MUNIR A. SHEIKH, J.--1. In this constitutional petition, the petitioner seeks declaration that order dated 31.3.1994 passed by the Additional Secretary (respondent No. 1), of the Collector Appeals (respondent No. 2) dated 12th October, 1993 and the Deputy Collector (Central Excise & Sales Tax) dated 3.3.1993, are illegal, without jurisdiction, without lawful authority and of no legal effect and that the demand of Rs. 1,687,928/- with Additional Tax and Surcharge under the Show Cause Notice of respondent No. 3 dated 14.6.1992 is also illegal, without jurisdiction, without lawful authority and of no legal effect.
2. The facts giving rise to this constitutional petition shortly stated are that the petitioner which is manufacturer of China Crockery in Gujranwala was issued a notice by the Deputy Collector on 14.6.1992 alleging that during the scrutiny of the record of bills of entries, details of goods imported and the amount of sales tax adjusted during the period June, 1989 to October, 1990 it was revealed that an amount of Rs. 7,22,369.00 had been adjusted being the Sales Tax paid on importation of the following materi as/components:-
(i) Refractory Materials/Bricks.
(ii) Plate Setter & Slabs.
(iii) Machinery Parts etc.
(iv) Filter Cloth It was also stated that for the period from November, 1990 to June, 1991 an amount of Rs. 9,65,559/- had been wrongly adjusted against the Sales Tax on importation of following materials/components.
(a) Refractory Materials.
(b) Plate Setter.
(c) Filter Cloth.
It was also pointed out in the notice that the raw materials imported and used actually in the manufacturing of Porcelain Crockery was China Clay, Ball Clay, Black Clay, Transfer Picture, Liquid Gold and Chemicals. It was also notified to the petitioner in the said notice that the Refractory Materials, Plate Setter and Filter Cloth were not used directly in the manufacturing of Porcelain Crockery (Table Ware). These items were used in kiln and Backing Plant and as such were not raw material of the taxable goods produced by them, therefore the above said adjustments made by the petitioner against the out-put tax in the returns submitted by it was violative of Section 27 of the Sales Tax Act, 1951 read with section 7(2) of the Sales Tax Act, 1990. The petitioner contested the said notice by filing a written reply. It was denied that the petitioner had violated Section 27 of Sales Tax Act, 1951 as the first mentioned adjustment was allowed provisionally by the Superintendent Sales Tax, Gujranwala. It was pleaded that the Refractory Material, Plate Setter & Filter Cloth are the component parts of ceramic machinery of tableware as without support of these no production of Ceramic Tableware could be made. It was averred that in the absence of proven violation adjustment claim under section 27 of the Sales Tax Act, 1951 and input tax claimed under section 7(2) of the Sales Tax Act, 1990 penal action indicated in the notice was not justified. The Deputy Collector (North) through order dated 3.3.1993 held that the charges levelled in the Show Cause Notice were valid in law and of fact. The petitioner was ordered to pay requisite adjusted Sales Tax amounting to Rs.16,87,928/- which had been wrongly adjusted by it along with Additional Tax and Surcharge leviable thereon under rules 7 & 10 of the^Central Excise Rules, 1944 read with sections 3(4) of the Sales Tax Act, 1951 and sections 34 and 36 of the Sales Tax Act, 1990. The petitioner challenged this order by filing appeal before the Collector (Appeals) which was rejected through order dated 12.10.1993. The petitioner filed revision petition before respondent No. 1 which was also dismissed through order dated 31.3.1994. The legality of all these orders has been challenged in this constitutional petition.
3. Learned counsel for the petitioner in support of this petition raised the following contentions:-
(a) The matter as regards adjustment of tax for the period from June, 1989 to October, 1990 was regulated and governed by the provisions of Sales Tax Act, 1951 therefore, the liability against wrong adjustment if any was to be determined under section 12-A of the said Act according to which firstly a notice was required to be issued for payment of Additional Tax as determined, within the time specified in the notice and none payment of the same within the said time could only be visited with the penalty of levying further Additional Tax at the rates mentioned in the said section, whereas the liability for payment of additional tax and surcharge in relation to the said period has also been determined according to the provisions of Sales Tax Act, 1990.
(b) That under the provisions of Sales Tax Act, 1990 a deviation has been made inasmuch as the provision of the said Act could legitimately be construed to allow adjustment of in-put tax paid on all the items which were required for manufacturing the saleable goods from the out-put tax and adjustment of input tax was no longer restricted only to such material which was the component part of excisable goods.
4. The Sales Tax Act, 1990 came into force w.e.f. 31.10.1990.. It is indeed clear that the matter as regards the alleged wrongful adjustment of Sales Tax for the period from June, 1989 to October, 1990 was not governed and regulated by the said Act. Sales Tax Act, 1951 was applicable as regards a determination of liability for adjustment of tax paid on the component parts of finished goods, therefore, argument of learned counsel for the petitioner that liability for payment of penalty etc., was to be determined according to the provisions of the said later Act.
5. In the Sales Tax Act, 1951 the relevant provisions are sections [3(12)], 12-A and Section 27 read with rules 7 and 10 of the Central Excise Rules, 1944. Section 1[3(12)] is reproduced below in1 extension:- "Partly manufactured goods; means only goods which are to be incorporated into and form a constituent or component part of an article which is subject to the Tax.
Section 27(1) of the Said Act is also reproduced in extension:- "Refunds.(1) Where partly manufactured goods are purchased by a manufacturer and tax has been paid on those goods on importation or on any previous sale, a refund of the amount of the tax so paid shall be made to the manufacturer".
6. Under section 3 of the said Act, Sales Tax was leviable on all goods produced or manufactured in Pakistan which was payable by the manufacturer or producer. It is clear from these provisions of law that from such Sales Tax payable by Manufacturer on the goods produced the sales tax already paid by it on the importation of the goods which were constituent part of such article could only be adjusted against the said tax. There was no ambiguity whatsoever and the petitioner was not justified in entertaining any doubt that under the said provisions of law input tax paid on any item which was not constituent or component part of an article on which tax was leviable could be adjusted against the said tax. Refractory Material/Bricks, Plate Settor, Machinery Parts and Filter Cloth by any stretch of imagination cannot be held to be Constituent or component part of the Crockery manufactured by the petitioner whereas the same could at the most be said to be tools or retencils used in the manufacturing process like any other item viz., electricity and gas etc., as such no adjustment could be claimed as regards any tax paid at the time of importation of the said articles. The argument of learned counsel for the petitioner that liability was to be determined as regards the wrong adjustment under section 12(A) of the Sales Tax Act, 1951 and not the provision of Sales Tax Act, 1990, has force.
7. As regards adjustment of tax for the period from November, 1990 to June, 1991 the matter is governed and regulated by Section 7(1) of the Sales Tax Act, 1990 which is reproduced below for facility of reference:- Section 7(1) "For the purpose of determining his tax liability in respect of taxable supplies made during a tax period, a registered person shall be entitled to deduct input tax from the output tax that is due from him in respect of that tax period and to make such other adjustments as are specified in section 9."
A close scrutiny of this provision of law would reveal that a manufacturer of Excisable Supplies (Finished goods) at the time of their sale has been given right to adjust against the sale tax payable on such goods which has been described as output tax, the input tax already paid. These provisions of Sales Tax Act, 1951 and Sales Tax Act, 1990 were enacted with the subject of providing safeguard against double taxation on the same goodstherefore, it is clear that only the input tax already paid on the component and constituent part of the Excisable Supplied could be adjusted and not the tax paid on goods other than those constituent parts because in the later case there would be no question of double taxation. The principles embodied in the provisions of Sales Tax Act, 1951 were maintained in the Sales Tax Act, 1990 and no departure or any deviation was either made or intended to be made though a different expression to convey the same meaning in the act of 1990 has been used. It can thus safely be held that under the provisions of Section 7(1) of the Sales Tax Act, 1990 input tax paid on Refractory Materials, Plate Settor, Machinery Parts and Filter Cloth cannot be adjusted against the tax payable on Excisable Supply being not constituent or component part of the same.
8. Learned counsel for the petitioner when faced with this difficulty, attempted to over-come it by relying upon a Notification SRO. No. LIII(I)/90 dated the It November, 1990 issued under section 8 of the Sales Tax Act, 1990 according to which it was declared that input tax shall not be claimed on Vehicle, Building Materials, Stationary, Office Equipment, Humiture/Fixture and Electricity and Gas Appliances, to argue that by amplification the adjustment of input tax on other items could be claimed. There is nothing in section 8 that adjustment of input tax as regards any item not mentioned in the Notification was made permissible if the same was otherwise not permitted under the other specific provisions of the Act prohibiting such adjustment. In this case Section 7(1) of the Sales Tax Act, 1990 is specific and the relevant provisions as regards adjustment of input tax against output tax regarding Excisable Supply therefore, no benefit can be derived from the Notification issued under section 8 as the learned counsel for the petitioner attempted to do.
9. Learned counsel for the petitioner lastly argued that since provisions of section 7(1) of the Sales Tax Act, 1990 are ambiguous and admit of more than one interpretations therefore, according to well established principles laid down by the superior courts regarding interpretation of fiscal statute the interpretation going in favour of the subject is to be adopted. The fallacy of this argument lies in erroneous assumption that provisions of section 7(1) of the Act are ambiguous and susceptible to more than one interpretations.
10. After examining the provisions of both the Acts, I 'Am, however fully persuaded to hold that as regards adjustment made by the petitioner of input tax paid on Refractory Materials, Plate Settor and Filter Cloth from November 1990 to June 1991, the petitioner did not act malaccident with the intention to evade the tax. It appears that due to change in the physiology used in Section 7(1) of the Sales. Tax Act, 1990 he might have entertained an impression that the principles embodied in the provisions of Sales Tax-Act, 1951 regarding this subject had undergone a change therefore, the imposition of penalty of an additional tax and surcharge qua the said period is not justified. The recovery- should have been made only of that much amount which was payable had the petitioner not wrongly adjusted the input tax paid on these items from the Excisable Supplies and nothing more. The petitioner however cannot claim that he acted in good faith as regards the adjustment made for the period from June 1989 to October, 1990.
11. According to Section 12(1) of the Sales Tax Act, 1951, it is necessary for the authorities to determine the amount of additional tax on the basis of criteria given therein which the petitioner was to pay as penalty and time is also to be specified within which the same should be paid. It is only on the failure of the petitioner to pay this additional tax within the period fixed that he could be visited with the further penalty of payment of further additional tax whereas in the relevant provisions of Sales Tax Act, 1990 this further penalty has been described as surcharge. The impugned orders as regards determination of penalty etc., for the period from 1989 to June 1990 are not sustainable and a fresh decision is to be made as observed above.
12. For the foregoing reasons, the writ petition is partly accepted. The impugned orders as regards imposition of penalty in the form of additional tax and surcharge as regards period from November 1990 to June, 1991 are hereby declared to be without lawful authority and of no legal effect. The said additional tax and surcharge shall not be recovered from the petitioner. As regards imposition of penalty for the period from June 1989 to October, 1990 the same are also declared to be without lawful authority and the case is remitted to the Deputy Collector to determine the same as directed in paragraph 11 above. The parties are left to bear their own costs. It should be 2(12)'.