NA31R ASLAM ZAHID, J. -This Sales Tax Reference relates to assessment years 1958-59 to 1963-64.
For the first four years, a refund has been claimed by the assessee under the provisions of section Z7 (1) of the Sales Tax Act, 1951, and in respect of the last two years in question, and adjustment had hen claimed.
2. Briefly the facts are that the assessee owns a cotton ginning factory and cotton sales sold by the assessee were subject to sales-tax. It is an admitted position that after the cotton had been ginned in the factory of the assessee, the ginned cotton was packed in hessian cloth using "Sutli" and then tied with bailing hoops. The hessian cloth, Sutli and the bailing hoop" were purchased by the assessee from the market and on these items sales-tax had been paid by the manufacturer or sellers of the said items. The assessee had claimed refund under section 27(1) of the Sales-tax Act on the basis that sales-tax on these three items bad already been paid and after their purchase by the assessee the said three items had been incorporated into Ad formed constituent or component part of the cotton bales sold by the assessee which cotton bales were themselves liable to sales-tax. A refund/ adjustment was claimed in respect of the sales-tax previously paid by on the aforesaid three items. . The Income-tax Appellate Tribunal (Karachi Bench Karachi agreed with the contention of the assessee and held that the aforesaid three items were "partly manufactured" good s as defined in section 2(12) of Sale-tax" Act and that for the assessment years in question, the assessee was entitled to. Refund/adjustment under section 27(1), in the facts and circumstances of the case. On an application made by the Commissioner of Sales-tax for reference to this Court, the following question has been referred by the Income-tax Tribunal for our answer:- "Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the hessian bailing hoops, Sutli etc." are partly manufactured goods and as such are exempted from levy of sales-tax"?
3. We have beard Mr. S. Haider Ali Pirzada learned counsel for tire Commissioner of Sales-tax, and Mr. Ali Athar, learned counsel for the assessee. The contention of Mr. Pirzada is that the aforesaid three items are not "partly manufactured goods" as these at best could be treated as wrapping material and cannot be considered as goods which are "incorporated into and form a constituent or component part" of the cotton bales sold by the assessee. Learned counsel had in support of his contention relied upon a decision of the Income-tax Tribunal in another case reported in 1973 PTD (Trib.) 1 in which the Tribunal had made references to certain decisions of the superior Courts of this country.
4. The fact that cannot be denied is that what was sold by the assessee i; I he assessment years in question were cotton bales and cotton bales were subject to sales-tax as cotton bales. It cannot be argued, in the circumstances, that sales-tax was leviable or was paid by the assessee only in respect of the ginned cotton and not in respect of other items, namely hessian cloth, bailing hoops and Sutli. Sales tax was leviable and payable in respect of cotton bales and cotton bales which would include not only the ginned cotton but also the afore--said three items were necessarily used for the purposes of wrapping or packing the ginned cotton and we agree with the statement made by the Tribunal in "the Statement of the Case" that without this packing material, namely, hessian cloth, baling hoops and Sutli, the cotton bales could not be sold. We further agree with the Tribunal that is the circumstances these three items have to be treated as "partly manufactured goods" as they formed a constituent or component part of the cotton bales, which articles as cotton bales were subject to sales-tax.
5. We have seen the decision of the Income-tax Tribunal reported in 1973 PTD (Tribunal) 1 and` the references made therein to certain decisions of the superior Courts of this country. In that decision, the Tribunal relying upon the decisions of the superior Court, held that the assessee in that case .Was not entitled to refund or adjustment under section 27(1) as the end product was itself exempt from sales-tax which is not the case here. In the instant case, the cod product, the cotton bales, were liable to sales-tax and were not exempt. The decision ran question and the authorities mentioned therein do not support the contention of the learned counsel for the applicant Commissioner to the instant case. We may also mention here that reference had been made by the Tribunal in the instant case to the instructions issued by the Central Board of Revenue vide their letter No. C-21(16)-ST/66, dated 10-9-1966 whereby the Central Board of Revenue had held that packing material was "partly manufactured' goods" and after referring to these instructions, the Tribunal in its order dated 16-1-1970 observed as follows "Without, therefore, burdening this order further with reasoning we would direct that the same decision should be followed here also."
The Tribunal accordingly, following the instructions of the Central Board of Revenue, dated 10-9- 1966 that packing material was "partly manufactured goods", by analogy, came to the conclusion that hessian cloth, bailing hoop and Sutli in the case of cotton bales were also "partly manufactured goods" I the case in question. No doubt, such instructions are not law but the instructions have been followed previously and we are of the opinion that the instructions were neither arbitrary nor unreasonable. On the other hand, we are of the view that the said instructions are in consonance with the meaning to be attached to the w6rds "partly manufactured goods" as define in section 2(12) of the Sales-tax Act, 1951.
6. In the circumstances, we answer the question referred to us in the affirmative as we are of the view that on the facts and circumstances of the case the Tribunal was justified in holding that the hessian cloth, bailing hoops, Sutli, etc. Were "partly manufactured goods" and as such were exempted from levy of sales-tax in respect of the assessment years in question.