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S.T.C.No.94 of 1984 and Civil Miscellaneous Application No. 10 of 1985, decided on 12th April, 1987.

---S. 2(12)--Words "subject to the tax"--Meaning--Words are not descriptive words but impose conditions and obligations and are, therefore, words of qualification and condition where certain restriction has been placed--Words do not mean only chargeability but mean provided tax is paid--Phrase incorporates the entire process from the time the charge is created, levied and becomes payable or collected--Condition precedent is that no goods shall be termed as "partly manufactured" goods unless the goods on which sales tax has been paid is incorporated into and forms a constituent or component part of an article which is subject to tax.

Stroud's Judicial Dictionary, 4th Edition; George Trollope & Sons v. Martyr Brothers (1934) 2 K B 436; Hollis Brothers & Co. Ltd. v. White Sea Timber Trust Ltd. (1936) 3 All. E R 895; Massey Haris Co. v. Strasburg (1941) 4 D L R 1120; Noorani Cotton Mills v. Sales Tax Officer Lyallpur P L D 1965 S C 161; C.S.T. v. Muhammad Hussain 1974 P T D 20; Messrs Paracha Textile Mills v. Commissioner of Income-tax 1980 P T D 17; Messrs Abbasi Textile Mills Ltd. v. C.I.T., Karachi 1982 P T D 17 and C.S.T. v. Shafiq 1974 P T D 15 ref.

--Decision wherein Supreme Court of Pakistan has decided a question of law and enunciated principles of law is binding on all Courts in Pakistan.

---S . 27--Refund--Object. The object of granting refund seems to be that a person should not be subjected to tax twice in respect of the same goods. The pre-conditions for such refund are that the tax sought to be refunded should be in respect of the goods which has become constituent or integral part of manufactured goods and secondly tax on such manufactured goods is payable or has been paid. These pre-conditions have to be satisfied before claiming refund.

Mansoor Ahmad Khan for Appellant.

Shaikh Haider for Respondent.

Date of hearing: 25th February, 1987.

.--The applicant is a private limited company engaged in the business of manufacturing and sale of washing soap and detergents. Washing soap was exempted from Sales Tax but detergent was taxable under the Sales Tax Act, 1951 upto the charge year 1969-70. From 1-1-1969 the sales tax merged with excise duty and levy whereof was fixed at the rate of 20% on retail price. Consequently no sales tax on detergents manufactured by the applicant was payable under the Sales Tax Act with effect from 1-7-1969. For the assessment years 1973-74, 1974-75 and 1975-76 the applicant made application under section 27 of the Sales Tax Act claiming refund of the sales tax allegedly paid by it on the purchase of raw material used in manufacturing detergent. The Sales Tax Officer rejected the claim on the ground that as there is no levy of sales tax on detergent and only excise duty is payable no claim for refund can be entertained. It was further stated that the applicant is not entitled to claim refund of sales tax paid on raw material used in non-taxable goods. The applicant filed appeal before the Appellate Assistant Commissioner, which was allowed. However in second appeal filed by the Department before the Tribunal the Appellate order was reversed and the order of the Sales Tax Officer was restored.

The applicant then filed this application under section 17 of the Sales Tax Act for referring the question to this Court and the learned Tribunal has referred the following question:-

"Whether on the facts and circumstances of the case, the Appellate Tribunal was justified in holding that the goods manufactured by the assessee were not subject to tax payable under the Sales Tax Act and hence no refund of tax could be allowed under section 27 of the Act

Before considering the contentions of the learned counsel for the parties it would be proper to reproduce relevant provision of the Sales Tax Act.

Section 2(12)-- "partly manufactured goods' means only goods which are to be incorporated into and form a constituent or component part of an Article which is subject to the tax" Section 3 reads as follows:-

"Section 3. Charge of tax.--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) ....................... ....................... .......................

Section 7. Exemptions.--(1) The Federal Government may by notification in the official Gazette, exempt any goods or class of goods or any person or class of persons from the tax payable under this Act, and may also, by notification as aforesaid, made a reduction in the rate of tax leviable in respect of any goods or class of goods or any person or class of persons. Section 27. Refunds.--(1) Where partly manufactured goods are purchased by a manufacturer and tax has been paid on those goods on importation or on any previous sale, refund of the amount of the tax so paid shall be made to the licensed manufacturer."

Mr. Mansoor Ahmed Khan, the learned counsel for the applicant while referring to the aforesaid provisions contended that the Act distinguishes between chargeability and payability of the sales tax and as exemption under section 7 has been granted from payment of tax on detergent it does not mean that it is not chargeable with tax. In view of this submission the learned counsel further contended that as the tax is chargeable on detergent though not payable the applicant is entitled to the refund of sales tax paid on the raw material. In this regard the learned counsel has referred to Latif Bawani Jute Mills v. S.T.O. 1970 D L C 716, C.S.T. v. Muhammad Hussain 1974 P T D 20 and C S T v. Shafiq Corporation 1974 P T D 15. The entire argument of the learned coups for the applicant depends on the interpretation of section 2(12) particularly the words 'subject to the tax'. According to Mr. Mansoor Ahmed Khan in view of the aforesaid authorities if the end product is charged with sales tax then whether it is payable or not the applicant is entitled to refund under section 27.

In the context of the present controversy phrase 'subject to' in section 2(12) are the key words. These words have not been defined and therefore, we have to take into consideration its literal and dictionary meaning. The words 'subject to' are not descriptive words but they impose conditions and obligations. These are words of qualification and1A condition.

According to Ballentine such phrase 'appearing in a contract, usually indicates that a promise is not to be performed except upon a condition or the happening of a stated event'.

In Stroud's Judicial Dictionary, 4th Edition the words 'subject to contract' have been held to mean that 'the matter remains in negotiation until a formal contract is executed'. Reference can be made to George Trollope & Sons v. Martyn Brothers (1934) 2 K B 436.

In 'Words and Phrases,' Volume V, while referring to and relying on Hollis Brothers & Company Ltd. v. White Sea Timber Trust Ltd. (1936) 3 All E R 895 it has been explained that the words 'subject to shipment' mean 'provided the sellers in fact ship'.

In a Canadian case Massey Haris Co. v. Strasburg (1941) 4 DLR 620 it was observed that 'when a provision in a statute is 'subject to' another provision requiring something to be done, the first provision is conditional upon the performance of what is required by the provision referred to.

Now considering the meaning of words 'subject to the tax' it is clear that a certain restriction has been placed under section 2(12)1 The condition precedent is that no goods shall be termed as partly manufactured' goods unless the goods on which sales tax has been paid is incorporated into and forms a constituent or component part of and article which is subject to tax. The learned counsel for the applicant has laid great emphasis on the distinction between the words chargeability and payability but both these words do not find place in section 2(12). The words used are 'subject to the tax'. Does this phrase mean chargeability to tax. The words 'subject to the tax' convey a meaning that the tax is payable or has been paid on the goods. These words do not mean only chargeability, they mean provided tax is paid. This phrase incorporates the entire process from the time the charge of tax is created, levied and becomes payable or collected. In this regard reference can be made to Noorani Cotton Mill v. Sales Tax Officer, Lyallpur P L D 1965 S C 161 where it was observed that:-

"Now what is the device adopted fog ensuring that sales tax is paid only at one stage in spite of what is contained in the charging section making all manufactured goods when they go to the purchaser cable to the payment of tax The device adopted, as will appear from section 4 is, that the sale of 'partly manufactured goods' to a manufacturer is not liable to the charge of tax. It may be clarified here that the Sales Tax Act does not recognise a manufacturer who has not obtained a licence under it for manufacture. The provision in section 4 is that the sale by a licensed manufacturer to another licensed manufacturer of partly manufactured goods is not liable to the incidence of tax. The definition of 'Partly manufactured goods' is that they are goods, which are to be incorporated into another article. So, these provisions are a sufficient guarantee that the tax will be paid only with respect to the last stage of manufacture of goods. However, there is one difficulty, which had to be removed. Suppose the manufactured article into which partly manufactured goods are to be incorporated is for some reason not liable to the payment of sales tax In that case if no tax is paid on partly manufactured goods no tax will be paid at all. Therefore, in the definition of 'partly manufactured goods' a limitation has been introduced that the article into which the goods are to be incorporated should he one, which is liable to the payment of sales tax. "

Conscious of the above observation of the Supreme Court Mr. Mansoor Ahmed Khan referred to a passage from the judgment of a Division Bench of the Lahore High Court at page 26 of 1974 P T D 20 where attempt has been made to distinguish these observations. With respect we are unable to agree with the observation made in 1974 PTD 20 at page 26. The Supreme Court with reference to section 2(15) of the Sales Tax Act has decided a question of law and enunciated principle of law, which is binding on all Courts in Pakistan.

The object of granting refund seems to be that a person should not be subjected to tax twice in respect of the same goods. The pre-conditions for such refund are that the tax sought to be refunded should be in respect of the goods which has become, constituent or integral part of manufactured goods and secondly tax on such manufactured goods is payable or has been paid. These pre-conditions have to be satisfied before claiming refund.

Mr. Mansoor Ahmed Khan has referred to Messrs Paracha Textile Mills v. Commissioner of Income Tax 1980 P T D 17 (decided on 18-4-1973) and Messrs Abbasi Textile Mills Ltd. v. C.I.T., Karachi 1982 P T D 17 and contended that the three judgments cited by him were not noticed in these judgments.

In Paracha Textile Mills case the assessee had claimed refund of sales tax paid on cotton used for manufacturing cotton yarn sold outside Pakistan, which was exempt from payment of sales tax, Noorul Arfin, J. observed:

"The effect of this Notification, read with section 7 of the Act, is to exempt cotton yarn sold outside Pakistan from sales tax. Now under section 4(a) partly manufactured goods are exempted from sales tax if sold by a licensed manufacturer. But the definition of 'partly manufactured goods' makes it clear that only those goods are to be included' in this clear which are incorporated into and form a constituent or component part of an article which itself is subject to the sales tax. Any cotton yarn sold outside Pakistan, by reason of the provisions of section 7 of the Sales Tax Act and the Government Notification reproduced above, cannot come under the expression 'article which is subject to sales tax', and, therefore, ginned cotton used in the manufacture of such yarn cannot be treated as 'partly manufactured goods' within the meaning of section 4(a) of the Sales Tax Act. If the definition of 'partly manufactured goods' contained in section 2(12) of the Sales Tax Act is kept in mind, then it would not be difficult to understand the order -of the Sales Tax Officer and that of the Tribunal upholding the first order. Section 2(1) read with section 4(a) of the Sales Tax Act, read with the above Notification, which was issued under section 7 of the Act, effectively negative the assessee's claim for refund of sales tax on such ginned cotton as was used in the manufacture of yarn sold outside Pakistan, no exception can, therefore, be taken to the order of the Sales Tax Officer and that of the Tribunal upholding this order."

This view was followed in Abbasi Textile Mills Limited 1982 PTD 17. In this case 1974 P T D 15 and 1974 P T D 20 were taken note of and not followed.

In view of the above discussion we answer the reference in the affirmative.

M.B.A./D-4/K Reference answered in the affirmative.

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