Messrs A AND B FOOD INDUSTRIES LTD. And Others vs COMMISSIONER OF INCOME TAX_SALES TAX
This matter arose from three petitions for leave to appeal filed by a private limited company manufacturing biscuits, which consumed vegetable ghee in its manufacturing process. For the assessment years 1968-1969, 1969-1970, and 1970-1971, the petitioner claimed a refund of sales tax on the vegetable ghee consumed, arguing that the tax was merged with excise duty under a capacity duty scheme and subsequently exempted by a notification dated 16-06-1967. The Sales Tax Officer rejected the claim on the ground that since the levy of sales tax on vegetable ghee was abolished and not paid, no refund could be claimed. Although the Income-Tax Appellate Tribunal allowed the petitioner's appeals, the High Court answered the reference in the negative, holding that no refund was due where no sales tax had actually been suffered. The Supreme Court of Pakistan granted leave to appeal to render an authoritative decision, noting that whether a taxpayer is entitled to a refund of sales tax on raw materials after the levy is exempted under a consolidated capacity duty scheme is an important question of law.
- Whether a manufacturer is entitled to a refund of sales tax on raw materials consumed in production when the tax on such raw materials was merged into capacity duty and subsequently exempted?
- Can a refund of sales tax be claimed under the Sales Tax Act 1951 for an item that has suffered no actual sales tax due to an exemption notification?
- Section 17(1), Sales Tax Act 1951
- Central Excises and Salt Act 1944
1. ABDUL KADIR SHAIKH, J.--The petitioner, a private limited company, is a manufacturer of biscuits, and in manufacturing the same, it consumes vegetable ghee. In the sales tax assessment for the assessm ents years 1968-1969, 1969-1970 and 1970-71, petitioner claimed refund of sales tax in respect of vegetable ghee consumed in the manufacture of biscuits on the ground that vegetable ghee so consumed was subject to sales tax through the imposition of capacity duty levied under the Central Excises and Salt Act, 1944 was subsequently exempted under a notification, dated 16-6- 1967.
2. The Sales Tax Officer refused. Petitioner---s claim by the order dated 17-6-1972 on the ground that since by virtue of the said notification the levy of sales tax on vegetable ghee was abolished and was not paid, the question of refund of the sales tax in respect of vegetable ghee used in the manufacture of biscuits did not arise. Aggrieved by these orders, petitioner filed three separate appeals for the assessm ent years concerned. The appeals were allowed by the Income-Tax Appellate Tribunal by a consolidated order dated 27-2-1963. The Department being aggrieved by the judgment of the Tribunal filed an application under section 17(1) of the Sales Tax Act 1951 in the Sind High Court referring the following question for decision: "Whether on the facts and in the circumstances, the Tribunal was justified in directing the Sales Tax Officer to allow refund of sales tax on the amount of vegetable Ghee consumed when vegetable Ghee had suffered no sales tax at all."
3. The learned Judges of the Division Bench of the High Court who heard the case answered the question in the negative by the judgment dated 28-4-1984. It is in these circumstances that the petitioners now seek leave to appeal from the judgment of the High Court.
4. Mr. Iqbal Naim Pasha, learned counsel appearing in support of these three petitions, submits that since the sales tax payable on vegetable Ghee was merged with excise duty and levied under a consolidate item, that is, capacity duty, the petitioner is entitled to refund of the sales tax on the consumption of vegetable Ghee in the manufacture of biscuits after the levy of sales tax was exempted.
5. This amongst others, is an important question of law which is likely to arise in large number of cases. It is, therefore, necessary that an authoritative decision of this Court be rendered. Leave to appeal is granted. Security Rs.2,500, in each case.
6. Appeals will be heard on the present record. It is, however, open to the parties to file additional documents, if any.
7. This is not a fit case for grant of interim relief prayed for. Miscellaneous petitions filed in this behalf are dismissed.