JUDGMENT [The judgment of the Court was delivered by Nasir A. Zahid, J.].-In this case, the respondent-assessee was a manufacturer of guar-gum and carried on other business, claimed a refund of sales-tax amounting to Rs. 9436/- on account of sales-tax paid on gunny bags as packing material used in export of guara products. Their claim for refund was rejected by the Sales Tax Officer vide his order dated 30-5-1965. An appeal filed by the assessee was also dismissed by the Appellate Assistant Commissioner by his order dated 20-5-1969. The assessee filed a second appeal before the Income Tax Appellate Tribunal (Karachi Bench) Karachi, which was allowed by order dated 10-2-1971 of the Tribunal. The Department filed an application under Section 17(1) of the Sales-Tax Act before the Tribunal requesting for reference of the question of law arising out of the said order of the Tribunal but the same was rejected by their order dated 18-8-1971.
In the circumstances, the present application under Section 17(2) of the Sales Tax Act, 1951 was filed by the Commissioner of Sales Tax which was admitted by this Court on 30-5-1972. The following question is before us for opinion:- "Whether on the facts and circumstances of the case the Tribunal was right in allowing refund of sales-tax paid on gunny bags used as packing material when the guar-gum exported abroad was exempt under the Ministry of Defence Notification (ST) No. 1, dated 1-5-1953?''
2. We have heard Mr. Nasrullah Awan, learned counsel for the applicant, Commissioner of Sales Tax, and Mrs. Rashida Patel, who appeared on behalf of the assessee. Learned counsel for the applicant has relied upon a decision of the Supreme Court of Pakistan in the case of Noorani Cotton Corporation v. Sales Tax Officer, (PLD 1965 S.C. 162) and has drawn our attention to the following observations at page 167 of the report:- "It will be proper to explain here the scheme of the Act. As the various provisions of the Act show the intention was to levy only one Tax on manufactured or produced goods which are offered for sales to the consumer. A process of manufacture may involve different stages or goods manufactured by one person may be purchased by another not for the purpose of consumption but for being incorporated into another article on which sales-tax is to be paid. A stage of manufacture or the manufacture of goods which are to be incorporated in another article is not liable to sales tax. To explain the point we may take as an illustration the very case with which we are dealing.
Cottonseed is at first extracted from cotton. This is a manufacturing process and if this cottonseed is sold to the consumers sales tax will have to be paid on the manufacture of cottonseed. However, the manufacturer may use this cottonseed himself for the production of cottonseed oil. In its turn the cottonseed oil which is again a manufactured article may be sold to one who manufactures vegetable ghee for the purpose of being incorporated in the vegetable ghee. In case where the cottonseed oil manufactured by a person from cottonseed extracted by himself from cotton, is converted into the vegetable ghee the intention of the law is that sales tax may be paid only on the manufacture of vegetable ghee and should not be paid either on the production of cottonseed or on the production of cottonseed oil which productions become in such a case only steps in the manufacture of vegetable ghee. Now what is the device adopted for ensuring that sales-tax is paid only at one stage in spite of what is contained in the charging Section making all manufactured goods when they go to the purchaser liable to the payment of tax? The device adopted, as will appear from Section 4 is, that the sale of "partly manufactured goods" to a manufacture is not liable to the charge of tax. It may be clarified here that the Sales Tax Act does not recognise a manufacturer who has not obtained a licence under it for manufacture. The provision in Section 4 is that the sale by a licensed manufacturer to another licenced manufacturer of partly manufactured goods is not liable to the incidence of tax. The definition of "partly manufactured goods" is that they are goods which are to be incorporated into another article. So these provisions are a sufficient guarantee that the tax will be paid only with respect to the last stage of manufacture of goods. However, there is one difficulty which had to be removed. Suppose the manufactured article into which partly manufactured goods are to be incorporated is for some reason not liable to the payment of sales-tax? In that case if no tax is paid on partly manufactured goods no tax will be paid at all. Therefore in the definition of "partly manufactured goods" a limitation has been introduced that the article into which the goods are to be incorporated should be one which is liable to the payment of sales-tax. If it is not liable to payment of sales-tax then the goods which are incorporated into it are also manufactured goods on which sales-tax has to be paid".
Relying upon the aforesaid dictum of the Supreme Court it was contended by learned counsel for the applicant-Commissioner that as the end product was exempt from sales-tax, the gunny bags purchased by the asses- see and used as packing material cannot be treated as partly manufactured goods but would be deemed to be manufactured goods and if sales-tax had been paid on sale of such gunny bags by the seller to the assessee the asses- see is not entitled to refund of sales-tax already paid at the stage of sale of the gunny bags to the assessee. The above dictum of the Supreme Court supports the contention of Mr. Nasrullah Awan.
3. However, Mrs. Rashida Patel has referred to a Division Bench judgment of the Lahore High Court in the case of Commissioner of Sales Tax v. H. Muhammad Hasain & Co. (1974) 29 Taxation 44, in which the aforesaid observation of the Supreme Court in the case of Noorani Cotton Corporation were termed as general remarks with the further observation that the Supreme Court in that case was not dealing with the precise question of law before the Lahore High Court in the 1974 case. On a perusal of the aforesaid reported judgment of the Lahore High Court we find that the facts in the Lahore case are different from the instant case. In that case, the Lahore High Court was dealing with a case of an assessee who had imported the partly manufactured goods, namely, chemicals, without payment of tax on the basis of its manufacturing licence and then the assessee had used the chemicals in manufacturing the tainted leather, and some of the tainted leathers were then actually exported by the assessee without payment of sales tax due on it on the basis of the exemption granted on export of such items under a notification of the Government. The Lahore case is distinguishable, and in any case we may observe with respect that the aforesaid observations of the Supreme Court in Noorani Cotton Corporation case are not general in nature.
4. Following the dictum of the Supreme Court in Noorani Cotton Corporation case, as admittedly the end product in the present case is itself exempt from sales tax, the assessee was not entitled to refund of sales-tax on gunny bags purchased by it from the market. In the circumstances, we;A answer the question in the negative as we are of the view that in the facts and circumstances of the case the Tribunal was not right in allowing the refund of the sales-tax paid on gunny bags used as packing material by the assessee. There will be no order as to costs..