The petitioners are Goldsmiths and Jewellers, who are engaged in the business of selling, buying and manufacturing items of jewellery and ornaments. They are aggrieved by the letter of the Commissioner of Income-tax, Lahore Zone, West Pakistan, dated 12-9-1970 wherein he has given the interpretation of the Department on certain provisions of Sales Tax Act, 1951, as amended by the Sales Tax (Amendment) Ordinance, 1970 (XV of 1970). The relevant part of his letter is as follows:- "Sales tax on the goods made wholly or partly of gold or Aver where raw material is supplied by the customer shall be charged on the full value of such goods including the value of raw material. The value of goods supplied by the customer should be valued, at the market price prevailing on the date pan which finished goods are supplied to the customer. The making charges should be added to the value of raw material to arrive at the taxable value of the goods supplied the customer."
It appears that before the Sales Tax (Amendment) Ordinance, 1970 was promulgated, the rate at which ornaments made from gold and silver were chargeable to sales tax, was as follows:--
(a) In respect of ready-made ornaments or those made from aw materials supplied by the manufacturer himself. . . .5 %.
(b) Ornaments made to order with material supplied by the manufacturer . . . . .5 % of the value (sale price inclusive of cast of material).
(c) Ornaments made to order with material supplied by the customer . . . . . 10% of double the labour charges.
(d) Ornaments made to order with materials partly supplied by the manufacturer . . . . .5 %. Of the value (sale price inclusive of costs of materials).
The above method of computation was being followed pursuant to the instructions issued by the Central Board of Revenue vide Circular No. 9/ST of 1951 dated 30-8-51. After the amendment made in the Sales Tax Act, by Ordinance XV of 1970, the matter of the rate at which goods made from gold and silver was to be charged for tax was reconsidered and in the first instance the Commissioner of Income-tax, Lahore Zone, issued his interpretation, noted above, in response to the memorandum presented to him by the General Secretary, Punjab Sarafa Association, and subsequently the Central Board of Revenue itself issued Circular No. 8 of 1970 on 5th November 1970, elucidating the effects of the amendments brought Into effect by the Amending Ordinance (XV of 1970), the relevant part of which reads as follows:- "It may be pointed out that sales tax on the goods made wholly or partly of gold or silver where raw material has been supplied by the customer shall be chargeable on the full value of such goods including the value of raw material, as the sales tax is leviable under section 3(1)(a) on the value of all goods manufactured or produced in Pakistan. The Sales Tax Officer is to determine the value of such goods under section 3(6)(c).
Considering that the value of the goods as on the date of supply to the customer is chargeable to sales tax it has been decided that normally the raw material supplied by the customer, should be valued at the market price prevailing on the date, on which finished products are supplied to the customer. The making charges should be added to the value of the raw material to arrive at the taxable value."
Since the terms of the above Circular are similar to the reply of the Commissioner of Income-tax, the question for determina--tion is whether the departmental construction on the provisions of the Statutes, bearing on the subject, is consistent with the provisions of the Act as amended.
2. The provisions of the Act calling for interpretation in the present matter, as amended by Ordinance XV of 1970 may, therefore, be reproduced, omitting whatever is unnecessary:---- "2(11).-'Manufacturer or producer' means a person who engages, whether exclusively or not, in the production or manufacture of goods and included a printer, publisher, lithographer or engraver or a person engaged in the ginning of cotton, (a person engaged in the business of purchasing and selling articles made wholly or partly of gold or silver) and also any person who not being an employee manufactures goods. Whether or not the materials of which goods are manufactured are owned by him: Provided that . . . . ."
(The words in brackets have been added by Ordinance XV of 1970).
"2(16).-'Sale Price' means :- (i)...------------------------------------------------------------.
(ii) In other cases, the price before any amount payable in respect of tax is added and includes any duty of provincial excise, whether or not paid by the assessee, and any charges for advertising, financing or any other charges of a similar nature contracted for at the time of sale whether charged separately or not."
"3(1).-There shall be levied and collected a tax on the value of--
(a) all goods produced or manufactured in Pakistan payable by the manufacturer or producer;
(aa) all goods made wholly or partly of gold or silver sold In Pakistan payable by the seller being a manufacturer of, or a person engaged in the business of purchasing and selling, such goods :-
(3) The value of the goods shall be-
(i) in the case of goods falling under clause (a) [or clause (aa)] of subsection (1) the sale price . ,
(4) The tax in respect of the goods mentioned in clauses (a), [(aa)], (c) and (d) of subsection (1) and clause (d) of subsection (6) shall be payable on the occurrence of the first of the following events-
(i) when the goods are delivered to the purchaser, or
(ii) when the property in goods passed to the purchaser, or
(iii) ---------------------------------------------------------------------
(iv) ---------------------------------------------------------------------
(5) ---------------------------------------------------------------------
(6) Where goods are produced or manufactured in Pakistan under such circumstances or conditions as render it difficult to determine the value thereof for the tax because-
(a) ---------------------------------------------------------------------------.
(b) ---------------------------------------------------------------------------..
(c) such goods are manufactured by contract for labour only and not including the value of the goods that enter into the same or under any other unusual or peculiar manner or conditions; or (d)------------------------------------------------------------------------------. the Sales Tax Officer may determine the value for the tax under this Act and all such transactions shall, for the purposes of this Act be regarded as sales.
(7)------------------------------------------------------------------------------..
(The words in brackets after sub-clause (a) of subsection (1) of section 3 and sub-clause (1) of subsection (3) of section 3 and in subsection (4) of section 3 have been inserted by Ordinance XV of 1970). ---12(1).-Subject to the provisions of subsection (4) of section 3, every person liable to pay tax under clause (a), [(aa)] or clause (c) of subsection (1) of section 3 and every license' manufacturer who has either imported or purchased any partly manufactured goods without payment of sales tax and has subsequently sold such goods to a person other than a licensed manufacturer or a licensed wholesale . . . . . Shall in such manner as may be prescribed, pay the tax leviable under this Act .....
(The words in brackets have been inserted by Ordinance XV of 1970).
3. The purpose of these amendments has been explained in Circular No. 8 of 1970 as follows:- "A new clause (aa) has been added to section 3(1) imposing sales tax on all goods made wholly or partly of gold or silver sold in Pakistan. This amendment has brought in a new concept in the Sales Tax Act for imposition of sales tax on persons engaged in the business of purchasing and selling goods made wholly or partly of gold or silver. If such goods, are sold by the manufacturer himself then the manufacturer will pay sales tax under section 3(1)(a). If such goods are sold by a person engaged in the business of purchasing and selling such, goods then sales tax will be paid by such person under section 3(1)(aa). Such a person is also to be treated as manufacturer or producer as defined in section 2(11) which has also been amended to include such person within the definition of `manufacturer or producer'."
The contention of Mr. S. M. Zafar, Advocate, learned counsel for the petitioners, is that the interpretation given in Circular No. 8 of 1970 as well as in the reply of the Commissioner of Income- tax, Lahore Zone, dated 12-9-70 is not consistent with the provisions of the Act. It is submitted that under sub--section (3) of section 3 of the Act the value of the goods shall be in the case of goods falling under clauses (a) and (aa) of subsection (1) the sale price. Thus, in order to determine the charge of tax what the authorities must determine is the "sale price". The 'sale price' in the present context would mean "the price before any amount payable in respect of tax is added" vide section 2(16)(ii). Therefore, the sale price in the case of goods which are made wholly or partly of gold and silver, where the raw material is supplied by the customer would be the price charged by the sexier for the value of his labour plus the price of the gold or silver, if any, supplied by him. It is explained that in cases where the customers give their own gold or silver to the manufacturer and no part of gold or silver is added by the latter, the amount charged by the manufacturer is not for the price of the finished product but is merely the fee charged by him for the skill, craftsmanship and expertise employed by him in producing the finished article. In other words, the customer is merely hiring the services of the jeweller for making an ornament for him, out of the raw material that is supplied by him, and is such a case to impose the tax on the "market value" of the finished product which has been produced from the raw material supplied by the customer himself leads to taxation on an assumed and unreal value. Moreover, the private individual who is to be burdened with the charge has to intention of selling such goods. The submission, therefore, is that the "sale pride" in the instant transaction is merely the amount charged by manufacturer for converting the raw material into an ornament and does not include the value of the raw materials in support of this submission the learned counsel has drawn my attention to the meaning of the word "price" in a Shorter Oxford English Dictionary to be, "Money, or the like, paid for something ; the money (or other equivalent) for which anything is bought or sold; the rate at which this is done or proposed;". In the present context, it is suggested that the price would mean the amount actually received from the customer on account of labour charges. It is therefore submitted that the method outlined in the Departmental Circular for working out the taxable value is inconsistent with the meaning of the words `sale price' occurring in section 3(3)(i). Hence the same is liable to be declared as being without lawful authority.
4. It is well settled that a contract for work and labour with materials supplied is not one for the sale of goods. See Robinson v. Graves ((1935) 104 L J R 441). Thus, the provisions of section 3(3)(1) of the Act are not attracted in the circumstances of the present case and the provision of law under which the value of the finished product can be determined would be the provisions of section 3(6)
(c) of the Act. According to this provision where foods are produced or manufactured in Pakistan under such circumstances or conditions as render it difficult to determine the value thereof for the tax because such goods are manufactured by contract for labour only and not including the value of the goods that enter into the same or under any other unusual or peculiar manner or conditions.
The Sales Tax Officer may determine the value for the tax and all such transactions shall or the purposes of this Act be regarded as sales. It is by virtue of this provision that a transaction which is otherwise not a sole is treated to be sale. The Supreme Court in Noorani Cotton Corporation v.
Sales Tax Officer (PLD 1965 SC 161), observed that certain transactions which could not be regarded as sales must be so regarded, in view of the provisions of section 3(6) of the Sales Tax Act. It is clear that in a case where the customer himself supplied the raw material to the manufacturer ,with a view to the latter producing some ornament from it by the exercise of its labour, skill and craftsmanship and gets back the finished product from the manufacturer no sale of goods takes place. In a true sale the seller transfers or agrees to transfer the property in goods to the buyer for price. In the case under considerations here what really occurs is that the services of the manufacturer have been hired for a particular purpose and the goods manufactured are the result of a contract for labour only. Hence such a transaction is not a sale and it is only because the special provision made in section 3(6) of the Act that such a transaction is to be regarded as a sale and made liable to payment of sales tax. The goods made wholly or partly of gold or silver have now been expressly made chargeable to sales tax under section 3(1)(aa). Thus, the value for the purposes of tax of goods made out of raw materials supplied by the customers must be valued under section 3(6)(c). Consequently the submission of the learned counsel for the petitioner that the value for purposes. Of tax of the goods made out of raw material supplied by the customer is to be determined by ascertaining the "Sale Price" under the provisions of section 3(3)(i) of the Act is without force and the provision of law applicable in this case is section 3(6)(c) of the Act.
5. The learned counsel for the petitioner, however, argued that even under the provisions of section 3(6) it is for the Sales Tax Officer to determine the value for the tax under the Act but this discretion was being fettered by the instructions contained in Circular No. 8 of 1970 to the effect that sales tax on the goods made wholly or partly of gold or silver where raw material has been supplied by customer shall be chargeable on the full value of such goods including the value of the raw material and that normally the raw material supplied by the customer should be valued at the market price prevailing on the date on which the finished products are supplied to the customer and that the making charges should be added to the value of the raw material to arrive at taxable value. It is submitted that the instructions in question in fact amount to legislation, which function can be performed only by the law-maker and not some other authority. The result of the instruction contained in the Board's Circular, according to counsel, is that the discretion of the Sales Tax Officer to determine the value of the tax. Which the Statute has conferred upon him, is completely taken away and in its stead he is compelled to determine the taxable value on the basis of the formula laid down by the Board.
6. The reply made to this submission by the learned counsel for the Department is that the instructions in question are relatable to the powers conferred upon the Central Board of Revenue under section 5(3) of the Sales Tax Act, and the Instruction in question have been issued to ensure uniformity in treatment in such cases. Therefore, the instructions have been issued with authority and are in no manner illegal. Section 5(3) of the Act is in the following terms:- "All officers and persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board: Provided that no such orders, instructions or directions shall be given so as to interfere with the discretion of the Appellate Assistant Commissioner of Sales Tax in the exercise of his functions."
7. The power to issue orders, instructions and directions t the persons charged with the execution of the Act is conferred by the provisions of the Act itself, hence the issuance of the circular letter, impugned herein, is not without authority. Moreover, the intention underlying the provisions of section 5(3) appears to be that it should be possible to issue orders, instructions and directions of a general nature so as to afford guidance to the subordinate officers in the execution of the duties laid down on them by the several provisions of the Act. (See Ire re: K. A. Meera Sahib Tharanager ((1953) 23 I T R 451), wherein the provisions of section 5(8) of the Income-tax Act, which are in pari materia with section 5(3) of the Sales Tax Act, have been considered and the same view expressed). It is correct that officers of the Department would be obliged to observe and follow the orders, instructions and directions issued under section 5(3) of the Act but it goes without saying that they would be bound to follow and observe only those orders, instructions and directions which are legal. If it was proved before them that some interpretation has been placed on a provision of the Act which is not borne out by the various provisions of the Statute and is not in conformity with the language of the law, such an instruction, order or direction would not be binding upon them. It is also correct that the Assessing Officer in determining the value for the purposes of charge of tax performs a judicial function and, therefore, his discretion cannot be fettered by any extraneous influence but I venture to think that the issuance of orders, instructions and directions by the Central Board of Revenue which is the Chief Tax Authority under the Act does not lead to that result. I have already observed that the assessing Authority is obliged to follow and observe only those orders, instructions or directions, which are consistent with the provisions of the Act. Support for this view exists in the provisions of section 5(3) itself because it is laid down that no such orders, instructions, or directions can be given so as to interfere with the discretion of the Appellate Assistant Commissioner of Sales Tax in the exercise of his functions. The principal function of the last mentioned authority is to dispose of appeals filed before him against orders of the Sales Tax Officers, functioning within the area of his jurisdiction. Thus, any order passed by the Sales Tax Officer in purported compliance with the order, instruction or direction of the Central Board of Revenue would be liable to be set aside if the said order, instruction or direction .Is itself invalid or against the provisions of the Act or is otherwise unjustified. This Court in the case of Colony Sarhad Textile Mills Ltd. v. Central Board of Revenue ((1966) 13 Taxation 224) did not accept the suggestion made by counsel for the petitioner in that case, that in so far as the Central Board of Revenue in reply to the assessee's representation had stated that mazri cloth was taxable the validity of that interpretation should be examined by this Court because the Appellate Authorities, being subordinate to the Central Board of Revenue, could not go against the interpreta--tion put by it. The Court held that the interpretation put by the Central Board of Revenue in that case did not discapacitate the Appellate Assistant Commissioner or the Appellate Tribunal or the High Court under the relevant provisions of the Sales Tax Act from examining the validity of the interpretation placed by the Central Board of Revenue.
8. Learned counsel for the petitioner himself submitted that a difference exists between "Value" of goods on which tax can be computed and its actual "Price" and referred to the language of the first proviso of section 4 of the Act, in this connection. The said provision was referred to by the learned counsel in support of the submission that the value of goods falling under section 3(3)(i) of the Act must be the "sale price" and consequently the impugned instruction, directing that it did, that charge of tax made should be computed on the basis of its "value", was illegal. It has, however, been found by me that this assumption is incorrect because in those cases where the raw material is supplied by the customer, the tax is to be computed not under section 3(3)(1) of the Act but under section 3(6)(c) thereof, and it is left to the Sales Tax Officer to determine the "value" of the finished product, in his discretion. Under the Circular letter of 30-8-51 the value of such a product, for the purposes of tax, was to be deemed to be double the labour charges while under the impugned circular letter it is to be the value of the raw material plus the actual making charges. It is significant to note that no objection was ever taken to the validity of the earlier --instruction nor was it criticised before me although, If the contention raised on behalf of the petitioner was correct, the Department was in fact entitled to charge tax only on the amount received on account of labour charges. Learned counsel stated that he did not consider the earlier circular letter to be illegal because It was possible to fix the value for the purposes of tax under section 3(6)(c) of the Act, at a figure different from the amount actually charged on account of the making charges provided that the value so fixed was commensurate with, or had some relationship with, the increase or alteration that occurred in the value of the gold or silver supplied by the customer, to the goldsmith, on account of the labour, skill and craftsmanship of the latter. In so far as the previous instructions, issued ors 30-8-3951, prescribed the value for tax in such cases at double the labour charges, this was an equitable and a satisfactory working rule in this behalf and for that reason it was not objected to. The explanation advanced by the learned counsel for the petitioners shows that he admits, though indirectly, that it is a matter for consideration in each case as to how much enhancement has taken place in the value of the raw material supplied by the customer by the labour or expertise of the goldsmith and there would be no objection if a formula could be prescribed for assessing the enhancement in the value which is fair and reasonable. In these circumstances if the Department after working on the basis of the previous formula for some 19 years has felt that in practice the fresh formula laid down in the instructions contained in the circular letter dated 5-11-70 would generally be the more accurate and reliable method of ascertaining the "value", under section 3(6)(c), in the majority of such transaction, no objection can be taken to it. But as already observed, if on the contrary, the obedience to the instructions of the Central Board of Revenue in any particular case results in inequity and hardship it would be possible --obtain relief by approaching the Appellate Assistant Commissioner and the higher forums provided for under the Act.
9. In view of the above, I do not think that the instructions contained in Circular Letter No. 8 of 1970 issued by the Central Board of Revenue are ex facie without jurisdiction and illegal. As adequate alternative remedies exist for correcting any assessment made to the detriment of a particular party or made in an unjust and oppressive manner, in a given case, the present writ petition is, therefore, premature. It is accordingly disposed of as such. There shall be no order as to costs.