PLJ 2001 SC 1263
[Appellate Jurisdiction]
Present: NAZIM HUSSAIN SIDDIQUI, SYED DEEDAR HUSSAIN SHAH AND
JAVED IQBAL, JJ.
ZILA COUNCIL JHANG, DISTRICT JHANG through its ADMINISTRATOR & another-Appellants
versus
M/s. DAEWOO CORPORATION KOT RANJEET SHEIKHUPURA through DIRECTOR CONTRACT and another-Respondents
Civil Appeal No. 254 of 1995 alongwith Criminal Original Petition No. 25 of 1996, decided on 30.3.2001.
(On appeal from the judgment of Lahore High Court, Lahore, dated 12.1.1995, passed in Writ Petition No. 6754 of 1994).
(i) Constitution of Pakistan, 1973--
—-Arts. 165, 165-A-Punjab Local Councils (Taxation) Rules, 1980, R. 10-Foreign Company-Exemption from Goods Exit Tax-Claim for-Respondent company having been incorporated under laws of Republic of South Korea and having its Branch Office in Pakistan, was awarded contract of construction of Motorway Project by National Highway Authority-Since a large quantity of stones was to be used in construction of said Road, NHA acquired on lease certain hills near Rabwah, and authorised respondent to excavate stones from leased area as executing agency-District Council through notification imposed tax on export of crushed stones-Challenge to-Contention that in view of provisions of Article 185 of Constitution, tax could not have been levied on petitioner company-Held : No such exemption could be claimed by respondent for the simple reason that it was a foreign company operating in a private sector and admittedly neither it was Government nor NHA or its shareholders and thus by no stretch of imagination, it could be considered as part or limb of Federal Government for following reasons :
(a) Government had not contributed any capital;
(b) Directors of Daewoo Corporation were not appointed byGovernment;
(c) Government had no power to remove the Directors;
(d) Government was not a shareholder;
(e) Government had no power to get it accounts audited;
(f) Government could not give any direction to DaewooCorporation contrary to the agreement;
(g) Daewoo Corporation had a distinct juristic personality.
[P. 1275 & 1276] F
(ii) Constitution of Pakistan, 1973--
— Art. 185(3)-Dispute between parties raised a question relating to construction of expression 'produce'-It being one of first impression required an authoritative etermination, therefore, leave to appeal was granted. [P. 1267] A
(iii) Export Tax--
—-Crushed stone-Export Tax-Power of Zila Council to levy-Petitioner after excavating stones from quarry situated within limits of Town Committee, Rabwah, had to transport it to its crushing plants situated within limits of District Council, Jhang and after undergoing mechanical process there, stones were converted/changed into 'crushed stones' for construction of motor way-On transportation of stones within its territorial limits, District Council imposed tax through notification- Challenge to—Held : Had there been a direct transportation of stones in its original shape when excavated from quarry to the road without undergoing any mechanical process and change into a new commodity, question of imposition of tax by District Council would not have arisen as the quarry admittedly fell within limits of Town Committee-As crusher plants were installed within limits of District Council, where after undergoing mechanical process stones were converted into 'crushed stones', which by all means equated with that of production of new commodity, therefore, District Council Jhang was competent to impose tax in questions. [P. 1273] D
PLD 1989 Quetta
(iv) Liability-
—Liability cannot be created retrospectively. [P. 1278] I
1994 SCMR 1484; 1993 SCMR 454; 1994 SCMR 2366; 1993 SCMR 1095;
1998 SCMR 1404 ref.
(v) Punjab Local Councils Act, 1996-
—Ss. 58, 134, 138-Generation of funds-Levying and collecting Goods Exit Tax-Right of Zila Council-Zila Council cannot be deprived of or restrained from levying or collecting tax from companies/ corporations on the ground that it was being run or managed by Government or certain percentage of shares pertained to Government-Local Government can only be survived if free hand is given to impose such taxes to generate finance subject to just legal exceptions as it is the only source to develop rural areas and it is the only way to keep local Government alive otherwise it may collapse, because District Council is responsible for construction and maintenance of roads, management of common places, lighting, health and sanitation, water supply, registration of births and deaths, holding of cattle-fares and exhibitions, animals husband y, prevention of diseases, promotion of primary education, scholarship for needy students and various emergent functions taining to social welfare. [P. 1276] G
(vi) Punjab Local Councils (Taxation) Rules, 1980--
—-R. 10 read with Export Tax Model Schedule, 1991--Constitution of Pakistan, 1973, Art. 185(3)--Stone/Bajri etc.-Export Tax-Rate of-- Petitioner Council imposed xport tax on stone/barji @ Rs. 2/- per quintal-Challenge to-At what rate said tax could have been imposed by petitioner in view of guidelines as provided in Export Tax Model chedule, 1991-Question of-Held : Export Tax Model Schedule could not be considered as binding for the simple reason that Government had itself clarified vide letters No. S.O.V.(LG)5-26/89, dated 21.4.1991 and No. SOVI(LG)l-18/94, dated 28.4.1994 by making it abundant clear that it had been prepared as a guideline-Held Further : Export Tax Model Schedule could not binding in view of provisions as contained in Rule 10 of the Punjab Local Councils (Taxation) Rules, 1980-Held Further : Respondent was legally bound to pay tax on export of stone/bajri etc., at notified rate of Rs. 2/- per quintal. [Pp. 1276 & 1277] H
1993 SCMR 274; PLD 1970 SC 514; 1986 SCMR 1917 ref.(vii) Words and Phrases--—Word "Produce'-Meanings ot-Please seepage. [P. 1267] A
Words and Phrases Legally defined by John B. Saundres, Volume IV, 2nd Edition at page 87; Black's Law Dictionary; Chamber's Twentieth Century
Dictionary rel.
(viii) Words and Phrases '—Words "Manufacturing or Production'-Meaning and connotation of~Both these terms are synonymous and interchangeabIe-- ransformation of original produce into something different capable of being sold as material commodity having a different character, which is not necessary in omponent and which should be adjudged from the angle of its utilization, intended new use which may be altogether different from previous one amounts to anufacturing or production. [P. 1269] B
AIR 1965 Gujrat 215; PLD 1989 Quetta 74; AIR 1957 Madras 755; AIR 1959
Kerala 200; AIR 1969 SC 499; AIR 1957 Patna 184; [(1980) 46 STC 63 (SC)];
PLD 1959 [W.P.] Lahore
326; 1992 SCMR 710; 1993 SCMR 29; 1993 SCMR 1810 ref.
(ix) Words and Phrases-
—"Production" and "Manufacturing"-Distinction between-Process of crushing of stones can be termed as 'remanufacturing' and 'remaking' altogether a new product i.e crushed stone which comes into being through process of crushing, as result of which its price becomes higher and use becomes different-The word 'produce' also means to make, and there is hardly and difference between 'production' any that of'manufacturing'. [P. 1273] C
Words and Phrases Legally Defined By John B. Saundres, Volume IV, 2nd Edition at page 87; PLD 1969 SC (Pak.) 4 rel.
Mr. Shahid Hamid, ASC and S. Inayat Hussain, AOR (Absent) for Appellants in C.A. No. 254/1995.
Mr. Aftab Ahmad, ASC for Respondents in C.A. No. 254/1995. Date of hearing: 7.11.2000.
JUDGMENT
Javed Iqbal, J.--This appeal by leave of the Court is directed against judgment dated 12.1.1991 passed by learned Single Bench of Lahore High Court, Lahore, whereby the writ petition preferred on behalf of the M/s. Daewoo Corporation has been accepted and the impugned notification was declared to be without lawful authority and of no legal effect and appellant was restrained from levying and collecting export tax with further direction that the amount recovered pursuant to interim order at the rate of 0.50 per quintal be refunded to the respondent.
2. Briefly stated the facts of the case are that "the petitioner which is a Corporation incorporated under the laws of Republic of Korea (South Korea) having its Branch Office at Kot Ranjeet, Sheikhupura, has been awarded a contract of the construction of Lahore-Islamabad Motorway Project by the National Highway uthority, Ministry of Communications, Government of Pakistan. Since a large quantity of stone was to be used in the construction of the said Motorway the National Highway Authority has acquired on lease certain parts of the stone hills situated near Rabwah Town istrict Jhang from the Directorate of Industries and Mineral Development,Government of the Punjab under the Punjab Minor Minerals Concession Rules, 1990. The National Highway Authority i.e. the lessee has authorized the petitioner on its behalf to excavate stone from the leased area which in this case is known as the petitioner's Chiniot Quarry. The petitioner after excavation of the stone from the said Quarry and crushing the same has to transport it to the Project" various work sites for use in the construction of the Project. It is common ground between the parties that Quarry which is the subject matter of this petition is situated with the territorial limits of Town Committee Rabwah District Jhang and in order to approach the worksite of the Project, the transport carrying the stone has to pass through the territorial limits of District Council, Jhang and while leaving the limits of the said District Council export tax is charged from the petitioner at the rate of Rs. 2/- per quintal in pursuance of the impugned notification which has been challenged." The Constitutional petition preferred on behalf of respondent has been accepted as per details mentioned herein above.
3. Leave to appeal was granted vide this Court's order dated 21.3.1995 which is produced herein below for ready reference :--
"The petitioner Council charges export tax on goods produced within its area but taken outside the District. The respondent is a company incorporated in South Korea. It is engaged in the task of construction Lahore-Islamabad Motorway. For this purpose it uses stone which is quarried within the jurisdiction of Rabwa Town but is broken into smaller pieces within the limits of the petitioner Council. There is a dispute between the parties whether the processing of the stone within the limits of the petitioner Council falls within the ambit of the expression 'produce' so as to empower the petitioner Council to levy export tax thereon. The High Court has resolved the dispute in favour of the respondent Company. The petitioner Council seeks leave to appeal from the judgment of the High Court.
2. The dispute between the parties raises a question relating to the construction of the expression 'produce'. It is one of the first impression and requires an authoritative determination from this Court. Leave to appeal is accordingly granted. The interim order made by this Court on 21.2.1995 is extended and shall remain in force during the pendency of the appeal."
4. It is mainly contended by Mr. Shahid Hamid, learned ASC on behalf of appellant that the legal and factual aspects of the controversy have not been appreciated in its true perspective by the learned Lahore High Court which resulted in serious miscarriage of justice as the distinction between stone and that of crushed stone has been ignored without any rhyme and reason. It is argued that crushed stone is produced through an action or effort by using crushers/crushing machines whereby the large excavated stones are crushed to be used for the purposes of road construction and thus for all practical purposes crushed stone is a product of both capital and labour and production of crushed stone is admittedly taking place within the territorial limits of the appellant's zila council and accordingly export tax could be levied because crushed stone has a higher value as compared to that of uncrushed stone which could not be used for purpose of road construction. It is contended that the definition of the word 'produce' as relied upon by the learned High Court is not correct being limited in nature with specific reference to the peculiar facts of the case and thus it has absolutely no application whatsoever. It is also pointed out that the High Court has erred while relying upon the dictum laid down in judgment of High Court of Balochistan Quetta reported as N. T. Corpn. (Pvt.) Ltd. v. Federation of Pakistan (PLD 1989 Quetta 74) for the reason that it was over-ruled by this Court vide judgment reported as Federation of Pakistan
5. Mr. Aftab Ahmad, learned ASC appeared on behalf of respondent and vehemently opposed the view point as canvassed by Mr. Shahid Hamid, learned ASC on behalf of appellant and contended that the Zila Council was not competent to levy export tax on the goods which were never produced within its territorial limits and more so, the difference between excavation of stone from the quarry and production of some goods is to be kept in view which aspect of the matter was ignored by the Zila Council. It is urged firmly that the area from where the stones were being excavated was acquired by National Highway Authority (NHA). The area situated near Town Committee Rabwah District Jhang from where the stones were being excavated was acquired by NHA from Government of the Punjab under the Punjab Minor Minerals Concession Rules, 1990 and being lessee the NHA had authorized the respondent to excavate stones for construction of roads and the respondent was acting as an executing agency and, therefore, the question of payment of any tax does not arise which otherwise could not have been levied in view of the provisions as contained in Article 165 of the Constitution of Islamic Republic of Pakistan. It is also argued that for the sake of argument, if any, tax was to be paid that should be not more than 0.50 per quintal as export tax at the rate of Rs. 2/- per quintal could not have been levied in view of the Goods Exit Tax Model Schedule issued by the Provincial Government on 21.4.1991 and being mandatory in nature the rates for levying for certain taxes could not have been enhanced by the Zila Council. It is pressed time and again that no tax could have been levied on excavation of stones from area which did not fall within the jurisdictional domain of the Zila Council. It is contended that there is absolutely no difference between "stone" and that of "crushed stone" because no manufacturing process is involved in crushing the stone and thus the question of production of any new item does not arise and furthermore that words "crushed stones" were never used in the impugned notification hence no tax could have been collected. It is further argued that in view of the provisions as contained in Ordinance XXK of 1999 read with Act I of 1996 and Act IV of 1997 all the taxes had been abolished and accordingly the claim of appellant being devoid of merits is liable to be turned down. In support of above referred to contentions Mr. Aftab Ahmad, learned ASC on behalf of respondent has relied upon Mehran Associates Ltd. v. Commissioner of Income-tax (1993 SCMR 274); Province of East Pak. v. Sharafat-ullah (PLD 1970 SC 514); and Al-Samrez Enterprise v. Federation of Pakistan (1986SCMR 1917).
6. We have carefully examined the respective contentions as agitated on behalf of the parties in the light of relevant provisions of law and record of the case. The entire controversy revolves around the word 'produce' and its interpretation. The question as to whether certain goods are leviable to tax depends upon the meaning and interpretation of the word .'produce' with reference to this particular case. The word 'produce' has been defined in various dictionaries as follows :--
(i) !iS
|
"in relation to minerals or other substances, including the getting thereof, and in relation to animals and fish, includes the taking thereof." (Words and Phrases Legally Denied by John B. Saunders, Volume 4, Second Edition at page 87). (emphasis
supplied).
"The thing (or things collectively) produced, either as & natural
(ii)
|
B
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growth or as a result of action or effort." (emphasis supplied). (iii) "The product of natural growth, labour or capital to make.
(Black's Law Dictionary)
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lCA. D AJ&T* *-'**'«--------------------- ^ • 14.
bring forward, to. make longer, to bring forth; to bear; to
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TO UUJ-lg iui. ««*»>-» —.
exhibit; to yield; to bring about
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(Chamber's Twentieth Century Dictionary).
|
(OnaniDei s o.«ci»u.^^.------- „
7. It seems advisable to examine at this juncture that what does the » • JI-.A^ »T>,Q natural and plane meaning oi
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7. It seems advisable to examine ax tins JUIU.I.UK, u~—__
manufacturing" indicates. "The natural and plane meaning of i t~\.^nn+a nr tn Vjring iuto existence an article or
|
"manufacturing" indicates. "Tiie naiunu au.« j,.-.,_ ____
ufacture" is to make or fabricate or to bring into existence an article or^11 v,, r^mwor" (Jamnadas v. C.L. Naugia
|
.a. V. reuKiuuuit. vi * *.-------- .
"Bringing into existence of a new substance known to the market
_i.. +„ n^^anoA some change in a substance,
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and does not mean merely TO pruuure a^^^ „„—0_____
however minor in consequence the change may be to become the -. j ~v+5,,iQ Thn anpiication of machinery or labour in
|
However iiuuui **» »,«_____ ,__
manufactured article. The a
—u _„+ '
|
Uli m. Aqjn»v4****^^n, ____________
:oods within the definition of • - •• - - tj.
|
LCtllldA u.^ v*------------------------ ^___________________
rocesses would not brin
|
:n processes wumu m/v-------- „ „._______
.nufacture unless a transformation of its sub"---------- ••"•» nf ciir-h ma
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manufacture umesa a LICLHOI^X.*..-------------------------------------------- ...________
is necessary that in the processs of such makin
•-- —:-t—"" " Cornnnasis sUDDlied).
|
is necessary mat m mv, t,^.._------ ____
comes into existence." (emphasis supplied).
|
comes tutu CAJLJ^J.^^^. x—r
The concept of 'manufacture' was also defined in case N.T. Corpn.
•«
|
(Pvt.) Ltd. (supra) as under:
|
 |
originate, or yield, as gasoline. To bring to the source, as oil."
/ C£/L/J H>w. m- **—,_______________
been described as under
:
|
reported in AIR 1957 Madras
"To sum up, to constitute a manufacture there must be a transformation. Mere labour bestowed on an article even if the labour is applied through machinery, will not make it a transformation ensues, and the article becomes commercially known as another and different article from that as which it beings its existence. Whatever is made by human labour, either directly or through the instrumentality of machinery (Abbot) Law Dictionary). Something of a corporeal and substantial nature, something that can be made by man from the matters subjected to his art and skill, or at the least some new mode of employing practically his art and skill is required to satisfy the word 'manufacture', Per Abbot, C.J. In R.V. Wheeler, (1819) 2B & Aid 345 (E). See also Gibson v. Brand, (1842) 4 M 7 G 179 (F)." (emphasis supplied). In case reported as State v. Madhogaria (AIR 1959 Kerala, page 200), manufacture process has been defined under the Factories Act. According to AIR 1969 SC page 499 (Commissioner of Sales Tax, U.P. v. Dr. Dukh Deo) : the expression 'manufacture' has in ordinary acceptation a wide connotation. It means making of articles, or material commercially different from the basic components by physical labour or mechanical process." (emphasis supplied). "In case of State of Bihar v. Messrs Christian Mica Industries Limited, reported in AIR 1957 Patna page 184, it has been observed as under: the essential point is that something is brought into existence which is different from that originally existing, in the sense that the thing produced is by itself a material commodity and is » capable as such of being sold or supplied." (emphasis supplied).
8. A comparative analysis of the word 'production' and 'manufacture' was made in case titled Deputy Commissioner of Sales Tax v. PIO Food Packers [(1980) 46 STC 63 (SC)] as follows:
"The word "production" has a wider connotation than the word 'manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture. The word "production" or "produce", when used in juxtaposition with the word 'manufacture', takes in bringing into existence new goods by a process which may or may not amount to manufacture. It also takes in all the by-products, intermediate products and residual products which emerge in the course of manufacture of goods."
In case titled "Shamas Din & Bros. v. Income-tax and Sales Tax Officer (PLD 1959 [W.P.] Lahore 955], it was held that "in the absence of any definition of the word 'manufacture' this was covered by the dictionary meaning of that word. The process to which the petitioners resorted to make the tress marketable by turning them into what is called timber was a process of manufacture for the purpose of the Sales Tax Act,
M/s. DAEWOO CORPOHATION KOT RANJEET SHEIKHUPURA (Javed Iqbal, J.)
The concept of 'manufacturing' remained subject of discussion in case titled G.R. Kulkarni v. State (AIR 1957 Madh. Pra. 45) as under:
"(4) It is obvious enough that the process of manufacture from one article to another changes and there are no many different processes in exist that to take the analogy of any single manufacturing process is likely to cause confusion. It is better therefore to apply one's mind to the exact process employed by which one article is shaped into another and to see whether the purposes of the Act are satisfied.
Now, in the present case the act of quarrying results in the accumulation or extraction of a large heap of big stones. Those stones may well be marketable, and if they are sold the process would bfr not one of manufacture but one of quarrying. After that stage is reached and the person who has won the stones attempts to break them, may be by manual labour, into sizeable stones for sale as gitti. he is shaping the stone into an object of a different size.
Now, the word 'manufacture' has not various shades of meaning. There may be manufacture of a complicated object like the super-constellation,or there might be manufacture of a simple object like a toy kite. In the Calcutta case which was reported in 1950-1 STC 157(A), a mixture compounded by an apothecary from medicines was said to be 'manufactured' by him. The essence of manufacture is the changing of one object into another for the purpose of making it marketable.
The stones which are won in the process of quarrying may be sold without fashioning them into something else. If they are so sold they would not be manufactured but merely delivered from the quarry-head. When they are broken into metal or gitti there is some process, manual though it may be. for the purpose of shaping the stones into another marketable commodity.
(5) Now it cannot be denied that the metal which the assessee produces is 'goods' within the meaning of the Indian Sale of Goods Act or the Constitution. Once we reach the conclusion that what he produces is 'goods' and that some process of manufacture enters into it, in our opinion, the definition (I) in S. 2 is fully met.
In 1955-6 STC 30 (C) there is a reference to the fashioning of timber into logs for the purposes of sale, and Butt J., who decided the case, held that it is a manufacturing process. It is contended that on a parity of reasoning the chopping of wood into fuel would be a manufacturing process.
Perhaps, that is an extreme example, and we are not called -upon to pronounce upon it; but the making of metal for the purposes of ballast and road is a well known trade and occupation and is a very fruitful source of income to one who shapes larger stones into smaller ones of a pre-determined size. It is well known that metal has to be within a particular size. Each piece cannot be smaller than a designated size nor above another designated size." (emphasis supplied).
The word 'manufacture' was also discussed in case titled State of Bihar v. Chrestain Mica Industries (AIR 1957 Patna 184) as under :
"To manufacture" in this context must mean "to bring into being something in a form in which it will be capable of being sold or supplied in the course of business". The essential point to remember is that something is brought into existence which is different from that originally existing, in the sense that the thing produced is by itself a commercial commodity and is capable as such of being sold or stipplied. It is not necessary that the stuff or material of the original articles must lose its character or identity or it should become transformed in its basic or essential properties. For example, a goldsmith may take a piece of gold and make an ornament out of its; a sculptor may cut a statute out of marble, or carpenter may make a door-frame out of a plank of wood. In all these examples the substance remains the same, but by process of manufacture the article made is commercially different from the raw material from which it is made." (emphasis supplied).
The word 'manufacture' was also discussed with special reference to coal in case titled Aluminium Corpn. of India
"(8) It is next said that coal can neither be said to be 'manufactured' nor 'produced' in a colliery. It is true that 'coal' is not said to be manufactured in colliery as 'coke' is. But I do not see why it is not 'produced'. The word 'produced' is to be taken in the widest sense. Coal is not, of course, produced in a colliery in the sense that fruit is produced in a tree or a book is produced by an author. All the same, we do speak of 'production of coal'. Any good book on Geography will provide us with comparative statistics of the production of coal in different parts of the word. One speaks of 'production of coal', because to acquire coal which can be used for any human purpose; it is necessary to employ human labour and ingenuity. Coal exists in the bowels of the earth, but to produce it requires a great deal of labour, organisation and skill. A modern colliery uses various complicated machineries. Coal is not only to be dug out of the bowels of the earth, but has to be conditioned in many ways. It has to be broken, graded, sifted, moved and so forth. In my opinion it is entirely correct to say that coal is an article prodticed in India." (emphasis supplied).
In cases entitled Commr. Of S.T., U.P. v. Dr. Sukh Deo (AIR 1969 SC 499) 'manufacture' was defined as under:
"The expression 'manufacture' has in ordinary acceptation a wide connotation: it means making of articles, or material commercially different from the basic components, by physical labour or mechanical process."
9. The expression 'produced' was also discussed in case titled Commissioner of Income-tax v. Singareni Collieries Co. Ltd.) to the effect that "the expression 'produce' used in Section 32-A of the Indian Income Tax
Act, 1961, must be understood in its normal connotation and according to the commercial usage. The word 'production' has a wider connotation than the word 'manufacture'. While every manufacture can be characterised as production, every production need not amount to manufacture. They activity of winning or excavating the coal from the mines can be aptly described as production activity. The expression 'production of mineral' is used in the allied provision of the Act (Section 35-E) and this is a definite pointer that Parliament employed the expression 'production' to the minerals extracted from underneath the surface." (emphasis supplied).
10. In the light of what has been mentioned herein above it can be summarized that transformation in original produce which results into something different from the original existence capable of being sold as a material commodity having a different character which is not always necessary in component and which should be adjudged from the angle of its utilization, intended new use which may be altogether different from previous one amounts to manufacturing or production. In our considered opinion 'manufacturing' and 'production' are synonymous and interchangeable terms. The basic question to be answered is as to whether the change of big rock/stones into crushed stones by using huge crusher plants/machines amounts to process of manufacturing/production or otherwise. It was held in Pakistan v. Muhammad Aqil (PLD 1960 SC [Pak]4) that leather after glazing, according to the dictum, the glazed leather was declared excisable in spite of the fact that there was no change in leather. Similarly the stones remain stones and there is no changing its • components but it is subject to taxation after its transformation to 'crushed stones' because it is meant for a different use. The tax was not imposed on the process of crushing but on the crushed stones. It may not be out of place to mention here that the process of crushing can be termed as 're-manufacturing' and 're-marking' altogether a new product i.e. crushed stone which comes into being through process of crushing and it may be kept in view that the word 'produce' also means to make and there is hardly any different between 'production' and that of 'manufacturing'. It is an admitted fact that the price of 'crushed stones' is higher as compared to the stones excavated from quarry. The fact that after the process of crushing, its price becomes higher and use becomes different which is indicative of the fact that the purchasing public regards the 'crushed stones' as a distinct item having a different and specific use in its new sphere. It mainly prevailed upon the learned High Court that "the Quarry/Hill from where the stone is excavated is a Mine within the meaning of the term "Mining" and the same has been so treated under the law as the lease to excavate the stone was granted to the National Highway Authority under the Mining Rules, therefore, the definition of the word "produce" given in the Book entitled Words and Phrases Legally Defined by Johan S. Saunders, Volume 4 Second Edition as regards minerals is aptly applicable to this case, therefore, the production of the stone is to be deemed to have taken place when the same was excavated D
from the said Hill/Quarry. Since the said Hill/Quarry is admittedly situated within the limits of Town Committee, Rabwah, and not the territorial limits of District Council Jhang, therefore, it can safely be held that the said stone is not produced within the limits of the said District Council, as such, in relation to its place of production no export tax could be levied on the transportation of the same to a place outside the limits of District Council Jhang though it passes through the said limits to bring it to the Project site." But we cannot subscribe to the said view for the simple reason that the learned High Court has failed to draw a line of distinction between huge 'rocks/stones' and 'crushed stones' which is apparent if considered from the angle of their shape, size and use. At this particular juncture we are confronted with the question as to whether excavation of stones from quarry and their subsequent change in crushed stones is one and the same thing or otherwise, in our considered view it is not one and the same thing because had it been so there would have been no justification to transport the excavated stones to the site where huge crusher plants are installed and thereby employing mechanical process and its conversion to 'crushed stones' to be utilized exclusively for a specific purpose i.e. construction of road. Had there been a direct transportation of stones in its original shape when excavated from quarry to the road without undergoing any mechanical process and change into a new commodity the question of imposition of tax by District Council Jhang would have not arisen as the quarry admittedly falls within the territorial domain of Town Committee Rabwah (this aspect Has been discussed further in view of different legislative changes in the laws pertaining to local Government). It is an admitted feature of the case that tmge crusher plants as installed within the territorial limits of District Council Jhang where after undergoing the mechanical process the stones are converted/changed into 'crushed stones' which by all means equated with that of production of a new commodity and thus the District Council Jhang is competent for the imposition of the tax in question. We may point out here ihat in our considered view there are following five different stages and after crossing whereof the process of manufacturing/production of crushed stones is completed which are as follows :--
(i) Excavation of stones from quarry;
(ii) Its transportation to the territorial limits of District Council Jhang;
(iii) Unloading of the stones within the territorial limits of District Council Jhang where crusher plants are installed ;
(iv) Conversion of stones to that of crushed stones by using huge crushers/machines coupled with manual power.
(v) Use of crushed stones for constructing the motor-way.
11. There are five stages as mentioned herein above and, of course, tax cannot be levied at the first three stages because the mine from which it s excavated is not situated within the territorial limits of District Council Jhang. It is the fifth stage which has its own significance and importantwhich deserves a very special attention because the stones are converted into 'crushed stones' through crusher plants which is, of course, installed within the territorial domain of District Council Jhang. Due to said conversion the new element/commodity i.e. 'crushed stones' having the characteristic of stones but with a drastic change in its use for all practical purposes after undergoing a mechanical process which can be equated with 'production' are produced/manufactured because without undergoing the said process the'stones' initially excavated from the quarry could not have been used in its original shape by the Daewoo Corporation for construction of motor way. Had the stones in its original shape as excavated and brought to the site without having a substantial change in their shape and use after undergoing mechanical process the question of imposition of any tax would have not arisen. The dictum as laid down in N. T. Corpn. (Pvt.) Ltd. v. Federation of Pakistan (PLD 1989 Quetta 74) pressed time and again has absolutely no application in this case as the controversy in the said case pertained to excisable duty which was leviable on iron and steel plates. The fact and nature of controversy is absolutely distinguishable and accordingly the said dictum hardly renders any assistance in view of the peculiar circumstancesof this case.
12. We have also dilated upon the question as to whether tax exemption could have been granted to Daewoo Corporation by lifting veil of incorporation after having gone through the provisions as contained in Articles 165 and 165A of the Constitution of Islamic Republic of Pakistan. We are of the considered view that no such exemption could be granted for the simple reason that Daewoo Corporation is a foreigner company operating in a private sector and admittedly neither the Government nor N.H.A. or its shareholders and thus by no stretch of imagination it can be considered as a part or limb of the Federal Government for the following reasons :--
(a) The Government has not contributed any capital;
(b) The directors of Daewoo Corporation are not appointed by theGovernment;
(c) The Government has no power to remove the directors;
(d) The Government is not a shareholder;
(e) The Government has no power to get its accounts audited;
(f) The Government cannot give any direction to the DaewooCorporation contrary to the agreement;
(g) The Daewoo Corporation has a distinct juristic personality.
In view of what has been stated above the provisions as contained in Articles 165 and 165-A of the Constitution are not applicable.
13. A Zila Counsel cannot be deprived of or restrained from levying or collecting such taxes from companies/corporations on the ground that it was being run or managed by Government or certain percentage of shares pertained to Government. The local Government can only be survived if free hand is given to impose such taxes to generate finance subject to just legal exceptions as it is the only source to develop the rural areas and it is the only way to keep the local Government alive otherwise it may collapse because the District Council is responsible for the construction and maintenance of roads, management of common places, lighting, health and sanitation, water supply, registration of births and deaths, holding of cattle-fares and exhibitions, animals husbandry, prevention of diseases, promotion ofprimary education, scholarship for needy students of various emergent functions pertaining to social welfare. The finances of District Council are derived from taxes, fees, cess, remunerative projects and grants by the Federal and Provincial Governments to achieve the above mentioned objects.
14. We are not impressed by the contention as raised on behalf of the respondent that the Daewoo Corporation was undertaking the excavation and crushing of the stones at its Chiniot Quarry on behalf of the N.H.A. which is a statutory corporation and accordingly no tax could havebeen levied for the reason that the N.H.A. has obtained a Quarry on lease by the Director Mineral Development, Government of the Punjab and an agreement was also executed in this regard which is indicative of the fact that N.H.A. was bound to pay the royalty on all mineral produced and carried away in accordance with proper and accurate record and more so, N.H.A. was not competent to further lease out the said Quarry in view of the provisions as contained in Clauses (XVII) and (XIX) of the mining lease dated 15.8.1992 which prohibits any such sub-leasing or transfer of rights and interests in any part of the leased area. The said contention being devoid of merits hardly needs any further consideration.
15. We have also dilated upon the question that at what rate the said tax could have been imposed by the District Council in view of the guideline as provided in Export Tax-Model Schedule. We are of the considered opinion that the said Export Tax-Model Schedule cannot be considered as binding for the simple reason that Government of the Punjab has itself clarified vide Letter No. S.O.V(LG.)5-26/89 dated 21.4.1991 by making it abundant clear that the Export Tax-Model Schedule has been prepared to serve as a guideline which position was further clarified vide Letter No. SOVI(LG)l-18/94 dated 28.7.1994 which is reproduced herein below for ready reference:
"To
All the Administrators, Zila Council in the Punjab .
Subject: EXPORT TAX MODEL SCHEDULE
Please refer to this Department Letter No. SOV(LG)5-26/89 dated 21.4.1991 on the subject noted above.
2. It is clarified that Goods Exit Tax Model schedule dated 21.4.91 has been circulated to serve as guideline and to facilitate the Zila Councils in preparation of their schedules and Zila Councils may in their discretion follow or depart from the same.
Sd/-SECTION OFFICER-VL"
A bare perusal of the said letter would reveal that the Export Tax-Model Schedule was not binding in nature and more so, it could not be binding in view of the provisions as contained in Rule-10 of the Punjab Local Councils (Taxation Rules), 1980. In such view of the matter the respondent is legally bound to pay Goods Exit Tax/Export Tax on export of stones/bq/ri etc., at the notified rate of Rs. 2/- per quintal.
16. 'It is worth mentioning that during the pendency of appeal certain legislative changes were made and the definition of 'Zila' was also amended and the urban area of entire revenue district was included in it for the purpose of tax on the export of goods and animals. The said amendment was kept intact in the Punjab Local Government Act, 1996, which came into force on 10.7.1996 and also in the Punjab Local Council (Revival of Law) Act, 1997, which came into force on 14.6.1997. It is to be noted that retrospective effect was given to the said amendment which has come into force w.e.f. 11.7.1990. It is also to be noted here that on 25.1.1996 the Government of the Punjab has promulgated the Punjab Local Government (IV amendment) Ordinance, 1995. As per provisions contained in sub-section (2) of Section 1 of the Ordinance it was provided that it shall come into force at once and shall be deemed to have taken effect on 1.7.1990. By means of Section 2 of the said Ordinance the definition of 'Zila as contained in Clause (EK) of subsection (1) of Section 3 of the Punjab Local Government Ordinance, 1979, was amended as follows :
"Zila means the Revenue District as notified under the Punjab Land Revenue Act, 1967 (XVII of 1967) excluding its urban areas but for purposes of tax on the export of goods and animals, the Zila, including its urban areas, and".
17. In view of the said amendment, according to Mr. Shahid Hamid, learned ASC on behalf of the appellant, the impact of the said amendment which came into being w.e.f. 1.7.1990 would be that respondent is bound to pay Export/Goods Exit Tax on crushed stones produced in the territorial limits of District Council Jhang which by virtue of said amendment includes both the urban and rural areas of District Jhang and, therefore, it wasimmaterial from where the stones were being excavated. Apparently there appears to be no reason to disagree with the said view regarding production of stones from the area but in the year 1990 on such tax was levied and Export/Goods Exit Tax was levied vide Schedule No. 768/HVC dated 25.7.1992 whereby goods produced within the limits of District Council Jhang were subject to payment of said tax at the rate of Rs. 2/- per quintal according to Item No. 22 of said Schedule and thus the question of itsrealization w.e.f. 1.7.1990 does not arise because retrospective effect could be given to be definition of 'Zila' but no liability can be created retrospectively.
18. In the light of foregoing discussion which lead to draw the only irresistible conclusion that District Council Jhang was competent to levy Export/Goods Exit Tax at the rate of Rs. 2/- quintal w.e.f. 25.7.1992 and accordingly Schedule No. 768/HVC dated 25.7.1992 was lawful and could have been issued by the District Council Jhang. It is worth mentioning that Daewoo Corporation itself had approached the Chairman, District Council Jhang, for exemption of the export tax meaning thereby that its legality was not challenged and a mechanism was also suggested for the collection of such tax. The agreement dated 11.8.1993 between Zila Council Jhang and Daewoo Corporation is also indicative of the fact that the Daewoo Corporation has agreed to pay to the District Council Jhang a flat rate of Rs. 50/- for each truck carrying crushed stones out of the District of Jhang irrespective of the loading capacity and it is not understandable that how subsequently the legality of the imposition of the tax has been challenged. The appeal is accordingly accepted and the impugned judgment is hereby set aside.Criminal Original Petition No. 26/1996 is disposed of being not pressed.
(S.A.K.M)
Appeal accepted.
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