MESSRS JAFFAR IBRAHIM & CO. LTD. Versus SALES TAX OFFICER, CENTRAL ZONE 'B', KARACHI AND 2 OTHERS
1. The petitioners through this petition have prayed the following relief s: -
(a) To declare that the Ammunition Containers supplied by the petitioners to the respondent No.3 and duly allowed by the concerned Offices of Sales Tax authority of Central Excise and Land Custom exempt from the payment of sale tax by virtue of official order made by the Central Board of Revenue under section 7(3) of the Sale Tax Act or in the alternative under General Exemption made under section 7(1) of the said Act.
(b) To declare that the demand notices and show-cause notices issued by the respondents Nos. 7 and 2 are illegal, unjust without lawful effect and inequitable.
(c) To restrain the respondents Nos. 1 and 2, their officers, subordinates whatsoever from realizing from the petitioners the amount of sales-tax on the ammunition containers supplied by the petitioners to the respondent No.3 or in any way adjusting the same from the refund, claimed, or payable to the petitioners or in the alternative to declare and direct that the liabilities of the sales-tax in respect of the subject Ammunition Containers is that of the respondent No.3.
(d) To allow costs.
(e) To grant such other/further/additional relief and reliefs as may be deemed fit/proper/appropriate under the circumstances of the case."
(2) (a) The brief facts leading to the filing of the above petition are that the petitioner entered into 4 contracts for supply of Steel Ammunition Containers, hereinafter referred to as the goods, with respondent No.3 i.e. Pakistan Ordnance Factories Board, Government of Pakistan, Wah Cantt. It appears that before the conclusion of the above contracts, respondent No.3. by their letter, dated 15-7-1979 forwarded Central Board of Revenue's letter dated 14th April, 1971 informing the petitioners that the goods were exempted from the payment of inter alia sales tax. The petitioners were also asked to confirm this position from the Income-tax Department. It appears that the petitioners supplied the goods under the 4 contracts during the period commencing from February 1980 upto October 1982 without making any payment of the sales tax. It may also be pertinent to observe that under clause 4 of the contract, it was expressly provided that respondent No.3 would pay taxes if levied by the Government against the payment. It appears that after the expiry of about 11 years, the Deputy Collector-1, Central Excise and Land Customs respondent No.2, issued a show-cause notice to the petitioners alleging therein that the goods were not exempted from the payment of sales tax and, therefore, the petitioners were called upon to show cause as to why the sales tax should not be charged on the goods supplied by them to respondent No.3 valuing Rs.75,50,850. The above show-cause notice was contested by the petitioners. However, it seems that on account of the coercive action taken by respondent No.2, the petitioners paid a sum of Rs.1,91,902 under protest as a part payment. It may be observed that the total liability comes to over Rs.10,00,000,
(2) (b).It may be pertinent to mention that the Federal Government in exercise of the powers contained in subsection (1) of section 7 of the Sales Tax Act, hereinafter referred to as the Act, issued S.R.O 666(1)81, dated 25th June, 1981 exempting from payment sales tax in respect of the items mentioned in the table to the above S.R.O. It appears that the Federal Government issued S.R.O. 909(1)85, dated 23-9-1985 exempting the Steel Ammunition Containers from the payment of sales tax under above subsection (1) of section 7 of the Act retrospectively. It may be advantageous to reproduce hereinbelow the above S.R.O. 909(1) 85 dated 23-9-1985 which reads as follows:-
2. "S.R.O. 909 (1) 85, dated 23-9-1985-- In exercise of the powers conferred by subsections (1) and (2) of section 7 of the Sales Tax Act, 1951 (III of 1951), the Federal Government is pleased to direct that in its Notification No. S.R.O. 666(1)/81, dated the 25th June, 1981, the following further amendment shall be made and shall be deemed always to have been so made, namely:-
3. In the aforesaid Notification, in the table, against Sl. No.60 in column (1), in column (2), after the figure '73.40' at the end, the semicolon, words and figure' 'iron and steel boxes and containers falling under heading 72.23 supplied to the Pakistan Ordnance Factories for packing of ammunition' shall be added."
4. It appears that before issuance of the above Notification, the petitioners filed the present petition and prayed for the above-quoted reliefs.
5. (3)(a) In support of the above petition Mr. Shaikh Abdul Aziz, learned counsel for the petitioners, has contended as follows:-
(i) That the C.B.R's. aforesaid letter, dated 14th April, 1971 is in fact an exemption in terms of subsection (3) of section 7 of the Act and, therefore, the impugned demand and the recovery were illegal.
(ii) That the petitioners on the basis of the C.B.R's. representation supplied the goods to respondent No.3 without charging the sales tax and, therefore, respondents are not entitled to re-open the issue which was a past and closed transaction.
6. (3)(b) On the other hand Messrs Sheikh Haider and Rasheed A. Akhund appearing for the respondents have urged as follows:-
(i) That subsection (3) of section 7 of the Act is not attracted to.
(ii) That no representation was in fact made by the C.B.R. to the petitioners immediately preceding to the performance of the contracts and, therefore, the respondents are not estopped from demanding the sales tax which was due and payable at the time of supply of the goods in terms of section 3(1) and 3(4)(a)(i) of the Act.
(4) The basic question in the instant case is that, as to whether the above letter of the C.B.R., dated 14th April, 1971 can be treated as an exemption in terms of subsection (3) of section 7 of the Act. In this behalf it may be pertinent to reproduce the contents of the above letter which reads as follows:-
7. "Government of Pakistan
8. Central Board of Revenue.
9. C. No.9(22)-ST/71 Islamabad the 14th April. 1971.
10. From:
11. Z.H. Qutubuddin,
12. Second Secretary,
13. Central Board of Revenue,
14. Islamabad.
15. To
16. Superintendent/Purchases,
17. Pakistan Ordnance Factories,
18. Wah Cantonment.
19. Subject:- SALES TAX EXCISE DUTY ON AMMO CONTAINERS.
20. I am directed to refer to your letter No.POF/B/24/Purchase-4, dated 3-4-1971 addressed to the Sales Tax Officer, Factory Circle, Rawalpindi with copy endorsed to the Board on the above subject.
21. Steel boxes used for packing of ammunition are exempt from sales tax. Moreover, products of iron foundries and steam and hammer works are exempt from sales tax. If the trays referred to by you are a product of steam and hammer works, they will be exempt, otherwise not,
22. (Sd.) 14-4-1971
23. (Z.H. Qutubuddin) PTS,
24. Second Secretary."
25. Reference may also be made to subsection (3) of section 7 of the Act, which provides that the Board may, by special order in each case, exempt from the payment of the whole or any part of the tax, under circumstances of an exceptional nature to be stated in such order, any goods on which the tax is leviable.
5. Mr. Rasheed A. Akhund has emphasised on the factum that in order to press into service the above subsection (3) of section 7 of the Act, the two ingredients must be fulfilled i.e. (i) that the exemption should be granted separately in each case and (ii) that the Board should state the circumstances of exceptional nature. It has been vehemently urged by him that in the instant case the above two ingredients are missing. On the other hand Mr. Shaikh Abdul Aziz, learned counsel for the petitioners, has submitted that the above requirements are fulfilled in the present case inasmuch as in the above-quoted letter it has been stated expressly that the exemption from the payment of sales tax is available in relation to steel boxes used for packing ammunition. It has been further submitted by him that this is in fact covered by words 'each case' used in subsection (3) of section 7 of the Act and the circumstance of the exceptional nature has also been disclosed in the above letter, namely, used for the purpose of packing the ammunition by respondent No.3 which admittedly manufactures ammunition for the defence of the country.
6. In this regard it may again be observed that the Federal Government has by the above second S.R.O., dated 23-9-1985 exempted the steel ammunition containers from the payment of the sales tax retrospectively with effect from the first notification of 25th June, 1981. It is evident that the Federal Government was anxious not to burden the steel ammunition containers with the levy of sales tax apparently for the reason that the same are required for the defence of the country. The effect of the above notification is that the petitioners' two contractors which represent major portion of the goods, in respect of which goods were supplied after 26-6-1981, no sales-tax was payable. There remains dispute in respect of the other two contracts, which were performed prior to the above date.
7. We are inclined to hold that two views of the contents are possible of the above-quoted letter, one, which has been canvassed by Mr. Rasheed A. Akhund learned counsel for the respondents and the other, which has been urged by the learned counsel for the petitioners, Mr. Shaikh Abdul Aziz. Keeping in view the factum that the petitioners have acted in good faith on the representation of respondent No.3 (which is a Government functionary entrusted with the work of national importance of manufacturing arms and ammunition for the defence of the country), and have supplied the goods to them without charging them any sales tax though under clause 4 of the contracts they were liable to pay, we would prefer the contention urged by the learned counsel for the petitioners and hold that the above letter, dated 14th April, 1971 constitutes an exemption in terms of subsection (3) of section 7 of the Act and, therefore, the impugned demand and the recovery were illegal. It may also be observed that in a fiscal matter if two views are succeptible, one which saddles subjects with the liability and the other, which releases them from such liability, the latter is to be preferred over the former.
9. For the aforesaid reasons we allow the petition and declare the impugned demand and recovery as being without lawful authority and of no legal effect. We would also direct respondent No.l to refund the aforesaid amount illegally recovered from the petitioners. However, there will be no order as to costs.
26. M.B.A./J-41/ K Petition allowed.