MUHAMMAD MUJEEBULLAH SIDDIQUI, J.--A common issue is involved in all the three petitions, therefore, they have been heard together and are disposed of by this single consolidated judgment.
2. For the sake of convenience, the facts are recorded from C.P. No, D-845 of 2004.
3. The petitioner is a Private Limited Company carrying on business as the re-rolling mill producing Mild Steel Products (steel bars, rods, wire-rods, sections etc.) for onward sale to its consumers. It procures raw material i,e, "Billet" from Pakistan Steel Mills for the purpose of re-rolling. In addition to the Pakistan Steel Mills, there are other Steel Mehers also who melt or cast ingots or billets either from locally generated or undocumented imports, smuggled scrap and imported scrap. Both the products, billets produced by the Pakistan Steel Mills or ingots or the billets produced by steel melters are purchased by re-rolling mills for the production of M.S. Products. The price of any M.S. Products available in the market is inclusive of sales-tax. According to the petitioners they are registered persons under the Sales-Tax Act, and are paying sales-tax on the value of supply.
However, in other parts of the country such as Punjab and N.-W.F.P. The persons engaged in the same trade as the petitioners, are subjected to differential of sales-tax. Consequently, there is a price anomaly in the market making 'the petitioner's product more expensive than available in other parts of the country. The re-rolling Mills in Punjab and N.-W.F.P. Were paying sales-tax at 280 PMT on the billets and ingots and Rs,150 on the bar making stage. The re-rolling mills buying billets from Pakistan Steel Mills were paying GST at 20% and other tax at 3%. This resulted in price differential to the disadvantage of the petitioners as their products were much higher in value than those produced by the melters. The re-rolling mills, which were Down Stream InduStry of Pakistan had serious disadvantages and were treated discriminatorily. The matter was brought to the knowledge of Federal Government and the C.B.R. It was asserted that the persons engaged in re- rolling in Down Stream Industry of Pakistan Steel Mills, were assured that the existing system of input/output tax shall be implemented in the steel industry. However, it came to the knowledge of the petitioners that the re-melters and re-rollers in the un-documented/unorganized sector have started working on the proposal of levying fixed sales-tax of Rs,300 and Rs,400 PMT on steel melting and Rs,200 PMT on re-rolling. The petitioners pleaded that the said fiscal distortion in the two rates would derive the documented steel sector out of business. It was requested that uniform rate of sales-tax should be applied. In order to correct anomaly in the sales-tax rate the Finance Minister announced in his budget speech for the fiscal year, 2004-2005 for the levy of uniform rate of 15% GST across the board. It is averred that Central Board of Revenue in an arbitrary and discriminatory manner without any rational basis notified the sales-tax rates for the steel industry vide Notification S.R.O. No,484(I)/2004, dated 12th June, 2004. The C.B.R. In exercise of the powers conferred by section 71 of the Sales Tax Act, 1990, read with Clause (9) of section 2, sections 3, 3AA and 4 subsection (2) of section 6, section 7-A, Clause (b) subsection (1) of section 8; Clause (a) of subsection (2) of section 13, section 26-AA and 34-A and the first and second provisos to section 45 notified the Sales Tax Special Procedure Rules, 2004, (hereinafter referred to as the rules).
Chapter 12 of these rules dealt with the special procedure for payment of sales-tax by steel melters and re-rollers. Rule 87 provided that the chapter was applicable to the steel melting and steel re- rolling mills except Pakistan Steel Mills, Karachi.
4. It is averred by the petitioners that in terms of the above rules, the rate of tax payable by the steel melters on the production of ingots and billets were Rs,400 PMT and Rs,300 PMT and the tax payable on the production of M.S. Products is Rs,200 PMT. It is alleged that the petitioner being downstream industry of Pakistan steel mills are purchasing billets from them for production of M.S. Products, and have to pay sales-tax at Rs,4,237 PMT and sales-tax at M.S. Products at Rs,719 whereas manual re-rolling mills using the ingots/billets from the steel meltes other than Pakistan Steel Mills have to pay Rs,300/400 PMT sales-tax and Rs,200 on M.S. Products.
5. It is contended that the treatment metted out to the down stream industry of Pakistan Steel Mills and the other re-rollers is discriminatory and violative of the rights guaranteed under Articles 4, 18, 23 and 25 of the Constitution. It is asserted that the petitioners shall be driven out of the business on account of this discriminatory treatment.
6. It is further alleged that the provisions contained in Chapter 12 of the Rules, is in clear violation of section 3(1) and (2) of the Sales Tax Act, 1990 and that rules are in conflict with the Act. It is contended that the power of Federal Government contained in subsection (2)(b) of section 3 providing that, "Federal Government may, subject to such conditions and restrictions as it may impose, by notification in the official Gazette, declare that in respect of any goods or class of goods imported into or produced or any taxable supplies made by registered persons or class of registered persons, the tax shall be charged, collected and paid in such manner and in such higher or lower rate/rates, as specified in such notification, cannot be utilized to discriminate between persons in the same group. It is stated that all the re-rollers purchasing ingots/billets from steel melters should pay sales-tax at the rate of 15% as being paid by the petitioners. It is submitted that the petitioner cannot compete to sell products in the open market on account of discriminatory treatment and that their business would be ruined on account of higher rates of their end products.
7. The petitioners have,sought declaration that Chapter 12 of the Rules is arbitrary, discriminatory, mala fide and without jurisdiction and a direction to the respondents for charging sales-tax on billets and M.S. Products at the same rates from all the re-rollers without any distinction on account of purchase of the ingots/billets from Pakistan Steel Mills or from the steel melters in the unorganized/undocumented sector.
8. The Respondent No,3, Deputy Director Sales Tax and Central Excise (Legal) filed the parawise comments. It was contended that the. Issue raised by the petitioners pertained to the standard/method of determining minimum taxable value for the purpose of levy of sales-tax and that entire simplified scheme for payment of tax has been consented and agreed to by the association of the petitioners and consequently, the petitioners are debarred from raising the objection. It was further stated that Chapter 12 of the Rules, is neither discriminatory nor oppressive but reasonable to the melters/re-rollers operating manually which have been classified under separate group for the purpose of arriving at minimum value of supply, for the purpose of determining uniform tax liability at the rate of 15% under section 3 of the Sales Tax Act. It was alleged that such classification is permissible under section 7-A of the Sales Tax Act, 1990. It was maintained that the rules were framed for providing a minimum benchmark for payment of sales- tax for the unorganized sector so that organized sector including the petitioners do not suffer.
According to the respondent, the rate of sales-tax is uniform for all the steel melters without any distinction and the scheme introduced under the rules with the consent of the representative association of petitioners does not override the statutory provisions of the Sales Tax Act.
9. The Respondent No,3 took plea that the purpose of framing the rules is to control misdeclaration of value by unorganized sector by prescribing minimum value addition to be carried out by steel melters and manual steel re-rollers. A very pertinent plea has been taken to the effect that if actual value addition is higher than the prescribed one, then the sales-tax is to be paid on higher value addition and thus the object of the rules is clear, i,e,, to control the misdeclaration by the unorganized sector. According to respondent a steel melter in the unorganized sector has to pay sales-tax on hispurchases or import of raw material and other taxable raw materials/impor4s. The respondent's version is that the sales-tax is invariably charged on imported scrap and this component of sales tax is included in price of scrap even if the scrap is sold by a person without issuing a sales-tax invoice showing amount of sales tax.
10. A breakup of the sales-tax paid on various stages by a steel melters and Pakistan Steel Mills, Karachi has been given as follows:- (a)Melters having no invoice of purchases (Details given in Annex-B) Taxable Sales Tax Value at 15% Value of purchase 22,577 Minimum value addition 2,667 25,244 3,786 (b)Melters having invoice of purchases (Details given in Annex-C) Value 22,577 Minimum value addition 2,000 3,686 (c)Pakistan Steel 28,000 4,200 Annexures & 'C referred to above contain the following details:-- Annexure `B'
Cost Break of Steel Melters having no invoice of purchase. Total output tax proposed to be charged on supply of ingots by Steel Melters (per ton @ 15%)
Detail of inputs Cost per tonSales tax paid Scrap 17052 00 Haulage, Wharfage, Insurance etc.1288 00 Wastage 917 00 Electricity 800 Units @ 3.652920 00 Labour charges 200 00 Lining, Silica Sand, Moulds100 00 Repair Maintenance100 Total 22,577 00 Budgetory Measure: Proposed Minimum Value Addition2,667 400 Total value and Total tax paid25,244 3,786 Annexure 'C'
Cost Break of Steel Melters having no invoice of purchase. Total output tax proposed to be charged on supply of ingots by Steel Melters (per ton @ 15%)
Detail of inputs Cost per tonSales tax paid Scrap 17052 2558.00 Haulage, Wharfage, Insurance etc.1288 Wastage 917 137.55 Electricity 800 Units @ 3.652920 438.00 Labour charges 200 Lining, Silica Sand, Moulds100 15.00 Repair Maintenance100 15.00 Total 22,577 3164.00 Budgetory Measure: Proposed Minimum Value Addition2,000 300.00 Tosal value and Total tax paid25,577 3,686.00
11. It is further stated that the application of the rules to Pakistan Steel Mills was excluded mainly due to the fact that the value of supply made by. The Pakistan Steel for determination of sales-tax is already reasonable as against the other steel melters. It is stated that the products of the petitioner is expensive because it is made from billets manufactured from imported raw materials and are of superior quality. Respondents have maintained that the petitioners have option to purchase the billets from steel melters other than the Pakistan Steel Mills. In short, the plea of the respondents is that the rate of sales-tax is uniform which is 15% as prescribed under section 3 of the Sales Tax Act and the rules have been framed for the purpose of regulating the method/standard for determining the value of taxable supply in the unorganized sector and that the rules have been framed under section 7-A of the Sales Tax Act, which has no overriding effect on section 3 of the Sales Tax Act. They have placed reliance on section 7-A and Rule 89 of the Rules.
12. Before dilating, on the contentions raised by the respective parties, it would be appropriate .To re-produce the relevant provisions of law which are as under:- Section 2(41). "taxable supply" means a supply of taxable goods made by an importer, manufacturer, wholesaler (including dealer), distributor or retailer other than a supply of goods which-is exempt under section 13 and includes a supply of goods chargeable to tax at the rate of zero per cent under section 4, Section 2(46). "value of supply" means,-
(a) in respect of a taxable supply, the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax: Provided that-
(i) in case the consideration for a supply is in kind or is partly in kind and partly in money, the value of the supply shall mean the open market price of the supply excluding the amount of tax;
(ii) m case the supplier and recipient are associated persons and the supply is made for no consideration or for a consideration which is lower than the open market price, the value of supply shall mean the open market price of the supply excluding the amount of tax; and
(iii) in case a taxable supply is made to a consumer from general public on instalment basis on a price inclusive of mark-up or surcharge rendering it higher than open market price, the value of supply shall mean the open market price of the supply of excluding the amount of tax.
(b) in case of trade discounts, the discounted price excluding the amount of tax; provided the tax invoice shows the discounted price and the related tax and the discount allowed is in conformity with the normal business practices;
(c) in case where for any special nature of a transaction it is difficult to ascertain the value of a supply, the open market price;
(d) in case of imported goods, the value determined under section 25 of the Customs Act, including the amount of customs-duties and central excise duty levied thereon;
(e) in case where there is sufficient reasons to believe that the value of a supply has not been correctly declared in the invoice, the value determined by the Valuation Committee comprising representatives of Trade and the Sales Tax Department constituted by the Collector; and
(f) in case the goods other than taxable goods are supplied to a registered person for processing, the value of supply of such processed goods shall mean the price excluding the amount of sales tax which such goods will fetch on sale in the market;
(g) in case of a taxable supply, with reference to retail tax, the price of taxable goods excluding the amount of retail tax, which is supplier will charge at the time of making taxable supply by him, or such other price as the Board may, by a notification in the official Gazette, specify: Provided that where the Central Board of Revenue deems it necessary, it may, by notification in the Official Gazette, fix the value of any taxable supplies or class of supplies and for that purpose fix different values for different classes or description of same type of supplies: Provided further that where the value at which the supply is made is higher than the value fixed by the Central Board of Revenue, the value of goods shall unless otherwise directed by the Board, be the value at which the supply is made; Section 3. Scope of tax.---(1) Subject to the provisions of this Act, there shall be charged, levied and paid a tax known as sales tax at the rate of fifteen percent of the value of---
(a) taxable supplies made by a registered person in the course or furtherance of any taxable activity carried only by him; and
(b) goods imported into Pakistan.
Section 7A. Levy and collection of tax on specified goods on value addition.--
(1) Notwithstanding anything contained in this Act or the rules made thereunder, the Federal Government may specify, by notification in the official Gazette, that sales tax chargeable on the supply of goods of such description or class shall, with such limitations or restrictions as may be prescribed, be levied and collected on the difference between the value of supply for which the goods are acquired and the value of supply for which the goods, either in the same state or on further manufacture, are supplied.
(2) Notwithstanding anything contained in this Act or the rules made thereunder, the Federal Government may, by notification in the official Gazette, and subject to the conditions, limitations, restrictions and procedure mentioned therein, specify the minimum value addition required to be declared by certain persons or categories of persons, for supply of goods of such description, or class as may be prescribed, and to waive the requirement of audit or scrutiny of records, if such minimum value addition is declared. Rule 89 Payment of tax.--(1) A steel melter shall pay sales tax at the rate specified in subsection (1) of section 3 of the Act on the following basis, namely:--
(a) for the purpose of determination of his tax liability, the production of a steel melter shall be calculated at the rate of eight hundred units of electricity consumed for production of one metric ton ingots or billets;
(b) where a steel melter, melts and casts ingots or billets from locally generated scrap for which a sales tax invoice is not available, he shall pay sales tax on value addition, subject to the condition that the minimum value addition shall be Rs,2667 per metric ton;
(c) where a steel melter, melts and casts ingots or billets from imported scrap against which he holds a valid bill of entry in his name, or from scrap purchased from Pakistan Steel Mills, Karachi against a valid sales tax invoice in his name, he shall pay sales tax as determined under section 7 the Sales Tax Act, 1990, subject to the condition that the minimum value addition shall be two thousand rupees per metric ton;
(d) where a steel melter, melts and casts ingots or billets from imported scrap as well as from scrap, he shall determine his liability proportionately as under clauses (a) and (b) above: Provided that in case a steel melter, in a tax period, issues sales tax invoices resulting in value addition greater than the value addition specified in clauses (a) to (d), he shall pay sales tax on the basis of such greater value addition.
(2) For the purpose of determination of tax liability , the production of a manual steel re-roller shall be calculated at one hundred and thirty units of electricity consumed for the manufacture of one metric ton MS products subject to the condition that his minimum value addition shall be Rs, 1335 per metric ton: Provided that in case a steel re-roller, in a tax period, issues sales tax invoices resulting in value addition greater than the value addition specified in this sub-rule, he shall pay sales tax on the basis of such greater value addition.
13. Heard the learned Advocates for the parties and perused the material on record produced by them. The learned Advocates for the Respondents Nos. 1, 2 and 3 as well as Mr. Fateh Muhammad, Additional Collector, who was present to assist the learned Advocates, contended on 18-8-2004 that uniform treatment is being given to the petitioners who purchase billets from the Pakistan Steel Mills and the other re-rollers who purchase the ingots/billets from the steel melters in the undocumented/unorganized sector. Their contention was that the Pakistan Steel Mills maintains the record and the value of supply declared by them is reasonable therefore, the declared value is accepted for the purpose of sales-tax under section 3 of the Sales Tax Act, on the value of supplies.
On the other hand, the business conducted by the other steel melters who are classified as belonging to undocumented/ unorganized sector do not maintain the documents, therefore, in order to protect the re-rollers purchasing the billets from the steel mills and to bring the unorganized/undocumented sector in the steel business within the tax net, a formula with the consent of association of the re-rollers and steel melters was evolved under the rules. Mr. Abid S. Zuberi, who addressed arguments on behalf of all the learned Advocates appearing for the petitioners, vehemently disputed this contention. His contention was that the petitioners are required to pay the sales-tax on purchase of billets from the Pakistan Steel Mills at the taxable value of Rs,28,250 resulting in the taxable liability of Rs,4,237.50 PMT at the rate of 15%. On the other hand, the sales-tax department is not charging any sales-tax on the value of ingots/billets worked out in accordance with the formula given in the rules and is merely charging 15% sales-tax on the amount of value addition only. i,e, Rs,2,667 in respect of the steel melters having no sales-tax invoice and at Rs,2000 from the steel melters holding tax invoice., The result is that the re-rollers purchasing ingots/billets from the steel melters who do not possess any sales-tax invoice are charged Sale Tax at Rs,400 PMT and from steel melters possessing the tax invoice at Rs,300 PMT.
The petitioners and the Respondent No,3, were therefore, directed to submit comparative statements showing the value of taxable supply in the case of purchase from the Pakistan Steel Mills and in the case of purchase from other steel melters.
14. After filing of the comparative statements and hearing the learned Advocates for the petitioners and Mr. Fateh Muhammad, Additional Collector, it transpired that the earlier statements filed on behalf of Respondent No,3, alongwith the parawise comments alleging that the total value of ingots/billets manufactured by the steel melters having no invoice of purchase was being worked out at Rs,22,577 and after minimum value addition of Rs,2,667 the total value of ingots/billets PMT was Rs,25,244 and the sales-tax thereon was being paid at Rs,3,786 and the value in the case of steel melters having invoice of purchase was being worked out at Rs,22,577 PMT and after value addition at Rs,2000, the total value was worked out at Rs,24,577 on which sales-tax was being paid at Rs,3,687 are factually incorrect. The Additional Collector, conceded to the factual position that in case of steel melters having no invoice of purchase, the total value of supply was being taken at Rs,2,667 PMT which represented the minimum value addition only and the sales-tax was being charged at Rs,400 only, while in the case of purchase of ingots from the steel melters having invoice of purchase the total value was being taken at Rs,2000 PMT which represented the minimum value addition only, and the sales-tax thereon was being charged at Rs,300. The result was that the working given in the annexures & 'Cwith the parawise comments showing the valuation of the supply at Rs,22,577 PMT was an exercise in futility. In fact it was merely a cover-up to conceal the fact that the value of supply of the ingots manufactured by the steel melters other than Pakistan Steel Mills was being allowed exemption without any sanction in law and the amount of value addition only was being subjected to the levy of sales-tax. The factual position which. Thus, emerges is that the re-rollers who are purchasing billets from the Pakistan Steel Mills are made to pay sales-tax at Rs,4,237.50, at the time of purchase from the steel mills while the re-rollers purchasing ingots from steel melters other than Pakistan Steel Mills are paying Rs,400/300 PMT at the time of purchase.
15. The Additional Collector, after conceding the above factual position, was asked to give reasons if any for the discriminatory treatment and to explain as to how the re-rollers paying more than Rs,4,200 PMT, as sales-tax at the time of purchase can compete with the re-rollers purchasing ingots from steel melters other than Pakistan Steel Mills and pay Rs,400/300 PMT only. The Additional Collector had no explanation, except that the petitioners are producing better quality.
M.S. Bars and therefore, their product is bound to be costlier than the M.S. Bars produced by the other re-rollers purchasing ingots from the steel melters other than Pakistan Steel Mills.
16. His next contention was that the petitioners have option not to purchase the billets from the Pakistan Steel Mills and to purchase the lesser quality ingots from the open market being manufactured by other steel melters and pay lesser amount of sales-tax. The Additional Collector further argued that in spite of apparent disparity in the charge of sales tax on purchase of billets from the Pakistan Steel Mills and, steel melters other than Pakistan Steel Mills, the treatment was not discriminatory. His contention was that the rate of sales-tax in both the cases is same i,e, 15% of the value of supply as specified in section 3 of the Sales Tax Act. He further argued that if the value of supply of the ingots other than value addition; in the case of steel melters other than Pakistan Steel Mills, is not being subjected to the levy of sales tax it does not mean that the sales-tax has not been paid by the importers of the scrap and the purchasers of the scrap. He vehemently argued that when the steel melters purchase the scrap either by import or from importer or from Pakistan Steel Mills or from Kabaris, they pay the sales tax which is to be passedon at the time of further supply, but the process of passing on the liability is stopped and is not continued because of the non-documentation of the business transaction. His plea, was that the raw material must have been subjected to the charge of sales-tax before reaching in the hands of steel welters, therefore, it does not make any difference if the value of taxable supply as worked out in accordance with the formula evolved in the rules is not subjected to the levy of sales tax and the sales-tax is charged on value addition only. According to him it is beneficial to the State revenue and does not affect adversely the petitioners, who purchase the billets from the Pakistan Steel Mills and pay the sales- tax on the total value of the supply which is about Rs, 28,250.
17. The learned Advocates appearing for the respondents No,1, 2 and 3 left the factual aspect, to be addressed by. The Additional Collector, Mr. Fateh Muhammad. ,However, they dealt with. The legal aspect contending that the rules framed are in pursuance of the provisionscontained in section 7- A of the Sales Tax Act, the validity or vires thereof has not been challenged, therefore, the rules are not open to any exception and the petitions are liable to be dismissed.
18. Mr. M.G. Dastagir, learned counsel for the Pakistan Steel Mills, stated that the Pakistan Steel Mills is a formal party as it collects the sales-tax in accordance with the law and has no role in the levy of the sales-tax which is being done in accordance with the law and the directions issued from time to time by the Federal Government/Central Board of Revenue,
19. Rebutting the contention of learned Advocates for Respondents 1 to 3 and the Additional Collector, Mr. Abid Zuberi, contended that the Respondent No,3, initially filed incorrect statements which is evident from the contents of annexures 'B& 'Cfiled with the parawise comments. He submitted that the Respondent No,3, through the parawise comments and annexures B & C tried to give the impression that the purchase of ingots from the mills having no invoice is suffering the incidence of sales-tax at Rs,3,786 PMT while the purchase of ingots from steel melters having invoice, are suffering the incidence of Sales Tax at Rs,3,686 PMT, as against the purchasers of billets, from Pakistan Steel Mills who are paying the sales-tax at Rs,4,200. He submitted that if the sales-tax is charged on the value shown in para. 9 of the parawise comments and annexures B & C with the parawise comments, the petitioners have no objections and they can go to the extent of not pressing the petitions, if the undertaking is given that the sales-tax shall be charged on the taxable value shown in the parawise comments and the annexures B & C. However, he submitted that it was a blatant misstatement and ultimately after a protracted exercise, arguments and preparation of charts, the Additional Collector, had no option but to concede that their earlier version is factually incorrect and in fact the sales-tax department is not charging any sales-tax on the value of supply worked-out in accordance with the rules in case of purchase from the steel melters other than Pakistan Steel Mills and the only value which is being subjected to sales-tax is the amount representing the minimum value addition. He submitted that this treatment is not in accordance with the law as under section 3 of the Sales Tax Act, which is charging section, a sales- tax at the rate of 15% of the value of the taxable supplies is to be charged, levied and paid. The value of supply has been defined in subsection (46) of section 2 while taxable supply has been defined in subsection (41) of section 2 of the Sales Tax Act, and tax liability is to be determined in respect of taxable supplies in accordance with the provisions contained in section 7 of the Sales Tax Act. He submitted that the sales tax is to be charged in accordance with the provisions contained in section 7 of the Sales Tax Act. He submitted that the sales-tax is to be charged in accordance with the provisions contained in sections 3, 2 (41)(46) and section 7 of the Sales Tax Act. He has maintained that in the parawise comments the Respondent No,3, has taken plea that the purpose of Chapter 12 of the Rules is to evolve a method for working out the value of taxable supply for payment of sales tax by steel melters and re-rollers which is permissible under section 7-A of the Sales Tax Act, 1990 and that impugned rules are not discriminatory and has been made to control unorganized sector. He pointed out that in Para. 6 of the parawise comments, it is specifically stated that the scheme introduced in the rules does not override the statutory provisions of the Act. However, while executing the scheme the sales-tax department is practically allowing exemptions to the value of supply worked out in accordance with the formula given in the rules itself and with charging of sales-tax on the amount representing value addition only has created the imbalance and discrimination.
20. We have carefully considered the contentions raised by the learned Advocates for the parties and have examined the provisions contained in section 7-A, the impugned rules and other provisions of the Sales Act referred to during the arguments.
21. To put it succinctly, the contention of petitioners is as follows:
(a) The provisions contained in Chapter 12 of the Sales Tax Special Procedure Rules, 2004 are discriminatory.
(b) The effect of the above rules is that the petitioners are required to pay sale-tax on the total value of supply of the billets at the time of purchase from the Pakistan Steel Mills, while the other re-rollers purchasing ingots/billets from steel melters other than Pakistan Steel Mills are required to pay sales-tax at the time of purchase of the ingots/billets on the fixed value, which is restricted to the amount of value addition only.
(c) The effect of the provisions contained in Chapter 12 of the Sales Tax Special Procedure Rules, 2004, is that the petitioners are being charged sales-tax at the rate of about 4,200 PMT, while the other re-rollers engaged in manufacture of similar goods are being charged sales-tax at Rs,400/300 PMT.
(d) Consequently, the end-products produced by the petitioners become very costly as compared to the end products produced by other re-rollers, which is disproportionate to the difference in the quality of end-products produced by, the petitioners and other re-rollers.
(e) The vast disparity in the price of end-products produced by the petitioners and other re-rollers on account of disproportionate charge of sales-tax having no nexus with the quality of the end- products shall drive out the petitioners from the competitive market and the petitioners have no objection if the sales-tax department continue to charge sales-tax from the petitioners on the value of the billets declared by the Pakistan Steel Mills, if they start charging sales tax on supply of ingots/billets by other steel melters in the country to other re-rollers on the value of supply worked out in accordance with formula given in annexures & 'Cwith the comments filed by the Respondent No,3, after the minimum value addition in accordance with the provisions contained in section 7- A(2) of the Sales Tax Act, read with Rule 89. The difference in the value of supply and the sales-tax in case of supply by the Pakistan Steel Mills and other steel metiers shall reflect a reasonable basis on account of difference in the quality of raw material used and end-products produced by the category of re-rollers purchasing billets from the Pakistan Steel Mills and category of other re- rollers purchasing ingots/billets from other steel melters and the classification so arrived at shall be reasonable.
22. On the other hand, the contention of learned counsel for the Respondents 1 to 3 and the departmental representative Mr. Fateh Muhammad, Additional Collector is as follows;-
(a) The provisions contained in Chapter 12 of the Sales Tax Special Procedure Rules, 2004, are not discriminatory.
(b) The petitioners and other re-rollers are being charged the sales tax at the same rate i,e, 15% as specified in section 3 of the Sales Tax Act, which is the charging section. The provisions contained in Chapter 12 of the Sales Tax Special Procedure Rules, 2004 have their sanction in section 7-A of the Sales Tax Act, the validity or vires whereof has not been challenged and, therefore, the rules in consonance with the statutory provisions cannot be assailed.
(d) The provisions contained in section 7-A of the Sales Tax Act, and in the rules in Chapter 12 namely (Special Procedure for payment of sales-tax by Steel melters and re-rollers) do not override the other statutory provisions in the Act, as the steel melters other than Pakistan Steel Mills are still required to pay sales-tax at the rate specified in subsection (1) of section 3 of the Sales Tax Act, with the only deviation that a formula has been devised for the purpose of determining the tax liability, which was necessitated on account of the other steel melters falling in the category of undocumented/unorganized sector. In order to further protect the interest of the re-rollers purchasing billets from Pakistan Steel Mills, a provision has been made for minium value addition and such value addition may be enhanced in case a steel melter issues sales-tax invoices resulting in value addition greater than the value addition specified in various clauses of Rule 89.
(e) The result of provisions of contained in section 7-A and the rules framed thereunder is that the Pakistan Steel Mills, falls within the category of steel melters which is maintaining proper record and is using better quality raw material and consequently the value of supply declared by Pakistan Steel Mills is accepted for the purpose of charging the sales-tax at the time of supply by them, while other steel melters fall under the category of undocumented sector who use imported scrap or scrap purchased from the Pakistan Steel Mills for which they hold the valid sales-tax invoice and the raw material used by them is of lower quality as compared to the Pakistan Steel Mills. They have been brought under the tax net by evolving a reasonable formula for the determination of taxable supply resulting in the charge of sales-tax on the basis of quality of the raw material and end-product. The difference in the value of taxable supply and the tax in consonance with the ground realities pertaining to the quality of raw material and the end-products.
(f) The sales-tax on the value of supply worked out in accordance with the formula in respect of the sale by the other steel melters is already charged before reaching of raw material in the hands of steel melters and they belonging to undocumented/ unorganized sector, cannot adjust input tax against output tax therefore, at the time of supply of the ingots/billets by the steel melters other than Pakistan Steel Mills to the re-rollers, no sales-tax is charged on the value of supply and the sales-tax is charged on the value addition only which fulfils the requirement of law and in fact, notwithstanding, the charging of sales-tax from the petitioners being Down Stream Industry of Pakistan Steel Mills at about Rs,4,200 PMT and charging of sales-tax from other re-rollers at Rs,400/300 PMT, neither there is any discrimination nor any disparity.
(g) The re-rollers falling within the category of Down Stream Industry of Pakistan Steel Mills must be subjected to higher incidence of tax and pass on the same to the consumer at the time of supply of the end-products by charging higher price, on account of producing higher quality M.S. Bars.
(h) They have the option to shift their purchase from Pakistan Steel Mills to the other steel melters, produce inferior quality M.S. Bars and pay lesser incidence of sales-tax.
23. After very anxious consideration to the contentions raised by the parties and perusal of the provisions contained in section 3.2(41)(46), 7 and 7-A we are persuaded to agree with the contentions raised on behalf of the respondents that the provisions contained in section 7-A of the Sales Tax Act and in the Chapter 12 of the Rules under the heading Special Rules for payment of Sales-tax by steel melters and re-rollers, which is applicable to the steel melting and steel re- rolling mills except Pakistan Steel Mills, Karachi, are not in supersession to the other provisions in the Act, and have no overriding effect. Sole effect of the non-obstante clauses in subsections (1) and
(2) of section 7-A is that the notifications issued by the Federal Government containing provisions in pursuance of and in consonance with the provisions contained in section 7-A, are in addition and complimentary to the provisions contained in the other relevant provisions referred to in this judgment above. We are of the opinion, that law is a living organism and is always required to take into consideration the ground realities and the real facts prevailing at a particular point of time in a particular society. A law which loses touch with the real facts or becomes oblivious of the ground realities becomes dogmatic and impracticable_ The matter of fact is that, the vast majority of business transactions in Pakistan belongs to undocumented/ unorganized sector and therefore, in order to bring such section into the tax net, it was incumbent to evolve a formula and devise the methods whereby they could be brought into the tax net in a pragmatic manner. In order to cater this necessity the Legislature in its wisdom enacted section 7-A and in pursuance thereof, the Federal Government framed the rules contained in Chapter 12 of the Rules, for the purposes of determining value of supply in the undocumented/ unorganized sector. We have shown that the respondents in Para. 9 of the parawise comments and annexures &C with the comments have worked out the value of supply of ingots by steel melters other than Pakistan Steel Mills and have shown the total value after value addition required under the rules. Thus, if sales-tax is charged from the other steel melters at the time of supply of the re-rollers in accordance with the value worked out by the respondents, it would not be discriminatory and Mr. Abid S. Zuberi, learned counsel for the petitioner has stated that if the sales-tax department starts charging the sales-tax at the time of supply of ingots/billets by the other steel melters to the re-rollers as shown by them in the comments and annexures therewith, it shall remove the discrimination and the disparity.
However, there can be no cavil to the proposition that the present practice of the sales-tax department is discriminatory in nature but it appears to be the result of implementation of the law and not on account of any discrimination in the law itself. The present practice prevailing with the sales-tax department has rendered sub-rule (1) of Rule 89 as well as Clauses (a) & (c) thereof as redundant. In Rule 89 (1) it is provided that a steel melter shall pay sales-tax at the rate specified in subsection (1) of section 3 of the Act, on the basis specified in clauses (a) to (d). It is provided in Clause (a) that for the purpose of determination of the tax liability the production of steel melters shall be calculated at the rate of 800 units of electricity consumed for production of one metric ton ingots/billets. In pursuance of this provision, the Respondent No,3 has worked out the value of supply shown by them in Para. 9 of the their comments and in Annexures B & C. Now, if this value of the supply is not subjected to the charge of sales-tax the provisions referred to above and exercise in pursuance thereof would become an exercise in futility rendering the provision redundant.
Likewise, it is provided in clause (c) of Rule 89(1) that a steel melter who melts and casts ingots or billets from imported scrap against which he holds a valid bill of entry in his name, or from scrap purchased from Pakistan Steel Mills, Karachi against a valid sales tax invoice in his name, he shall pay sales-tax as determined under section 7 A of the Sales Tax Act, 1990, subject to the condition that the minimum value addition shall be two thousand rupees per metric ton. The practice of the sales-tax department whereby the amount representing value addition of Rs,2000 only is being subjected to the charge of sales-tax makes the earlier part of Clause (c) as redundant.
24. In the light of above observations, based on the contention of the respondents and the rules contained in Chapter 12, it is held that the provisions contained in section 7-A of the Sales Tax Act, and in Chapter 12 of the rules are in addition of and complementary to the provisions contained in sections 3, 2(41)(46) and section 7 of the Sales Tax Act. The provisions contained in section 7-A and in Chapter 12 of the Rules are neither contradictory to the other provisions of the Act, nor they are in supersession thereof and have no overriding effect. All the provisions of law are to be given cumulative effect. The provisions contained in Chapter 12 of the rules are not discriminatory and are not Open to any exception. However, the interpretation of the rules and the implementation thereof by the sales-tax department has resulted in gross disparity and discrimination. In order to remove this disparity and discrimination, the Respondents Nos.1, 2 and 3 are directed to charge the sales-tax at the time of supply of the ingots and billets by the steel melters other than Pakistan Steel Mills to the re-rollers in accordance with the value of supply shown in Para. 9 of the parawise comments of Respondent No,3 and in annexures B and C with the comments.
25. If the sales-tax department or the C.B.R. Finds any difficulty in implementation of the above direction, they may approach the Federal Government for necessary modification in the rules. The petitions are allowed in the above terms.
26. By interim order, dated 23-7-2004 as modified by the order, dated 18-8-2004, the amount of Rs,4,456 was directed to be deposited with the Nazir of this Court. The Nazir is directed to release the entire amount so deposited to the Respondent No,3.