MESSRS NATIONAL PRODUCTS Co., KARACHI Versus THE COMMISSIONER OF SALES TAX

1. NOORUL ARFIN, J.‑ The following question of law has been stated to this Court by the Income‑tax Appellate Tribunal under the Sales Tax Act, 1951:

2. "Whether under Sales Tax Act, 1951 an unlicensed manu facturer is entitled to refund of sales tax on the cost of raw materials consumed in the manufacture of goods liable to sales tax ?"

3. The question arises in these circumstances : The assessee manufactured surgical bands but did not have a manu facturing licence. For the purpose of its manufactures, the assessee imported some material on which It paid sales tax In the sum of Rs. 3,100 00 and also made local purchases for which it paid sales tax in the sum of Rs. 19,542.00. Thus, on Its purchases, which the assessee incorporated in Its manufactured goods, a total sum of Rs. 22,642.00 was paid by the assessee as sales tax. On its own manufactures, the assessee paid a further sum of Rs.66,103.00 as sales tax. It has been conceded by Mr. I. N. Pasha that the assessee does not dispute its liability with regard to the sum of Rs. 3,100 paid by the assessee on imported goods. The dispute is with regard to the sum of Rs. 19,542.00, which was paid as sales tax on local purchases. Mr. I. N. Pasha contends that sales tax being a single stage tax, the assessee is entitled to the refund of Rs. 19.542.00. His main emphasis is on subsection (2) of section 27 which, at the relevant time, read as under :

4. "(2) If any person satisfies the Sales Tax Officer that the amount of tax paid by him exceeds the amount with which he is properly chargeable under this Act, he shall be entitled to a refund of such excess, and the provisions of this act in respect of appeal and revision shall apply to an order passed by the Sales Tax Officer under this subsection as they apply to an assessment."

5. According to Mr. I. N. Pasha, the words "exceeds the amount with which he is properly chargeable under this Act" support the assessee's contention that it is entitled to refund or Rs. 19,542 00. In our opinion, the scheme of the Sales Tax Act does not support this contention. We would refer to section 3 of the Act, which is the charging section, under which sales tax Is payable on all goods produced or manufactured in Pakistan; all goods imported into Pakistan; all goods sold by a licensed wholesaler; and such goods or classes of goods as the Central Board of Revenue may, by notification in the official Gazette, specify in this behalf which are exported from Pakistan. Section 3 by itself does not indicate that sales tax is a single stage tax. Of course, there are other provisions in the Act which give this indication. But, it would appear, the application of those pro visions Is limited only to licensed manufacturers or wholesalers, who are entitled to obtain refund of tax paid by them in certain specified cases. We were referred to section 20 of the Act as it stood before its amendment In 1970. Under this section, when goods are sold by a licensed manufacturer or by a licensed whole. Baler, the purchaser shall be furnished with a written invoice of the goods sold, which invoice should state separately the amount of the sales tax recovered on the goods sold. This section also, by itself. does no confer any right on the purchaser to obtain refund of the sales tax paid by him to the seller. The section is intended to make it necessary for sellers to maintain separate accounts of sales tax recovered by them. With regard to refund, the relevant section is section 27, end we would refer to the provisions of this section as it stood before its amendment in 1972. The material parts of this section, for the purpose of this case, are subsections (1) and (2) which read as under:

6. "27.‑(1) Where partly manufactured goods are purchased by a licensed manufacturer and tax has been paid on those goods on importation or on any previous sale, a refund of the amount of the tax so paid shall be made to the licensed manufacturer.

(2) If any person satisfies the Sales Tax Officer that the Amount of tax paid by him exceeds the amount with which he is properly chargeable under this Act, he shall be entitled to a refund of such excess, and the provisions of this Act in respect of appeal and revision shall apply to an order passed by the Sales Tax Officer under this subsection as they apply to an assessment."

7. Under subsection (1), provision for refund of sales tax is made where partly manufactured goods are purchased by a licensed manufacturer and tax has been paid on those goods on importa tion or on any previous sale. Under subsection (2), provision is made for refund if an assessee satisfies the Sales Tax Officer that the amount of tax paid by him exceeds the amount with which he is properly chargeable under the Sales Tax Act. Both the B subsections make provision for refund of the sales tax properly chargeable from an assessee, but they make provision for two different kinds of cases. Subsections (1), in effect, makes pro vision for exemption from payment of sales tax in specified cases. In other words, in cases which come under this subsection, sales tax has been paid properly, but, by reason of the exemptions granted under the Act, the assessee concerned, that is, the licensed manufacturer, becomes entitled to refund of the sales tax paid by him on importation or on any previous sale. But for such exemption, no refund would have been payable to the assessee. On the other hand, subsection (2) makes provision for refund in cases where an amount has been paid in excess of the sales tax properly payable by an assessee due to incorrect calculations or like causes. Subsection (2) is not limited in its application to licensed manufacturers, but applies to every assessee on goods produced, or manufactured or sold or exported by him. If this distinction between the two subsections la not borne in mind, then either subsection (1) or subsection (2) would be redundant.

2. In the instant case, no doubt, the sum of Rs. 19,542.00 was paid as sales tax by the assessee on local purchases. But the assessee cannot invoke subsection (1) of section 27 for the simple reason that under this subsection, it is only a licensed manu facturer, which admittedly the assessee is not, who was at the relevant time, entitled to refund of the amount paid by him on local purchases or importation of partly manufactured goods. The assessee's case does not come under subsection (2) also, as under this subsection refund of amount in excess of sales tax properly payable by an assessee can be made only if sales tax has been paid in excess of what is properly payable on what has been produced, manufactured, sold or exported by the assessee due to incorrect calculations or similar causes. There was no mistake in the calculation of the sales tax when the assessee before us paid Rs. 19,54200 on local purchases made by it. It is not the assessee's case that it paid any amount in excess of what was payable by it as sales tax. On the other hand, its case is that since It purchased locally manufactured goods, which it incorporated in its own manufactures, It should be exempt from payment of the sales tax on local purchases of partly manufactured goods. If so, then the assessee's case should come within she purview of subsection (1), which it cannot, because the assessee was not a licensed manufacturer at the relevant time. Further, if it is the assessee's case that its seller wrongly recovered the gum Rs. 19,542.00 as sales tax from It, then the appropriate remedy for the assessee would be against its seller, and not against the Department.

3. For these reasons, our answer to the question stated by the Appellate Tribunal is In the negative.

8. Reference answered.