QAZI MUHAMMAD FAROOQ, J.---The abovementioned appeals, by leave of the Court, are being taken up and disposed of together through this common judgment as they are directed against identical judgments, dated 22-11-1999, 9-2-2000, 10-3-2000, 21-3-2000, 18-2-2000, 24-5-2000, 14- 6-2000 and 10-4-2000 rendered by a learned Single Judge of the Lahore High Court, Lahore in twenty-two writ petitions.
2. The appeals have arisen in the background of facts that through notices of demand, issued on the strength of rule 6 of the Special Procedure for Ginning Industry Rules, 1996 (hereinafter referred to as the Rules), as many as 22 Textile Mills producing yarn and allied products were directed by the Central Board of Revenue to deposit the sales tax on the cotton purchased by them from the Ginners during the period 1996-97, 1997-98 and 1998-99. The concerned Textile Mills did not take any exception to the demand at the outset but in the wake of addition of subsection (3-A) to section 3 of the Sales Tax Act, 1990 (hereinafter referred to as the Act) by the Finance Act, 1998 they questioned the vires of the Rules through various writ petitions filed in the Lahore High Court. The challenge was thrown mainly on the ground that rules 5 and 6 of the Rules were ultra vires of the Act in that they had placed liability to pay sales tax on the person receiving the supply instead of the person making supply as provided by subsection (3) of section 3 of the Act. The writ petitions were allowed by a learned Single Judge of the Lahore High Court on two grounds. First, that the Federal Government had not so far issued a notification in terms of subsection (3A) of section. 3 of the Act under which it was empowered to specify by a notification in the official Gazette the goods in respect of which the liability to pay tax shall be of the person receiving the supply. Secondly, rules 5 and 6 of the Rules were void being in conflict with subsection (3) of section 3 of the Act.
3. Leave to appeal was granted to consider whether rules 5 and 6 of the Rules are ultra vires of the Act.
4. Mr. Izhar-ul-Haq, A.S.C. Learned counsel for the appellants in Civil Appeals Nos.1094, 1095, 1342 and 1343 of 2000 raised the following contentions:--
(i) The Rules were issued under section 71 of the Act. No doubt under subsection (3) of section 3 of the Act liability to pay the sales tax was of the person making supply but the authority to make, a departure from the provisions of section 3(3) was conferred on the Federal Government by section 71(1) of the Act, which is worded thus:-- "Notwithstanding anything contained in this Act, the Federal Government may, by notification in the official Gazette, prescribe special procedure for scope and payment of tax..."
(ii) No prejudice had been caused to the respondents by rules 5 and 6 as liability to pay sales tax always rests upon the ultimate consumers and the payment of the sales tax by any intermediary can be adjusted under the Act.
(iii) The preamble of the Rules has been amended so as to include the phrase "read with subsection (3-A) of section 3 thereof", therefore, even if rules 5 and 6 were not applicable to the assessm ent years prior to 1998 they are applicable to the assessment years thereafter.
(iv) Rules 5 and 6 were not ultra vires of the Act and at the most were inapplicable to the assessm ent years prior to 1998.
5. Mr. K.M. Virk, A.S.C., learned counsel for the appellants in Civil Appeals Nos.1096 to 1103, 1328 to 1333, 1334 to 1341 of 2000, adopted the arguments addressed by Mr. Izhar-ul-Haq. However, he added that the rules in question were procedural in nature, the responsibility of the supplier was restricted to collection of tax and when the recipient further supplies the goods after undertaking manufacturing process he is entitled to deduct the input tax from the output tax.
6. Mr. Mansoor Ahmed, learned Deputy Attorney-General, submitted that rules 5 and 6 were intra vires having been framed under section 71 of the Act in accordance with the spirit of the parent enactment; the recipient is included in the pale of sales tax; the provisions contained in subsection (3A) of section 3 of the Act have not been appreciated by the High Court properly and the tax has been levied on the goods supplied and not on persons. It was further submitted that in the repealed Sales Tax Act, 1951 there was a similar provision under section 3(6) regarding which this Court had observed in 1999 SCM R 526 that self-use of a supply would also constitute supply for the purpose of sales tax.
7. Mr. Sibtain Fazli, A.S.C., learned counsel for the respondents defended the impugned judgments by reiterating the observations made therein. The main trust of his arguments was that rule 6 was substantive and not procedural in nature and was also inconsistent with the substantive provision contained in subsection (3) of section 3 of the Act that liability to pay the sales tax was of the supplier making the taxable supplies. That the present rule 6 was substituted by SRO No.483(1)/98, dated 27--5-1998 for rule 6 notified by SRO-820(1)/97, dated 23-9-1997 which was struck down by the Lahore High Court in the case of Aruj Textile Mills Limited v. Federation of Pakistan through Secretary, Ministry of Finance, Federal Secretariat, Islamabad and 2 others (1998 PTD 3855) on the ground that the Central Board of Revenue did not have the power to frame rules. He further argued that subsection (3-A) of section 3 was inserted in the Act after the publication of Notification No.SRO 483(1)/98 and had come into force with effect from 1-7-1998 and the Federal Government had not issued any notification thereunder with regard to payment of sales tax by the recipient of supply. It was lastly contended that the impugned judgments have been implemented by means of Notification No. SRO-118(1)/2000, dated 13-3-2000 which provides that the Rules are to be read with subsection (3-A) of section 3 of the Act.
8. Before proceeding further it would be advantageous to reproduce hereunder subsection (3) of section 3 of the Act, Rules 5 and 6 of the Rules and subsection (3-A) of section 3 of the Act:-- Subsection (3) of section 3 reads as under: "(3) The liability to pay the tax shall be,---
(a) in the case of supply of goods in Pakistan, of the person making the supply, and
(b) in the case of goods imported into Pakistan, of the person importing the goods."
Rules 5 and 6 read as under:-- "5. Tax invoice.---The ginner shall issue a tax invoice on the supply of taxable goods under section 23 of the Act indicating the value of taxable supply and the amount of tax due on such supply.
6. Payment of tax.---(1) before taking delivery of the supply of cotton seed or ginned cotton, the buyer shall deposit the tax due in the Government treasury and deliver the treasury challan to the ginner for the amount of sales tax due on that supply as indicated on the tax invoice.
(2) Whether the ginner makes delivery of cotton-seed or ginned cotton without receipt of treasury challan showing the deposit of tax on the quantity under supply, he shall be liable to pay the tax involved alongwith penalty and additional tax and shall also be liable to any other penal or criminal action without prejudice to any other action which may be taken against the buyer under the Act.
(3) The ginner shall, on the due date, file a return, alongwith treasury challans received during the month, in respect of supply of cottonseed or ginned cotton.
(4) The ginner shall, deposit the sales tax, collected by him in respect of supplies of taxable goods other than the cotton-seed or ginned cotton in the designated branch of National Bank of Pakistan by the 20th of the following month."
Subsection (3-A) of section 3 is worded thus:-- "(3-A) Notwithstanding anything contained in clause (a) of subsection (3), the Federal Government may, by a notification in the official Gazette, specify the goods in respect of which the liability to pay tax shall be of the person receiving the supply."
9. A plain reading of subsection (3) of section 3 of the Act and Rule 6 of the Rules makes it manifest that rule 6 is not only substantive in nature but is also violative of subsection (3) of section 3 of the Act as it has squarely shifted the liability to pay sales tax from the person making the supply i.e. The ginner to the person receiving the supply. The 'non obstante' clause in section 71(1) of the Act, alluded to in the contentions of Mr. Izharul Hach cannot offset the conflicting effect of rule 6 and make it intra vires for the short reason that it relates to the procedural provisions with regard to payment of sales tax. Rule 6 cannot take the place of subsection (3) of section 3 of the Act inasmuch as no deviation can be made from the substantive provisions in exercise of powers conferred by section 71(1) of the Act. It is by now firmly settled that in the event of conflict between a rule and a substantive provision of the parent Act the former is void or inapplicable to the extent of inconsistency.
10. There is yet another insurmountable hurdle in the way of the appellants. Present rule 6 had come into effect on 27-5-1998 by virtue of Notification No.SRO-483(1)/98 whereas subsection (3A) of section 3 of the Act, which authorized the Federal Government to specify the goods in respect of which the liability to pay tax shall be of the person receiving the supply, had come into force on 1- 7-1998 and the requisite notification was not issued. This would mean that even at the time of issuance of SRO-483(1)/98 the supplier and not the recipient of the supply was burdened with the liability to pay tax.
11. Adverting to the newly added subsection (3-A) to section 3 of the Act we find that the notification envisaged by it was issued on 13-3-2000 as Notification No.SR0-118(1)/2000. It is worded thus:-- "Notification No. S.R.O. 118(1)/2000, dated 13th March, 2000.--.-In exercise of the powers conferred by section 71 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that the following further amendment shall be made in the Special Procedure for Ginning Industry Rules, 1996, namely:-- - In the aforesaid Rules in the preamble, after the figure and comma "1990", the words, brackets, letters, figures and comma "read with subsection (3A) of section 3 thereof," shall be inserted.".
12. The above notification points to implementation of the impugned judgments and as such goes a long way to support the standpoint of the respondents and the conclusions arrived at by, the High Court. It has also regenerated rules 5 and 6 by bringing them in line with the substantive provisions of the Act, therefore, in order to ward off confusion and further litigation we are inclined to substitute the expression 'ultra vires' by the expression 'inapplicable'. In other words rules 5 and 6 of the Rules are held to be inapplicable to the case of the respondents instead of ultra vires of the Act as held by the High Court. With this modification, the appeals are dismissed. No order as to costs. .