MESSRS PARACHA TEXTILE MILLS Versus COMMISSIONER OF SALES TAX

NOORUL ARFIN, J. ‑The following questions have been referred to this Court under section 17 (1) of the Sales Tax Act

"(1) Whether in the facts and circumstances of the case the Tribunal was right in holding that the applicant was liable to pay sales tax on ginned cotton purchased as partly manufactured goods without payment of sales tax and consumed in the manufacture of yarn which was latter exported?

(2) Whether in the facts and circumstances of the case the Tribunal was right in upholding the action of the Sales Tax Officer in charging, computing and holding recoverable sales tax on cotton consumed in the manufacture of yarn exported in a proceeding under section 87 of the Sales Tax Act, 1951, particularly when the amount payable by the applicant as sales tax for the whole year has already been assessed and computed in the proceeding under section 10 (3) of the Sales Tax Act, 1951 ?

2. The facts relevant to these questions are these. The assessee is manufacturer of Yarn which is sold within and outside Pakistan. For manufacture of yarn, the assessee purchased cotton both from ginners, who are licensed manufacturers, as well as from middlemen, who in turn, purchase the cotton from ginners. For the charge year 1958‑59, the assessee made an application under section 27 of the Sales‑tax Act for refund of the amount of the entire sales tax on cotton purchased by middlemen from ginners and sold by such middlemen to the assessee, it being contended that these sales were exempt from t9x under section 4(a) of the Sales Tax Act, as the cotton was in fact purchased by the middlemen from licensed manufacturers, such cotton being ginned, being treated as partly manufactured goods." The Sales Tax Officer, however, refused refund in respect of that quantity of cotton which was used in manufacturing yarn which was sold outside Pakistan. But this order was reversed by the Appellate Assistant Commissioner, who allowed total refund as claimed by the assessee. On appeal by the Department to the Tribunal, the original order of the Sales Tax Officer was upheld.

3. We have heard both Mr. Ali Athar, for the assessee, and Mr. S. A. Nusrat, for the Department, with regard to the first question, we are of the view that it has to be answered by reference to section 2(12) of the Sales Tax Act, which defines "partly manufactured goods" to mean only goods which are to be incorporated into and form a constituent or component part of an article which is subject to tax. . Under section 4 of the Sales Tax Act, certain sales of goods are exempted from payment of tax. Section 7 empowers the Central Government to exempt any other goods or class of goods or any person or class of persons from payment of tax under this Act by a notification published in the official Gazette. With regard to yarn sold outside Pakistan, the following notification was published in the official Gazette on 1st May 1953:

"In exercise of the powers conferred by section 7 of the Sales Tax Act, 1951 (III of 1951), the Central Government is pleased to exempt the goods specified in the Schedule hereto, from the tax payable under the said Act, subject to the following conditions, namely:

(1) that such goods are manufactured or produced in Pakistan ;

(2) that they are sold for delivery outside Pakistan, and

(3) that they are actually so delivered:

(4)Where such tax has already been paid by a person not licensed under section 9 of the aforesaid Act to a licensed manufacturer or a licensed wholesaler on any goods to which this Notification applies, the amount of the tax so paid shall be refunded to such person in accordance with the provisions of the said Act."

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 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 .4 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.

4. With regard to the second question, we must confess that we have failed to appreciate as to what really is the grievance of the assessee. The Sales Tax Officer has not made any order of assessment in deciding the application for refund of the assessee under section 27 of the Sales Tax Act. No doubt he has computed the figures of total cotton consumed by the assessee and its value and then determined the refund allowable to the assessee. But these computations were necessary to effectively determine the assessee's claim for refund of the sales tax and for arriving at the figure relating to ginned cotton consumed in the manufacture of yarn sold outside Pakistan. We specifically asked Mr. Ali Athar whether any claim was being mate for additional sales tax by virtue of the order of the Sales Tax Officer under section 27 of the Sales Tax Act. But the learned Advocate was unable to answer this question. He was also unable to answer the question whether there was any difference in the figure of sales tax computed in the impugned order of the Sales Tax Officer in the original order which actually assessed the sales tax payable by the assessee. We have no hesitation in saying that the Sales‑tax Officer, has not by the impugned order, made any re‑assessment of sales tax payable by the assessee. The Sales Tax Officer has only made computations necessary to arrive at the figure of refund allowable to the assessee.

5. In view of what we have said above, the answers of this Court to both the question are in the affirmative. We may here add that, in fact, Question No. 2 should not have been referred to this Court, as the impugned order of the Sales Tax Officer does not charge or re‑assess the sales tax recoverable from the assessee and, further, the ratters covered by this question are purely questions of fact. Nevertheless, since this question also was referred to this Court, we fund it necessary to answer it, and our answer, as stated above, to both the question is in the affirmative.

Questions answered in the affirmative.