AHMED INVESTMENT (PRIVATE) LIMITED VS FEDERATION OF PAKISTAN
1991 P T D 618
[Karachi High Court]
Before Saleem Akhtar and Muhammad Hussain Adil Khatri, JJ
AHMED INVESTMENT (PRIVATE) LIMITED through Managing Director
versus
FEDERATION OF PAKISTAN through Secretary, Ministry of Finance, Islamabad
and another
Constitution Petition No. D-1087, D-1167 to D-1176, D-1203 of 1989 and D-158 of 1990, decided on 24/03/1991.
Sales Tax Act (III of 1951)---
----Ss. 3(2) & 7---Central Excises and Salt Act (I of 1944), First Sched.-- Notification No. S.R.O. 555(1)/89, dated 3-6-1989---Notification S.R.O. 734(1)/89, dated 10-7-19813---Constitution of Pakistan (1973), Arts. 4, 18 & 25-- "Ingots" and "Billets", both products were being clarified as one and the same product not only for the purpose of excise duty but also for levying the sales tax-- Discriminatory treatment meted out to petitioner for their product billet" as against the benefit given to manufacturer of "ingots" was arbitrary unreasonable and as such additional burden placed on them was violative of equal protection of law guaranteed by Arts. 4, 18 & 25 of the Constitution (1973), and thus, charging of excise duty and sales tax on the basis of notifications dated 3-6-1989 and 10-7-1989 was without lawful authority and of no legal effect---Notification S.R.O. 555(1)/89, dated 3-6-1989 seeking to amend notification dated 14-7-1988 was an exercise in futility as on 3-6-1989, Notification dated 14-7-1988 was not legally in existence; Notification S.R.O. 734(1)/89, dated 10-7-1989 and subsequent notifications extending the operative period of said notification were declared to be illegal and of no legal effect.
Science and Technology Illustrated Vol. 24, p.3071 and Chambers Technical Dictionary rel.
Ittefaq Foundry v. Federation of Pakistan PLD 1990 Lah.121 fol.
Muhammad Sharif, Akram Zubair, Mustafa Lakhani and S. Tariq Hussain for Petitioner.
Zahiruddin Khan for Respondents.
Date of hearing: 18th February, 1991.
JUDGMENT
MUHAMMAD HUSSAIN ADIL KHATRI, J: --By this Judgment, we propose to dispose of the following Petitions:
C .P. No. D-1087/89, C.P. No.D-1167/89, C.P. No.D-1168/89, C.P. No. D-1169/89, C.P. No. D-1170/89, C.P, No. D-1171/89, C.P. No. D-1172/89, C.P. No. D-1173/89, C.P. No. D-1174/89, C.P. No. D-1175/89, C.P. No. D-1203/89, C.P. No.D-158/90.
The Petitioner in the first mentioned Petition is the manufacturer of Billets and the Petitioners in the other above Petitions, procure and use the Billets, as raw material, for production of steel bars, angles, flats and other sections by re-rolling, forging and other methods.
2. The case of the petitioners is that Ingots and. Bidets serve the same practical purpose and both are semi-finished goods and both are used as raw material down stream re-rolling industries for manufacture of similar products stated above.
3. Ingots are processed on old system of blast furnaces whereas Billets by continuous casting system. In Science and Technology Illustrated' such difference is explained in Vol. 24 at page 3071 as under:--
"Upon emerging from the furnace, steel, like iron, is generally put into ingots, although continuous casting, a method of pouring steel directly into semi-finished shapes, is replacing ingot method. '(Vol. 24, page 3071)'."
In Chambers Technical Dictionary the words Ingot and Billet are defined as under:--
"INGOT | BILLET |
| A metal casting of a shape suitable for subsequent rolling or forging. | An intermediate product in rolling of steel. It is larger than a bar, and smaller than a bloom... sometimes ingots of certain shapes." |
4. Even in the Central Excises and Salt Act, billets find no separate mention and are being dealt with under Item No.09.04 of the said Act and are included in the definition of Steel Ingots which is as under:--
"Steel ingot' means the product obtained by processing iron scrap pig from scrap or any other ferrous raw material, whether cast into a mould in any shape or form, or whether used in molten or semi-finished state for the manufacture of rolled or forged or formed steel products."
5. However, in Pakistan Customs Tariff, ingots are shown under PCT head 72.06 B and billets are shown under 72.07.
In the brussels Nomenclature ingots are defined as under:--
"Ingots are the primary form into which ferrous metal is cast after production by the Bessemer, Thomas, Siemens, Martin, Armco or electric process. They are usually square, rectangular or octagonal in cross-section, and one end is thicker than the other to facilitate removal from the moulds."
In Harmonized System of Custom Tariff, ingots are defined as under:--
"The solid product obtained by pouring liquid steel into a mould to produce a shape which is suitable for hot rolling or forging into semi-finished or finished steel products. The cross-section is usually square but may also be rectangular or polygonal and an ingot may be somewhat tapered along the length so that it resembles a truncated pyramid."
6. It is contended that the difference between the two items is that of process employed in their production.
7. Since the process of continuous casting is modern and efficient, the process is being adopted by transferring the same from furnace system of making ingots, although the continuous casting system is based on very heavy capital cost unlike ingot mould system.
8. Both the products being same in nature and being used in the Iron and Steel Industry for manufacture of the same goods, both were being taxed or exempted from the tax in absolutely identical terms from year to year.
9. On the assumption, which was warranted by the past continuous practice and treatment, there being no reason to think otherwise, that the tax burden on the goods produced by the petitioners and used by the other petitioners would be the same, the petitioners adopted with heavy capital investment, the modern and efficient continuous casting process and have been producing large quantity of goods but however, now because of the difference brought about in the treatment of the aforesaid two semi-finished products, it would not be possible for the petitioners to sell such large quantity of products with the addition of the new tax burden and thus the petitioners stand priced out of market.
10. The Billets were liable to Sales Tax at the rate of Rs.375 per metric ton at the flat rate and no other duty and amount were payable thereafter and the ingots were also treated similarly.
However, on 8-7-1989, respondent No.2, intimated the petitioner that thenceforth Central Excise and Sales Tax will be charged at the rate of Rs.600 per metric ton on Billet and nil excise duty on Ingots. Similarly, Sales Tax on Billets was levied at 12-1/2% ad valorem and on Ingots at flat rate of Rs.375 per metric ton.
11. It is alleged that the deliberate mala fide discrimination has placed the mills producing or using ingots in a position of advantage over the petitioners who are producing or using Billets in their rolling or re-rolling industries. The discriminatory treatment in tax structure of the two items is illustrated in the table below:--
| Name of Product | Rate of C.E. Duty | Rate of Sales Tax | Total C.E. Duty and Sales Tax |
| (i) Billet | Rs.600 M. Ton | 12 % | Rs.1,700 per ton |
| | | (Approximately) Rs.1,100 per ton | |
| (ii) Ingot | Nil | Rs.375 M. Ton | Rs.375 |
12. The result of above levy is bound to cripple the Petitioners' Industry. The above treatment meted out against the production of billets vis-a-vis Ingots, is not warranted for the following reasons:--
"(a) Both Billet/Ingot are cast from re-meltable steel scrap.
(b) Both Biliet/Ingot are processed through Bessemer, Thomas, Siemens, Martin, Armco or Electric Process.
(c) Both Billet/Ingot can be square or rectangular.
(d) Both Billet/Ingot are semi-finished products.
(e) Both Billet/Ingot are used for re-rolling into bars, rods, angles, shapes and sections or for the manufacture of forgings and other finished products."
It was for such reason that traditionally, duties and taxes on Ingots/Billets were taken in order to maintain parity of cost as they are meant to roll similar finished products.
13. It is contended that legislative powers of taxation is not uncontrolled and cannot arbitrarily or unreasonably exercised to deprive the petitioner of equal treatment as warranted under Articles 4, 18 and 25 of the Constitution of Islamic Republic of Pakistan (1973) read with Article 2-A thereof.
14. The petitioner has, therefore, challenged the differential treatment in matter of taxation meted out to Billets as discriminately unreasonable, unjust, arbitrary, mala fide, and without any lawful authority and as also it amounts to discourage the employment of modern technology in the country and encourage the out of date inefficient and retro gated method of production.
15. The respondents have controverted the case of the petitioners on the ground that under the Customs Tariff, the two items are defined separately under Heads 73.06-B and 73.07-A of Tariff as under:--
"Ingots are primary form into which ferrous is cast after production by the Bassemer, Thomas, Siemens, Martin, Armco or electric processes. They are usually square rectangular, cotagonal in cross-section and one end is thicker than the other to facilitate removal from the mould. Ingots, are primary product which are subsequently rolled or forged into blooms billets, slabs, bars, coils, sheets and other products covered by the following heading of the chapter.
Billets are obtained by hot rolling or forging the puddled bars pillings or ingots classified in heading 73.06. They are semi-manufactured products intended for further no rolling or forging. They are, therefore, not required to be made exactly to size, the edges are not accurate and the surface are often convex or concave and may retain marks caused during the manufacturing processes."
They have also made a. reference to Customs Coordination Council Nomenclature in this regard.
It is contended that Ingot is a raw material whereas Billet is a semi-finished products but both are used in down-stream industry i.e. Re-rolling Mills which turn out different end-products like M.S. Bars, Angles, Sections etc. Although they admitted higher initial investment in establishing continuous passing system as against the old traditional blast furnace system but contended that the former is cheaper in production and, therefore, can easily absorb the additional tax burden. According to them, there cannot be parity in the cost of both the products because of the difference in the method of their production. It is urged that scrap served as raw material for both ingots and billets but if the instance of import duty effects the cost of billets, it also effects the cost of ingots because raw material of both the products bears the same burden and so far as sales tax is concerned, it is 100% refunded as it is charged at one stage only. Thus, no wrongful injury is caused to the petitioners.
16. To appreciate- the contentions of the parties, we would like to give resume of the taxes that were levied or exempted in the past and such that are presently prevailing.
Section 3 of the Central Excises and Salt Act, 1944 (Act I of 1944) provides for levy and collection, in such manner as may be prescribed, duties of excise on all excisable goods, produced or manufactured in Pakistan as, and at the rates set forth in the First Schedule thereof.
Section 12-A of the said Act empowers the Federal Government to exempt by notification, from time to time, any goods, class of goods or any services or class of services, subject to such conditions, if any, as may be specified, from the whole or any part of the duty leviable under the Act. The Federal Government vide Notification S.R.O.555(1)/79 dated 28-6-1979 exempted the aforesaid item No.09.04 of the first schedule from the whole Excise duty.
The above notification remained effective till 14-7-1988 when Ordinance III of 1988, Central Excises and Salt Act (Amendment) Ordinance, 1988 (III of 1988) was promulgated whereby the description of the aforesaid item No.09.04 of the First Schedule was substituted and replaced as under;--
"Ingots, Billets, Slabs, and Sheets Bars."
In the said Ordinance the rate of duty was also increased from Rs.49.50 per ton to. Rs.2,000 per M. ton.
Simultaneously, S.R.O.614(1)/88 dated 14-7-1988 was issued by the Federal Government whereby S.R.O.555(1)/79, dated 28-6-1979 was amended, substituting the description of items No.09.04 to read as `Iron and Steel Ingots, billets, slabs and sheet bars and exempting duty thereon in excess of Rs.600 per tonne.
On 5-11-1989, Tax Laws (Repeal) Ordinance, 1988 (Ordinance XXIII of 1988 was promulgated repealing Ordinance III of 1988, retrospectively with effect from 26-10-1982. On repeal of the latter Ordinance, amendment made thereby in aforesaid item No.09.04 of the First Schedule also stood repealed and the original description thereof stood restored as given in para four supra.
On 3-6-1989 the Government issued S.R.O. No.555(1)/89, further amending S.R.O.555(1)/79, dated 28-6-1979, whereby the word Ingots was omitted from the description of goods in respect of item No.09.04.
The result of the aforesaid notification and Ordinance III of 1988 was that no Central Excise Duty was payable in respect of Ingots but the other goods mentioned including Billets remained chargeable to duty at Rs.600 per Tonne.
17. Now, we turn to sales tax levied on the aforesaid goods. Section 3(2) of Sales Tax Act, 1951, provides for levy of Sales Tax at the rate of 12-1/2% on the value of goods and section 7 thereof empowers the Federal Government to exempt any goods from sales tax.
By S.R.O.666(1)/81, dated 25-6-1981, `Iron and steel falling within the headings 73.01 to 73.09, 73.15 and 26.01...' whole of Sales Tax was exempted. The said goods are mentioned at S.No.57 of the Notification. On 26-6-1988, S.R.O.523(1)/88 was issued by the Federal Government whereby the description of the goods given at S. No.57 of S.R.O. dated 25-6-1989 was amended to read as under:--
"Iron and steel (except ingots, billets, and mild steel products, all sorts of re-rolling mills including bars, rods, coils, wires, joints, girders, angles, channels, tees, flats, beams, zeds, through, piling and all other rolled forged, formed, or extruded shapes and sections) falling within the headings 73.01 to 73.09, 73.15 and 26.01...."
As a result Ingot as well as Billet became subject to Sales Tax.
The above amendment was made ineffective by S.R.O. No.615(1)/88, dated 14-7-1988, by further amending S.R.O. No.666(1)/81, whereby the words `except ingots, billets' etc., were deleted from Serial No.57, thereby exemption granted to Ingot and Billet was restored.
By S.R.O. No.566(1)/89 dated 3-6-1989 superseded S.R.O. 666(1)/81 dated 25-6-1981. In this exemption Notification item No.73.06 Ingot and 73.07 Billet of Pakistan Customs Tariff were not included. The result was that the sales tax at 12-1/2 per cent on the value of goods as provided under section 3(2) of the Sales Tax Act became leviable, once again.
On 10-7-1989, S.R.O. No.734(1)/89 was issued whereby sales tax on ingots was in excess of Rs.375 per Metric Ton respectively but such exemption exempted was not given to Billets. The aforesaid notification was to remain in force till 30-9-1989 but however, by subsequent notification, it was extended till 30th November, 1989.
18. The petitioners being aggrieved by the aforesaid discriminatory treatment meted out to them as against the benefit given to the manufacturers of ingots have filed these petitions, challenging the aforesaid act of the Federation as violative of Articles 4, 18 and 25 of the Constitution of the Islamic Republic of Pakistan.
19. Similar issue was raised in the case of Ittefaq Foundry v. Federation of Pakistan reported in P L D 1990 Lah. 121. The result of the aforesaid notification has been summarised in the Lahore case as under:--
"The legal position which emerges as regards Excise Duty, is that till the 14th July, 1988, no excise duty was payable on Ingot as well as on Billet. Both these products fell within the definition of the term `Steel Ingot' as defined under Item 09.04 of the First Schedule to the Central Excises and Salt Act, 1944. Even under Ordinance No. III of 1988 while granting exemption vide Notification dated 14th July, 1988, both Ingot and Billet were treated alike as excise duty on both was payable @ Rs.600 per metric tonne and that it was only since 3rd June 1989, that `Ingots' were treated differently from Billets as Excise duty on Ingot was totally exempted.
As regards Sales Tax, it is pertinent to note that in the Notification of Exemption issued under section 7 of the Sales Tax Act, 1951 though Ingot and Billet were described in terms of classification given in Pakistan Customs Tariff, wherein Ingot and Billet were classified under separate headings 73.05 and 73.07 respectively yet both the products were given the same treatment in the matter of grant of exemption till 10th July, 1989. The whole of Sales Tax on both products was exempted under Notification dated 25th June, 1981, which was then amended vide notification dated 26th June, 1988 to exclude Ingots and Billets alongwith other items from the purview of exemption notification. Again in the exemption notification dated 3rd June, 1989 both these products were not included and on both Ingot and Billet, Sales Tax @ 12-1/2 per cent per tonne was payable.
It was only since 10th July, 1989 that Sales Tax on Ingot was made payable @ Rs.375 per metric Tonne while on bars; rods, angles, shapes and sections of Iron and Steel which are re-rolled end-products, Sales Tax was chargeable at the rate of Rs.175 per metric tonne but on `Billet' which is at best a semi-finished product, sales tax is payable at the rate of 12-1/2 percent. So if the price of Billet is Rs.8,500 per metric tonne, the sales tax @. 12-1/2% would be Rs.1,062.50 per tonne."
20. The learned Judge after analysing the case-law on the subject including those from Indian, British and American jurisdiction in juxtaposition of Articles 4, 18 and 25 of our Constitution reached the conclusion that different treatment given to Billet, the product of the petitioner is arbitrary unreasonable and as such additional burden placed on them is violative and equal protection of law guaranteed by Article 4 read with Article 25 of the Constitution of Islamic Republic of Pakistan and as such the charging of Excise duty and sales tax on the basis of the aforesaid notification is without lawful authority.
21. It was also noted by the learned Judge that the amendment made by Ordinance III of 1988 in the First Schedule of the Central Excises and Salt Act, 1944 ceased to exist on repeal of the said Ordinance by Ordinance XXIII of 1988 and therefore, the Notification NO.S.R.O.555(1)/89, dated 3-6-1989, referred to hereinabove describing the goods in terms of amended item, was legally ineffective in law to achieve the purpose for which it was issued.
22. Consequently the said petition was allowed. We are in, respectful agreement with the conclusions drawn by the learned Judge in the case of Ittefaq Foundry and following the same, we allow these petitions and it is hereby declared that:--
(a) The levy, charging and collecting the excise duty and the sales tax at the rate intimated vide letter dated 8-7-1989, is illegal and without lawful authority;
(b) The notification S.R.O.555(1)/89, dated 3-6-1989 which seeks to amend the aforesaid notification dated 14-7-19&g is an exercise in futility as on 3-6-1989 the notification dated 14-7-1988 was not legally in existence;
(c) The notification S.R.O.734(1)/89 dated 10-7-1989 and the subsequent notifications extending the operative period of said notification are illegal and without lawful authority.
Parties to bear own cost.
A.A./A-1030/KPetition accepted.