ABDUL QADEER CHAUDHRY, J.--1. These appeals by leave of the Court are directed against the judgment of the High Court dated 25th May, 1987.
2. The facts of the case are that the respondents are engaged in the business of retreading of tyres.
According to the respondents, they receive worn out tyres from the customers, repair, re-service and retread them and receive only repair charges. The appellants called upon the respondents to pay the Sales Tax. The respondents made a representation to the Central Board of Revenue. It was ordered by the Central Board of Revenue that the respondent-Company was exempt from payment of excise duty but the goods in question were chargeable to Sales Tax. The respondents challenged the action of the appellants in a Constitution Petition which was accepted and it was observed that the retreaded tyres are not mentioned in Section 3(i) of the Sales Tax (Act, 1951), therefore, they are not liable to excise duty.
3. The learned Deputy Attorney General submitted that the retreading of tyres is a process of manufacturing. As such, the respondents are manufacturer of taxable goods. To understand the controversy, we may refer to the definition clause.
4. "Manufacturer or Producer" has been defined in Section 2(11) of the Sales Tax Act (hereinafter referred to as the Act) which reads as follows:-- "2(11). "Manufacturer or Producer" means a person who engages, whether exclusively or not, in the production or manufacture of goods, and includes a printer, publisher, lithographer or engraver, or a person engaged in the ginning of cotton, and also any person (not being an employee) who manufactures goods, whether or not the materials of which the goods are manufactured are owned by him.
The expression also includes;
(i) the assignee, trustee in bankruptcy liquidator, executor, or curator or any manufacturer or producer and, generally, any person who continues the business of a manufacturer or producer or disposes of his assets in any fiduciary capacity;
(ii) any person, firm or company which owns, holds, claims, or uses any patent, proprietary, sales or other right to goods being manufactured, whether by them, in their name, or for them on their behalf by others, whether such person, firm or company sells, distributes, consigns, or otherwise disposes of the goods or not".
5. A "manufacturer" is a person who engages in the manufacture of goods. Certain specified persons have also been included in the category of manufacturers. The respondents retread tyres.
They do not manufacture any specified goods. The ordinary meaning of "manufacture" is a process of making of an article or material by application of physical labour or mechanical power. The respondents do not manufacture the goods but repair it. The definition of "manufacture" is to be read in conjunction with the definition of "sale" mentioned in S. 2(15) of the Act and it means "every: transfer of the property in goods from one person to another in the course of trade or business". In order to constitute a "sale",] there must be transfer of goods or property. In the present1 case, the respondents had returned the same goods to its owner after charging for the repair and the work done by them. There is no sale of the goods so as to attract the Sales Tax Act. We may also refer to Section 3 bf the Act which is the charging provision and Section 3(i)(a) contemplates that there should be levied and collected a tax on the value of goods produced or manufactured in Pakistan payable by the manufacturer or producer. The goods manufactured and sold are liable to Sales Tax. The definition is quite clear as the goods are not produced or manufactured by the respondents, the tax is not leviable.
6. The learned Deputy Attorney-General has referred to the definition of "Manufacture" contained in Section 2(f) of the Central Excises and Salt Act, which provides "manufacture"1 includes any process incidental or ancillary to the completion of a manufactured product and any process of re- manufacture, remaking, reconditioning or repair and the processes of packing or re-packing such product. On the strength of this definition, he submitted that it applies to retreading or repair and retreading of tyre amounts to "manufacture", therefore, the case of the respondents is covered by this definition. The definition in Excises and Salt Act is not doubt exhaustive as it also applies to any process of repair. But this comprehensive definition does not burden the respondents with the liability for to reasons. One, according to the appellants themselves, the respondents are not liable to excise duty, and second, the definition of "manufacture" has been specifically mentioned in the Act itself.
7. The combined effect of Section 2(11) and Section 3 of the Act is that the sale tax can be collected from the production of those goods which are produced or manufactured. The extended definition of Excises and Salt Act does not apply to the present case. The learned Deputy Attorney General has referred to Webster Dictionary where "retread" has been defined as "to put a new tread on a tyre, as a neumatic tyre retread, a tyre whose tread has been replaced, anything used again after repairs". Even according to Dictionary meaning "anything used again after repairs does not mean that the goods have been shaped into a new product.
8. The learned High Court has relied upon The King vs. Boultbec Limited I DTC 215 wherein it was held that the defendant merely retreads a tyre there is never a sale and unless, there is a sale no sales tax is imposed". It was further held that "the sales tax was not intended to apply to the repair work carried out to an automobile tyre owned by the customer in order to prolong its life, the customer never having parted with the possession of the same."
9. In Corpus Juris Secundum (Sec. 274 P. 520 Vol. 84), it is stated that "Broadly speaking, however, "manufacture" means to work, as raw or partly wrought materials, into forms suitable for use, and ordinarily it is necessary that a company process raw material and produce therefrom a different product in order to be entitled to tax exemption as a manufacturer".
9-A. In Corpus Juris Secundum-55 at page 669, it is stated that "the word "manufacture" has been defined as the production of articles for use from raw or prepared materials by giving these materials new forms, qualities, properties, or combinations, whether by hand labour or by machinery".
10. In the American Jurisprudence (at page 160), the terms "manufacturing" and "processing" imply essentially a transformation or conversion of material or things into a different state or form from that in which they originally existed...... a person engaged in the business of recapping and retreading automobile tires is not the business of manufacturing".
11. In Zook v. Perkins, 118 Colo 464, American Jurisprudence P. 160 Foot-note 58, it is held that "the statute did not exempt the sale of camelback, cushion gun, rubber cement and cord used in recapping and retreading tires since such a person is not engaged in the business of manufacturing any article but the repair of an old article".
12. In Union of India v. Delhi Cloth and General Mills (A.I.R. 1963 S.C. 791), it was held that "Excise duty is on the manufacture of goods and not on the sale. If from the raw materials, new substance has been brought into existence by the application of processes one or more of which are with the aid of power. Moreover, the definition of "goods" make it clear that to become "goods" an article must be something which can ordinarily come to the market to be bought and sold".
13. Govt, of A.P.V. Guntur Tobaccos (A.I.R. 1965 S.C. 1396). In this case, a customer gave to the Company raw tobacco for re-drying. It re-dried it in its factory, packed it in gunny water-proof paper and delivered it to the customer. It charged the customer at a consolidated rate for re- drying and for the packing material supplied by it. It was held that "packing tobacco in water-proof material must be regarded as an integral part of the process of re-drying and not independent of that process".
14. Collector of Central Excise, Bombay v. M/s. Kiran Spinning Mills (A.I.R. 1988 S.C. 871), In this case, the respondent purchased polyester fibre tow and cut it into short pieces. It was held that "Even by cutting, the respondents obtained man-made fibre. Such cutting, therefore, involved no manufacture and, hence, no duty liability can be imposed upon them". We may also refer to Asstt: Collector V. O. Straw & P.M. Ltd. (PLD. 1991 S.C. 992).
15. "Manufacture" generally connotes conversion of something and bringing into existence a new substance. By this process the character of a commodity is transformed into a new article.
16. The respondents are not engaged in the business of manufacture of new goods which attracts the charging provisions of the Act, as the duty is to be imposed on the manufacture of goods.
For the aforesaid reasons, we are of the opinion that the view taken by the High Court is correct.
We, therefore, dismiss these appeals. The parties are left to bear their own costs.