Find a Lawyer

Sales Tax Reference Application No.' 634 of 1972, decided on 9th October, 1983.

‑‑‑‑ S. 4‑‑Sales Tax Rules, 1950, rr. 4, 8 & 16‑‑Exemption of licensed manufacturer‑Burden of proof Licence under rr. 4 & 8, Sales Tax Rules, 1950, issued to manufacturer on satisfaction of Sales Tax Officer‑Unless established otherwise presumption that licences were in existence‑Department on subsequent enquiries finding party to be bogus and non‑existent‑Held, duty to issue licence being on depart ment, if department did not take care to issue licence after proper verification and‑satisfaction and have gone on issuing licence to bogus and non‑existent parties, responsibility entirely laid upon Department, as a licensed manufacturer would only see copy of licence and will not make any enquiry to establish genuineness of any such licence‑No evidence available to establish that licence of purchaser was cancelled before sale or assessee had knowledge of cancellation of licence at time of sale or about non‑existence of licensee‑‑‑Assessee entitled to exemption under S. 4 in circumstances.

Ali Athar for Appellant.

Salahuddin for Respondent.

Date of hearing: 21st September, 1983.

. ‑By this application under section 17(1) of the Sales Tax Act, the assessee has referred the following questions: ‑‑

(1) Whether in the facts and circumstances of the case the Tribunal was justified in holding that the sales made to the following parties i.e.‑

(1) Messes Crescent Industries.

(2) Messrs Zakaria Textile Mills.

(3) Messrs Gohar Textile Mills.

(4) Messrs Iqbal Textile Mills.

(5) Messrs Imperial Textile Mills.

(6) Messrs Globe Textile Mills.

(7) Messrs Haji Abdul Latif & Co.

(8) Messrs Shahabi Textile Mills were not entitled to exemption under section 4 of the Sales Tax Act even though Manufacturers Licences had been issued to these parties by the Sales ax Officers.

2. Whether on the facts and circumstances of the case the Tribunal was right in holding that the applicant did not discharge the burden of proving that it made sales to the licenced manufacturers when photostat copies of the Manufacturer's Licences and the Certificates under rule 16 of the Sales Tax Rules were duly produced and none of which have been doubted the Tribunal

3. Whether the Tribunal's order has been passed in complete disregard of the decision of the Karachi Bench of the High Court of West Pakistan in S. T. C. No. 26 of 1970, decided on 8th of April, 1970

4. Whether in the facts and circumstances of the case the Tribunal having held the sales themselves to be unproved could legally subject the came sales to sales tax

At the outset it may be stated that the learned counsel for the assessee has not pressed Questions No. 3 and 4. The assessee is a manufacturer of cotton yarn and cloth and a licensed manufacturer. During the assessment year 1964‑65 the applicant sold cotton yarn inter alia to 8 parties mentioned in the question reproduced above. All these 8 parties held licences issued to them by the Sales Tax Officer under section 8 of the Sales Tax Act. The applicant sold yarn to the aforestated manufacturers without charging any sales tax and obtained photostat copies of licence issued to them by the Sales Tax Officer and also obtained certificates as provided by rule 16 of the Sales Tax Rules. It may, however, be mentioned at this stage that it has been admitted by Mr. Ali Athar the learned counsel for the applicant that no copy of the licence was obtained from Messrs Abdul Latif & Co. and, there fore, he conceded that the applicant will not be entitled to claim exemption in respect of the sale made to this pasty. The Assessing Officer rejected the claim and levied sales tax on the sales made to the aforestated parties on the ground that these purchasers were found untraceable when registered letters were sent to them. The Tribunal upheld the order of the Assessing Officer. The learned Tribunal has referred to a letters dated 29th May, 1965 addressed by the Commissioner of Sales Tax to the Secretary of Pakistan Textile Mills' Association, Karachi Zone informing him that certain sales‑tax licences earlier issued to 18 parties named therein had to be cancelled as on subsequent enquiry those pities were found to be fake and bogus. It is riot known when this enquiry was held and whether it was held to the knowledge of the assessee against whom this evidence is being used. How ever, taking this fact to be connect on its face value it seems that it was communicated to the Association or 29th May, 1965, that the licences of parties mentioned therein have been cancelled. Some of the parties men tioned is the list featured as purchasers to the case of the present assessee also. The licence is issued under the Sales Tax Act and Rules made there under. In this regard rules 4 to 8 provide form of obtaining licence and the Form of licence to be issued to the manufacturer. Such licences are tissue; after the Sales sat Officer is satisfied of the correctness of the application which contains particulars relating to the nature of business, office and branch office together with the Bankers endorsement. Therefore, at the time when the licence was issued unless it is established otherwise it shall be presumed that the licensees were in existence. According to the Department after subsequent enquiries they have been found to be bogus non‑existent. The duty to issue licence was on the Department, and if the have not taken care to issue licence after proper verification and satisfac tion and have gone on issuing licence to bogus parties, or non‑existent parties, the responsibility entirely lies upon the Department as a licensed manufacturer would only see the copy of licence and will not make enqui ries for establishing the genuineness of the licensee. How can this duty imposed on the assessee to ascertain whether the party to whom (ice has been issued exists or not Unless it is established that licence had been cancelled before the sale or the non‑existence of the licensee was within the knowledge of the assessee it will be unjust to burden the seller/assessor to make enquiries about the genuineness of the licensee. We have discussed this aspect of the case in S. T. C. No. 689/72 and have also referred to short order passed in an unreported case No. S. T. C. 26/70. Reference has also been made to 1983 P T D 53 and 1983 P T D 44. After considering all the judgments and in the facts and circumstances of the case as there is n evidence to establish that the licence of the purchasers was cancelled before the sale or the assessee had the knowledge of the cancellation of the licence at the time of sale or about the non‑existence of the licensees, we reply question No. 1 in the negative except with regard to the sale to Haji Abdul Latif & Co. in respect of which the assessee could not produce the licence. Question No. 2 is also answered in the negative.

M.Z. M. Reference answered to negative.

Find a Lawyer Near You

Dealing with a matter like this? Connect with a verified advocate in your city — free on SJP Lawyers Directory.