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Civil Petition for Special Leave to Appeal No. 347 of 1979, decided on 2nd March, 1986.

(Against the Order of the Lahore High Court, Lahore, dated 8‑1‑1979, passed to T. R. No. 327 of 1972).

‑‑ Ss. 4(1)(a) & 12‑Sales Tax Rules, 1951, r. 16‑‑Scope. A manufacturer who is in possession of licence referred to in rule 16 of Sales Tax Rules, 1951 can purchase, as raw material for the manufacture of his own product, goods manufactured by any other manufacturer, and in such cases the value of the goods sold by the last mentioned manu facturer would not be subject to levy of sales tax. But the purchasing manufacturer is liable to pay tax on the value of the goods manufactured by it by using the aforementioned raw material, or on the value of the said raw material itself, if instead of using it for manufacturing goods, it re‑sells it to someone else. If a manufacturer purchases such raw material directly from a factory manufacturing that item, on showing a licence (in the form mentioned in rule 16 of the Rules) then, although that other factory would be exempt from payment of sales tax on the value of those goods, by virtue of section 4(1) (a) of the Sales Tax Act, but purchas ing manufacturer shall be liable to pay sales tax on the value of the goods produced and sold by it or on the value of the raw material not used by it in the manufacture of goods but resold in its original form.

‑‑ Art. 185(3)‑Sales Tax Act (III of 1951). Ss. 3, 4 & 12‑Sales Tax Rules, 1951, r. 16‑Case of first impression and requiring an authori tative pronouncement with regard to interpretation of relevant provisions of law‑Leave to appeal granted

‑‑ Ss. 3, 4 & 12‑‑Sales Tax Rules, 1951, r. 16 Licensed manufacturer‑Partly manufactured goods‑Purchase of, from open market‑Effect Licensed manufacturer purchasing partly manu factured goods from open market for the manufacture of his own products‑Such purchases made not on basis of certificate under r. 16 of Sale Tax Rules, 1951 ‑Assessee contending that such suppliers had already paid sales tax under cl. (c) of S. 3(1) of the Act on the value of material sold to him and assessee would thus not be liable to pay sales tax as the sale tax is leviable only at one point‑Department impliedly conceding the proposition but disputing the question of onus of proof regarding the source of purchase of such raw material‑Leave to appeal granted to examine question raised.

Muhammad Amin Butt, Advocate Supreme Court and Maqbool Ahmad Qadri, Advocate‑on‑Record for Petitioner.

Muhammad Ilyas, Advocate Supreme Court for Respondent.

Date of hearing : 2nd March, 1986.

‑This case relates to the levy of sales tax under the Sales Tax Act, 1951.

Relevant provisions of the said Act for the purpose of this case are sections 3, 4, 12 and 16.

Section 3 is the charging section. The relevant portion of this section reads as follows : ‑

There shall be levied and collected a tax on the value of‑

(a) all goods produced or manufactured in Pakistan, payable by the manufacturer or producer ;

(b) -------------------

(c) -------------------

(d) ------------------

(e) such goods or classes of goods purchased without payment of sales tax by a licensed manufacturer or producer of taxable goods as are not used in the manufacture of production of taxable goods, payable by such manufacturer or producer.

(e) which would otherwise be relevant is not applic able in the present case as it was added by the Finance Act, 1967, whereas the assessment year in the present case is 1964‑65).

The sum and substance of section 3(1) (a) is that a manufacturer is to pay sales tax on the sale of all the goods manufactured by him.

2. Section 4, however, provides for exceptions. The relevant portion of this section reads as follows :‑

‑Notwithstanding anything contained in section 3, the tax shall not be payable on‑

(a) goods sold by a licensed manufacturer to another manufacturer if the goods are partly manufactured goods;

(b) . . . . . . .

(d) ----------

Rule 16 of the rules made under the said Act provides as follows : ‑

‑A licensed manufacturer when purchasing partly manu factured goods from another licensed manufacturer or from a licensed wholesaler shall furnish a certificate in the following form; the certificate shall be retained by the vendor and a copy thereof shall be filed in the purchaser's office :‑

I/we (name and address) hereby certify that I/we hold a licence No. ‑dated the‑‑‑‑‑‑19, issued by the Sales Tax. Officer at‑‑under section 8 of the Sales Tax Act, 1951, which is valid upto the 30th of June, 19‑‑.

By virtue of the said licence, I/we under clause (a)/clause (c) of section 4 of the said Act exempt from the payment of sales‑tax in respect of goods specified in the attached Purchase Order.

I/we further certify that the aforesaid goods are to be used in, wrought into, or attached to, taxable goods for sale."

In other words a manufacturer who is in possession of licence referred to in the above-noted Rule, can purchase, as raw material for the manu facture of his own product, goods manufactured by any other manufacturer, and in such Lasses the value of the goods sold by the last mentioned manufacturer would not be subject to levy of sales‑tax. But the purchasing manufacturer is liable to pay tax on the value of the goods manufactured by it by using the aforementioned raw material, or on the value of the said raw material itself if, instead of using it for manufacturing goods, it resells it to someone else.

3. In the present case the petitioner (Messrs Sufi Soap Factory) has" to purchase products manufactured by other factories for use as raw material in the manufacture of its soap. If it purchases such raw material directly from a factory manufacturing that item, on showing a licence (in the form mentioned in rule 16 of the said Rules) then, although that other factory would be exempt from payment of sales tax on the value of those goods, by virtue of section 4(1) (a) of the Sales Tax Act, but Messrs Sufi Soap Factory shall be liable to pay sales tax on the value of the soap produced and sold by it or on the value of the raw material not used by it in the manufacture of soap but resold in its original form.

In the present case, however, the petitioner's counsel contended t ha it did not buy its raw material from any other manufacturer, but from open market i.e. from the shopkeepers or licensed wholesalers who had already paid sales tax under clause (c) of section 3(1) of the said Act, on the value of the material sold by them to the petitioner, to be used by the latter in the manufacture of soap. As such when the petitioner Factory re‑sells the said raw material' it would not be liable to pay sales tax, as it had not purchased the same on the strength of a licence under rule 16.

The petitioner's counsel emphasised that sales tax is leviable only at one point i.e. if it is leviable at one stage it is not leviable at another stage under the Sales Tax Act.

In support of his contention, the petitioner's counsel, apart from sections 3, 4 and rule 16, also relied on section 12 of the Sales Tax Act which reads as follows :‑

Subject to the provisions of subsection (4) of section 3, every person liable to pay tax under clause (a) or clause (c) of sub section (1) of section 3 and every licensed manufacturer who has either imported or purchased any partly manufactured goods without payment of sales tax and has subsequently sold such goods to a person other than a licensed manufacturer or a licensed wholesaler and every licensed exporter who had sold within Pakistan the goods purchased by him without of sales tax shall, in such manner as may be prescribed, pay the tax leviable under this Act and where the hoods have been sold by a licensed manufacturer or a licensed exporter in the circumstances specified above the tax which should, but for the provisions of section 4, have been paid in respect of such goods at the time of their importation or purchase, as the case may be, within thirty days of the end of the month in which the tax is payable were sold."

4. Learned counsel for the respondent controverted these contentions and submitted that the presumption is that the petitioner had purchased its raw material from another factory of the strength of a licence and if he denies having done so, then it is for him to prove that he had purchased it from certain other shops in the open market.

The petitioner's counsel on the other hand contends that it is for the Sales Tax Officer who demands the tax from him to show that the petitioner had purchased the goods‑from another factory (or wholesaler) and that the said officer is not entitled to make the assessee answerable and require him to put him to proof, merely on account of having made a demand of tax from him. The petitioner's counsel urged that the learned Courts below had wholly overlooked this aspect of the case.

5. It would be noticed that although respondent's counsel contro verted the contention of petitioner's stated in paragraph No. 2, above yet it is implicit in his own contention recorded in para. No. 4 that he'd agrees with the proposition, but only disputes the question of onus of proof regarding the place of purchase of the raw material.

Any how, after hearing both sides we feel this is a case of first impression and requires an authoritative pronouncement with regard to interpretation of the aforementioned provisions of the Sales Tax Act.

Leave is, therefore, granted for this purpose.

Security in the sum of Rs. 2,000.

Petitioners are entitled to file additional documents, if so advised.

M. B. A. Leave granted.

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