Present
Mr. Justice Mushir Alam.
Mr. Justice Aqeel Ahmed Abbasi.
Date of hearing : 19.11.2009
Date of order : 09.12.2009
Applicant : Collector of Sales Tax and Federal Excise
through Syed Mohsin Imam Advocate.
Versus
Respondent : M/s. Abbott Laboratories (Pakistan) Ltd.
through Mr. Fazle Rabbi, Advocate.
Mr. Siraj-ul-Haq Memon, Amicus Curiea
O R D E R
Aqeel Ahmed Abbasi, J. This Sales Tax Reference Application (STRA) is filed by the Collector of Sales Tax and Federal Excise, Large Tax Payers Unit, Karachi, wherein following question of law is said to arise from the impugned order passed by the Custom Excise and Sales Tax Appellate Tribunal Bench-III, Karachi, in Sales Tax Appeal No.K-185/2002/14569 dated 27.07.2006.
"Whether under the facts and circumstances of the case supply of products/samples free of cost to medical practitioners/consumers is liable to sales tax under the Sales Tax Act, 1990 or not?"
During the course of hearing of this STRA Mr. Siraj-ul-Haq Memon, Advocate, was appointed as Amicus Curiea to assist this Court on the above proposed question. Today both the learned counsel for the parties as well as learned Amicus Curiea had finally argued the case at katcha peshi stage.
Learned counsel for the applicant has readout the impugned order and submitted that the learned Tribunal has failed to appreciate the charging provision of the Sales Tax Act, as provided under Section 3 Sub-Section 1 clause (a) of the Sales Tax Act, 1990 (the Act).
According to the learned counsel, by virtue of the said Section every taxable supply made by a registered person is liable to sales tax. He also readout the provision which relates to the taxable activities as provided under Section 2(41) of the Act i.e. taxable supplies. According to the learned counsel, every supply is taxable unless it is specifically exempted under Section 13 of the Act. According to the learned counsel, during the period under question the pharmaceutical products were not exempted from the levy of sales tax, therefore, their supply even if made without consideration was liable to sales tax. It was further argued that since the respondent company had claimed and adjusted the input tax on all the goods including the free samples, the same would fall within the definition of taxable supplies and the same cannot be claimed as exempt supplies.
Conversely the learned counsel for the respondent supported the impugned order and argued that since the supplies made by the respondent company to the medical practitioner were free samples only and were not meant for sale in the market, therefore, there is no element or question of any taxable activity or taxable supplies involved in the circumstances. It was further argued that by virtue of provisions of Drugs Act and Rules the pharmaceutical companies are specifically prohibited from selling these free samples in the market. It is further incumbent upon the pharmaceutical companies to print "Physician's sample not for sale" on every pack which is also in reduced quantity only. Learned counsel for the respondent also submitted that CBR/FBR itself had clarified this aspect by its two circulars bearing No.C.NO.6(i)/Revised- Pro-St/HQ/B/96 dated 14.07.1996 and C.No.18-STT/2002 dated 22.03.2002 wherein it has specifically been clarified that the samples of medicines provided free of any charge to medical practitioner is not chargeable for sales tax. It was, therefore, finally submitted by the learned counsel that the impugned order is in accordance with law and the same does not require any interference by this Court.
The learned Amicus Curiea submitted that the proposed question in the instant reference application can be answered by looking at the relevant provision of law by connecting the charging. Section 3 of Sales Tax Act, 1990 with the definition of "Value of supply" as provided under Section 2(46) of the Act. According to the learned Amicus Curiea, the main ingredient of value of supply is the "Consideration in money" received by the supplier from a recipient, since in the instant case there is no consideration and the supply was "Free of cost", therefore, in his opinion the said supply does not fall within the ambit of sales tax especially in terms of Section 3 of the Act. Learned Amicus Curiea has also referred to the above mentioned circulars, already referred by the learned counsel for the respondent, wherein the FBR itself had clarified this aspect and according to him the department is bound by such clarification issued by the FBR.
We have heard both the learned counsel and the learned Amicus Curiea on the legal issue. It is trite principle of taxation law that to bring the subject to charge and levy of tax the burden is upon the revenue to establish that the said subject is chargeable to tax. Once such burden is discharged by the revenue the burden shifts on the assessee who seeks exemption from the levy of such charge. It is necessary to understand that "charge and exemption" are two different concepts in taxation laws, an assessee though chargeable to tax can claim exemption by virtue of an exemption clause provided in the relevant law/schedule. In such situation, the claimant of exemption has to establish and prove such claim. In the instant reference application the respondent company has sought exclusion from the levy of charge of sales tax as according to them the basic ingredients of Section 3 are not attracted in the instant case. In the taxing statutes charging provision are regarded as most significant as these define the scope and the application of the proposed charge of tax upon a subject under the Sales Tax Act 1990. In order to resolve the legal controversy involved in this reference, it will be advantageous to examine the charging provisions of the Sales Tax Act, 1990. The charge of sales tax is provided in Section 3 of the Act, which is reproduced hereunder:-
"Scope of tax – (1) Subject to the provision of this Act, there shall be charged, levied and paid at tax known as sales tax at the rate of [sixteen] per cent of the value of –
(b) taxable supplies made [* * *] by a registered person in the course or furtherance of any [taxable activity] carried out on by him; and
(c) goods imported into Pakistan.
The term taxable activity is defined in Section 2(35) of the Act, which reads as under:
Section 2(35)
"taxable activity", means any economic activity carried on by a person whether or not for profit, and includes –
(a) an activity carried on in the form of a business, trade or manufacture;
(b) an activity that involves the supply of goods, the rendering or providing of services, or both to another person;
(c) an one-off adventure or concern in the nature of a trade; and
(d) anything done or undertaken during the commencement or termination of the economic activity,
but does not include –
(a) the activities of an employee providing services in that capacity to an employer;
(b) an activity carried on by an individual as a private recreational pursuit or hobby; and
(c) an activity carried on by a person other than an individual which, if carried on by an individual, would fall within sub–clause (b)."
The term taxable supply is defined in Section 2(41) of the Act, which provides:
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.
The term value of the supply is defined in Section 2(46) which reads as under:
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:
(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) in 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 installment 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 excluding the amount tax].
(b) in case of trade discount, the discounted price excluding the amount of tax; provided that 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 a 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 Board deems it necessary it may, by notification in the official Gazette, fix the value of any imported goods or taxable supplies or class of supplies and for that purpose fix different values for different classes or description of same type of imported goods or supplies:
Provided further that where the value at which import or supply is made is higher than the value fixed by the Board, the value of goods shall, unless otherwise directed by the Board, be the value at which the import or supply is made;
On a combined reading of the charging provisions and the definitions of the relevant terms it transpires that for bringing a supply within the ambit of sales tax there has to be (i) taxable supply by a registered person (ii) the sales should be made under the course or furtherance of any taxable activity and (iii) consideration in money or kind which supplier receives from the sale.
Admittedly the samples were given by the respondent company free of cost and no consideration in terms of cash or kind was received by the respondent company meaning thereby there is no value of supply made free of cost or without any consideration. Since there is no consideration received by the supplier on "free of cost" supplies, hence the said supply in our view cannot be termed as a taxable supply within the meaning of Section 3 of the Act.
In view of hereinabove facts it emerges that on combined reading of the charging provisions as well as provisions relating to application of such charge the supplies made by the respondent "free of cost" without receiving any "consideration in money or kind" are not liable for the levy of sales tax. It is trite principle of interpretation of a taxing statute that charging provisions are required to be construed strictly. It is also a trite principle that in taxing statute, a tax on any person is to be levied by clear and unambiguous words and the expressions used in charging sections are not to be stretched by any process of interpretation, so as to bring a person within the tax net not falling under the clear and plain language of the statute. Similarly it is also a trite principle of interpretation of taxing statute that if there is any ambiguity the same has to be resolved in favour of subject. We are guided in this regard by a judgment of the Hon'ble Supreme Court reported as Re. Province of Punjab v. Muhammad Aslam 2004 SCMR 1649 in which it has been held as under:
"The provisions of the Act of 1958, being a taxing statute, are required to be construed strictly. There is no intendment or presumption about a tax. We have to go by the language clearly employed by the legislature in the fiscal statute."
Similarly, in another judgment reported as Commissioner of Income Tax, Companies-II, Karachi v. Messrs Muhammad Usman Hajrabai Trust Imperial Courts, Karachi, Division Bench 2003 P.T.D 577 Division of this Court has held as under:
(a) "By now, it is a established principle of the interpretation of fiscal statutes that, a tax on any person is to be levied by clear and unambiguous words and the expressions used in the charging sections are not to be stretched by any process of interpretation so as to bring a person within the tax net, not falling under the clear and plain language of the statute."
(b) "In the judgments cited by the appellant itself, it is clearly stated that, in taxing statute one has to look merely at what is clearly stated. There is no room for any intendment. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, one can only look fairly at the language used. By now, it is established principle of the interpretation of fiscal statutes that, a tax on any person is to be levied by clear and unambiguous words and the expressions used in the charging sections are not to be stretched by any process of interpretation so as to bring a person within the tax net, not falling under the clear and plain language of the statue."
Further reliance to above legal propositions can also be made on the following reported judgments:-
(i) 1977 SCMR 371, Collector of Customs (Appraisement), Karachi and others Vs. Messrs Abdul Majeed Khan and others.
(ii) 1971 SCMR 128, Messers Hirjina & Co. (Pakistan) Ltd, Karachi Vs. Commissioner of Sales Tax Central, Karachi and
(iii) P.L.D 1961 SC 119, Lt. Col. Nawabzada Muhammad Amir Khan Vs. The Controller of Estate Duty.
Moreover, there is a specific notification/circular letter No.(C.No.18/STT/2002 dated 22.3.2002 issued by the CBR/FBR, wherein it has been clarified by the CBR/FBR that "Bonafide samples of medicines provided free of any charge to medical practitioners will not be charged to Sales Tax". Such instructions are binding on all the officers of Sales Tax Department in discharge of their all administrative functions, as provided under Section 72 of the Act, which reads as follows:-
Section 72
Officers of sales tax to follow Board's orders, etc.—All officers of sales tax and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board.
Provided that no such orders, instructions or directions shall be given so as to interfere with the discretion of officers of sales tax in the exercise of their quasi-judicial functions.
In view of aforesaid circumstances and our finding on the legal issue involved in this case, the learned Tribunal, in our opinion, has rightly set aside the order passed by the Collector in this regard and we, therefore, answer the proposed questions in negative. Accordingly, the instant Spl. Sales Tax Reference Application is dismissed with no order as to cost. However, before parting with this order we would like to record our appreciation for the valuable assistance provided by the learned Amicus Curiea Mr. Siraj-ul-Haq Memon, Advocate in this regard.
J U D G E
J U D G E
Nadeem