1. SALEEM AKHTAR, J.---The petitioner is manufacturer of sponge chappals known as Hawai Chappals from the year 1966. By Notification No. S.R.0.666(1)/81, dated 25-6-1981 under item 50 "footwear all sorts" whose retail price did not exceed Rs. 125 per pair were exempted from Sales Tax.
2. The petitioner's Fauji Chappals of sizes 8 to 11 and Rimjhim Chappal of sizes 8 to 10 are sold at the rate of Rs. 100 and Rs. 86 per dozen respectively. On 17-10-1981 the Deputy Collector Central Excise and Land Customs, Karachi addressed a letter to Karachi Rubber Manufacturers Group asking the manufacturers to pay sales tax on rubber sheets manufactured by them. Representations were made in this regard to Central Board of Revenue also but of no avail. The plea of the manufacturers was that for economical production of Hawai Chappals the manufacturers by intermixing various chemicals prepare low density micro cellular sheets and then cut the same according to the required size of the Chappals. Thus these sheets serve as sole for the Hawai Chappal. Respondent No. 2 did not agree and levied tax on the rubber micro-cellular sheets and held that they were not exempted under the aforesaid S.R.O. The main contention of the petitioner seems to be that the micro-cellular sheets are produced and are used exclusively for manufacturing Hawai Chappals and cannot be used for any other purpose thus it is a component part incorporated in such goods and therefore sales tax cannot be levied on it. The fact that these sheets cannot be used for any other purpose except for manufacturing Hawai Chappals does not mean that it is not marketable and cannot be sold. Section 3 of Sales Tax Act which is the charging section provides that tax shall be levied on the value of goods produced or manufactured in Pakistan and it is payable by manufacturer or by the producer. There is no dispute that micro-cellular/rubber sheets are manufactured by the petitioner. Under Section 3 the goods produced or manufactured; whether they are used by the manufacturer himself in producing the goods or they are sold in open market are subject to Sales Tax. In Esskay Limited v. Federation of Pakistan and another 1984 PTD 142 an unreported judgment of the Lahore High Court where similar question came up for consideration, after taking note of section 3 it was observed as follows:--- "Since the micro-cellular sole sheets are independent marketable goods the petitioner company are liable to pay sales tax even though it uses them itself to make another marketable product."
3. This observation applies with full force to the present case.
4. It was next contended that the rubber sheets are consumed for manufacturing Hawai Chappals therefore it cannot be termed as sale subject to Sales Tax. Similar question arose in Abbasi Taxtile Mills Ltd. v. Commissioner of Sales Tax (East) PLD 1990 SC 422 where taking note of section 3(6)(d) of Sales Tax Act it was observed as follows:-- "However, what is noticeable is that in the definition of the expression "partly manufactured goods" in section 2(12) the end-product is subject to tax which, according to Noorani Cotton Corporation's case, is a sufficient guarantee that the tax will be paid only with respect to the last stage of manufactured goods. In this connection it will be relevant to refer to the observations of Kaikaus, J, in that case: "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 to 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."
5. But where the end-product is not leviable to the sales-tax then the situation is met by the provisions of last part of section 3(6)(dl, that is, the keeping of goods by the manufacturer for his own use would be regarded as sale as the scheme of the Act appears to be to ensure that sales- tax is paid only at one stage. There can also be no doubt that section 3(6)(d) is a charging section according to its tenor. Here again it will be of relevant to reproduce the observations of Kaikaus, J, in regard to the connotation of this subsection: "While it has to be accepted that the correct way of bringing a transaction within the definition of "sales" was to make a provision in the definition, there can be no doubt at all as to be intention of the Legislature in subsection (6). It has clearly been provided that all such transactions are to be regarded as sales for the purpose of this Act. At the same time if we do not regard this transaction as a sale subsection 6(d) becomes wholly redundant for then no need will ever arise of assessing the value in a case where manufactured goods are kept by the manufacturer. The need for such assessm ent arises only if tax is payable on goods which are kept by the manufacturer for his own use There is one point which needs explanation here. According to section 3(4) tax on manufactured goods is to be paid when goods are delivered to the purchaser or property in the goods passes to the purchaser. It does not say that tax is payable when there is a sale. Section 3(6) on the other hand does not use the word `purchaser' anywhere. It does not say that the keeping of goods for use by a manufacturer will amount to a delivery of goods to the purchaser or to the passing of property to the purchaser However, it used the word `sale' and according to the definition of sale in the Sales-tax Act a sale occurs when property passes from one person to another. If the effect of subsection(d) be that keeping of goods by the manufacturer becomes a sale then property does pass to the purchaser. Even otherwise as we have stated the fact that value is to be computed in such a case necessarily involves that the keeping of goods by the manufacturer has become liable to the payment of sales-tax."
6. The above observations apply to the present case as well The learned counsel for the petitioner contended that the legislature is not competent to levy sales tax on goods manufactured and consumed as it does not fall within the ambit of sale. In this regard the learned counsel has referred to the State of Madras v. Gannon Dunkerley & Co.
7. (Madras) Ltd. (1958) 11 Sales Tax Cases 353. In this case the Provincial Legislature had imposed sales tax on materials used by a contractor for building construction. The assessee challenged on the ground that the power of the Madras Legislature to impose tax on sales under Entry 48 in List Il in Schedule VII of the Government of India Act, 1935 did not extend to impose a tax on the value of materials used in works as there was no transaction of sale in respect of those goods and the provision introduced by Madras General Sales Tax (Amendment) Act, 1947 authorising the imposition of such tax was ultra vires. The short question for consideration was whether the provisions introduced by Madras General Sales Tax (Amendment) Act were ultra vires,, the powers of the Provincial Legislature under Entry 48 in List II. After exhaustive discussion on the meaning of "sale" and principles of interpretation it was observed as follows: "A power to enact a law with respect to tax on sale of goods under Entry 48 to be intra vires, be one relating in fact to sale of goods, and, accordingly, the Provincial Legislature cannot, in the purported exercise of its power to tax sales, tax transactions which are not sales by merely enacting that they shall be deemed to be sales."
8. It was further observed that: "The expression "sale of goods" has been construed as having the meaning which it has in the common law of England relating to sale of goods, and it has been held that in that sense the use of materials in construction works is not a sale. This rather supports the conclusion that the imposition of the act was declared "Sale" in Entry No. 48 must be construed as having the same meaning which it has in the Sale of Goods Act 1930."
9. Relying upon this authority the learned counsel for the petitioner contended that under item No. 49 of the Fourth Schedule of the Constitution of Pakistan the levy is ultra vires as manufacture and its consumption cannot be deemed to be a sale. In the petition, the petitioner had not challenged the vires of the Act and had relied upon the aforesaid judgment only to support the ground that the sheets are not goods manufactured by the petitioner but constitute merely an intermediate process and represent only the first stage of the manufacture of the goods i.e. Hawai Chappal, the end-product which alone fit in the definition of goods liable to tax under the Sales Tax Act. However with due deference to the argument of the learned counsel we have considered it on its merits as well. Under the Constitution of Islamic Republic of Pakistan, taxes on `sales' are included in the Federal Legislative List contained in Part I of the Fourth Schedule. Item 49 reads as follows:-- "49. Taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed."
10. The case before the Indian Supreme Court was in respect of sales tax imposed under item 48 contained in Provincial Legislative List being List II of the Seventh Schedule to the Government of India Act, 1935. Item 48 read as follows:-- "Taxes on the sale of goods and on advertisements."
11. The terminology employed in item 48 and item 49 quoted above are completely different. Under the Government of India Act item 48 empowered to legislate in respect of taxes on the sale of goods. While interpreting the word sales of goods the Indian Supreme Court came to the conclusion that taxes can be imposed only on such transaction which may be called sale as legally interpreted and understood under the common law. There can be no cavil with this proposition of law. In our Constitution item 49 quoted above is completely different from the provisions of the Government of India Act, 1935. Item 49 authorises taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed. Therefore even goods which are manufactured or consumed are liable to sales tax. Where a person manufactures a good sales tax can be imposed but if he manufactures a good and consumes it as well Sales Tax can be levied on it because item 49 permits imposition of Sales Tax on sale of goods manufactured, produced or consumed. Section 3 of the Sales Tax is therefore not ultra vires the Constitution. In view of the observation in the case of Abbasi Textile Mills Ltd. The sales tax on sale of goods produced, manufactured or consumed can be levied and if the end-product is exempted from Sales Tax then the goods manufactured for consumption in such end-product are liable to tax We therefore dismiss the petition with no order as to costs.