JUSTICE (R) AKHTAR HASSAN, CHAIRMAN,- 1. This appeal is directed against the Sales Tax Order- in-Appeal No. 155/1996 passed by the Learned Collector (Appeals) Central Zone, Lahore whereby the appeal brought before him against the Assessment Order No. 13/1996 dated 30.6.96 of the Superintendent of the Sales Tax, Gulberg Circle, Lahore, was dismissed.
2. The appellant, International Tanners and Industries (Pvt.) Ltd. Is a subsidiary company of an International Company like Bata dealing in manufacture of rubber canvas shoes which are made up of a rubber compound mixture comprising the following:-- 1.Rubber Like Natural Rubber , Synthetic Rubber 2.Filler e.g. Carbon Black Silica 3.Modifiers e.g. Oils, waxes 4.Component of vulcanisation systemse.g. Sulphur + Accelerator Activators 5.Activators Activators e.g. Zinc Oside, Stearic Acid 6.Accelerators e.g. MBT , TMT, DPG, MBTS&CBS '
7.Vulcanising Agent e.g. Sulphur The mixture is pulled through rollers in continuous lengths in sheets called "Blanks". The blanks are cut into two feet wide strips; the strips are further cut into soles; the soles are affixed to "uppers" of the shoes already borne on moulds; the moulds carry them into autoclaves for vulcanisation which takes almost an hour in a high degree of temperature; and the result of all this three hour long process is the finished canvas shoes.
3. It was claimed that if the "blanks" were not passed through the above process, those would become "scorched", that is totally useless for any commercial purpose, nor were those ever marketed by the appellant and yet the Respondent Department held them in their order dated 30.6.96 to be "rubber sheets" and assessed them to the sales-tax amounting to Rs. 58,36,420/-.
Aggrieved by it the appellant preferred an appeal before the Learned Collector (Appeals), stating that the stuff was not an independent item of "taxable goods" as opined by the PCSIR in their report dated 2.7.96 nor was it subjected to any 'taxable supply', nor was indeed the Superintendent competent to make the assessm ent or adjudicate upon the matter. The effort somehow did not meet with any success in that the appeal was dismissed on 28.10.96 and hence the instant appeal.
4. The respondent contested the appeal strenuously reiterating that the so-called "blanks" were really the "rubber sheets" as opined by the PCSIR in their opinion dated 16.6.96 and also by the Customs Laboratory, in their report dated 7.8.96 and further that since those sheets were stacked in racks, those became by themselves 'taxable goods' and indeed capable of being treated as an independent 'taxable supply' falling under the PCT No. 4008.2100.
5. Elaborate arguments were advanced on either side. Mr. Mohammad Naseer, Superintendent was the author of the Assessm ent Order wherein he held the view that since the "Rubber Sheets" in question were stacked on racks, thereby those turned into an independent product, nor forming an integral part of the continuous process of manufacturing the canvas shoes enjoying exemption from the sales tax as per SRO No. 553(l)/94 dated 9.6.94. The appellants un-mincingly claimed that after the chemicals were added to the raw rubber, it would be made to pass through a Roller and come out as a sort of sheet known as blank - blank in the sense "that if not vulcanised within two to three hours would end up as scorched sheets" which indeed were a waste product and not taxable at all. This assertion was not categorically traversed by the respondents in their reply/comments and instead what they emphasised was that the so-called blanks, capable of being stacked in racks, were nothing else than rubber sheets which could be treated with impunity as an independent product liable to be charged to the sales tax. They did not express any view whatsoever that in case those stacked sheets were "not vulcanised within two to three hours would end up as scorched sheets". Further, they did not state at any stage if the appellant company had been marketing those sheets as such.
Such a version on the part of the Department was really due when the appellant consistently urged that they never marketed those blanks essentially because after becoming scorched, those came out to be a waste product. Failing to meet this point, in a categorical manner, would re-inforce the appellants' contention that those sheets being something intermediary in nature, could be further used only if those were processed through vulcanisation within two to three hours for pasting them with the 'uppers' of the canvas shoes.
6. Considerable reliance was placed upon the reports of the PCSIR dated 2.7.96 and of the Customs own Laboratory. In fact the report of the PCSIR was relied also by the appellant to conclude that the blanks were not something marketable and hence not liable to tax. The report was- "the sample provided is unvulcanised rubber which cannot be used as such and it is a part of process for canvas built up shoe manufacturing. Vulcanisation process will put it in a suitable condition for marketing. Vulcanised and unvulcanised rubber usually have the same chemical composition but physically they are different".
Its careful perusal helps the appellants more than the respondent Department when it says that those sheets "cannot be used as such and it is a part of process for canvas built up shoe manufacturing". What is left behind? Three things appear to have been made clear by this report; firstly that those sheets "cannot be used as such"; secondly that "it is a part of process for canvas built up shoe manufacturing" and thirdly, vulcanised and unvulcanised rubber usually have the same chemical composition but physically they are different. These ingredients taken together amply established that those sheets, in the shape of blanks were of no use and further that those could be used only after vulcanisation for manufacturing the canvas shoes. In other words, it is the vulcanisation that makes all the difference and that too in a very limited time frame i.e. Within two to three hours. If those are not vulcanised so soon after they are rolled out, they "cannot be used as such", meaning thereby that they turn out to be a totally waste product.
7. The Customs Laboratory at Lahore gave the opinion in their report dated 7.8.96 as under:- " Apparently the material is embossed sheet of non-cellular rubber of 4008.2100 PCT."
It will be seen that this opinion is not as categorical as given by the PCSIR which was quite an independent institution claiming considerable realibility. Thus there was every reason to follow the PCSIRs opinion which the respondent Department itself called for and should therefore, be bound by it. Mr. Mohammad Naseer, Suptd, in his written arguments tried to show that since the rubber sheets were capable of being weighed, counted and stored a fortiori those were marketable. I am afraid, the three 'attributes chosen by Mr. Mohammad Naseer, Suptd, would not necessarily make the stuff marketable. Weighing, counting and storing on racks could be applied to any material including waste. Marketability could have better been proved by calling the appellants' record of sales etc. But no effort was made in that behalf. The view that the rubber sheets fell under 4008.2100 PCT seems also to be some-what doubtful because the figure 4008 includes in its purview items other than hard rubber. It was not denied that the unvulacanised blanks would become hard rubber of waste type.
8. Reference was made to rule 2 of the Rules for interpretation of the Harmon;, .d System in support of the contention that the blanks were rubber sheets having the leviable status. I do not think rule 2 ibid helps the respondent much. The end-product in the shape of canvas shoe being exempt from sales tax, it would be completely otiose to suggest that any constituent thereof at an earlier or intermediary stage, would be amenable to such a tax. In fact any such argument would go against the spirit of making the end-product a tax free goods.
9. Mr. Mohammad Naseer, Suptd, made a special reference to SRO 555(l)/94 dated 9.6.94 asserting that Chapter 40 of the Customs Tariff dealing with "Rubber and Articles thereof" was chargeable to sales tax excepting of course the three items given at Nos. 43, 44 and 45 of the Table annexed to the said SRO at page 319 of Sales Tax Act, 1990 (sixth edition). His point was that since the blanks/sheets were not included among the aforesaid three exempted items of Chapter 40 of the PCT, those were therefore, essentially chargeable to the sales tax. The SRO gives a long list of items in the Table annexed to it spreading over on pages 320, 321, 322, 323, 324 and 325. At its S. No. 69 "parts of foot wear (64.06) were the items exempted from the sales tax. PCT 64.06 deals with:-- "Parts of footwear (including uppers whether or not attached to soles other than outer soles); removable in-soles, heel cushions and similar articles; faithers, leggings and similar articles and parts thereof".
It will be appreciated that the expression "parts of footwear" would include the so-called blank or the rubber sheet used as 'soles' for the 'uppers'. It is obvious that, as a part of footwear the aforesaid blank/rubber sheet would enjoy exemption from the sales tax under the aforesaid SRO. It may be made clear that the term "footwear" used against PCT No. 64.06 covers every type of footwear including those made of canvas or rubber. Its definition is "inclusive" meaning thereby that it would include all sorts of footwear of whatever material, say leather, rubber or "of other material" vide the sub-head 6406.9900. There is no warrant to restrict its meanings to any particular shape, brand or kind of footwear contemplated by the aforesaid PCT 64.06 and hence the exemption extends to all sorts of footwear or their parts. To contend that the exemption extended only to the finished version of footwear cannot be accepted because even parts thereof have been also allowed the same. Further in the index of Customs Tariff and Trade Controls 7th Edition 1995-96 part-I at page 1.967 footwear of Canvas have been shown in Heading Nos. 64.4 and 64.05 but these were the two Head Nos. - not included in the SRO No. 555(l)/94 dated 9.6.94 and hence any reference to these was totally irrelevant. In the present case it was admitted on all hands that the Canvas shoes being manufactured by the appellant were exempt from the sales tax. Correspondingly therefore, the appellants contention that their claim of exemption fell under "parts of footwear (64.06)" included in the Table annexed to the aforesaid SRO, appeared substantially correct.
10. For the above reasons, I feel constrained to hold that the levy of the sales tax etc. In question could not be sustained in law. The appeal is allowed and the impugned order is set aside.