FAZAL SHAFIQ TEXTILE MILLS LTD. vs THE COMMISSIONER OF SALES TAX

1. SAEEDUZZAMAN SIDDIQUI, J.-This direct reference under section 17(2) of the Sales Tax Act, 1951 has been filed by the assessee/applicant against the order of Income-tax Tribunal disallowing the claim of exemption made by them under section 4(a) of the Sales Tax Act, 1951 to the extent , of Rs.

2. 53,479.

3. The admitted position in the case is that the applicant, who .Are the licensed manufacturer within the meaning of section 8 of the Sales Tax Act, 1951 made sales of manufactured goods worth Rs.

4. 68,23,968.00 during the charge year 1963-64 and out of this amount they claimed exemption of sales tax under section 4(a) of Sales Tax Act on a sum of Rs. 53,479.00 on account of sales made to Messrs Amin Weaving Mills, Ram Bharta Street, Jodia Bazar, Karachi, who were also claimed to be a licensed manufacturer within the meaning of section 8 of the Sales Tax Act, 1951. The Sales Tax Officer disallowed the claim of exemption of the applicant under section 4(a) of the Sales Tax Act, 1951 on the ground that the applicant bad failed to establish the genuineness of the party to whom these sales were made. It is not disputed be; ore us that Messrs Amin Weaving Mills, Karachi held manufacturing licence bearing No. 3687, dated 1-7-1963, copy whereof was produced before by the Sales Tax Officer E/III Division, Karachi by the applicant. It was, however, contended by the Departmental Representative before the Tribunal that although a licence was issued to Messrs Amin Weaving Mills on 1-7-1963, but it was subsequently cancelled as it was found that the party was fake and bogus and that intimation to this effect was given by the Commissioner of Sales Tax, Karachi, by his letter dated 29-5-1965 to the Secretary of All Pakistan Textile Mills Association, Karachi to this effect. Reliance was placed by the Departmental Representative before the Tribunal 0n a decision of the Full Bench of the Tribunal in S. T. A. No. 13 of 1969-70 dated 29-3-1971, wherein the sales made to Messrs Amin Weaving Mills during the charge year 1962-63 by some other party were held to be bogus. The Tribunal was, therefore, persuaded to hold that the sales made by the applicants to Messrs Amin Weaving Mills was also bogus.

5. After hearing the learned counsel for the applicant and the Department, we are unable to agree with the conclusion of the Tribunal that the applicant was not entitled to exemptions claimed under section 4(a) of the Sales Tax Act, 1951. It is not disputed before us that the goods sold by the applicants were partly manufactured. It is also not in dispute that the applicant is not a licensed manufacturer. It is, however, contended that the purchaser Messrs Amin Weaving Mills, Karachi, is a bogus and fictitious party and therefore, the Tribunal rightly disallowed the exemption of sales tax claimed by the applicants. The contention of the learned counsel for the Department is not correct.

6. The fact that Messrs Amin Weaving Mills held manufacturing licence is sufficiently borne out from the order of the Appellant, Tribunal. It is also established from the order of Tribunal that the said licence was cancelled and intimation to that effect was sent to Secretary, All Pakistan Textile Mills Association on 29. 5-1965. The alleged sales made by the applicant to Messrs Amin Weaving Mills are stated in the order of Tribunal as dated 28-2-1964 and 17-3-1964 which are admittedly much prior to the intimation of the cancellation of the licence of Messrs Amin Weaving Mills. The date of cancellation of the licence of Messrs Amin Weaving Mills is neither mentioned in the order of Tribunal nor in the order of Sales Tax Officer. In these circumstances we fail to see how the claim of applicant for exemption of sales tax under section 4(a) of Sales Tax Act, on sales of partly manufactured goods to Messrs Amin Weaving Mills could be disallowed. All that was required under the provisions of Sales Tax Act, to entitle the applicant to claim exemption of sales tax on sales under section 4(a) of the Act, was that the sales was made by them of partly manufactured goods to a licensed manufacturer. We are, therefore, of the view that on sales made by the applicant to Messrs Amin Weaving Mills prior to the cancellation of the licence of the latter, the applicant, were entitled to exemption of sales to under section 4-A of the Sales Tax Act, 1951. Is.

7. Paragraph 13 of the application under section 17(2) of the Sales Tax Act, 1951, the following three questions are raised before us:-

(i) Whether Amin Weaving Mills was in fact a bogus party ? If so, in what respect and to what effect ?

(ii) Whether the burden of proof as to whether the said Amin Weaving Mills was or was not genuine party law on the Applicants ? If so, in what decree and to what extent ?

(iii) Whether the learned Tribunal in view of the evidence before it was not in error in disallowing the exemption claimed in regard to sales made to Amin Weaving Mills ?--- However, at the hearing of this reference, the learned counsel for the parties agreed before us that only question No. 3 needs determination. In view of the above conclusions we answer question No. 3 in the affirmative. There will be, however, no order as to costs.