NEW PUNJAB SOAP FACTORY, SARGODHA INSAF SOAP FACTORY, SARGODA
The petitioners, manufacturers of washing soap, challenged the imposition of sales tax on imported raw materials used in their production process. Following a notification abolishing sales tax on finished washing soap, the Sales Tax Officer demanded tax on the raw materials consumed. While the Income Tax Appellate Tribunal ruled that locally sourced raw materials were exempt, it upheld the levy on imported raw materials. The Lahore High Court affirmed this decision, relying on the precedent set in Noorani Cotton Corporation vs. The Sales Tax Officer, Lyallpur. The petitioners sought leave to appeal to the Supreme Court, arguing that the High Court's reliance on Noorani Cotton Corporation was misplaced and citing conflicting jurisprudence. The Supreme Court observed that the judgment of Akram, J. in Commissioner of Sales Tax vs. H. Mohammad Hassan & Co. appeared to support the petitioners' contention, creating a conflict requiring further examination. Consequently, the Court granted leave to appeal, determining that the proper construction of the Sales Tax Act, 1951, regarding tax liability on raw materials after the exemption of finished products constitutes a significant question of law.
- Whether imported raw materials used in the manufacture of finished goods are subject to sales tax when the finished goods themselves have been granted a sales tax exemption?
- Does the exemption of a finished product from sales tax automatically extend to the raw materials used in its production under the Sales Tax Act 1951?
- Section 8, Sales Tax Act 1951
- Section 17, Sales Tax Act 1951
ORDER
1. DORAB PATEL, J- The petitioners manufacture washing soap under licences issued under Section 8 of the Sales Tax Act, 1951 (hereinafter called the said Act) and they used to pay duty on the soap manufactured by them under the said Act. However, by a notification dated 14-6-1965, the sales tax on soap was abolished. Now, when the petitioners submitted their returns to the Sales Tax Officer for the assessm ent years 1964-66, because the sales tax on washing soap had been abolished with effect from 14-6-1965, the Sales Tax Officer demanded sales tax on the raw material consumed by the petitioners in the manufacture of washing soap. The petitioners challenged the orders passed against them by the Sales Tax Officer in appeals before the Income Tax Appellate Tribunal and on the basis of an earlier decision given by it the Tribunal held that the petitioners were not liable for sales tax on the raw material which was locally made, but the Tribunal dismissed the appeal of the petitioners against the levy of sales tax on their stocks of imported raw material.
2. Therefore, the petitioners made references under Section 17 of the said Act to the Lahore High Court in which the question raised was whether on facts and in the circumstances of the case the Appellate Tribunal was right in holding that the imported portion of stock of raw material held by the assessee at the time of grant of exemption to his finished products viz. Washing soap could be charged to Sales Tax under the Sales Tax Act, 1951?" All the references were heard together and as they were decided against the petitioners by the learned Judges of the High Court by their judgment dated 10-2-1975 the petitioners have filed these petitions for leave.
3. The question of the proper construction of the said Act was examined at length by this court in Noorani Cotton Corporation vs. The sales Tax Officer, Lyallpur (PLD 1965 S.C. 161). Therefore, on the basis of this judgment, the learned Judges of the Lahore High Court held that as the end product (namely, the Washing soap manufactured by the petitioners) had been exempted from sales tax, sales tax would fall on the raw material which had been imported free of tax for the production of washing soap. Learned counsel, therefore, submitted that the judgment in Noorani Cotton Corporation's case was distinguishable and he also relied on a judgment of Akram, J. Reported in Commissioner of Sales Tax vs. H. Mohammad Hassan & Co. (PLJ 1974 Lahore 141).
4. The judgment of Akram, J., appears to lend support to the Contention of the petitioners and the view to the contrary in the impugned judgment requires examination. Additionally, the petitions turn on the proper construction of the sales tax and thus raise question of Law of public importance, therefore, we would grant leave as prayed. Security in the sum of Rs. 2,000 in each case. The appeals will be made ready on the present record with liberty to the parties to file additional documents.