideration, it would emerge out` that the passing of the property was for valuable consideration. We are, therefore, of the view that the transaction fell within the definition of sale as discussed above. However, let us also take a further step and examine subsection (6) of Section 3 of the Act to find out as to whether this transaction falls under either of the clauses of this subsection as they are to be deemed as sales. It is apparent that in the instant case neither a lease of any goods is involved nor the goods having royalty imposed thereon in dispute. The biscuits are also not manufactured on contract for labour only. It can also be said the biscuits given to the employees cannot be taken to be for use by the appellant itself. The appellant is a company having legal personality whereas the Trade Union also enjoys juristic personality under the Trade Unions Act. It, therefore, cannot be said that giving of packets of biscuits to the workers, who are members of the Trade Union, tantamounts to use of goods by the appellant itself. Let us also point out that the allegation of an agreement itself suggests two separate entities viz. appellant and its trade union. Thus, clause (d) of subsection (6) of Section 3 of the Act would apply in those cases in which the goods are retained by the manufacturer for further use in some other manufacturing process, if the manufacturer is a juristic person. From this discussion it is, therefore, clear that the transaction is covered by the definition of sale though it cannot be called a deemed sale and thus both the officers below appear to have arrived at correct conclusion. However, before turning to the case law, let us point out that the case of the appellant cannot be compared with the employees of hotel and restaurant who are given food firstly because it is given for eating while they are on duty and, secondly, it is not given in response to an agreement entered into between the Trade Union of the Hotel and Hotel Management unless this fact is proved, but pursuant to conditions of employment which are peculiar to hotel business.

9. Now turning to the case law relied upon by the learned counsel for the appellant, let me state at the very outset that none of the rulings are applicable under the facts and circumstances of these appeals. GANNON'S case (supra) deals with the definition of "sale of goods", as this expression has been used in entry 48 in List II of Schedule Seven of the Government of India Act of 1935. It has been held by their Lordships of Indian Supreme Court that this expression carried the same meaning which was given to it under the Sales of Goods Act, and which meant an agreement to sell movables for a price and passing of the property therein pursuant to that agreement. Similarly, the case of DARSON RUBBER WORKS (supra) is also distinguishable. In that case, the only question for consideration before the Lahore High Court was as to whether the benefit of tile reduced rate of sales-tax was extendable to those products, which were lying in the factory and warehouses of the petitioners when the Finance Ordinance of 1981 came into force. His Lordship disposed of the case with the following observation: "To me there appears to be no reason why the levy of sales-tax be anterior to the day relevant for the purpose of determining the value of goods under the Act. I should, therefore, think that the rate at which the sales-tax is to be levied is the day on which the goods leave the factory or warehouse. Since in these petitions the rate of sales-tax was reduced while the goods were still lying in the factory and ware-house of the petitioners, they were to be charged with the tax at the reduced rate."

10. In the case of Noorani Cotton (supra) it was argued before Their Lordships that subsection (6) of section 3 of the Act did not lay down the definition of sale, as the same was given in subsection (15) of section 2 of the Act. But, Their Lordships of our own Supreme Court repelled this contention in the following words: "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 can be no doubt t all as to the intention of the legislature in subsection (6). It has clearly been provided that all such transactions are to be regarded as sales for the purpose of this Act."

11. Similarly, the case of Latif Bawani (supra) is also distinguishable. In that case it was held:- "In the facts and circumstances of the present case by no stretch of imagination could it be said that the petitioners kept hessian or sacking cloth for their own use as distinguished from its use in the shape of assimilation in the process of manufacture leading to an end product, viz. the gunny bags." In this case, the petitioner had exported gunny bags and claimed that under Notification No.l dated 31st May, 1953, they were not liable to pay sales-tax on gunny bags exported by them during the relevant assessment year. It is thus clear that all the cases relied upon by Mr. Sirajul Haq are very much off the mark.

12. However, before parting with these appeals let us point out that no evidence was available from record regarding two periods mentioned above for which sales-tax was imposed. Let us, however, mention that the sales-tax would be imposed regarding the period, which is covered by the assessment year 1981-82.

13. We therefore find no force in these appeals and they stand related accordingly. The Sales Tax Officer, however, is directed to impose sales-tax regarding the period falling within the assessment year 1981-82. The appeals stand disposed of accordingly. M. B. A./ 507 / T

Appeals dismissed.