TANZIL-UR-RAHMAN, J.-1. The following question has been referred to this Court by the Income Tax Appellate Tribunal, Karachi Bench, Karachi:-- "Whether on the facts and circumstances of the case the Tribunal was justified in law in holding that the assessee was not liable to pay sales tax in respect of the raw materials of ginned cotton and cotton yarn used in the manufacture of cotton yarn and cotton cloth, respectively which were exported outside Pakistan?"
2. The facts giving rise to this Reference are that the respondent is a limited company which manufactured yarn and cloth which was partly exported out of Pakistan. It manufactured yarn from ginned cotton and cloth from yarn so manufactured in its mill. During the assessment year 1959- 60 it exported both yarn and cloth whereas in the assessment year 1960-61 it only exported cloth. The respondent held a manufacturing licence under section 8 of the Sales Tax Act, 1951 (hereinafter referred to as the Act) and on the basis of the said licence it had purchased raw material, that is, ginned cotton, at the first instance, free of sales tax. While deciding the respondent's application tor refund under section 27(1) of the Act in respect of the assessment year 1959-60 the Sales Tax Officer refused to grant refund of a sum of Rs.19,122 on the value of the ginned cotton consumed in the manufacture of yarn and of Rs. 37,746 on the value of cotton yarn consumed in the manufacture of cloth, both exported outside Pakistan, by his order, dated 30th April, 1963, and while making the assessment under section 10(3) of the Act in respect of the assessm ent year 1960-61 the Sales Tax Officer by his order, dated 21st June, 1965 charged sales-tax at Rs. 44,670 on the value of raw materials viz. Cotton yarn consumed in the manufacture of cloth exported. Respondent's appeals for both the assessment years claiming the refund of and exemption from the payment of sales-tax on the raw materials used in the goods exported out of Pakistan were dismissed by the Appellate Assistant Commissioner by his order dated 20th March, 1968. The respondent, thereupon, filed an appeal before the Income Tax Appellate Tribunal. The Tribunal by its order, dated 27th October, 1970 held that the respondent was not liable to pay sales tax in respect of the raw materials of ginned cotton and cotton yarn used in the manufacture of cotton yarn cotton & cloth, respectively which were exported outside Pakistan during the assessm ent years 1959-60 and 1960-61. With the result that the appeals of the respondent were allowed and the orders passed by the Sales Tax Officer and Appellate Assistant Commissioner, Karachi were set aside. On the application of the Commissioner of Income Tax made to the Tribunal the question as quoted above has been referred to this Court for its opinion.
3. After hearing Mr. A. A. Dareshani, learned counsel for the applicant and Mr. Mansoor Ahmed Khan, learned counsel for the respondent on 1st November, 1984, we passed a short order on the same day, answering the question in the negative for the reasons to be recorded later on, which are given hereinbelow.
4. Mr. Dareshani relied on a Full Bench decision of this Court as Gul Ahmed Textile Mills Ltd. Vs. Commissioner of Sales Tax (Central) Karachi (1984 PTD 211).
5. The facts of the said case are somewhat similar to the facts of case before us. The applicant (a textile Mill) exported yarn and Mazari cloth outside Pakistan. The export of cotton and yarn to foreign countries was exempted from sales tax under Notification No. 1, dated 1st May, 1953. The manufacture of Mazari cloth was also exempted from sales tax under Notification No. S.R.O. 289, dated 27th June, 1961. The Sales tax Officer by his order dated 30th June, 1961 passed under section 10(3) of the Sales Tax Act subjected to sales tax the cotton consumed in the manufacture or the yarn exported. He also subjected to sales-tax the yarn consumed in the manufacture of Mazari cloth exported. An appeal was filed by the applicants before the Assistant Appellate Commissioner of Income Tax and Sales Tax who by his order dated 28th May, 1966 rejected the same. An appeal to the Income Tax Appellate Tribunal Karachi Bench, Karachi also failed. This led the applicants to file an application before the Income Tax Appellate Tribunal for referring to this Court three questions stated therein but the same having been rejected, the applicants filed an application under section 17(2) of the Sales Tax Act, 1951 for a direction to the Income Tax Appellate Tribunal to state the case and refer the said question for decision to this Court. However, meanwhile in 1971, inter alia, section 17 of the Act was amended and the amendment being procedural in nature this Court directly answered the following question raised on behalf of the applicants:- "Whether in the circumstances of the case the Tribunal was right in holding' that the yarn made out of cotton waste and incorporated in Mazari cloth has been correctly charged to sales tax by the Sales Tax Officer?"
6. Our learned brother, Naimuddin, J. Who delivered the opinion of this Court, after discussing thoroughly the Case-Law on the subject observed that in view of interpretation given to section 3(6)(d) of the Act by the Supreme Court in Messrs Noorani Cotton Corporation vs. Sales Tax Officer 'A' Ward Lyallpur (PLD 1965 S.C. 161), rule laid down by the Dacca High Court in case of Latif Bawani Jute Mills Ltd. And 4 Others vs. Sales Tax Officer, Companies Circle 1, Dacca (1971 PTD 26) that a transaction to become taxable event must find mention in section 3(4) of Act, cannot be considered as good law, for the Supreme Court in Noorani Corporation's case, considered the provisions of section 3 (6)(d) of the Act also as charging provisions. The Full Bench, therefore, answered the question in affirmative, namely the Tribunal was right in holding that the yarn made out of cotton waste and incorporated* in Mazari cloth has been correctly charged to sales tax by the Sales Tax Officer.
7. Mr. Mansoor Ahmad Khan contended that the yarn manufactured by ginned cotton used in the manufacture of cloth was a partly manufactured goods and stood exempted under section 4(a) of the Act. The contention, to say the least, is fallacious. The finished goods i.e. Yarn and cloth were exempted from the levy of sales tax on export and the raw materials used Ain the finished goods and exported abroad i.e. Ginned cotton used in the manufacture of yarn and the yarn used in the manufacture of the cloth were not exempted from the payment of sales tax. They cannot be treated as partly manufactured goods within the. Meaning of section 4(a) of the Act to claim exemption in the facts and circumstances of the case. The observations made in the case of Messrs Paracha Textile Mills vs. Commissioner of income Tax (1980 PTD 17) negative the contention of the learned counsel relevant portion whereof reads as follows:- "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 wan, 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 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."
8. The Full Bench judgment of this Court, referred to above, applies to the facts of the present case on &il fours. We have, therefore, answered the question in the negative, namely that the Tribunal was not justified in law in holding that the respondent was not liable to pay sales tax in respect of raw materials of ginned cotton and cotton yarn used in the manufacture of cotton yarn and cotton cloth, respectively which were exported outside Pakistan.