Messrs DADA BHOY CEMENT INDUSTRIES VS COLLECTOR OF SALES TAX, KARACHI, 2005 PTD-KARACHI-HIGH-COURT-SINDH 2255 (2005)

(a) Central Excise Act (I of 1944)---

---Ss. 3(1) & 2(g)---Excise Duty on Production Capacity (Cement) Rules, 1991, R.49(1)---C.B.R. Directions/Instructions No.C.No.1(18) CE-Budget/91, dated 4-8-1991---C.B.R. Letter C.No.1(18)-CEB.91-Vol.II, dated 21st August, 1993---Demand of excise duty on the clinker from cement manufacturer, despite having not taken out of the factory for home use, but used and utilized within the factory premises for manufacturing cement, which was made subject to payment of duty under the Excise Duty on Production Capacity (Cement), Rules, 1991 on capacity basis, as per direction issued by C.B.R. was legal, valid and within the four corners of the relevant law-Clinker-Meaning-High Court, however, observed that the manufacturer was allowed to move a separate application along with all the material particulars and details to the Collector of Excise for consideration of his request on merits regarding deduction of the amount duly determined on the amount of clinker in terms of S. 3(1) of the Central Excise Act, 1944 from the capacity duty for which the manufacturer had not furnished credible evidence before the Appellate forum.

Chambers 21st Century Dictionary; Commissioner of Income Tax, East Pakistan v. Noor Hussain PLD 1964 SC 657; Messrs Central Insurance Company and others v. Central Board of Revenue Islamabad and others 1993 SCMR 1232; Messrs Dewan Textile Mills Limited v. Government of Pakistan and others 1984 CLC 1740; Messrs Kohinoor Industries Limited v. Government of Pakistan 1989 MLD 1 and Central Board of Revenue and others v. 7-Up Bottling Company (Pvt.) Limited 1996 SCMR 700 ref.

(b) Words and phrases---

----Clinker---Meaning.

Chambers 21st Century Dictionary ref.

Syed Ali Zafar for Appellant.

Sirajul Haq Memon for Respondents.

Date of hearing: 16th May, 2005.

JUDGMENT

S. ALI ASLAM JAFRI, J.---This appeal under section 36-C of the Central Excise Act, 1944 has been filed to assail the order, dated 18-2-1999 passed by the Customs, Excise and Sales Tax Appellate Tribunal/respondent No.4 dismissing Appeal No.1 of 1995 filed by the appellants under section 35-B of the Central Excise other sum including

declaration that the demand of Excise Duty or any a factory as additional duty on the quantity of clinker stored in appellant's on 3-8-1991 is void, without lawful authority and not enforceable at law.

2. The facts in brief appear to be that the appellants/a public limited company are engaged in the manufacture of cement. They started production in the year, 1985 and have a capacity to manufacture 283,500 metric Tons ordinary grey Portland cement, sulphate resistant cement and slag cement per annum. It is their case that they are a major tax payable having paid million of rupees as duty and taxes and further claim to be very prompt in discharging their liabilities and obligation. With effect from 4-8-1991, the Excise Duty on Production Capacity made (Cement) Rules, 1991 (hereinafter referred as "the Rules") and promulgated by respondents for the levy and collection of excise duty on the production capacity of the plant and machinery of the factories manufacturing cement. Such excise duty under the said Rules of 1991 was in lieu of excise duty. leviable on cement under subsection (1) of section 3 of the Central Excise Act, 1944. Directions/instruction were issued by respondent No.5 vide Menlo. C. No.1 (18) CE. Budget/91, dated 4-8-1991 to all the Collectors of Central Excise and Sales Tax to ensure the following:---

"(i)Arrangement may be made for ascertaining stocks of cement and clinker manufactured and not cleared before 4-8-1991 by the factories coming into the capacity net.

(ii)The closing stocks of 3-8-1991 shall be cleared under section 3(1) of the Central Act, 1944 at the concessionary rates under S.R.O. 555(I)/79, dated the 28^th June, 1979.

(iii)A Notice of Demand for the amount of Central Excise duty due from the manufacturer under these rules to be issued by the appropriate officer should indicate both the total amount of duty. For for the financial year and the amount of monthly instalment. For the remaining period of the should be raised accordingly."

3. It is the case of the appellants that at the time of coming into force the Rules on 4-8-1991, they had in their stock as on 3-8-1991, a balance quantity of 50759 metric Tons of clinker and 5037.500 Metric Tons of ordinary Portland/slag/sulphate resistant cement, which according to the appellants, respondents have admitted at all material times. According to the appellants, the said quantity of clinker was used in-house for manufacture of cement inside the factory premises) of the appellants and was not cleared or removed outside the factory premises and further excise duty as determined by the respondents was paid on such manufactured cement by appellants under the Rules of 1991. However, a Demand Notice, dated 10-8-1991 was issued by respondent No.3 directing the appellants to deposit excise duty on the closing stock of clinker and cement as on 3-8-1991. The appellants replied to the said notice on 25-8-1991 by explaining therein that duty on clinker which was in stock on 3-8-1991 was only payable if Clinker was cleared/removed from the manufacturing place and if the same was used in-house i.e. inside the factory premises of appellants for manufacture of cement then the question of paying any excise duty on Clinker does not arise because the final product produced from said Clinker i.e. cement was itself subject to exercise duty. Under the Rules and the executive could not abuse its powers to collect the excise duty from the appellants twice as the concept of double taxation was alien to the Central Excise Act, 1944 apart from being in violation of relevant provisions of the Constitution of Pakistan. However, respondent No.3 again issued letter, dated 31-8-1991 to the appellants directing them to pay immediately the central excise duty on the said stock of Clinker. The appellants replied the said notice on 9-9-1991 denying their liability whereafter the respondent No.2 issued a show-cause notice, dated 28-9-1991 to the appellant directing them to pay exorbitant and arbitrary amount of Rs.20,303,600 as central excise duty on closing stock of Clinker which stood as on 3-8-1991, at the rate of Rs.400 per Metric Ton. Respondent No.3 further threatened to recover the above amount from the appellants under Rule 10 of the Central Excise Rules, 1944. The hearing of demand/show-cause notice was fixed on 7-10-1991 before respondent No.2, who without going through the record or taking into consideration the objections/ sub-missions on behalf of the appellants passed the order-in-original No.14 of 1991 on 10-10-1991 directing the appellants to pay/deposit the above-referred amount.

4. An appeal preferred against the said order before respondents No.1, was contested by the Department and by an order, dated 25-1-1992 the case was remanded to respondent No.2 for "de novo" consideration and fresh orders according to law after providing adequate hearing to the appellants. However, it is stated that even after remand, the respondent No.2 without considering the documents placed on record particularly further reply, dated 18-4-1992 to the show-cause notice and without taking into consideration the grounds urged on behalf of the appellants dismissed the appeal and maintained the impugned order on the basis of letter, dated 14-4-1993 issued by respondent No.5 while holding that Central Excise duty on Clinker stocks in cement factory on 3rd August, 1991 may be charged at the rate of duty applicable on their date of clearance for home consumption under section 3(c) of the Central Excise and Salt Act, 1944.

5. It gave rise to the filing this Spl. Appeal before this Court.

6. Main contention of the learned counsel for the appellants is that the Clinker in question was never cleared for "house consumption" which is different from use within the factory itself for manufacture of cement. The said Clinker did not change ownership at all within the factory premises of the appellants, hence it cannot be subjected to any such duty as being assessed and demanded by the respondents. Learned counsel further argued that letter, dated 14-4-1993 of respondent No.5 is mala fide and without lawful authority and in violation of the principle of natural justice. Learned counsel further contended that the Rules which were enforced w.e.f. 4-8-1991 were operative on 14-4-1993 and thus the letter, dated 14-4-1993 was without lawful authority and jurisdiction as respondent No.2 by his order-in-original had ordered the appellants to pay excise duty of Rs.20,303,600 within thirty days of the issue of the said order, against which appellants preferred an appeal before respondent No.1 and also filed application for stay/suspension of the order-in-original, which was dismissed on 6-8-1995. After dismissal of appeal, respondent No.3 demanded the payment within three days of the receipt of notice, dated 9-8-1995 despite the, fact that period of limitation filing an appeal before respondent No.4 was (60) days. It shows that mala fide on the part of the respondent No.3 as it was an attempt to circumvent the process of appeal, which is a statutory right of a party. However, an appeal was filed before respondent No.4 along with application for stay and relief against the impugned order, dated 6-8-1995 and demand notice, dated 9-8-1995. The application for urgent hearing was also made but learned respondent No.4 declined to pass the orders on the ground that Tribunal consists of two members i.e. Member (Judicial) and Member (Technical). Since the latter proceeded on long leave had not resumed by that time, as such while sitting singly he (the Member (Judicial)) could not pass an order in the matter being beyond his power as any order of the stay involving a sum in excess of Rs.50,000 has to be passed by the Bench.

7. Learned counsel for the appellants further argued that under the facts and circumstances as explained above no duty under the Central Excise Act, 1944 can be claimed on Clinker, which was never issued out of the premises of the factory of the appellants. Thus, only the cement issued and removed out of factory was subject to such duty and not the Clinker. Learned counsel, therefore, vehemently urged that the orders impugned in this petition and the demand made in pursuance of the said order is illegal, un-warranted in law and liable to be set aside.

8. Mr. Sirajul Haq Memon learned counsel for the respondents Nos.1 to 5 vehemently opposed the prayers made in this petition and argued that in view of the clarification made by the Central Board of Revenue vide their letter/clarification, dated 14-4-1993 issued for the purpose of removing the ambiguity on the disputed point, which is within the power and jurisdiction of the Central Board of Revenue, there remains no controversy in the matter as the duty has to be charged on the stocks of the clinker as available with the appellant on the relevant date despite having not been taken out for home consumption. The said clarification reads as follows:--

"Central Excise duty on clinker stocks in cement factory on 3rd August, 1991 may be charged at the rate of duty applicable on their date of clearance for home consumption under section 3(c) of the Central Excises and Salt Act, 1944."

9. Learned counsel further argued that the demand made from the appellant shall not fall within the mischief of double taxation hence it cannot be deemed to be violative of any provisions of law. He further argued that existence of clinker stock as on 3-8-1991 produced and manufactured during the non-capacity period is not denied by the appellant. The said stock was carried over to the capacity production period and after having been converted into cement was cleared for home consumption. The appellants have not claimed that the said stock was not used for the said purpose. Had there been such position, the demand of Excise Duty would have been assailed in term of subsection (1) of section 3 of the Act, 1944 read with rule 49 of the Central Excise Rules, 1944. The contention is therefore not in accordance with the provisions of the said section or the Rule. Even otherwise, cement including clinker were classifiable under the said heading at Item No.3.01 of the first schedule to the Central Excise and Salt Act, 1944, hence the clinker turned into cement and cleared out of the factory on or after 4-8-1991 was leviable to Central Excise Duty at the rate set forth in the schedule. The demand is, therefore, correct as per law. Learned counsel referred to another letter from Central Board of Revenue bearing C. No.1(18)-CEB, 91-Vol-II; dated 21st August, 1993 after withdrawal of the PC System and rescinding of S.R.O. 707(I)/91, dated 4th August, 1993, stating that since cement units will pay capacity duty upto 19th August, 1993 under S.R.O. 707(I)/91, dated 4th August, 1991, the cement and clinker produced by them before zero hours of .20th August, 1993, shall not be liable to central excise duty under section 3(1) of the Central Excise and Salt Act, 1944. It shows a clear demarcation of line between the capacity or non-capacity system and periods. The provisions of subsection (1) of section 3 of the 1944 Act were applicable with the non-capacity period ending up to 3rd August, 1991, hence the cement and clinker produced during non-capacity period were to be governed by the above provisions of Central Excise law. The demand is therefore correct. Learned counsel, therefore, prayed for dismissal of the appeal.

10. We have given due consideration to the arguments advanced by the learned counsel for the parties. It is not disputed that on 3-8-1991 the closing stock of clinker available with the appellants in their factory premises was 58064.94 M. Tons, apart from 5037.500 M. Tons of cement on which they have already paid the duty and is not subject-matter of this appeal. Admittedly two different rates were provided on the cement and clinker available in the factory. Though cement includes clinker as per item No.03.01 of the First Schedule to the Central Excise and Salt Act, 1944, but lesser rate of duty on stock of clinker available with the factories on the crucial date viz. 3-8-1991, appears to have been fixed obviously for the reason that clinker itself is not cement and it is a material being used for manufacturing cement. According to the Chambers 21st Century Dictionary Clinker means "a mass of fused ash A or slag left un-burnt in a furnace: the cindery crust on a lava flow: a very hard kind of brick". There is no denial of the fact that clinker was not used in the factory for manufacturing of the cement and there is nothing on record to shove that it was used for home consumption and taken out of the factory premises so that it could be made subject to levy of the duty according to the prescribed rate under section 3(1) of the Central Excise and Salt Act, 1944.

11. On the other hand, it has been vehemently urged that in the absence of removal of the clinker, be it treated as a clinker or cement, though the rate of duty was different, no duty could be levied and any administrative circular is violation of the law in view of the rule laid down in the cases of Commissioner of Income Tax, East Pakistan v. Noor Hussain (PLD 1964 SC 657) and ,Messrs Central Insurance Company ;and :others v. Central Board of Revenue Islamabad and others (1993 SCMR 1232). On the point of double taxation that if clinker as a raw material or manufacturing a cement is subjected to duty and again after manufacturing of the cement it again become subject to the duty specified by the Central Board of Revenue, it will amount to double taxation, learned counsel has placed reliance on the following cases:

(i) Messrs Dewan Textile Mills Limited v. Government of Pakistan an others (1984 CLC 1740).

(ii) Messrs Kohinoor Industries Limited v. Government of Pakistan (1989 MLD 1).

(iii) Central Board of Revenue and others v. 7-Up Bottling Company (Pvt.) Limited (1996 SCMR 700).

12. Now the point which requires clarification is, whether the demand of duty on the clinker despite having not been taken out of factory for home use, but used and utilized within the factory premises for manufacturing cement, which ,was made subject to payment of duty under the Rules of 1991 on capacity basis, as per direction issued is legal, valid and within the four corners of the relevant law.

13. In order to reach at a just conclusion, we would like to refer to Rule 49(1) of the Rules and section 3(1) and section 2(g) of the Act, which reads as follows:--

"Rules 49(1)...Payment of duty shall not be required in respect of excisable goods made in a factory until they are about to be issued out of the place or premises specified under rule 9 or are about to be removed from a store room or other place of storage approved by the Collector under Rule 47.

Section 3(1)...There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than sale which are produced or manufactured in, or imported into, any part of Pakistan.

2(g)... The word prescribed has been defined in section 2(g) of the Act as prescribed by rules made under .this Act."

Indeed Rule 49(1) apparently seems to be applicable to the facts and circumstances of the case as the clinker was not taken out of the factory premises for home use. However, a bare reading of this rule shows that it is not the only factory premises which is relevant but it is the "place or premises" specified under Rule 9 or are about to be removed from a store room or other place of storage approved by the Collector under Rule 47. Rule 9 says that no excisable goods shall be removed from any place where they are produced or manufactured or any premises a pertinent thereto, which the manufacture may declare and get approved by the Collector in this behalf, whether for consumption, export or manufacture of any other commodity in or outside such place, only excise duty leviable thereon has been paid.

(Emphasis made)

14. Thus, we do not find any force in the contentions of the learned counsel for the appellants that the demand of the duty on clinker in question is illegal, unjust or against any provisions of law. It also does not appear to be a case of double taxation so that it could be deemed to be violation of any provisions of raw or the constitutional guarantees. We have carefully examined all the orders impugned in this petition and we find nothing wrong or illegal with the same.

15. While dismissing this petition with no order as to costs, we approve the view taken by the learned Collector Appeals in para. 16 of the impugned order, dated August 6, 1995 through which the appellants were allowed to move a separate applications along with all the material particulars and details to the Collector of Customs and C.E. Hyderabad for consideration of their request on merits regarding deduction of the amount of duty determined on the amount of clinker in terms of section 3(1) of the Central Excise and Salt Act, 1944 from the capacity duty, for which the appellants had not furnished credible evidence before the appellate forum.

M.B.A./D-23/KOrder accordingly.