COMMISSIONER OF INCOME-TAX, RAWALPINDI Versus CHEMICAL GLASS FACTORY, GUJRANWALA
M. MEHBOOB AHMAD, J . ---This reference application under section 17(2) of the Sales Tax Act, 1951 has arisen in the following circumstances:
2. Messrs Chemical Glass Industries, Gujranwala, respondents, are manufacturers of glass bottles and during the assessment year in question, viz. 1959-60, they held a Manufacturers Licence issued under section 8 of the Act. In course of their business glass bottles of the value of Rs. 46,492 were sold by them to Messrs Super Cola of Lahore, manufacturers of beverages who also, at the relevant time, held a Manufacturers Licence. The respondent claimed exemption of sales tax on the aforementioned sale of the value of Rs. 46,492 under section 4(a), ibid. The Sales Tax Officer declined the respondent, and by his order dated 26-6-1965, held that no certificate as contemplated by rule 16 of the Sales Tax Rules, 1951, having been produced by the respondent and also because the bottles were not sold with the beverage, the bottles were not partly manufactured goods and consequently no exemption as contemplated by section 4(a), ibid could be claimed by the said respondent.
3. Feeling dissatisfied with this order, the respondent preferred an appeal to the Appellate Assistant Commissioner of Sales Tax, B Range, Lahore. It was pleaded before the appellate. Assistant Commissioner that no opportunity was afforded by the Sales Tax Officer to produce the certificate in question. The Appellate Assistant Commissioner accepted the appeal, by his order dated 15-1-1966, on the premise that the certi ficate as provided by rule 16 of the Sales Tax Rules issued by Messrs Super Cola had been placed by the respondent on record and also on the ground that even if it be assumed that the purchaser of bottles issued a wrong certificate by declaring the bottles as partly manufactured goods the respondent would not be liable to pay the sales tax as he had made the sale to the purchaser on the basis of a certificate issued by the latter.
4. The Department feeling aggrieved by this order went up in appeal to the Tribunal contending that the bottles could not be treated as partly manufactured goods as they were neither incorporated into and formed a constituent of the final product nor were component part thereof: The learned Tribunal did not agree with the contention raised and rejected the appeal by its order dated 15-5-1969 holding as under:
"After considering the factual as well as legal position we are of the opinion that in view of the Certificates given under rule 16 the responsibility of the respondent has ceased so far as the liability to sales tax was concerned. It is not denied Oat the respondent is a licensed manufacturer and so was the case with Messrs Super Cola. After the respondent had obtained the requisite certificate from the purchaser the exemption as envisaged under section 4(a) was available to it as the bottles sold had clearly become partly manufactured goods within the meaning of section 2(12) of the Sales Tax Act. Any further liability in the event of retaining these bottles or sealing them otherwise as part of the manufactured goods would rest with Messrs Super Cola within the meaning of section 12 and section 3(e) of the Sales Tax Act. In this view of the matter we do not find any flaw with the order of the Appellate Assistant Commissioner and confirm it."
5. The Department thereupon made an application to the Tax Appellate Tribunal under section 17(1) of the Sales Tax Act requesting for making a reference to this Court to answer the following question said to arise out of the order dated 15-5-1969 of the Appellate Tribunal:
"Whether the goods sold by the assessee to Messrs Super Cola, could be treated as partly manufactured goods so as to entitle the assessee in the instant case exemption under section 6(a) of the Sales Tax Act "
The Tribunal declined to refer the aforesaid question to this Court, by its order dated 21-8-1970, on the ground that the Tribunal merely confirmed a finding of fact and consequently no question of law arose which could be referred to the High Court. The Department still feel ing dissatisfied has come up to this Court in the present direct reference application.
6. The learned counsel for the petitioner-Department repeated the arguments advanced on behalf of the Department before the Tribunal. He submitted that the bottle is not a partly manufactured goods so far as the manufacture of beverage is concerned and that only such articles which are required for production of the beverage itself can be treated as party manufactured goods, e.g. essence is the partly manufactured goods for a beverage. Elaborating his contention he submitted that bottle is neither incorporated into a beverage nor forms a constituent or component part of the same.
7. On the other hand, the learned counsel for the respondent submitted that whether bottle is a partly manufactured goods for the beverage or not is a question of fact and that the Tribunal had rightly declined to refer the question as framed, to this Court, it being relatable to a finding of fact. He next submitted that the beverage cannot be sold without a bottle, and, thus, is a constituent part thereof and consequently a partly manufactured goods.
8. The last contention raised was that the respondent having sold the goods on the basis of certificate produced by the purchaser, he was in any cease entitled to exemption under section 4(2) of the Sales Tax Act and the liability if any even if it be assumed that the bottle is not a partly manufactured goods of the beverage will be with such purchase as provided by section 12, ibid.
9. Section 4(a) of the Sales Act reads as under:
"Notwithstanding anything contained in section 3, the tax shall not be payable on-
(a) goods sold by a licensed manufacturer to another licensed manu facturer if the goods are partly manufactured goods."
10. In order to claim benefit under section 4(a), ibid, an assessee who is a licensed manufacturer shall have to establish two things, viz.
(i) the goods on the sale of which exemption from the tax has been claimed had to be incorporated into and formed a constituent or component part of another article :--
(ii) that the article into which it had to be incorporated and of which it formed a constituent or component part, i.e. the end product was subject to the tax."
This necessarily means that the end product was charged to the tax inclusive of the partly manufactured goods.
11. Examination of the case in hand shows that there is a finding given by the Sales Tax Officer in his order dated 26-6-1965 in the following words: -
"It is also worth noting that the assessee sold glass bottles worth Rs. 36,492 to Super Cola, Lahore, who are manufacturers of aerated water. These bottles are not sold with the drink. Every bottle is filled or re-filled several times with aerated water. The buyer who buys aerated water does not get the bottle with the drink. The bottles are returned to manufactures for further re-filling. These bottles cannot, therefore, be treated as semi-manufactured goods to be consumed into taxable goods."
Now the above portion of the order shows that the Sales Tax Office gave a finding of fact that the end product, viz. aerated water was not subjected to the tax inclusive of the glass bottles claimed as partly manu factured goods. This finding of fact does not appear to have been challenged before the Appellate Assistant Commissioner or the Tax Appellate Tribunal. It had also not been set aside by any of them. This being the position it stood established that the second ingredient which entitles an assessee to claim exemption on the sales in question was lacking. The requirement of law being that the two conditions aforementioned have to co-exist before exemption could be claimed on the sales of an article by treating it as a partly manufactured goods and one of them being lacking in hand, we have to answer the question referred to us in the negative.
12. In view of the above analysis of section 2(12) of the Sales Tax Act, we do not feel called upon to deal with the contentions raised by the learned counsel for the parties on the first ingredient of the pro vision. 'The argument of the learned counsel for the respondent that the liability to pay tax devolved upon the manufacturer of the end pro. duct as the sale by respondent was made on the basis of a certificate issued by said manufacturer under rule 16 of Sales Tax Rules is not relevant for the purpose of the present controversy inasmuch as it does not fall within the ambit of the question referred to us. We, therefore, refrain to deal with the same as well.
In view of the foregoing discussion, we answer the question referred 4o us in the negative. In the particular circumstances of the case, we leave the parties to bear their own costs.
Reference answered in the negative.