' AJMAL MIAN, C.J.--By this common order we intend to dispose of the above two petitions, as they have raised common points of law. Both of the petitioners arc manufacturer of electric bulbs.
During the process of manufacturing they manufacture glass shells which are used for the electric bulbs. It is an admitted position that glass shells are a marketable item independently. The electric bulbs have been exempted from the payment of the sales tax but glass shells have not been exempted. The controversy in the present two petitions is as to whether the respondents are entitled to levy sales tax on the glass shells which are used by the petitioners in manufacturing the electric bulbs. The contention of the petitioners is that they are not liable to pay any sales tax, whereas the contention of the respondent department is that glass shells being an independent item is subject to sales tax as no exemption has been granted in respect thereof.
2. Mr. Muhammad Faridul Haq learned counsel for the petitioners in support of his above petitions has submitted as follows:
(i) That under entry 49 of the Federal legislative list provided in the fourth Schedule to the Constitution of the Islamic Republic of Pakistan (hereinafter referred to as the entry and the Constitution respectively), tax can be levied on the sales and purchases of goods inter alia which are consumed and not which are used.
(ii) That in order to impose sales tax there should be sale transaction between a vendor and a purchaser as the words used in the above entry are 'taxes on the sales and purchases of goods' and, since in the instant cases admittedly there is no sale transaction in relation to glass shells no sales tax can he imposed and the provisions of subsection 6 of section 3 of the Sales Tax Act, 1951 (hereinafter referred to as the Act) purporting to levy sales tax on the goods which are not the subject-matter of sales transactions is ultra vires of the Constitution.
(iii) That since the electric bulbs have been exempted from the payment of the sales tax, no tax can he levied on the glass shells which arc used in the process of manufacturing the electric bulbs
(iv) That subsection (6) of section 3 of the Act is applicable in a-case where it is difficult to determine the value in respect of the goods produced or manufactured and since there is no such difficulty in relation to glass shells the above subsection cannot he pressed into service.
(v) That if two interpretations are possible in respect of a fiscal provision, the interpretation which favours the tax-payer/citizen is to he preferred. On the other hand Mr. S.M. Noorul Hassan, who appeared on behalf of the Attorney-General in response to the pre-admission notice has submitted as under:
(i) That when the glass shells arc used for manufacturing electric bulbs they are in fact consumed.
(ii) That subsection (6) of section 3 of the Act is not ultra vires as the Parliament had plenary powers to make law and by extending the meaning of the word sale' it has not exceeded its powers.
(iii) That since glass shells are independent items and as they have not been exempted from the payment of sales tax under the Act the grant of exemption in respect of the electric bulbs is of no consequence.
(iv) That subsection (6) of section 3 of the Act is very much applicable to the instant cases in view of the extension of the meaning of the word 'sale.'
(v) That there cannot be any cavil to the proposition that if two interpretaions of a provision of a fiscal statute are possible, one which favours the tax-payer/citizen is to he preferred.
3. Adverting to the first submission of Mr. Muhammad Faridul Haq that under Entry 49 of the Federal legislative list provided in the Fourth Schedule to the Constitution tax can he levied on the sales and purchases of goods inter alia which are consumed and not which used, it may he observed that in furtherance of his above submission he has referred to the entry and sub-clause (iv) of subsection
(4) of section 3 and sub-clause (d) of subsection (6) of above section 3 of the Act. In the former the words used are 'taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed" whereas in the latter provisions the words employed are 'when the goods are actually used by the manufacturer or producer and such goods arc being used by the manufacturer or producer'. It has, therefore, been urged by him that since under the entry sales tax could have been imposed on the sales and purchases of goods inter alia which are consumed and not which are used the purported levy of sales tax on the use under the above provisions of the Act is ultra vires. In furlherancc of his above submission, he has referred to the definitions of the words "use and "consume" quoted hereinbelow in the following dictionaries: "The Dictionary of English Law, Earl Jowitt. "Use". Lat. Usus, Use, the act of emptying a thing: Lat. Opus, Norm, Fr.Oes, benefit. There are two words "use" in law, which though spelled alike are etymologically and historically distinct.
' In law, as in ordinary language, "use" denotes the act of employing a thing: thus, to cultivate land, to read a hook, to inhabit a house, is to use those things.
Stroud's Judicial Dictionary, Third Edition Volume 4.
"USE". (1) If a man walks with a gun with intent to kill game, he 'uses' the gun for that purpose without tiring, within the statute which makes using a gun. With that intent, penal" (Maxwell (10th rd.) 280, citing Game Acts, 1706 (6 Anne. c. 16), S. 4, and 1831 (1 and 2 Will 4, c. 32), S. 23, R.L. King, 1 Sess, Ca. 88, see also United States v. Morris, 14 Peters, 464). So, a net may be "used in taking"
Salmon (Salmon Fishery Act, 1861) (24 and 25 Viet., c. 109), though no salmon he then actually caught (Ruther v. Harris, 1 Ex. D.97). A person-uses' an engine for killing game on a Sunday (Game Act, 1831 (1 and 2 Will'4, c. 32) who places it on the land prior to, but with the intention for it to remain there during, a Sunday (Allen v. Thompson, L.R. 5 Q.B. 336, sec per Lawrence, J. Jones v. Davies (1898) 1 Q.B. 405).
Oxford Dictionary. 'Use'. (Yuz), v. ME (a. OF. User-med. L. Usare, f.L. Us =- ppl. Stem of uti to use.) 1.
Trans To observe (a rite, custom etc.), to keep as a custom pass., of a practice: to be customary- 1889.
2. To comply with, put in practice (a law, etc.--1609.
3. To prosecute or pursue (a course of action). Now rare. ME.
' To follow (a trade, etc), to perform the functions of (an office) 1773. h. To follow' or pursue (a manner or course of life)--1821 c. To spend (a period of time) in a certain way. (Now only with implication of sense II 1) 1477 d. To frequent (a person's company)--1599.
5. To engage in or practise (a game, etc) 1801.
6. To put into practice or operation; to carry into action or effect. Late ME.
1. It shall be lawful, as it hath been used heretofore, to make probates of wills. In the Colony 1650, 2.
Al Barons sall receaue, and vse the lawes, as they are vsed in the Kings Court 160').
3. The chiefest Market place, where all the buying and selling was used 1648.
4. Then let them vse the office of a Deacon I Tim. Iii Lo. h. The wicked life that I did vse 1578. c. Timon III i.39 5. A corpulent Man, who lived freely and used no Exercise 1764.
6. T was a good world when such simplicitie was vsed 1589.
Chamber's Dictionary.
"Consume". To destroy by wasting, fire, evaporation, etc.: to use up: to devour: to waste or spend: to exhaust.--v.i. To waste away. Adj. Consumable.-adv. Consumedly, exceedingly-- originally a fantastic variant of confoundedly, and prob. Influenced in meaning by consummately.-- n.
Consumer, one who consumes: as opposed to producer, one who uses an article produced.-- and adj. Consuming, wasting or destroying: engrossing.- (consumer(s) goods, goods to be used without further manufacturing process to satisfy human needs (L. Consumers, sumptum, to destroy-con-, sig. Completeness, sumere, to take).
Oxford Dictionary ME (ad. L. Consumers, f. Con- + sumere). I. Trans. To make away with, destroy + as by, lire, evaporation, decomposition, disease or the likee. Also fig.
2. To waste, squander 1460.
3. To use up 1527, esp. To eat up, dring up 1587.
4. To take up, spend, wasta time 1533.
5. Intr. To Waste away 1526, to burn away 1591.
' I. To c. The remains in the forum MERIVALE. As the cloud is consumed fob vii.
9. The rest were consumed either by Poverty or Diseases MANLEY. Pass to he eaten up with (envy, etc.)
2. Caste her a way &c her goodes 1530.
4. To c. The best years of ones life in custody HALLAM.
5. Their beauty shall c. In the gram Ps. Xlix.14.
' He has also referred to the Third Schedule of the Income-tax Ordinance, 1979 under which certain depreciation allowance is adjustable against the income for the purpose of computing the income tax. He has further referred to the word 'use' in section 15 of the Sind Rented Premises Ordinance, 1979. On the basis of the above definitions and the provisions of the Income-tax Ordinance and the Sind Rented Premises Ordinance, it was vehemently urged that the words 'use' and 'consume' have different connotations and since in the entry the word 'use' has not been employed, no sales tax could have been imposed on the use of the goods.
In our view, the above contention seems to be devoid of any force. There can he two kinds of user of goods, one in which the identity of the goods used remains intact, whereas in the other kind of user the goods may lose its identity and it may amount to consumption. In the instant cases when the glass shells are used for manufacturing electric bulbs they lose their identity and its end- products are called as electric bulbs and not glass shells and hence, it can be said that the glass shells are consumed in manufacturing electric bulbs.
4. As regards the second submission of Mr. Muhammad Faridul Haq that in order to impose sales tax there should he sale transaction between a vendor and a purchaser as the words used in the above entry arc "taxes on the sales and purchases of goods" and since in the instant cases admittedly there is no sale transaction in relation to glass shells no sales tax can he imposed and the provision of sub-section (6) of section 3 of the Sales Tax Act, 1951 purporting to levy sales tax on the goods which are not the subject-matter of sales transaction is ultra vires of the Constitution. It may be observed that in furtherance of his suhmsission he has emphasised on the description of the entry given in the Fourth Schedule to the Federal legislative list and has also referred to the following cases:
(i) The State of Madras v. Messrs Gannon Dunkerley & Co. (Madras) Ltd. Reported in AIR 1958 SC 560 (V 45 C 82), in which the Indian Supreme Court while construing Entry 48 of List 2 of the 7th Schedule to the Government of India Act, 1935 (which was couched more or less in terms of the entry of the fourth schedule to the Constitution) and while maintaining the judgment of the Madras High Court whereby a provision of the Madras General Sales Tax Act, 1939 was held ultra vires, observed that the expression 'sale of goods' in Entry 48 is a nomen juris and its essential ingredients being an agreement to sell movables for a price and property passing therein pursuant to that agreement and that in a building contract which is entire and indivisible there is no sale of goods and it is not within the competence of the Provincial Legislature under entry 48 to impose a tax on the supply of the materials used in such contract treating it as a sale.
(ii) Messrs K.L. Johar & Co. v. The Deputy Commercial Tax Officer, Coimbatore III, AIR 1965 SC 1082 (V 52 C 173). In the above case the Indian Supreme Court maintained the judgment of the Madras High Court, wherein it was held that Explanation I in section 2(h) of the Madras General Sales Tax Act extending the mentioning of the word sale as to include hire-purchase agreement was beyond the legislative competence of the State legislature as in an Entry 54 of list 2 of Schedule 7 to the Constitution the expression sake of goods has the same meaning as given in the Sale of Goods Act.
(iii) Messrs Sri Tirumala Venkateswara Timber and Bamboo Firm v. Commercial Tax Officer, Rajahmundry AIR 1968 Supreme Court 784 (V 55 C 159), in which the Indian Supreme Court while dismissing an appeal filed by an assessee held that Explanation Ill to section 2(1)(n) of the Andhra Pradesh General Sales Tax Act, 1975 was not ultra vires of the powers of the State Legislature on the ground that it enlarges the scope of the word.'sale'. In the above case the explanation provided that where there was in reality a transfer of property by the principal to the agent and by the agent in his turn to the buyer, there were two transactions of sale.
(iv) Messrs Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer and others, reported in AIR 1978 Supreme Court 449, in which the question was whether the cement which was a controlled item supplied by a cement dealer on the strength of a permit constituted a sale transaction as to make it subject to levy of sales tax. It was contended by the assessee that the sale was necessarily a consensual transaction and as in the above transaction the parties had no volition or option to bargain, there was no sale and, therefore, no sales tax was payable. The Supreme Court of India while maintaining the judgment of the Andhra Pradesh High Court held that even in case of compulsory sale the sales tax is payable as it is a transaction of sale.
' Chandrachud, J., in his leading judgment doubted as to the correctness of the view in the above cited case of the Supreme Court of India (in the case of Gannon Dunkerley, AIR 1958 Supreme Court, 560), and observed as follows:- `The view expressed in Gannon Dunkerley AIR 1958 SC 560 that the words 'sale of goods' in Entry 48 must he interpreted in the sense which they hear in the Sale of Goods Act, 1930 and that the meaning of those words should not he left to fluctuate with the definition of 'sale' in laws relating to sales of goods which might he in force for the time being may, with respect, bear further consideration but that may have to await a more suitable occasion. It will then he necessary to examine whether the words 'sale of goods' which occur in Entry 48 should not he construed so as to extend the competence of the Legislature to enacting laws in respect of matters which might he unknown in 1935 when the Government of India Act was passed but which may have come into existence later, as a result of a social and economic evolution. In Attorney-General v. Edison Telepone Company of London (1880) 6 QBD a question arose whether the Edison Telephone Company London, infringed by installation of telephones, the exclusive privilege of transmitting telegrams which was conferred upon the Postmaster-General under an Act of 1869. The decision depended on the meaning of the word 'telegraph' in the Acts of 1863 and 1869. The company contended that since telephones were unknown at the time when those Acts were passed, the definition of 'telegraph' could not comprehend 'telephones'. That contention was negatived by an English Court. In the Regulation and Control of Radio Communication in Canada. In re: 1932 AC 304 a similar question arose as to whether 'broadcasting' was covered by the expression 'telegraph and other works and undertakings' in S.92(10)(a) of the Constitution Act of 1867. The Privy Council answered the question in the affirmative an was apparently not impressed by the contention that broadcasting was not known as a means of communication at the time when the Constitution Act was passed. These decisions proceed on the principle that if after the enactment of a legislation, new facts and situations arise which could not have been in the contepmlation of the legislature, statutory provisions can justifiably be applied to those facts and situations so long as the words of the statute are in a broad sense capable of containing them. This principle, according to the view expressed in Gannon Dunkerley AIR 1958 SC 560 did not apply to the interpretation of Entry 48, a view which in our opinion is capable of further scrutiny. It is, however, unnecessary in these appeals to investigate the matter any further because, the position which emerges after putting on the words of Entry 48 the same meaning which those words bear in the Sale of Goods Act, 1930 is that in order to constitute a salt, it is necessary that there should he an agreement between the parties.
In other words, the effect of the construction which the Court put on the words of Entry 48 in Gannon Dunkerley is that a sale is necessarily a concensual transaction and if the parties have no volition or option to bargain, there can be no sale. For the present purposes, this view may he assumed to reflect the correct legal position but even so, the transactions which are the subject- matter of these appeals will amount to sales."
' No doubt that the above Indian Supreme Court's judgments, except the last one, support the view canvassed by Mr. Muhammad Faridul Hag to some extent but there is a marked distinction between the above Indian Supreme Court cases and the present cases, inasmuch as in the above cases the power of the provincial legislature was involved whereas in the present cases the power of the Federal Legislature is in issue, which has plenary power to legislate subject to the Constitution. We may observe that the Parliament in England is sovereign in the real sense and it is not subject to any constraints as in England there is no written Constitution, whereas in Pakistan the Parliament is subject to constraints provided in the Constitution. Though the Parliament may amend the Constitution in accordance with the procedure provided therein, but so long as it is not amended the Parliament has to act within its four corners. So a statute or any of its provisions can be struck down on the ground being ultra vires of the Constitution.
' The Hon'ble Supreme Court of Pakistan in the case of Messrs Noorani Cotton Corporation v. The Sales Tax Officer 'A' Ward, Lyallpur reported in PLD 1965 SC 161 made the following observations, which are pertinent to the point in issue:- "The device adopted, as will appear from section 4 is, that the sale of 'partly manufactured goods' to a manufacturer is not liable to the charge of tax. It may be clarified here that the Sales 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 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 artcle 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 tax then the goods which are incorporated into it are also manufactured goods on which sales tax has to be paid. One further difficulty would still remain. What is to happen if a person himself manufactures goods and then incorporates them into other articles? There is no sale of the first manufactured goods because the person producing them is only using them for manufacure of other goods. Tax is payable only when there is a sale. In a case where the article that is ultimately produced is liable to the payment of sales tax there would be apparently no need of a provision relating to goods that are to be incorporated in the last article. But suppose that the last article is not liable to the payment of sales tax. Unless a special provision was made that person would not he paying any tax on the production of the first article too. This situation is met by the general provision in the last para of section 3 (6) that the keeping of goods by the manufacturer for his own use would be regarded as a sale."
' A Full Bench of this Court in the case of Gul Ahmad Textile Mills Limited, Karachi v. Commissioner of Sales Tax (Central) Karachi reported in 1985 PTD 211, gave reply in the affirmative to the following question:- "Whether in the circumstances of the case the Tribunal was tight 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?"
' We may also observe that in the case of Commissioner of Sales Tax v. Shafiq Corporation Limited reported in PLD 1986 SC 731 the Hon'ble Supreme Court took the view that no sales tax was payable on the imported materials which lost their identity after they were used for manufacturing fans on the ground that the point of time for the recovery of sales tax had passed but it did not hold that the earlier view taken by it in the case of Messrs Noorani Cotton Corporation was incorrect or was no longer the law.
' We may also observe that a Division Bench of this Court to which one of us (Ajmal Mian, C-1.) was a party, in the case of Commissioner of Sales Tax, Central Zone 'A', Karachi v. Messrs Pakistan Cables Ltd., Karachi reported in 1988 PTD 54, held that sales tax was payable by the manufacturer on the aluminium rods which were used by them for manufacturing cable at the time of their use in terms of clause (iv) of subsection (4) of section 3 read with clause (d) of subsection (6) of above section 3. It is, therefore, evident that the view of the Hob'ble Supreme Court in the above case of Noorani Cotton Corporation, and also of this Court, inter alia in the above cases of Gui Ahmad Textile Mills Ltd. And of Pakistan Cables has been that if an item of goods has been manufactured by a manufacturer, which is marketable as an independent item of goods and the manufacturer uses the same for manufacturing some other goods, which are exempted from payment of sales tax, he will be liable to pay sales tax on the former goods if they are not exempted from payment of sales tax.
' It is true that in the above cases the question, whether entry 49 where the words used are 'taxes on sales and purchases of goods" would cover the case where there is no sale transaction factually was not in issue. However, we may observe that in the above Indian Supreme Court case of M/s Vishnu Agencies (Pvt.) Ltd. v. Commercial Tax Officer and others AIR 1978 SC 449, wben the Indian Supreme Court was of the view that its earlier view taken in the case of Gannon Dunkerley AIR 1958 SC 560 is liable to be reviewed on account of the development and changed circumstances. The above view was founded on the two English cases referred to in the above-quoted portion of the above-reported judgment.
As we have observed hereinabove the glass shells are fit in the definition of manufactured goods and they are also marketed independently even by the present petitioners as they supply the same to some other manufacturers of bulbs. Even the petitioners can purchase the above item i.e, glass shells from outside for C using the same in manufacturing of the bulbs. We are, therefore, of the view that the Federal Legislature was competent to cover a case of the nature in issue under subsections (4) and (6) of section 3 of the Act.
5. Reverting to Mr. Muhammad Faridul Haq's submission that since the electric bulbs have been exempted under section 7 of the Act, no sales tax can be levied on the glass shells which are used for manufacturing electric bulbs, it will suffice to observe that since electric bulbs and glass shells can be marketed separately, in our view the exemption granted from the payment of sales tax on the electric bulbs would not exempt the glass shells from the payment of sales tax in terms of clause (iv) of subsection (4) and clause (d) of subsection (6) of section 3 of the Act.
6. Referring to Mr. Mohammad Faridul Haq's submission that since there is no difficulty in determining the value of the glass shells subsection (6) of section 3 of the Act is not applicable, it may be observed that in furtheonce of his above submission, he has referred to the impugned show-cause notice in which the value has been shown. In this behalf it will suffice to observe that as there is no sales transaction factually between two contracting parties but by fiction of law use of a manufactured item of goods by a manufacturer in the process of manufacturing another item of goods has been made a sale, will admittedly involve determination of value by the Sales Tax Officer in terms of above subsection (6) of section 3 of the Act. The proviso to above subsection (6) makes the above use by the manufacturer as a sale transaction.
7. Adverting to the last submission of Mr. Muhammad Faridul Haq learned counsel for the petitioners that if two interpretations of a fiscal statute are possible, one which favours the tax- payer/citizen is to be preferred, it may be observed that in furtherance of his above submission he has referred to the following cases:-
(i) Commissioner of Income tax Patiala v. Shahzada Nand and Sons and others, 60 I T R, Vol. LX 1%5, page 392.
(ii) Commissioner of Income Tax West Bengal-I v. Vegetable Products Ltd., I T R Vol. 88,1973 192.
(iii) Controller of Estate Duty v. R. Kanakasobai and others ITR Vol. 89, 1973 page 251, and
(iv) United States of America, Appt. v. William H. Sprague and William v. Hovey, 282 U.S. 716-734.
' It will suffice to observe that the above proposition of law is by now settled and needs no further discussion. However, the question in issue is as to whether the same can be pressed into service in the instant case, which in our view, is not the case.
8. The upshot of the above discussion is that the above petitions are dismissed in limine. .