MAMOON KAZI, J.--1 This appeal, by leave, has arisen in the following circumstances:
2. Respondent No. 1 which is a state-owned company was regularly paying sales tax on the wholesale cash price of cement produced by it. The respondent received a show cause notice from respondent No. 3 dated 13.6.1989, alleging that they had not included transportation and octroi charges which were leviable on their product in the wholesale cash price. Consequently, a demand was made for the payment of Rs. 14,05,443 as short-paid sales tax and Rs. 2000/- as penalty. The respondent appealed to respondent No. 2 but its appeal was only partially granted as supplies made by the said respondent to government agencies were assessed on the declared value but no relief was allowed in respect of the respondent's supplies to retail traders. Having failed to succeed in its revision, the respondent filed a petition before the High Court at Peshawar which was allowed as the learned Judges of the High Court were of the view thatr if no charges in respect of octroi or transportation were incurred by the respondent, the same could not be included in the price for the purpose of assessm ent of the sales-tax under section 4(1) of the Central Excises and Salt Act, 1944.
3. Leave was granted by this court to examine the effect of an earlier judgment of this court in Itehad Chemicals v. Islamic Republic of Pakistan (PLD 1993 SC 136 = PTCL 1993 CL. 620), wherein it had been observed that items of freight and octroi were to be included for the purpose of computing the price under section 4(1) for assessment of excise duty and sales-tax.
4. Mr. Saadat Hussain who has appeared on behalf of the Federal Government while challenging the correctness of the view taken by the High Court has contended that, as is clearly envisaged in section 4(1) of the Central Excises and Salt Act, value of articles for the purpose of duty under the said section is to be determined only by excluding the amounts of duty and sales-tax payable thereon, but no further deductions beyond the same are permissible. Consequently, expenses incurred on octroi and transportation beyond the factory premises up to the nearest wholesale market are to be included for computation of such value. Therefore, the appellants had clearly acted in consonance with the law as laid down by section 4(1) of the said Act and the judgment of the High Court is liable to be set aside.
5. Section 4(1) of the said Act around which the entire controversy revolves provides as under:- "Determination of value for the purposes of ditty.-(1) Where under this Act any article is. Chargeable with duty at a rate dependent on the value of the articles, such value shall be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold to the general body of retail traders or, if there is no general body of retail traders, the general body of consumers on the day on which the article which is being assessed to duty is removed from the factory or the warehouse, as the case may be, without any abatement or deduction whatever except the amounts of duty and sales tax then payable." The said sub-section came up for examination before this court in the case of Itehad Chemicals (supra) although, the main contention in the said case was that the learned Judge of the High Court had erroneously exercised powers of review. However, as in the present case, the controversy in the said case had arisen before the High Court on account of inclusion of freight or octroi charges by the department for the purpose of determination of value of the goods under section 4(1) of the said Act. In the said case, in the judgment which was delivered by one of us (Amal Mian, J) it was observed as follows:- - "We are inclined to agree with Ch. Muhammad Faruq, learned Deputy Attorney-General, that no case was made out by the appellants to review the finding concurred by the learned Judge in Chamber that the items of freight and octroi were to be included for the purpose of computing the price under section 4(1) of the Act of 1944 for the purpose of assessment of excise duty and sales tax."
Although, it appears that, the attention of the learned Judges of the High Court was not invited to this case by the learned counsel then appearing for the parties but reference was made to the judgment of the Indian Supreme Court in the case of A.K. Roy v. Was Ltd. (AIR 1975 SC 225): In this case also provisions of section 4 of the Indian Central Excises and Salt Act which correspond with section 4 of such law applicable in Pakistan were the subject matter of review before the Supreme Court of India, The question which was being canvassed was whether the appellant was liable to be charged with excise duty on the basis of price of retail sales made by it directly to the consumers from its head-office and branch offices or whether it was liable to be charged on the basis of price payable by the wholesale dealers after deducting 22 per cent discount. After extensive reference to case law, the controversy was resolved by the Supreme Court by the following observations:- "21. Excise is a tax on the production and manufacture of goods (see Union of India. Delhi Cloth and General Mills, (1963) Sitpp 1 SCR 586- (AIR 1963 SC 791) Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profits and that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post- manufacturing operation, namely selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of section 4(a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position.
"22. The appellant contended that 22 per cent discount allowed under the agreements with the wholesale dealers was not trade discount, on the ground that there was no evidence to show that the discount allowed was 'trade discount' within the meaning of the Explanation to section 4. There was no contention by the appellants before the High Court that the discount allowed to the wholesale dealers was not 'trade discount'. The whole argument before the High Court proceeded on the basis that direct sales by the respondent to consumers constituted the major portion of the sales and that the sales to the wholesale dealers only represented a minor portion and, therefore, the price charged for the sales to wholesale dealers would not represent the 'wholesale cash price' of the articles sold. No data was placed before the High Court by the appellant to show that the 22% discount did not represent "trade discount" for the purpose of the Explanation. A "trade discount" is a percentage, deduction from the regular list or catalogue price of goods. As there was no case for the appellants that there was any secret arrangement between the wholesale dealers and the respondent in respect of the sales to them or that the price of the articles was under- stated in the agreements or that any extra-commercial advantages to the dealers were taken into account in fixing the price, we do not think that we should go into the question whether the discount allowed to the wholesale dealers was "trade discount" or not for the purpose of the Explanation."
Relying upon the above observations of the Supreme Court of India, the learned Judges have taken the view that in the present case there was nothing before the learned Judges to indicate that octroi or transportation charges had actually been incurred by respondent No. 1. On the other had, it had been shown that such charges had been borne by the retail traders to whom the cement produced by the said respondent had been sold. Consequently, it was held that the valuation made by the respondent after excluding such charges was correct for the purpose of section 4(1).
The Writ Petition was, therefore, accepted and the orders passed by respondents No. 2 and 3 demanding the said additional amount were held to be without lawful authority.
6. Learned counsel for respondent No. 1 has further relied upon the case of Messrs Indian Oxygen Ltd. v. Collector of Central Excise (1989 M LD 490), wherein a similar question had once again been raised before the Supreme Court of India. In this case the appellant who was a manufacturer of compressed oxygen gas had claimed abatements on account of freight and handling charges in respect of which it had not produced any evidence. The Supreme Court held that where the wholesale price was ascertainable at the factory gate the question of transportation charges under section 4(1 )(a) had become entirely irrelevant. More or less similar view had prevailed with the Supreme Court of India in Collector of Central Excise, Madras v. Messrs Indian Oxygen Ltd. (1989 M LD 2454) as it was held that rental charged and deposit taken for safe return of gas cylinders could not form part of an assessable value under section 4(1 )(a). Our attention has also been invited to Artic Industries Lid. v. H.H. Dave (AIR 1975 SC 960) which is another case from the Indian jurisdiction, although, a plain reading of the facts of this case indicates that the case has no direct nexus to the point in issue in the present case. In this case goods were sold by the manufacturer to wholesale buyers. The price charged by the appellant/manufacturer was a uniform price described as "the basic selling price", less trade discount. The goods were then sold to certain distributors at a higher price but at lower trade discount. However, the distributors sold the goods at a slightly higher price.
It was held that, m the circumstances, the assessable value of the goods must be taken to be the price at which they were sold to the wholesale buyers, less the trade discount, but not the price charged by the distributors. The next case cited before us by the learned counsel for respondent No. 1 was decided by this court and the case is reported as Pakistan v. Popular Tobacco Co., Karachi (PLD 1961 SC 66). Although, in this case on the interpretation of section 4(1) of the Central Excises and Salt Act, it was held that deductions could be permitted on account of trade discount retained by a wholesale dealer but thereafter section 4 of the said Act has undergone changes and therefore, the case can hardly be called in Sid to support the contentions raised on behalf of the said respondent. Two more cases reported as Atlas Battery Ltd. v. Superintendent, Central Excise and Land Customs (PLD 1984 SC 86 = PTCL 1984 CL. 250) and Atlas Battery Ltd v.
Superintendent Central Excise and Land Customs (PLJ 1979 Karachi 79) have also been cited before us by the learned counsel for the appellants, but again the cases render little assistance as the question that was dealt with in the said cases is 'not germane to the present controversy. In both the cases, the question related to the interpretation of sub-section (2) of section 4 of the said Act which referred to fixation of retail price of articles chargeable with duty for the purpose of computation of rate of duty. Section 4(2) provided for fixation of retail price by a manufacturer as inclusive of all charges and taxes at which any particular brand or variety of such articles was to be sold to the general body of consumers. It was held that any artificial or arbitrary price which was fixed by the manufacturer having no reference to general body of consumers as in case of contract based on special business relationship between the parties would clearly not be their "retail price" as contemplated by section-4(2) and any such sale if considered as a sale to a general body of consumers where all charges were not included in the retail price fixed and printed, the manufacturer was not entitled to be assessed at a reduced level but on ad valorem basis under the schedule to the said Act.
7. It may be pointed out that reference to the case of A.K Roy and other cases decided by the Supreme Court of India can render little assistance in resolving the present controversy because the provisions of the Indian Central Excises and Salt Act do not fully correspond to those of section 4(1) as presently applicable in this' country. According to the Indian law, although the value of the articles is to be determined on the basis of wholesale cash price by virtue of a deeming provision inserted in section 4(l)(a) of the Indian Law, as is also the case in Pakistan, but the main distinguishing feature in the Indian Law, which is clearly evident on the face of section 4(l)(a) is that, such wholesale cash price for which an article of like kind and quality is capable of being sold, must be the price at the point of time of removal of such article from the factory or any other premises of the manufacturer for its delivery at the wholesale market. In such a case, when the goods are to be delivered outside the manufacturer's premises, the element of octroi or transportation charges would* naturally be excluded for the purpose of computation of the value.
However, the law applicable in Pakistan is clearly distinguishable because although, the value of an article is to be determined on the basis of the wholesale cash price for which such article is sold or.
Is capable of being sold, to the genera] body of retail traders or, as the case may be, consumers but no such provision exists in section 4(1) as the same is applicable in Pakistan, whereby sale of articles for the purpose of Computation of their wholesale cash price is contemplated outside the factory or premises of the manufacturer, as is the case in India. The expression "general body of retail traders or consumers" although, has not been defined either in the said Act or under the rules framed thereunder but reference to the same in section 4(1) would generally mean reference to traders or persons to. Whom articles chargeable with duty are sold in the wholesale market.
Consequently, before the goods reach in the hands of any retail traders or consumers from the premises of the manufacturer, payment of octroi duty or transportation charges would also be involved. Further, the language employed by the Legislature in section 4(1) of the said Act to the effect: "without any abatement or deduction whatever except the amounts of duty and sale-tax then payable" represents emphasis on only such deductions which have been expressly made permissible by the statute itself. Therefore, the sub-section only contemplates deductions on account of any amount of duty and sales-tax payable on such articles, for the purpose of computation of their value under the said section but no provision exists therein from which the legislative intent' qua further deductions on account of octroi or transportation charges can be spelt out.
By a legal fiction, value of such articles is to be determined not alone on the basis of the actual price for which such article may be sold but such value may be determined even on the basis of the price of which an article of like kind and quality is capable of being sold on the day when it is removed from the factory, to the general body of retail traders or consumers, as the case may be.
The provisions of the law in Pakistan on the subject are, therefore, clearly distinct from those of the Indian' Law where the value is to be assessed on the basis of the wholesale price outside the manufacturer's premises. The amendments m?De in section 4(1) clearly signify an intention on the part of the Legislature to include the element of post-manufacture charges for the purpose of computation of whole-sale cash price, barning only what has been expressly provided for by the legislation itself, notwithstanding the fact that by some understanding between the manufacturer of articles and their retail trader octroi or transportation or any other such charges are to; be borne by the latter. Therefore, even if the contention raised on behalf of respondent No. 1 that the octroi or transportation charges were not borne by it but the same were borne by ifs stockists is believed, the same would be of little consequence to it. Consequently, we are of the opinion that the view taken by the learned Judges of the High Court is not correct as octroi and transportation charges could be included by respondent No. 3 while determining wholesale cash price of the cement manufactured by respondent No. 1 since the same was permissible under section 4(1) of the Central Excises and Salt Act, 1944.
8. In the result, this appeal is allowed and the order of the High Court is set aside.
FAZAL KARIM, J.--1 The question requiring determination in this case is a question of great public importance; it is--what is the value of the goods produced or manufactured in Pakistan, for the purposes of sales tax payable by the manufacturers or the producers within the meaning of section 3 of the Sales Tax Act 1951. Does this value include, for the purposes of sales tax, the transportation, a;nd octroi charges?
2. The first respondent, Kohat Cement Company, are the manufacturers of Cement. They received a communication from the Superintendent Customs and Central Excise Kohat on 1.4.1989 alleging that they had undervalued its cement for the purposes of payment of sales tax in that the transport charges and octroi duty were not included in the wholesale cash price of the cement. It was found that fee value of cement Avas the whole-sale price, Rs. 10,510/-, per 10 tons, plus the excise duty, Rs.
3320/- paid thereon, plus Rs. 521 f-, on account of transport charges, loading charges, octroi receipt and road tax; that "this under valuation had caused short assessment of Sales Tax amounting to Rs. 6.58 per M.T. Of cement, as a result of which sales tax to the tune of Rs.
14,05,443:00 entailed against differential value of Rs.1,01,18,721,84 has been short paid for clearance of 2,13,568.30 M.T on cement made during the period from 28.6.1989 to 30.4.1989". The first respondent replied this case being and here I quote from the first respondent's writ petition in the High Court "that the petitioner did not charge any transportation charges or octroi duty from the stockists i.e., retail-traders as such the wholesale cash price declared by the petitioner was correct". According to the first respondent it was a State-owned company, "and price of its product is always fixed by the Federal Government through state cement corporation limited and is advertised as such". The authorities did not accept this explanation and ultimately the first respondent were required by communication dated 8.7.1989 to pay a sum of Rs. 14,05,443/- as arrears of sales tax and a sum of Rs. 2000/- as penalty.
3. It was in these circumstances that the first respondent invoked the High Court's jurisdiction under Article 199 of the Constitution. In the comments filed by the respondents to the writ petition namely
(1) Pakistan, through Secretary Ministry of Finance, Islamabad, (2) Federal 'Government of Pakistan, through Additional Secretary, Ministry of Finance, Central Board of Revenue, (3) the Collector (Appeals) Customs & Central Excise Northern Zone, Lahore and (4) the Assistant Collector, Customs & Central Excise, Kohat, it was asserted that the contention that the "charges of transportation, octroi, loading and un-loading etc., were not payable and could not be included in the assessable value runs contrary to the express provisions of law as contained under section 4(1) of Central Excises and Salt Act, 1944 read with section 2(16) and proviso of section 3(4) of the Sales Tax Act, 1951. According to them, "the said provisions admit the deduction of duty and sales tax only. All the rest of the expenses incurrable up to the point of delivery of the goods to the nearest market of whole sale retail traders are to be included in arriving at assessable value within the meanings of law, as explained above". They added that "it is immaterial that charges of packing, loading, transportation, octroi and un-loading etc., were not charged from the retail traders".
4. Section 3 of the Sales Tax Act, 1951, by its sub section (1), so. Far as relevant, provides that there shall be levied and collected a tax on the value of all goods produced or manufactured in Pakistan, payable by the manufacturer or producer.
Sub-section (2) of section 3 fixes the rate of the tax. Sub-section (3) provides that the value of the goods shall be, in the case of goods produced or manufactured in Pakistan, the sale price. Sub- section (4) of section 3 enacts that in respect of the goods produced or manufactured in Pakistan, the tax shall be payable when the goods are delivered to the purchasers. The expression 'sale price' is defined in section 2, clause (16) of the Sales Tax Act 1951; it means (i) in relation to goods in respect of which tax is payable at the same time and in the same manner as the duty of excise under the Central Excises and1 Salt Act, 1944 (I of 1944), the value determined under sub-section(l) of section 4 of the said Act plus the said duty, if chargeable". There is a proviso to sub-clause (1) of clause (16) and there is also a sub-clause (2), but they are not relevant for the purposes of this appeal, for it appears to be common ground that the provision applicable to the facts of this case is sub-clause (i) of clause (16) of section 2 of the Sales Tax Act 1951. In other words, the sale price means the value determined under sub-section (1) of section 4, of the Central Excises and Salt Act, 1944 plus the duty of excise payable under the Central Excises and Salt Act 1944.
6. In this judgment the Sales /Tax Act 1951 will be described as the Act of 1951 and the Central Excises and Salt Act, 1944 (which is now called the Central Excises Act, 1944) will be described as the Act of 1944.
7. The learned Judges in the High Court observed that section 4 sub section (1) of the Act 1944 "would show that the value of article chargeable with duty at a rate dependant on the value, shall be deemed to be the wholesale cash price, for which the article is sold to the general body of retail traders on the day on which the articles which is being assessed to duty is removed from the factory without any abatement or. Deduction". The learned Judges noticed that in this case "value determined is not in dispute". What is in dispute "is the deduction of transportation charges, octroi duty etc",. In their view, "since there is no evidence to show that that wholesale cash price declared by the factory included the transport charges, loading charges, octroi duty etc., therefore, the question of deduction does not arise". They held, therefore, that the contention that "even if the charges are not incurred by the factory, those have to be included in determining the wholesale cash price is devoid of force".
They then referred to the relevant provisions of the Act of 1951 and relying upon a case from the Indian jurisdiction 'A.K. Roy v. Was Ltd." (AIR 1973 S.C. 225), were not prepared "to accept the respondents contentions that even if the charges are not incurred, deduction is not allowed under section 4(1) of the *Act". In their view "while determining the wholesale cash price of the articles no abatement or deduction 'whatever except the amount of duty and sales tax then payable can be made provided it is proved that the transport charges, octroi duty etc; were borne by the petitioner.
The charges were borne by the retail traders to whom the cement was sold in wholesale", and the writ petitioner, the first respondent herein, so held the learned Judges, "had correctly valued the articles for the period in question". Accordingly they declared the order of the Custom & Excise authorities "demanding the extra sales tax illegal, null and void without lawful authority and ineffective on the rights of the petitioner".
8. The nature of the duty of excise was considered on a number of occasions in the pre-partition India, when the Government of India Act, 1935 was in force, under which excise duty, was a Central subject and the sales tax was within the exclusive competence of the Provinces. In AIR 1939 Federal Court 1 lawyer C.J. (at page 9) observed: "... The power to make laws with respect to duties of excise given by the Constitution Act to the Federal Legislature is to be construed as a power to impose duties of excise upon the manufacturer or producer of the excisable articles, or at least at the stage of, pr in connexion with, manufacture or production, and that it extends no further".
It was contended on behalf of Government of India that an excise duty is a duty which may be imposed upon home-produced goods at any stage from production to consumption; and that, therefore, federal legislative power extended to imposing excise duties at any stage. Lawyer C.J.
Held (p.6): "This is to confuse two things, the nature of excise duties and the CL. 393 extent of the federal legislative power to impose them........ But there can be no reason in theory why an excise duty should not be imposed even on the retail sale of an article, if the taxing Act so provides. Subject always to the legislative competence of the taxing authority, a duty on home-produced goods will obviously be imposed at the stage which the authority find to be the most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection, and does not affect the essential nature of the tax. The ultimate incidence of an excise duty, a typical indirect tax, must always be on the consumer, who pays as he consumes or expends; and it continues to be an excise duty, that is a duty on home-produced or home-manufactured goods, no matter at what stage it is collected".
9. In "The Province of Madras vs. Messrs. Boddu Paidanna & sons" (A.I.R. 1942 F.C.33,35), the question before the Federal Court was 'on which side of the line a tax upon the first sales of goods manufactured or produced in the provisions was to be regarded as falling'. Lawyer C.J. Again brought out the distinction between the two taxes-the duty of excise and the sales tax - as follows:-- "The duties of excise which the Constitution Act assigns exclusively to the Central Legislature are, according to 1939 F.C.R 18, duties levied upon the manufacturer or producer in respect of the manufacture or production of the commodity taxed. The tax on the sale of goods, which the Act assigns exclusively to the Provincial Legislatures, is a tax levied on the occasion of the sale of the goods. Plainly a tax levied on the first sale must in the nature of things be a tax on the sale by the manufacturer or producer; but it is levied upon him qua seller and not qua manufacturer or producer. It may well be that a 'manufacturer or producer is sometimes doubly hit; but so is the taxpayer in Canada who has to pay income-tax levied by the Province for Provincial "purposes and also income-tax levied by the Dominion for Dominion purposes: see 1924 A.C. 999; 1937 A.C. 260. If the taxpayer who pays a sales tax is also a manufacturer or producer of commodities subject to a central duty of excise, there may no doubt be an overlapping in one sense; but there is no overlapping in law. The two taxes which he is called on to pay are economically two separate and distinct mosts. There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter -what happens to. It afterwards, whether it be sold, consumed, destroyed or given away. A taxing authority will not ordinarily impose such a - duty,. Because it is much more convenient administratively to collect the duty (as in the case of most of the Excise Acts) when the commodity leaves the factory for the first time, and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which attracts the duty, even though it may be collected later; and we may draw attention to the Sugar Excise Act in which it is specially provided that the duty is payable not only in respect of sugar which is issued from the factory but also. In respect of sugar which is consumed within the factory. In the case of a sales tax, the liability to tax arises on the occasion of a sale, and a sale has no necessary connexion with manufacture or production. The manufacturer or producer cannot of course sell his commodity unless he has first manufactured or produced it; but he is liable, if at all, to a sales tax because he sells and not because he manufactures or produces; and he would be free from liability if he chose to give away everything which came from his factory. In our opinion the power of the Provincial Legislatures to levy a tax on the sale of goods extends to sales of every kind, whether first sales or not".
10. The question was then considered by the Privy Council in "G.G. In Council v. Province of Madras"
(AIR 1945 P.C. 98). The fundamental contention of the Government of India there was "that the power to impose a duty of excise, which is given to the Federal Legislature alone by Entry No. 45 of the Federal List, entitles that Legislature and no other to impose a tax on first sales of goods manufactured or produced in India. No other meaning, .It is contended, can fairly be given to the words "duty of excise" than one which includes a tax on the first sales of such goods". This contention it was held by their lordship was not well founded; in so holding, their lordships of the Privy Council approved the Federal Court decisions in AIR .1939 F.C. 1, and in Boddu Paidanna case and held: '"The term 'duty of excise' is a somewhat flexible one: it may, no doubt, cover a tax on first and perhaps on other sales: it may in a proper context have an even wider meaning. An exhaustive discussion of this subject, from which their Lordships, have obtained valuable assistance, is to be found in the judgment of the Federal Court in 1939 F.C.R.18. Consistently with this decision, their Lordships are of opinion that a duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax upon goods not upon sales of the proceeds of sale of goods. Here again their Lordships find themselves it complete accord with the reasoning and conclusions of the Federal Court in the Boddu Paidanna case. The two taxes, the one levied upon a manufacturer in respect of his goods,, the other upon a vendor in respect of his sales, may, as is there pointed out, in .One sense overlap. But in law there is no overlapping. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the excisable article leaves the factory or workshop for the first time upon the occasion of its sale. But that method of collecting the tax is an accident of administration: it is not of the essence of the duty of excise which is attracted by the manufacture itself'.
11. The nature of excise duty was also considered in a number of cases from the Indian jurisdiction.
It will be sufficient to refer to two of them only namely "A.K Roy v. Was. Ltd. (AIR 1973 S.C. 225) and "Union of India v. Bombay Tyre International Ltd." (AIR 1984 S.C. 420). In A.K Roy case, excise duty was sought to be assessed and levied under section 4(a) of the Indian Central Excises and Salt Act, 1944 (as it then was) not on the footing of the wholesale cash price but oh the basis of the retail price; after observing that "excise is a tax on the production and manufacture of goods" and that the section provided that the "real value should be found after deducting the selling cost and selling profit and that the real value can include only the manufacturing cost and manufacturing profit", it was held: "The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles".
12. It is noteworthy that in view of certain practical difficulties, some of which were prominently brought out in the. Judgment in A.K Roy case, section 4 of the Indian Act as it then stood was substituted by a new section with effect from October 1, 1975. In the "Union of India v. Bombay Tyre International Ltd."'(AIR 1984 S.C. 420) the central question was "whether the value of an Article for the purpose of excise duty must be determined by reference exclusively to the manufacturing cost and the manufacturing profit of the manufacturer or should be represented by the entire whole sale price charged by the manufacturer. In considering that question, the entire body of the case law on the subject was reviewed. After a comparison of the old section 4 and the new section 4 of the Act it was pointed out that a tax has two elements: the person, thing or activity on which the tax is imposed, and the amount of the ta^. The amount may be measured in many ways; but decided cases establish a clear distinction between the subject matter of a tax and the standard by which the amount of tax is measured. These two elements are described as the subject of a tax and the^measure of a tax section-4 "envisages a method of collecting tax at the point of the first sale effected by the manufacturer" and in both the old section 4 and the new section 4 "the price charged by the manufacturer on a sale by him represents the measure. Price and the sale are related concepts, and price has a definite connotation. The 'value' of the excisable article has to be computed with reference to the price charged by the manufacturer, the computation being made inaccordance with the terms of section 4.". It was held further that there can "be no doubt that where a manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessm ent of excise. That would be the wholesale cash price for which the -goods are sold at the factory gate within the meaning of section 4 (a). The price received by the wholesale dealer who purchases the goods from the manufacturer and in his turn sells the same in wholesale to other dealers would be irrelevant to the determination of the value and the goods would not be chargeable to excise on that basis". Thus the proposition "that excise is a tax oh the manufacture Or production of goods and not on anything else" was reaffirmed which was supported "by a catena of cases beginning with the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 (AIR 1939 F. C.l)."
13. The same view of the nature of the excise duty was taken by this Court in "Muhammad Yonus v.
Central Board of Revenue"(PLD 1964 S.C. 113). It was held that there was no limitation on the legislative power as to the stage at which a duty of excise is to be realized. "It is obvious that the taxing authority will impose it at a stage at which it would be most convenient and most lucrative but that is a matter which does not, in our view, affect the essential nature of the tax. The excise duty which is an indirect tax must, in the ultimate resort, always fall on the consumer but as to the stage at which it is to be collected there can be no inflexible rule. If a Legislature is. Competent to make laws with respect to duties of excise, the question as to whether that power extends to imposing duties on home-produced or home-manufactured goods at any stage the to consumption must always be determined upon the true construction of the enactment itself. All that can be said is that subject to the provisions of the statute, a duty of excise is a tax on goods produced or manufactured in the taxing country, and it ought normally not to be' confused with a tax which is a turnover or sales tax". This Court then referred to the Privy Council case "G.G. In Council v. Province of Madras"(AIR 1945 P.C.98) to highlight the distinction between the two taxes the excise duty and the sale tax.
14. It is clear from the guidance to be gleaned from the decided cases that the excise duty, like any other tax, has three elements: (1) the nature of the tax; (2) the measure of the tax and (3) the machinery for its collection.
15. Of them; the nature of the excise duty is of the first importance. The concept of the excise duty is a constitutional concept. While under the Government of India Act, 1935, excise duty was a central subject, and sales tax was a provincial subject, under our Constitution, as also under the Indian Constitution, both are now central subjects, (see items 44 and 49 of Federal Legislative list in the Fourth Schedule to the 1973 Constitution). But that fact cannot alter the fundamental nature of the excise duty. Even under the Government of India v Act, the Provincial, and not the Federal, legislature had power, in certain cases, to impose a duty of excise as also the sales tax. In those excepted cases, so observed their lordships of the Privy Council in "G.G. In Council vs. Province of Madras" (AIR 1945 P.C. 98, 101), "there appears to be no reason why the Provincial legislature should not impose a duty of excise in . Respect of the commodity manufactured and then a tax on first or other sales of the same commodity...."
16. The decided cases referred to above have long settled that the duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced.
Unlike the sales tax, where the liability to tax arises on the occasion of a sale, it is the fact of manufacture or production which attracts the duty of excise, even though it may be collected at a later stage. This is recognised by section 3 of the Act of 1944 itself - that section authorises the levy and collection "in such manner" as may be prescribed of "duties of excise on all excisable goods, produced or manufactured in Pakistan".
17. We have seen that under section 3, where the sales tax is to be levied and collected on the value of the goods produced and manufactured in Pakistan, that value is the sale price, as defined by clause (16) of section 2 of the Act of 1951, that is to say, the value determined under sub-section (1) of section 4 of the Act of 1944 plus the excise duty, if chargeable. We must, therefore, return to section 4, sub-section(l) of the Act of 1944.
18. As the learned Judges in the High Court have, in accepting the writ petition largely relied upon A.K Roy case (AIR 1935 S.C. 225), it will be convenient to place section 4 of our Act and section 4 (a) of the Indian Act, as it then stand, in juxtaposition. They read as follows: PAKIST AN
4. Determination of value for the purposes of duty .
(1) where under this Act any article is chargeable with duty at a rate dependent on the value of the article, such value "shall be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold to the general body of retail traders (or, if there is no general body of retail traders, the general body of consumers) on the day onINDIAN
4. Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value "shall be deemed to be
(a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of removal of the article chargeable with duty from the factory or any other premises of manufacture or production for delivery which the article which is being assessed to duty is removed from the factory or the warehouse, as the case may be, 'without any abatement or deduction whatever except the amounts ,of duty and sales tax then payable.
(2) Where under this Act any article is chargeable with duty at a rate dependent on the retail price of the article, the retail price shall be the price fixed by the manufacturer , inclusive of all charges and taxes (other than sales tax levied and collected on the basis of the sale price under the proviso to subsection (16) of section 2 of Sales Tax Act, 1951 (III of 1951) and octroi) at which any particular brand or variety of such article should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety , the highest such price). at the place of manufacture or production, or if a wholesale market does not exist for such article at such place, at the .
Nearest place where such market exists, or
(b) Where such price is not ascertainable, the price at which an articles of the like kind and quality , is sold or is capable of being sold by the manufacturer or producer , or his agent, at the. Time of the removal of the article, chargeable with duty from such factory or other premises for delivery at the place of manufacture or production, or if such article is not sold or is not capable of being sold at such place at any other place nearest thereto.
Explanation: In determining the price of any article under this section, no abatement or deduction shall be allowed except in respect of trade discount and the amount of duty payable y at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid.
19. It will be noted that section 4 provides both for the measure of the excise duty and the machinery for its collection. By sub section(l) thereof, the measure is the whole-sale cash price on the day on which the article is removed from the factory or the warehouse as the case may be. In that respect, there is no difference between our section 4(1) and section 4(a) of the Indian Act; while the words used in our section are "on the day on which the article is removed from the factory", the Words used in the Indian section are "at the time of removal of the article. From the factory or other premises of manufacture or production........ "Enough has been said above to show that these words merely indicate the stage of the collection of the duty, that stage being the occasion of the first sale by the manufacturer or producer, which the legislature finds the most convenient and lucrative time for the collection of the tax. The difference in the language of the two sections, if any, is a difference in form; there is no difference in substance; nor does it affect or alter the essence of the duty. Both in the Indian Act, and under section 4, sub-section(l) of our Act, the wholesale cash price charged by the manufacturer or producer on the first sale by him represents the measure. The charges, such as freight, octroi, are charges involved in transporting the goods; they have nothing to do with their manufacture and production and have, therefore, no relevance whatever to the levy of excise duty. As the duty is on the production or manufacture, no assistance is, in my opinion, to be derived from the words "without any abatement or deduction whatever except the amounts of duty and sales tax then payable".
19. This interpretation receives some support from our sub-section(2) of section 4 itself. That sub-section, as it stood at the relevant time (I hope I am right in that assumption, for there have been so many changes in that section) provided that where the excise duty depended upon the retail price of the article, the retail price was to be the price "fixed by the manufacturer, inclusive of all charges and taxes other than octroi...."Thus octroi duty was not to be included in the retail price; the reason is plain; octroi duty is an incident of transporting the goods from one place to another, and hence is not to be included in the value for the excise duty.
20. Under the new section 4 of the Indian Act, the value for purpose of duty of excise is deemed to be the normal price thereof, that is to say the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal. It was held in "Bombay Tyre International case (AIR 1984 S.C. 420) that by enacting the new section 4 "no material departure was intended from the basic scheme for determining the value of the excisable article" and "in both the old section and the new section 4, the price charged by the manufacturer on a sale by him represents the measure". In fact the dicta in A.K Roy case namely that the price had to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles was accorded legislative recognition in the new section 4 by enacting in sub section (2) of the new section 4 that "where in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price;" and it was held in the Bombay Tyre International case that "where the excisable article or an article of the like kind and quality is not sold in wholesale trade at the place of removal, that is, at the factory gate but is sold in the wholesale trade at a place outside the factory gate, the value should be determined as the price at which the excisable article is sold in the wholesale trade at such place after deducting therefrom the cost of transportation of the excisable article from the factory gate to such place".
21. The manner in which I have construed section 4, subsection^) of the Act of 1944 in its application to the facts of this appeal is, at the very least, a possible construction. This section is a taxing provision and in construing it, I have been guided by the well-entrenched principle that such provisions must be strictly construed, that is to say, if there be any ambiguity, it should be resolved in favour of the tax payer. The rule of law, and it is a constitutional rule, "that no pecuniary burden can be imposed upon the subjects of this country, by whatever name it may be called, whether tax, due, rate, or toll, except under clear and distinct legal authority, established by those who seek to impose the burden, has so often been the subject of legal decisions that it may be deemed a legal axiom..:....... "
(Wilde CJ. In "Noshing vs. very" 1850) 12 Q.B. 328, 407). The rule is "that a charge cannot be made unless the power to charge is given by express words or by necessary implication. These last words impose a rigorous test goint- far beyond the proposition that it would be reasonable or self conducive or incidental to charge for the provision of a service " (Reg v. Richmond (1992) 2 A.C.
48,67).
21. I would, therefore, dismiss the appeal, but leave the parties to bear their own costs.
ORDER OF COURT The appeal is allowed and the judgment of the Peshawar High Court, dated 17.3.1992, is set aside.