Appeals Nos.24 to 40 and 108 to 112 of 2003, decided on 12th August, 2003. VS Appeals Nos.24 to 40 and 108 to 112 of 2003, decided on 12th August, 2003.
2005 P T D (Trib.) 1505
[Income-tax Appellate Tribunal Pakistan]
Before Muhammad Sulaiman, Member (Technical)/Chairman, Sayed Mohsin Asad, Member (Technical) and Raj Muhammad Khan, Member (Judicial)
Appeals Nos.24 to 40 and 108 to 112 of 2003, decided on 12/08/2003.
Central Excises Act (I of 1944)---
----Ss. 3, 3-B, 4(2), 9 & 35-B---Central Excise Rules, 1944, Rr.7, 9, 10 & 210---Short payment of Central Excise Duty on solvent oil---Classification under P.C.T. Heading---Appeal before AppellateTribunal---Matter in question was that appellants reportedly were short paying Central Excise Duty on solvent oil due to misclassification of P.C.T. Heading and it was alleged that appellants grossly underpaid Central Excise Duty due to wrong classification of P.C.T. Heading i.e. 2711.1100 instead of correct P.C.T. Heading 3814.0000 as communicated by Central Board of Revenue vide its letter---Characteristics of product/item in question were; aromatic content (Per cent)=about 10%; specific gravity=0.722; Initial Boiling Point=60 c(140F) & (4) Final Boiling Point=120oc(248-F) and in view of said characteristics, item in question was clearly classified under P.C.T. Heading 2710.0039 because product covered by 2710.0031 was white spirit, whose specific gravity was 0.722 to 0.800 and its initial boiling point was 150oc and final boiling point was over 190oc as per technical literature---White spirit described in that literature was clearly stated to contain from 20% to 25% aromatics whereas aromatic content of product under dispute was about 10%---Such fact was further strengthened by Pakistan standard classification for petroleum solvent grade 60/120 which had almost exactly the same specifications as the goods in question and which clearly stated that said petroleum solvent was a product consisting entirely of petroleum hydrocarbons obtained by refining of crude petroleum---Such were the specifications of goods under dispute as well---Appellate forum, in circumstances was of firm view that correct classification of item in question was 2710.0039 which view was also strengthened by independent opinion of World Customs Organization which had clearly ruled out 38.14 Heading and classified goods in question under Heading 2710---World Customs Organization was an independent, international expert body, whose rulings were acceptable worldwide---Customs Administration of Pakistan (C.B.R) could refuse to accept it and refer it back to World Customs Organization, but in the present case they had not done so, that was a tacit admission of its ruling---Appeals filed by appellants were accepted only to the extent of classification of goods in question under Heading 2710.0039,butotherlegalandfactualissuesraisedbyappellantswerenotupheld---Petitionsofrespondentsweredismissedsofarasthe classificationofgoodsunderHead3814.0000wasconcernedandtheirrequesttorefermattertoC.B.R.,wasnotaccededto.
Messrs Central Insurance Co. and others v. The Central Board of Revenue, Islamabad and others 1993 SCMR 1232; The Commissioner of Income Tax, East Pakistan, Dacca v. Noor Hussain PLD 1964 SC 657; Laxmichand Hirjibhai v. CIT, Gujarat-III ITR 128; Tata Iron and Steel Co. Ltd. v. N.C. Upadhyaya ITR 961; UCO Bank v. CIT 1999 PTD 3752; CIT v. Muhammad Kassim 2000 PTD 280; 1993 PTD 766; 1992 SCMR 1898; 1992 CLC 841; NLR 1991 Tax 11; 1991 MLD 1459; 1992 SCMR 1652and PTCL 2002 CL 221 ref.
Farhat Nawaz Lodhi for Appellant.
Kamran Khan, Assistant Collector and Muhammad Rasheed, Superintendent for Respondents.
JUDGMENT
MUHAMMAD SULAIMAN, MEMBER (TECHNICAL) CHAIRMAN---(1) As facts of all the above appeals as well as question of law involvedtherein are almost the same, these appeals are being decided by means of this single judgment being recorded in Appeal No.24 of 2003 in pursuance of the directions of the Honourable Lahore High Court, Rawalpindi Bench vide consolidated judgment in Tax Appeal No.30 of 2002, dated 21-10-2002followedbyorders,dated25-3-2003 in Appeals No.31 of 2002 to 35 of 2002. These Appeals are:--
(i)Appeal No.24 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(ii)Appeal No.25 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(iii)Appeal No.26 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(iv)Appeal No.27 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(v)Appeal No.28 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(vi)Appeal No.29 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(vii)Appeal No.30 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(viii)Appeal No.31 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(ix)Appeal No.32 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(x)Appeal No.33 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(xi)Appeal No.34 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(xii)Appeal No.35 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(xiii)Appeal No.36 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(xiv)Appeal No.37 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(xv)Appeal No.38 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(xvi)Appeal No.39 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(xvii)Appeal No.40 of 2003---against the Order-in-Original No.155 of 1999, dated 16-11-1999 passed by the Additional Collector Central Excise, Rawalpindi.
(xviii) Appeal No.108 of 2003---against the Order-in-Original No. 01/98, dated 31-7-1998 passed by the Collector Sales Tax, Rawalpindi.
(xix)Appeal No. 109 of 2003---against the Order-in-Original No.36 of 1998, dated 9-6-1998 passed by the Additional Collector Sales Tax, Rawalpindi and Order-in-AppealNo.CE/ST-93/98, dated 5-11-1998 passed by the Collector of Customs, Central Excise and Sales Tax (Appeals), Rawalpindi.
(xx)Appeal No. 110 of 2003---against the Order-in-Original No.48 of 1999, dated 5-4-1999 passed by the Additional Collector Sales Tax, Rawalpindi and Order-in-AppealNo.CE/ST-120/99, dated 27-11-1999 passed by the Collector of Customs, Central Excise and Sales Tax (Appeals), Rawalpindi.
(xxi)Appeal No. 111 of 2003---against the Order-in-Original No.41 of 1998, dated 8-8-1998 passed by the Additional Collector Central Excise, Rawalpindi and Order-in-AppealNo.CE/ST-94/98, dated 30-11-1998 passed by the Collector of Customs, Central Excise and Sales Tax (Appeals), Rawalpindi.
(xxii)Appeal No. 112 of 2003---against the Order-in-Original No.41 of 1998, dated 8-8-1998 passed by the Additional Collector Sales Tax, Rawalpindi and Order-in-AppealNo.CE/ST-94/98, dated 30-11-1998 passed by the Collector of Customs, Central Excise and Sales Tax (Appeals), Rawalpindi.
2.Brief facts of the case are that Messrs P.O.L. Morgah, Rawalpindi (Meyal Gas Field) were reportedly short paying central excise duty on solvent oil due to misclassification of P.C.T. heading. During the scrutiny of the RT-1 for January, 1998, it transpired that Messrs P.O.L. (Meyal Gas Fields) grossly under paid central excise duty amounting to Rs.129,150.00 due to wrong classification of P.C.T. heading i.e. 2711.1100 instead of correct PCT heading 3814.0000 as communicated by the Central Board of Revenue vide Letter No.1(14)CEB/96, dated 22-3-1997 Messrs Attock Refinery Limited Morgah, Rawalpindi were already paying central excise duty on solvent oil under PCT heading 3814.0000, thereby Messrs POL Morgah, Rawalpindi cleared 1,40,000 liters of solvent oil and short paid central excise duty to the tune of Rs.192,150.00 in contravention of sections 3, 3B and 4(2) of the Central Excises Act, 1944 read with Rule 7, 9,10 and 210 of Central Excise Rules, 1944 further read with S.R.O. 456(1) of 1996, dated 13-6-1996 punishable under section 9 of the Central Excises Act, 1944 and Rule 210 of the Central Excise Rules, 1944. Consequently, show cause notices were issued in all the abovementioned cases to Messrs P.O.L. Morgah, Rawalpindi (Meyal Gas Field). Orders-in-Original were also issued upholding this classification of solvent oil under PCT heading 3814.0000 in allthe cases. This matter was also earlier decided by this Tribunal in Appeal Nos. 1285 of 2001 to 1301 of 2001 by judgment, dated 15-10-2001, whichit was held that:--
"(i)The question of constitution of a larger Bench was also considered at the time of decision of the Tribunal in the case No.132 of 1998 (old number) relating to the sales tax and was denied. As this Bench is admittedly not the same Bench which had decided the earlier case there appears to be no justification for constituting the larger Bench. The point made by the appellants that the forming of the larger Bench will effectively provide 2 fora of appeal to the respondents is also correct andwe find that there is no question of this Tribunal seeking to establish a larger Bench.
(ii)So far as question of 17 Orders-in-Original becoming infructuous because of the orders of this Tribunal No.132 of 1998, dated 19-9-2001, we have considered this point carefully. In this case the appellants are unfortunately not on firm footing as they are still insisting on the classification of these goods under PCT heading 27.11. This classification by the appellants was definitely wrong and the appellants being an oilcompany definitely knew the difference between the products of 27.11 which are gaseous in nature and 27.10 which are liquid in nature, to start with. The fact that this Tribunal has disagreed with the classification determined by the department also does not vitiate the show-cause notices and the Orders-in-Original because the appellants deliberately misdeclared the nature and classification of the product and the orders of the Deputy Collector of Customs classifying this product under PCT heading 27.11 did not and could not make the product to be gaseous in nature. Two wrongs do not make one right. Therefore, we cannot agree with this contention of the appellants that Orders-in-Original in all the 17 cases became infructuous because of the orders issued earlier by a Bench of this Tribunal.
(iii)We have also examined this aspect pointed out by the appellants and we hold that a simple administrative order issued by the Collector of Central Excise, Rawalpindi cannot possibly vitiate a judicial order issued by the respondents.
(iv)So far as the question of Central Board of Revenue having classified the goods solvent oil under PCT heading 3814.0000 vide S.R.O. No.344(I)/2000, dated 17-6-2000is concerned, it is pointed out that Central Board of Revenue has issued a formal classification opinion, before the issuance of the earlier orders issued by another Bench of this Tribunal classifying the goods under PCT heading 2710.0039. This ruling was issuedindependent of the decision of this Tribunal. The classification mentioned in the SRO cannot be considered a formal ruling. However, notwithstanding the legal position of classification of such cases in SRO other Bench of this Tribunal has formally held the goods to be classifiable under PCT heading 2710.0039. We are in full agreement withthe ruling issued in case No. 132 of 1998, dated 19-9-2001. The goods in question are ordered to be classified under PCT heading 2710.0039. However, considering the special circumstances of these cases the additional duty charged @ 2% per month in terms of section 3B of Central Excises Act, 1944, is not applicable and is remitted. Similarly, the penalty of 5% imposed on the appellants for violation of various provisions of law mentioned in the show-cause notice is also remitted.
Ordered accordingly."
Both the parties felt aggrieved of the earlier judgment of this Tribunal, dated 15-10-2001, filed separate appeals before the Honourable Lahore High Court, Rawalpindi Bench, which were disposed of with direction to this Tribunal to decide the cases afresh after affording opportunity of hearing to the Parties.
3.The operative part of the order of the Honourable Lahore High Court, Rawalpindi Bench's order (extracts) in Tax Appeal No.30 of 2002 is reproduced below:--
"(5)We have given some thought to the respective contentions of the learned counsel for the parties. Now we find that the stated case of the respondent was that the product falls under PCT Heading 2711.1100. The Addl. Collector opined that the product falls under PCT Heading 3814.0000. The learned Tribunal disagreed with both the said propositions and instead proceeded to hold that the correct PCT Heading applicable would be No.2711.0000.
(6)Now cavil is not being made before us that PCT heading 27.11 pertains to Petroleum Gas and other gaseous hydrocarbons whereas admittedly the product in question is in liquid form. Respondents obviously stopped pressing theirplea that the product is liable to be charged under the said heading before the learned Tribunal. What remains to be seen is whether the product falls under the Heading 2710.0039 as held by the learned Tribunal or under Heading 3814.0000 as being claimed by the appellant. Now we do find that the learned Tribunal was cognizant of the statutory Notification SRO 344(I)/2000, dated 17-6-2000 and what is being termed as ruling of the C.B.R. videletter,dated9-6-2001. However, against the said statutory notification placing the said product under PCT heading 3814.0000, the learned Tribunal optedtofollowthesaidrulingoftheC.B.R.,dated9-6-2001. The latter amendment vide SRO 94(1) of 2002, dated 13-2-2002, being relied upon by the learned counsel has also been examined by us. However, for the order we propose to pass we would leave the said notification uncommented. At the moment suffice it to say that on several occasions the Hon'ble Supreme Court has observed that any interpretation placed by the C.B.R. on a statutory provision cannot be treated as a pronouncement by a forum competent to adjudicate whether judicial or quasi-judicial. It has further been observed that the said C.B.R. cannot issue any administrative direction of the nature which may interfere with the judicial or quasi-judicial functions entrustedto the various functionaries under the statute and that the interpretation of any provisions of law can be renderedjudicially by the hierarchy of the forums provided for under the law. In the present casethese forums are the Collector and the learned Tribunal. Reference be made to the case of Messrs Central Insurance Co. and others v. The CentralBoard of Revenue, Islamabad and others (1993 SCMR 1232). We do find that in the instant case the said "ruling" of the C.B.R. has affected the merits of this case.
(7)
(8)For reasons stated above all these appeals are allowed. The result would be that the appeals filed by the respondent shall be deemed to be pending before the learned Custom, Excise and Sales Tax Appellate Tribunal, Islamabad and shall be heard and decided without being influenced by the said ruling, on the material on record after hearing the respectivecontentions of the parties."
4.Earlier this Tribunal decided Appeals Nos. 132 of 1998, 231 of 1998, 232 of 1998, 34 of 1999 and 439 of 1999 on 15-9-2001, in these cases also both the parties felt aggrieved and filed appeals before the Honourable Lahore High Court, Rawalpindi Bench, Rawalpindi and these were also remanded, to this forum on identical grounds as in the 17 cases mentioned above. It is pertinent to note that this Tribunal decided first the above five cases, and subsequently the seventeen cases mentioned in para. 3 were decided, but the Honourable Lahore High Court remanded the seventeen cases first and the remaining five cases later on. A second Bench of the Honourable Lahore High Court, Rawalpindi Bench in Custom Appeals Nos. 31 of 2002 to 35 of 2002 pertaining to these five cases ordered as follows:--
"25-3-2003. Mr. Khalid Ismail, Advocate for Appellant.
We are informed that the matter in issue stands resolved and the case remanded by a recent judgment of this Court recorded on21-10-2002 in TaxAppeal No.30 of 2002. The operative part of the judgment reads as under:--
(8)For reasons stated above all these appeals are allowed. The result would be that the appeals filed by the respondent shall be deemed to be pending before the learned Custom, Excise and Sales Tax Appellate Tribunal, Islamabad and shall be heard and decided without being influenced by the said ruling, on the material on record after hearing the respectivecontentions of the parties.
Learned counsel for the Revenue states and we will agree that the case need to be remitted to the Tribunal in the light of the various reasons recorded in the above judgment. Order accordingly."
In Appeal No.l32 of 1998, this Tribunal held that:--
"(13) We have gone through the record of the case in the light of submissions made by the parties. The respondents have very effectively rebutted the legal objections withregard to (i) Limitation (ii) Power of re-opening of the case byCollector of Sales Tax and his jurisdiction (iii) Imposition of fine and penalty (iv) Claim under section 65 for exemption from salestax, as it was to be made before the C.B.R. and not before this forum and, therefore, there is no force in the arguments of theappellants on these points. The issue regarding jurisdiction of the Collector Sales Tax was not raised at the adjudicationstage. In any case, the CollectorSales Tax had full jurisdiction in this case. So far as the question of limitation is concerned, it is obvious that right from the beginning the Companydeliberately misdeclared the solvent and claimed it to be classifiable under 27.11. It was for this reason that the case was re-opened by the Collector Sales Tax under section 45(A). The period fixed under this section is 3 years. The decision of Deputy Collector was made in April, 1995 and was re-opened in February, 1997. That was well within time. Soon after this, a fresh show-cause notice was issued to the appellants by the Collector of Sales Tax as per the provisions of section 45(A)(1) and 45(A)(4). Therefore, the objection to the limitation is not maintainable.
(14)The only issue left to be given verdict upon is classification of the goods. This is discussed in detail in the following paras. This discussion may however, impinge upon the question of fine and penalties depending on the classification of the goods determined.
(15)In this case very detailed notes and opinions have been given by Collector of Customs (Appraisement), Karachi, Collector of Central Excise, Karachi, Collector of Sales Tax, Rawalpindi and World Customs Organization (WCO) Brussels. Unfortunately, in none of these opinions, a clear-cut and unambiguous classification has come forth. The most important point with reference to the classification is that at one time or the other, various headings were considered. There are 27.07, 27.09, 27.10, 27.11 and 38.14. Similarly, at various stages, the goods have been classified by the department under headings 27.10 and 27.11. The headings 27.07 and 27.09 were discarded by every body. Heading 27.11 was, however, declared by the appellants and at one stage, was formally approved by the Deputy Collector Sales Tax. This heading reads as under:--
"27. 11 Petroleum gases and other gaseous hydrocarbons".
(16)The goods-in-question are admittedly solvent oil and as is obvious from the heading of 27.11, by no stretch of imagination solvent oil constitutes gases. It is, therefore, quiteclear that initially the declaration of these goods under PCT heading 27.11 by the appellants, was wrong and this was done deliberately since it was not expected from a concern dealing with oils. Its confirmation by the Deputy Collector Sales Tax could not possibly validate a wrong assumption. This position has now been accepted by the appellants as well and they are asking for classification under PCT heading 27.10.
(17)This leaves only two PCT headings to be considered i.e. 27.10 and 38.14, which lay down as follows:--
"27.10. Petroleum oil and oils obtained from bituminous minerals, other than crude, preparations not elsewhere specified or included, containing by weight 70% or more of petroleum oils or of oilsobtained from bituminous minerals these oils being the basic constituents of the preparations."
"38.14. Organic composite solvents and thinners not elsewhere specified or included, prepared paint or varnish removers."
The words under head 38.14 clearly indicate that this heading covers organic composite solvents and thinners., while the product in question is a liquid consisting of only Petroleum Hydrocarbons obtained fromrefining crude through distillation process. This has an aromatic contentof 10% and it is mainly used as a rubber solvent. It is also applied as a solvent in the paint and varnish industry. The distillation point of this petroleum fraction ranges from 60 C to 120 C. No chemical or anykind of additive has been added to the product. Explanatory Notes of the heading 38.14 read as under:--
"38.14 organic composite solvents and thinners, not elsewhere specified or included; prepared paint or varnish removers.
This heading covers organic solvents and thinners (whether or not containing 70% or more by weight of petroleum oil) provided that they are not separate chemically defined compounds and are not covered by a more specified heading. They are more or less volatile liquids, which are used, inter alia, in the preparation of varnishes and paints or as degreasing preparations for machinery parts, etc.
Examples of the products classified in this heading are:--
(1)Mixtures of acetone, methyl acetate and methanol, and mixtures of ethyl acetate, butyl alcohol and toluene.
(2)Degreasing preparation for machinery parts, etc., consisting of a mixture of:--
(i)white spirit with trichloroethylene; or
(ii)petroleum spirit with chlorinated products and xylene.
The heading also covers paint or varnish removers consisting of the above mixtures with the addition of small quantities of paraffin wax (to retard evaporation of the solvents), emulsifiers, gelling agents, etc.
The heading does not cover:--
(a)Separate chemically defined solvent or thinning compounds (Chapter 29 generally) andproducts of complex constitution used as solvents or thinners but covered by more specific headings of the Nomenclature, e.g., solvent naphtha (heading 27.07), white spirit (heading 27.10), gum, wood or sulphate turpentine (heading 38.05), wood tar oils (heading 38.07), inorganic solvents (generally heading 38.24).
(b)Solvents for removing nail varnishes, put up for retail sale (heading 33.04)."
It would be observed that these products consist of mixtures of various types of solvents including items of 27.10 mixed with some other chemicals/compounds/organic products. On the other hand, the description of the goods under 27.10 clearly refers to the following:--
"Petroleum oils and oils obtained from bituminous minerals, other than crude; preparations not elsewhere specified orincluded, containing by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals, these oils being the basic constituents of the preparations."
The exclusion (b) as described on (page 4 ofthisorderinpara. 6), does not cover this product as heading 38.14 clearly refers to composite solvents and not solvents containing hydrocarbons only. The exclusion itself describes several such products which have 70% or more of hydrocarbons but containing products e.g. lanolin (34.09), insecticides (38.08), prepared additives for mineral oils (38.11) and composite solvents (38.14) and thinners for varnishes and paints. The example of such products are also given in 38.14(1) i.e. mixtures of acetone, methyl acetate, methanol and mixtures of ethyl acetate, butyl alcohol and toluene etc.
(18)This particular product is a light oil (single solvent) and not a composite organic solvent containing other chemicals/ compounds. No chemical of any kind has been added as required by the Explanatory Notes to the heading 38.14, andis, therefore, correctly classifiable as under:--
---"Other light oils and preparations
2710.0031-White spirit
2710.0039---Other."
(19)Under this description, the appropriate PCT heading of the product in question is either 2710.0031 or 2710.0039-Other. The word "whitespirit"usedagainst2710.0031,isbasicallyatermbeingusedintrade.Thesolventinquestionis,however, described in detail by the Pakistan Standard Specification for Petroleum Solvent Grade 60/120. By definition, this product is Petroleum Solvent as defined therein as follows:--
Pakistan Standard Specification for Petroleum Solvent Grade 60/120
"(1)SCOPE:--
(1.1)This Standard prescribes the requirements and the method of test for one grade of Petroleum Solvent used mostly in the rubber industry.
(2)DEFINITION:
(2.1)Petroleum Solvent is defined as a product consisting entirely of petroleum hydrocarbons obtained by the refining of crude petroleum and satisfying the requirements described in this Standard.
Aromatic content per cent =10%
Initial Boiling Point=60 C (140F)
Final Boiling Point=120 C (248F)
"
(20)In view of the above, the heading 38.14 is clearly ruled out as the questioned petroleum solvent 60 C/120 C, is specified under heading 27.10. Therefore, Rule 3(c) of the interpretation does not apply as rule 3(a) clearly covers the product as it is specified under 27.10 i.e. petroleum oil (light solvent). To know whether the goods are to be classified under 2710.0031 or 2710.0039, it may be stated here that the Collector of Customs (Appraisement), Custom House, Karachi had opined vide his letter No.PCT/CC/07/97-APP, dated 26-8-1997 that the classification of the goods should be under the heading 2710.0039-Others. His opinion was based on the following criteria:--
(i)Specific gravity=0.722
(ii)Boiling Range=60 C to 110 C
He had opined that, this infact, is a mixture of light oils, further that the product cannot be classified under PCT heading 27.11 or 38.14 because it is neither a petroleum gas hydrocarbon nor a mixture of organic solvents containing mineral hydrocarbons. The product, solvent oil is, therefore, appropriately classified under PCT heading 2710.0039. He, however, did not elaborate further why 27.0031 was disregarded by him.
This classification, however, was disregarded by the Collector of Sales Tax, Rawalpindi. Similarly, he also disregarded certain other opinions of experts like Department of Chemistry, Quaid-e-Azam University, Islamabadwho also classified the goods under PCT heading 27.10. They, however, did not give any clear-cut ruling with regard to the sub-heading as was done by the Collector of Customs (Appraisement), Karachi.
(21)The matter was later on referred by the Tribunal to the World Customs Organization who also classified the goods under heading 27.10, however, they did not provide classification of goods as per Pakistan Customs Tariff sub-heading, as this was not required from them. Anyhow, they clearly excluded headings 38.14 and 27.11 of the tariff.
(22)The heading 27.10 is sub-divided into 2 sub-headings. Heading 2710.0031 covers the product called white spirit. This Tribunal made extensive efforts to determine whether the goods solvent oil are white spirit, whose specifications as provided by the appellants, are as under:--
(i)Specific gravity=0.720
(ii)Initial Boiling Point (IBP)=60 C
(iii)Final Boiling Point (FBP)=120 C
Inthisregard,additionaltechnicalliteraturewasalsoobtained. Thetechnicalliteraturedefineswhitespiritasunder:--
'A'
'Source Book
of
INDUSTRIAL SOLVENTS
VOLUME 1
PURE HYDROCARBONS
BY
IBERT MELLAN
REINHOLD PUBLISHING CORPORATION
NEW YORK
It refers to many solvents including white spirit as follows:--
SOLVENTS
PETROLEUM HYDROCARBONS .
'While Spirit, Mineral Spirit'
This is mainly used as a turpentine substitute. TheB.E.S.A. specification X20 is as follows:--
A clear water-white petroleum distillate, S.G. 800 max, F.. 75 F. min (24 C) B.R. 80% min, below 190 ; 90% min, below 200 , Residue, 0.2% max. Neutral. Free from grease, sulphuretted hydrogen and objectionable odour '
'B'
'Charles Tennant and Company
(London) Ltd.
Product Properties
White Spirit
Density (kg/ C) 0.772
Final Boiling Point( C)194.0
Initial boiling point ( C)150
Notes:
White Spirit is a C7-C11 Aliphatic Hydrocarbon solvent, containing in the range of 25-25% Aromatics. A typical composition contains Alkanes C7-(52%), Cycloalkanes C7-(27%), Aromatics (10%), C8 Aromatics (1%) and Trimethylbezenes,'
The physical properties of white spirit as defined in the specifications above, clearly show white spirit to be a product whose boiling point ranges above 150 C and goes over 190 C. This is obviously not the boiling point range of the product in question whose boiling point range is 60 C-120 C.
(23)We have also gone through the decision of the Honourable High Court of Sindh at Karachi in Constitutional Petition No. D-202 of 1986 in the case of Messrs Burger Paints Pakistan Limited Sindh Industrial Trading Estate v. Government of Pakistan etc. This particular decision of the Court is with reference to the old Central Excise Tariff headings 03.14 and 03.16 v. 04.03. During the course of discussion, the words white spirit has been taken to be the same as solvent 30/40. Similarly,this product was also held to be a thinner. However, the product has not been described technically i.e. with chemical and physical specifications and thus, the distinction that we now seek between 2710.0031 and 2710.0039, is not adducible from the esteemed judgment.
(24)From the foregoing discussion, it is obvious that the product in question has a boiling point range of 60 C to 120 C, specific gravity of 0.72 and an Aromatic content of 10% as per specifications provided by the appellants and also admitted by the respondents and various experts. It has been observed thatthe specifications of white spirit as mentioned above, are different from those provided by the appellants for their solvent which is admittedly a petroleum solvent. The goods are, therefore, most appropriately classifiable under heading 2710.0039---Others, which did not fit the description of white spirit under heading 2710.0031 as its range of boiling point goes over 190 C whereas the maximum upper range of the solvent in question is 120 C. The heading now actually claimed by the appellants is also 27.10, which is covered by item 34 of S.R.O. 505(I)/91, dated 30-5-1991 and is, therefore, exempt from sales tax. The appeals, therefore, succeed and are accepted accordingly.
(25)Before parting with this judgment, it is pointed out that we have observed with great dismaythat there is no coordination between various Collectorates of Central Excise, Sales Tax andCustoms in matters of classification, particularly, in a situation where there is a clear difference of opinion, as was the case, which has now been decided by this forum. Different Collectorates held the classification to be under different heads of Pakistan Customs Tariff and there was no forum, which could reconcile these divergent views. The result has been that within Rawalpindi even, the Sales Tax Collectorate and CentralExcise Collectorate have classified the goods under two different Chapters of Pakistan Customs Tariff i.e. 27.10 and 38.14 respectively. This forum has received more than 20 appeals in the past against various such orders. It may be stated here that the confusion in the classification has delayed the finalization of such cases because of divergent opinions in the field. Although, as policy, we should not give classification opinions, as it is for the C.B.R. to do so, having the relevant expertise. However, having received no opinion from that side till date, after having referred the issue to themas back as on 8-7-2000, we are, therefore, constrained to give opinion on the subject.
(26)We feel that there should be a Coordinating Committee both at the level of Collectors and C.B.R., preferably under the supervision of Collector of Customs (Appraisement) and Member (Customs), respectively, to resolve such differences of opinion. In case some Collectors of Customs, Central Excise and/or Collector Sales Tax disagree with the opinion of the Coordinating body at the level of Collectors, the case may be referred to the Coordinating Committee under Member (Customs) for final verdict which should be bindingon all the wings of the C.B.R.".
5.The learned counsel for the appellants submitted that as far the contention of the respondent that in the presence of the Notification S.R.O. No.344(I)/2000, dated 17-6-2000, whereby the Solvent Oil was mentioned under PCT heading 3814.0000, this Tribunal should not have decided the matter in deviation from the said SRO and should not have given a judgment that the solvent oil produced by the appellants was/is classifiable under PCT 2710.0039, the same is factually incorrect and legally not tenable. The said SRO was neither a classification rulingnor was ever intended by C.B.R. as such. It was tariff oriented/related SRO. After the decision of this Tribunal the appellants made a written representation to the Member (CE), C.B.R. It seems that though the objective of the SRO was not to give any ruling as to the classification of the solvent oil (specially the one being produced by Messrs POL). However, the lower authorities in the Collector of Central Excise and Sales Tax, Rawalpindi are interpreting the SRO as if it is a full-fledged classification ruling. Whereas Messrs POL is of the view that (a) the heading is applicable on only to those solvents which are chemically prepared and are not merely distillation product; and (b) the SRO exclusively deals with the tariff ofCentral Excise Duty and has nothing to do with the classification aspect. He stressed that on 17-6-2000 a Notification S.R.O. 389(I)/2001 was also issued by the Sales Tax Wing of the C.B.R., primarily dealing with the tariff of the sales tax on "Organic composite solvents and thinner not elsewhere specified or included; prepared paint or varnish removers-3814.0000". He added that in consequence of a representation with reference to the said SRO, on the same grounds, the Sales Tax Wing has been pleased to issue a clarification, vide C. No. 1(30) STR/2000, dated 4-11-2001 that "solvent oil as per WCO ruling falls at 2710.0039 that presently is not covered by SRO 389(I)/2001, dated 18-6-2001". Therefore, the C.B.R. was requested to examine/study the record relating to the issuance of SRO 344(I)/2000 and by affording an opportunity of personal hearing, and to issueappropriate/necessary clarification in the matter, so as to meet the ends of justice and the requirements of law. The C.B.R. examined the whole matter and concluded that the solvent oil being produced by the appellants was not covered under the said SRO. The consequence was SRO 94(I)/2002, whereby the solvent oils were classified under two categories i.e. (i) Composite Solvent Oils =PCT 3814.0000; and (ii) Non-Composite Solvent Oils = PCT 2710.0039. Thus the solvent oil, a distillation product of the appellants, is classifiable under PCT 2710.0039. He further submitted that the said SRO 344(I)/2000 was issued in the year 2000. The cases pertain to the prior period when the said SRO was not in field. Hence the same is irrelevant so far as the present controversy is concerned. By now this is settled law that an adverse (to the assessee interest)Notification/ruling cannot be given retrospective effect. In order to strengthen his argument he placed reliance on a judgment of apex Court, reported as Messrs Army Welfare Sugar Mills and others v. Federation of Pakistan (1992 SCMR 1652). Furthermore, the ratio of many cases, decided by the HonourableSupreme Court of India about benevolent circulars is very clear: "where a circular/instruction of Board gives an interpretation of statute adverse to the assessee, the Court will not enforce it, it will enforce it even when it is against the statute if it is in favour of the taxpayers". The contrary principle is based on the ground that tax authorities cannot be allowed to approbate orreprobate and should be stopped from disputing the policy enunciated in the instructions in the circulars. He further placed reliance on a judgment of Honourable Peshawar High Court in case of Iftikhar Hussain Ali v. ITO (TR No. 44/97) reported as Vol. 7 No.1 Tax Forum 24, (Jan, 2003 issue), by which it has been held that:--
"So far as the other argument of the learned counsel for the petitioner that clause (8) has retrospective application preventing the Assessing Officer to probe into source of income under section 13(1)(aa) of the Ordinance is concerned, the same also has a force in it for the following reasons:--
Firstly .(118C)
Secondly, in the Notification SRO.1283(I)/90, dated 13-12-1990 no date has been given for application of clause (8), therefore, there is no bar imposed by the authorities which issued the said notification to interpret retrospectively.
Thirdly, clause (8) is beneficial in nature. It is also by now established principle of law that if any notification/circular is of benevolent nature, the same would go to the assistance of assessee. In this regard reliance can safely be placed on many judgments including:--
(i)The Commissioner of Income Tax, East Pakistan, Dacca v. Noor Hussain (PLD 1964 SC 657);
(ii)Laxmichand Hirjibhai v. CIT, Gujarat-III (128 ITR);
(iii)Tata Iron and Steel Co. Ltd. v. N.C. Upadhyaya (ITR 961);
(iv)UCO Bank v. CIT (237 ITR 889) (1999 PTD 3752); and
(v)CIT v. Muhammad Kasim (2000 PTD 280)."
On these grounds, the learned counsel for the appellants prayed that it is clear and evident that the said objection is untenable under the law and on facts and is liable to dismissal as such. The appellant also raised the following points in addition to the issue of classification:--
(i)That the Order-in-Original No. 15 of 1995 was never challenged by either of the parties, hence it attained finality for all legal purposes.
(ii)That the reopening of the Order-in-Original No. 15 of 1995 was without jurisdiction since noexecutive authority can interfere in the quasi-judicial functions. Even in reply to the show-cause notice, this objection was raised but never attended to. Reliance was also, inter alia, placed on the judgment of Honourable Supreme Court of Pakistan reported as 1993 SCMR 1232 = 1993 PTD 766.
(iii)That the Order-in-Original No.1 of 1998, passed in consequence of reopening was time-barred hence of no legal consequences. As per provisions of section 45-A of the Sales Tax Act, 1990, the order after re-opinion, has to be passed within three years of the (original) re-opened order whereas in the case-in-hand, the Order-in-Original No.15 of 1995 was re-opened per show-cause notice, dated 28-2-1997 andthe (re-opening), Order-in-Original No.1 of 1998 was passed on 31-7-1998. Hence it is time-barred and the same is evident from the record itself, does notneed any arguments. Reliance was also, inter alia, placed on the following judgments of Honourable Superior Courts of Pakistan:
1992 SCMR 1898, 1992 CLC 841, NLR 1991 Tax 11 and 1991 MLD 1459.
(iv)That the re-opening of the Order-in-Original No. 15 of 1995 was even illegal on the grounds that it has not been re-opened by the (Addl/Acting Collector) of his own motion. Since the show-cause notice read as under:--
"It has been reported ."
(v)That, without prejudice, no adverse classification can have retrospective effect. Reliance was also, inter alia, placed on the judgment of Honourable Supreme Court of Pakistan, reported as 1992 SCMR 1652. Besides, C.B.R.'s CGO 21/73 was also relied upon.
(vi)That portion of the solvent oil which was produced by Messrs POL by extracting the heavier Hydrocarbons from the gases, produced at the oil well head and those Hydrocarbons were liquefied (and were not liquid at STP), to be classified under PCT 27.11. Reliance is made on para. 4 to 6 of the "Written Submissions", filed on 16-6-2001.
(vii)That the Order-in-Original No.15 of 1995 was passed by the competentauthority, in his quasi-judicial capacity, basing its independent decision on:--
(a)Analysis Report given by the reputed Govt. Lab, known as PINSTECH on 12-11-1992, in consequence of the sample and query sent by the CE Collectorate, Rawalpindi (the report presented to the DC by the DeputySupdt. CE, who had appeared on behalf of the prosecution Order-in-Original 15 of 1995 (refers), and
(b)Express consent given by the DS/Departmental representative (it may also be appreciated that the consent order cannot be disturbed, subsequently).
6.On the other hand, the learned counsel for the respondent submitted that this Tribunal failed to consider the explanatory notes to PCT heading No.27.10 and 38.14. The solvents and thinner for varnishes are excluded from PCT heading 27.10 whereas the solvents and thinners for paints and varnishes are included in PCT heading 38.14 and solvent oil being not specifically covered by any previous heading of the nomenclature; it is correctly classifiable under heading 38.14. This view is further supported by sub-rule (c) of Rule 2 of the General Rules for the interpretation of the Harmonized System and for the interpretation of the First Schedule to the Customs Act, 1969. According to sub-rule, in case a product is classifiable under two headings, the product shall be classified in the heading which occurs last in numerical order among those which equally merit consideration. He further submitted that vide S.R.O. 344(I)/2000, dated 17-6-2000 the C.B.R. correctly classified the solvent oil under PCT heading 38.14 and being a statutory notification, is binding and override all instructions and opinions of the Customs, Excise and Sales Tax Authorities. The Tribunal has again misinterpreted the same. He argued that proceedings and the impugned orders were prejudiced and vitiated as one of the Members of the Tribunal Mr. Muhammad Sulaiman Member Technical was alsothe member ofearlier Bench of the Tribunal which decided the Appeal No.132 of 1998 and which decision was verbatim followed by the Bench of the Tribunal mechanically without applying their own minds. The impugned orders, the main points, arguments have not beenconsidered and the record misread resulting in misinterpretation of the product in dispute. The impugned order of the Bench-I of the Tribunal has illegally upheld the earlier decision of the Bench ofthe Tribunal in Appeal No.132 of 1998 without applying their own judgment on the points raised by the appellant before them while classifying the product of the appellants as that under PCT heading 2710.0039. The committee as well as in the order-in-original, the learned Additional Collector fully discussed the ingredients of the product and rightly interpreted the law of classification and his decision is lawful. He ardently submitted that the following points were formulated as desired by this Tribunal:--
(i)Whether or not the product of solvent oil is classifiable under the PCT heading 3814.0000 or 2710.0039 and for determining its classification;
(ii)Reference to C.B.R. in view of provision of item 8 of General Rules for Interpretation of the First Schedule to Customs Act, 1969 (Vol. 1PakistanCustomsTariff2002-2003)andalsothe judgment of this Tribunal reported as PTCL 2002 CL 221 (para. 25 heading (k) page 225) wherein it was observed that "classification is the exclusive function of the C.B.R." is a legal obligation, the Tribunal having no lawful authority to determine the same.
To the extent above two points, he prayed that the matter may be referred to the C.B.R. first to determine the classification of the productas per law. However, on all the grounds he prayed that the impugned order may be declared as illegal and be set aside. He further prayed that the product solvent oils may be declaredas classifiable under PCT heading 3814.0000. Sofar as the points other than classification are concerned, the respondents opposed all of these and sought the dismissal of the appeal in toto.
7.We have gone through the records of the case and given anxious consideration to the points raised by the appellants and therespondents in these cases and the orders of 2 Benches of Honourable Lahore High Court (Rawalpindi Bench). The Honourable Lahore High Court has ordered this Tribunal to hearand decide the case without being influenced by the said ruling (i.e. the ruling of Member (Customs) issued vide its letterC. No. 1(2) Tar-I/98, dated 9-6-2001 stating that the goods in question are classifiable under heading 2710.0039) referred by thisTribunal in its judgment in Appeal Nos. 1285 to 1301 of 2001. Tribunal's decision should be based on the material on record and after hearing the respective contentions of the parties. This ruling of the Central Board of Revenue was quoted in para. 7 of the Tribunal judgment, dated 15-10-2001. As the Honourable LahoreHigh Court had ordered that this forum should not be influenced by the abovementioned ruling of Central Board of Revenue and decide the case on the basis of the material on record and afterhearing the respective contentions of the parties, both the parties were given sufficient time to make their point of view known to this forum in the open Court. The appellants have raised several legal objections apart from the issue of classification. Theseobjections have been recorded at para. 5 on page 17 of this judgment as i, ii, iii, iv, v, vi and vii. The position in this regard was fully clarified in this forum order inAppeal No. 132 of 1998, dated 15-9-2001, however, the same are being discussed again as under:--
(i,ii,vii) The appellant contended that the Order-in-Original No.15 of 1995 issued by the Deputy Collector of Sales Tax attained finality as it was never challenged by either of the parties and thatre-opening of Order-in-Original No.15 of 1995 was without jurisdiction. The Collector of Sales Tax had no executive authority to interfere in the quasi-judicial orders and that the Collector of Sales Tax was not in fact Collector of Sales Tax but Additional Collector of Sales Tax. All these contentions of the appellants are baseless as the Collector of Sales Tax was fully competent to re-open the case decided by his subordinate officers under section 45-A. Central Board of Revenuecan appointanofficertobeaCollectorofSalesTaxundersection 30 of the Sales Tax Act, 1990, and the officer who re-opened the case in question, was empowered under the law by the C.B.R. and he had all the powers of the Collector Sales Tax. In this case what the Deputy Collector had done was to asses a liquid product under PCT heading 27.11, which heading covers only gaseous products. Obviously, such wrong classifications cannot attain finality simply because it was not challenged by any body. Even otherwise the contention is not correct as the Collector of Sales Tax, was fully empowered under the law to change these orders and re-open the case in time and after giving full opportunityof hearing to the present appellants passed a very detailed judgment. In view of the same the order issued by the Deputy Collector of Sales Tax was queshed and became a nullity in the eyes of law.
(iii)The orders of the Additional Collector/Collector of Sales Tax are certainly not time-barred as the classification of a liquid product as a gas was clearly mala fide especially considering the fact that the appellants are experts in the field of petroleum products.
(iv)The re-opening of case under section 45-A was quite in order as the Collector obviously did it of his own motion, when it was brought to his notice that a patently illegal order had been passed by the Deputy Collector of Sales Tax.
(v)The adverse classification or any adverse order issued as a consequence of a re-opening of a case under section 45-A is quite in order as the re-opening is allowed under the law without reference to the consequences. If the contention of the appellants is accepted then section 45-A would loose its meaning and become an exercise in futility. The references quoted by the appellants do not apply here. The purpose of section 45-A is tocorrect some wrong done in the past and the orders passed under this section obviously override the orders issued in the past.
(vi)The classification of the solvent oil is the main point in this whole exercise, as also ordered by the 2 Benches of the Honourable Lahore High Court (Rawalpindi Bench), therefore, this point will be discussed in detail in the discussion on the classification of the solvent oil whose classification is under dispute.
8.The respondent's counsel made several points with regard to the classification of the goods. The points he raised in short are that:--
(i)That this Tribunal failed to consider Explanatory Notes to Harmonized Commodity Description andCoding System to PCT 27.10 and 38.14 as solvents and thinners for varnishes are excluded from PCT heading 27.10 and the same are included in PCT 38.14. That this view is further supported by sub-rule (c) of rule 2 of the General Rules of Interpretation of H.S. Code.
(ii)That S.R.O. 344(I)/2000, dated 17-6-2000 correctly classified the solvent oil under PCT heading 38.14 and being a statutory notification is binding and overrides all instructions and opinions of the Customs, Excise and Sales Tax Authorities and that the Tribunal has misinterpreted this provision oflaw.
(iii)That proceedings and the impugned orders were prejudiced and vitiated as one of the Members of the Tribunal, Mr. Muhammad Sulaiman, Member (Technical) was also a Member of the earlier Bench of the Tribunal which decided the AppealNo.132 of 1998 and which decision was verbatim followed by another Bench without applying their own minds. The impugned order of the Bench-I ofthe Tribunal illegally upheld the earlier decision of the Tribunal in Appeal No.132 of 1998.
(iv)The Classification Committee constituted by the Collector of Sales Tax Act, Rawalpindi and the order-in-original issued by the Collector of Sales Tax,Rawalpindi discussed the ingredients of the product and rightly classified and their decision is lawful.
(v)He formulated the following 2 points for decision:--
(a)Whether or not the product of solvent oil is classifiable under the PCT heading 3814.0000 or 2710.0039 and for determining its classification.
(b)Reference should be made to C.B.R. in view of provision ofrule 8ofGeneralRulesforInterpretationoftheFirstSchedule toCustoms Act, 1969 (Vol. 1 Pakistan Customs Tariff 2002-2003) and also the judgment of this Tribunal reported as PTCL 2002 CL 221 (para 25 heading (k) page 225) wherein it was observed that "classification is the exclusive function of the C.B.R."is a legal obligation, the Tribunal having no lawful authority to determine the same.
In view of the above, he prayed that the matter be referred to the Central Board of Revenue again to determine the classification of the product as per law and that the product solvent oils may be declared classified under 38.14.
9.During the discussions on the subject, the counsel for the respondents was asked to point out the flaws in the classification opinion given by this Tribunal in its judgment in Appeal Nos. 132 of 1998 and 1285 of 2001. The counsel stated in the open Court that the classification opinion had no flaws per se but the respondents only objected to it because it was against the S.R.O. 344(I)/2000which classified it under 38.14, and, therefore, the Tribunal should have simply followed the classification. Secondly, in the budget for the year, 2002-2003, C.B.R. had issued detailed instructions with regard to the manner in which classification of goods should be decided. The details of this aregiven in Chapter11 of the Customs Rules 2002 issued at the time of the budget 2002-2003.Thecounsel,however,hadnothingtosayaboutthe classification opinions given by the following 3 independentforums:--
(i)Collector of Central Excise, Karachi.
(ii)Collector of Customs (Appraisement), Customs House, Karachi.
(iii)World Customs Organization.
World Customs Organization in fact gave its ruling on a reference made by this forum. Without going into the merits of these rulings at this stage we would take up the issue of the classification of thesolvent oil under PCT heading 27.10 and 38.14 as directed by the two Benches of the Honourable Lahore High Court, Rawalpindi Bench. In this regard it is pertinent to note that 2 points have beenstressed by the respondents at all stage. The first point refers to the exclusion of thinners and solvents for paints and varnishesfrom the heading 27.10. This exclusion reads as under:--
"(b)Preparations containing petroleum oils or oils obtained from bituminous minerals in any proportion (even exceeding 70% by weight) covered by a more specific heading in the Nomenclature or based on products other than petroleum oils or oils obtained from bituminous minerals. This is the case with the anti-rust preparations of heading 34.03 which consistof lanolin in solution in white spirit, the lanolin being the basic material and the white spirit acting merely as a solventandevaporatingafter application. It is also the case withdisinfecting, insecticidal, fungicidal, etc,. preparations (heading 38.08), prepared additives for mineral oils (heading 38.11), composite solvents and thinners for varnishes (hading 38.14) and certain preparations of heading 38.24, such as startingfluid for petrol (gasoline) engines, the fluid consisting of diethyl ether, 70% or more by weight of petroleum oils and also other constituents, the diethyl ether being the basic constituent".
The secondpoint refers to the legal binding of S.R.O. 344(I)/2000, dated 17-6-2000. In the said SRO the wordings used are as under:--
| "3814.0000 | Organic composite solvents and thinners, not elsewhere specified or included, prepared paint or varnish removers: | |
| | (i) Solvent oil | Nine rupees per litre |
| | (ii) MTT (Mineral Turpentine) | Nine rupees per litre. |
| | (iii) Others | Ten per cent of the retail price." |
10.In both the above points what has been completely ignored by the respondents and those who are now interpreting the SRO, is that the exclusion (b) and the SRO both referred to composite solvent and thinners for varnishes. It is thus composite thinners and solvent which are classifiable under PCT heading 38.14 and there is absolutely no dispute in this regard. What is being disputed and this is the point of the entire dispute, is whether the solvent oilproduced by the appellants is composite solvent and/or thinner. The only question therefore, that needs to be answered is what arecomposite solvents and thinners. The manner in which the interpretation of the word composite solvent and thinners is being insisted upon by the respondents today and for the past severalyears clearly shows their lack of understanding of the Explanatory Notes to the Harmonized Commodity Description and CodingSystem. In our opinion this point has been totally ignored by the Sales Tax Department and whosoever has dealt with this case atvarious stages of adjudication from the level of Deputy Collector of Sales Tax to the level of C.B.R. and even those who represented the case before this Tribunal. Organic composite solvents andthinners are very clearly defined under the heading 38.14 of the Customs Tariff and H.S. Code. The Explanatory Notes to this heading read as under:--
"38.14-Organic composite solvents and thinners, not elsewhere specified or included; prepared paint or varnish removers.
This heading covers organic solvents and thinners (whether or not containing 70% or more by weight of petroleum oil) provided that they are not separate chemically defined compounds and are not covered by a more specific heading. They are more or less volatile liquids which are used, inter alia, in the preparation of varnishes and paints or as degreasing preparations for machinery parts, etc.
Examples of the products classified in this heading are:--
(1)Mixtures of acetone, methyl acetate and methanol, and mixtures of ethyl acetate, butyl alcohol and toluene.
(2)Degreasing preparations for machinery parts, etc. consisting of a mixture of:--
(i)White spirit with trichloroethylene; or
(ii)Petroleum spirit with chlorinated products and xylene.
The heading also covers paint or varnish removers consisting of the above mixtures with the addition of small quantities of paraffin wax (to retard evaporation of the solvents), emulsifiers, gelling agents, etc.
The heading does not cover:--
(a)Separate chemically defined solvent or thinning compounds (Chapter 29 generally) and products of complex constitution used as solvents or thinners but covered by more specificheadings of the Nomenclature e.g., solvent naptha (heading 27.07), white spirit (heading27.10), gum, wood or sulphate turpentine (heading 38.05), wood tar oils (heading 8.07), inorganic composite solvents (generally heading 38.24).
(b)Solvents for removing nail varnishes, put up for retail sale (heading 33.04)."
A simple reading of this heading clearly shows that the examples of goods covered by this heading specifically cover:--
(1)Mixtures of acetone, methyl acetate and methanol and mixtures of ethyl acetate and toluene.
(2)Degreasing preparations for machinery parts etc. consisting of a mixture of white spirit with tricholorethylene; or
(3)Petroleum spirit with chlorinated products and xylene.
(4)Paint or varnish removers consisting of the above mixtures with the addition of small quantities of paraffin wax (to retard evaportation of the solvents), emulsifiers, and gelling agents, etc.
It will be observed that 2 items which are clearly classified under heading 27.10 i.e. white sprit and petroleum spirit are also referred under heading 38.14. However, these are classified under 38.14 only when trichloroethylene is added to white spiritand when chlorinated products and xylene are added to petroleum spirit. This clearly shows that anything that is covered under this heading whose basic constitutions are classifiable under 27.10, gets excluded from 27.10 when other products are added to it. It then becomes a composite organic solvent and thinner etc. By general definition these products of 27.10 consists of oils in which the weight of the non aromatic constituents predominates that ofaromatic constituents, as is the case of the product manufactured by the appellants. This is further confirmed by the wordings of the exclusion (b) of heading 27.10. It starts with the word preparations containing petroleum oils or oils obtained from bituminous minerals and then goes on to refer to several preparations. The word preparations and composite in this context clearly imply that some other chemical or chemical products are added to the petroleum oils or oils obtained from bituminous minerals. Thesepetroleum oils or oils from bituminous minerals obviously refer to the products of 27.10, if nothing has been added to them as per the requirements of PCT Chapters 34 and 38. Any officer who has studied the H.S. Code surely knows that the Chapters 34 and 38 almost entirely, refer to subject products and preparations. One ofthe basic criteria for classification under these 2 Chapters of the H.S. Code is that almostall the items falling under these chapters would be classified under these chapters if certain chemicals or chemical products are added to the basic constituents which are actually classifiable under other chapters of the H.S. Code, forexample Chapters 27, 28, 29 etc. It is for this reason, that the words composite and preparations are used in chapter 38, especially in the context of 38.14The product in question is clearly not classifiable under heading 38.14 because the heading 38.14 refers to composite solvents and thinners whereas the goods in question are light oil, a simple distillation product (fraction) with a boilingpoint range of 60 C to 120 C.
11.So far as S.R.O. 344(I)/2000 is concerned it clearly refers to organic composite solvent and thinners and as pointed out above, the word composite signifies that the solvents in question have something added to them. In other words, some chemical is added to the light oils of heading 27.10 which are the distillation products of crude petroleum or bituminous minerals. In the case under consideration the product consists purely of hydrocarbons which are a distillation product of crude petroleum etc. and don't have the kind of additional chemicals which is a must for being classified under PCT heading 38.14. The product in question consists predominantly of non-aromatic hydrocarbons and is used as solvent or as a diluent. Obviously, these can be used as solvents and thinners even without the addition of some other chemical or chemical product. The solvents and thinners mentioned under heading 38.14 are specially prepared solvents and thinners, and chemicals etc. are added, to give them special properties. That is why these solvents and thinners of 38.14 contain additives which are missing from the products of 27.10. In some case even addition of small quantities of other chemicals does not change the classification from 27.10 to some other chapter, for example petroleum spirit containing small quantity of anti-knock products and anti oxidants etc. as clearly mentioned in the Explanatory Notes of 27.10, as reproduced below:--
"27.10 ..
(C)The oils described in (A) and (B) above to which various substances have been added to render them suitable for particular uses, provided the products contain by weight 70% or more of petroleum oils or of oils obtained from bituminous minerals as a basis and that they are not covered by a more specific heading in the Nomenclature.
Examples of the types of products referred to are:--
(1)Petroleum Spirit containing small quantities of added anti-knock products (e.g., tetraethyllead, dibromoethane) and anti-oxidants (e.g., para-butylaminoephenol).
(2)Lubricants consisting of mixtures of lubricating oils with widely varying quantities of other products (e.g., products for improving their lubricating properties (such as vegetable oilsand fats), anti-oxidants, rust preventives, anti-foam agents such as silicones). These lubricants include compounded oils, oils for heavy duty work, oils blended with graphite (graphite suspensions in petroleum oils or in oils obtained from bituminous minerals), upper cylinder lubricants, textile oils, and solid lubricants (greases) composedof a lubricating oil with about 10 to 15% of soaps of aluminum, calcium, lithium, etc.
(3)Transformer and circuit-breaker oils (not used for their lubricating properties), which are stabilized, specially refined oils with added anti-oxidants such as ditertiarybutylparacresol.
(4)Cutting oils used for cooling cutting tools, etc. and the material being worked. They consist of heavy oils with the addition of about 10 to 15% of an emulsifying agent (e.g., alkali sulphoricinoleate) and are used as emulsions in water.
(5)Cleansing oils used for cleaning motors, engines and other appliances. These are heavy oils usually containing, in addition, small quantities of peptizing agents to facilitate removal of gun, carbon deposits, etc. formed during the running of the machine.
(6)Mould release oils used to facilitate the removal of ceramic articles, concrete pillars, etc., from the mould. These include heavy oils containing, for example, about 10% of vegetable fats.
(7)Liquids for hydraulic brakes, etc., consisting of heavy oils to which have been added products toimprove their lubricating properties, anti-oxidants, rust preventives, antifoam agents, etc.
The heading does not include:
(a)Preparations containing less than 70% by weight of petroleum oils or of oils obtained from bituminous minerals, e.g., textile greasing or oiling preparations and otherlubricating preparations of heading 34.03 and hydraulic brake fluids of heading 38.19.
(b)Preparations containing petroleum oils or oils obtained from bituminous minerals in any proportion (even exceeding 70% by weight) covered by a more specific heading in the Nomenclature or based on products other than petroleum oils or oils obtained from bituminous minerals. This is the case with the anti-rust preparations of heading 34.03, which consist of lanolin in solution in white spirit, the lanolin being the basic material and the white spirit acting merely as a solvent and evaporating after application. It is also the case with disinfecting, insecticidal, fungicidal, etc., preparations(heading 38.08), prepared additives for mineral oils (heading 38.11), composite solvents and thinners for varnishes (heading 38.14) and certain preparations of heading 38.24, such as starting fluid for petrol (gasoline) engines, the fluid consisting of diethyl ether 70% or more by weight of petroleum oils and also other, constituents, the diethyl ether being the basic constituent."
13.It is pertinent to point out here that the first judgment of this Tribunal was issued on 19-9-2001 and the second one on 15-10-2001. After the issuance of these orders the C.B.R. took the followingactions:--
(i)S.R.O. 344(I)/2000, dated17-6-2000 was amended vide S.R.O. 94(I)/2002, dated 13-2-2002 and this amendment clearly acknowledged the correctness of the judgments issued by this Tribunal. The amendments made were as under:--
S.R.O. 344(I)/2000, dated 17-6-2000.
| 3814.0000 | Organic composite solvents and thinners, not elsewhere specified or included, prepared paint of varnish removers: |
| | (i) Solvent oil. |
| S.R.O. 94(I)/2002 dated 13-2-2002 |
| 2710.0039 | (i) Solvent oil (non-composite) |
| | (ii) Other |
BythisamendmenttheCentralExciseWingofC.B.R.accepted the verdict of this Tribunal regarding the classification of solvent oil and added the words non-composite in front of solvent oil to distinguish it from composite solvents and thinners.
(iii)In the budget for 2002-2003, C.B.R. issued detailed rules for issuing classification opinions by Collector etc. as per the advice of this Tribunal,giveninthelastparaofthejudgmentof19-9-2001.
Secondly, a new rule 8 was added in the First Schedule to the Customs Act, 1969, which reads as under:--
"(8)For the purpose of classification in the First Schedule to Customs Act, 1969 (IV of 1969), the Board shall be the final authority to determine classification of any item meant to be imported or exported."
This was also done as a consequences of the decision of this Tribunal issued on 19-9-2001.
(iii)In the same budget a new sub-heading was created to identify and acknowledge that solvent oil (non-composite) was classifiable under the head 27.10. The sub-classification reads as under:--
"2710.1150---Solvent oil (non-composite)".
This sub-heading did not exist previously and this was added basically to remove the confusion that solvent oil can be and should be classified under 27.10, if non-composite, as against composite solvents and thinners classifiable under heading 38.14.
The rules framed for the methodology of determination of classification and the amendment in the rules for the interpretation of goods for import and export referred above have also been referred by the respondents counsel during the hearing before this Tribunal. Of course this reference is out of context in this case as this forum has already ruled on the subject and has now been directed by the Honourable Lahore High Court, Rawalpindi Bench to re-determine the classificationof the product in question afresh. Obviously this forum is fully competent to issue classification opinions. It would be pertinent to recall here that this Tribunal had requested the C.B.R. to issue a ruling on the subject long time ago on 8-7-2000, in this case. The C.B.R., however, did not consider it fit to issue a ruling on the subject and this forum was constrained to issue the classification ruling. This is clearly mentioned in this forum's judgmentinAppealNo. 132of1998,dated19-9-2001inpara. 25. Therefore, referring the case again to C.B.R. will only delay and complicate the issue and will also be against the express orders of the Honourable Lahore High Court, Rawalpindi Bench.
12.Before we part with the judgment as per the directions of the Honourable Lahore High Court, Rawalpindi Bench, we are constrained to observe that the respondents in this case apparently mislead the Honourable Lahore High Court, with reference to the fact that this Tribunal was influenced by the ruling of the Member (Customs) of C.B.R, issued vide C.B.R. letter C. No. 1(22) Tar-I/98, dated 9-6-2001. This letter was addressed to Collector of Customs (Preventive), Customs House, Karachi, in response to his letter No.S./5/Misc. 341 of 2000-Oil, dated 6-5-2001. This particular classification order of C.B.R.wasnotin the notice of this Tribunal at the time of issuance of its order, dated 19-9-2001. However, when the second order were being issued in October, 2001, this ruling of C.B.R. was brought to the notice of the Tribunal during the hearings and, therefore, it finds mention only in this forum's order No.1285 of 2001 on 15-10-2001, but not in this forum's orders Nos. 132 of 1998 issued on 15-9-2001. In the opinion of this forum, the respondents should have brought this fact to the notice of the Honourable Lahore High Court, and by not doing so, they appear to have mislead the Honourable Lahore High Court into thinkingthat this forum was influenced by the said ruling of C.B.R., whereas this forum was not even aware of this ruling in September, 2001 while issuing its judgment in Appeal No.132 of 1998, dated 19-9-2001. However, we bow before the two orders of the Honourable Lahore High Court and shall follow whatever orders are passed by their Lordships.
13.In view of what has been stated above and the facts narrated above, the product in question has the following characteristics:--
"
Aromatic content per cent)=about 10%
Specific gravity=0.722
Initial Boiling Point=60 C (140F)
Final Boiling Point=120 C (248 F)
.
In view of the above, the item is clearly classifiable under PCT heading 2710.0039 because the product covered by 2710.0031 is white spirit, whose specific gravity is 0.772 to 0.800 and its initial boiling point is 150 C and final boiling point is over 190 C, as per technical literature quoted in our earlier decisions. The technical literature referred earlier is:--
'A'
Source Book
of
INDUSTRIAL SOLVENTS
VOLUME 1
Pure Hydrocarbons
BY
IBERT MELLAN
Reinhold Publishing Corporation
New York
'B'
Charles Tennant and Company
(London) Ltd.
Product Properties
White spirit described in this literature is clearly stated to contain from 20% to 25% aromatics whereas the aromatic content of the product under dispute is about 10%. This is further strengthened by the Pakistan Standard Classification for petroleum solvent grade 60/120 which has almost exactly the same specifications as thegoods in question and which clearly states that this petroleum solvent is a product consisting entirely of petroleum hydrocarbons obtained by the refining of crude petroleum. These are thespecifications of the goods under dispute as well.
14.In view of the detailed discussion above this forum is of the firm view that the correct classification of this item is 2710.0039 as per the previous tariff headings and 2710.1150 of the latest tariff, first introduced in the budget for the year 2002-2003. In thisjudgment, we are strengthened by the independent opinion of World Customs Organization which clearly ruled out 38.14 and classified the goods in question under 27.10. World Customs Organization is an independent, international expert body, whose rulings are acceptable worldwide. Of course, the Customs Administration Of Pakistan (C.B.R.) could refuse to not accept it and refer it back to the World Customs Organization. In this case, however, they have not done so, and this is a tacit admission of the ruling.
15.Ruled accordingly in compliance of the Honourable Lahore High Court, Rawalpindi Bench vide their orders referred to in paras.2 to 4 above, theappealsfiledbytheappellantsareacceptedonlytotheextent of classification of the goods under heading 2710.0039. Other legal and factual issues raised by the appellants are not upheld as discussed above. Likewise, the petitions of the respondents aredismissed so far as the classification of the goods under 3814.0000 is concerned. Their request to refer the case to C.B.R. as per rule 8 of the rules of interpretation (First Schedule of the Customs Act, 1969) is not acceded to.
16.Ordered accordingly.
17.Announced.
H.B.T./392/Tax (Trib.)Order accordingly.