Messrs FECTO SUGAR MILLS LTD., KARACHI VS FEDERATION OF PAKISTAN, 2005 PTD-LAHORE-HIGH-COURT-LAHORE 2247 (2005)

Sales Tax Act (VII of 1990)---

----S. 6(1A)---Customs Act (IV of 1969), S.31-A---S.R.O.560(I)/96 dated 1-7-1996---Constitution of Pakistan (1973), Art.199---Constitutional petition---Import of machinery---Time and manner of payment of sales tax---Effective rate of duty---Exemption---Scope---When the Bills of Entry were filed by the importer for the release of the machinery in question, S.R.O.560(I)/96, dated 1-7-1996 had already come into force---Section 6(1A) of the Sales Act, 1990 provided that provisions of S.31-A, Customs Act, 1969 shall be deemed to have always been incorporated in the Sales Tax Act, 1990 and S.31-A, Customs Act, 1969 provides that amount of duty may have become payable in consequence of withdrawal of the whole or any part of the exemption or concession from duty whether before or after the conclusion of contract or agreement for sale of such goods or opening of Letters of Credit in respect thereof---If even after the conclusion of contract of sale some duty remained payable the same would be recoverable---Bills of Entry in the present case, having been filed, when S.R.O.560(I)/96, dated 1-7-1996 was in force, the authorities were competent to claim and recover the rate of duty/Sales Tax accordingly.

Al-Samreze Enterprises v. Federation of Pakistan 1986 SCMR 1917; Ahmad Investment (Pvt.) v. Federation of Pakistan 1994 PTD 5757; Fecto Cement Ltd. v. Collector 1994 MLD 1136; Messrs M.Y. Electronics Industries (Pvt.) Ltd. through Manager and others v. Government of Pakistan through Secretary Finance, Islamabad and others 1998 SCMR 1404; Federation of Pakistan v. Punjab Steel Limited 1993 SCMR 2267and Govt. of Pakistan v. Muhammad Ashraf PLD 1993 SC 176 ref.

Malik Muhammad Rafiquc Rajwana for Petitioner.

Ch. Saghir Ahmad, Standing Counsel for Government of Pakistan.

Date of hearing: 20th April, 2005.

JUDGMENT

Brief facts of the case are that the petitioner company entered into a contract on 14th December, 1993 with Messrs Nissho Iwai Osaka, Japan. They in accordance with the provision of said contract, established an irrevocable Letter of Credit No.0001/01/46/0301-D/A-D on 30-3-1994 through Muslim Commercial Bank for the importation of a complete particle Board Plant (Second Hand) from France, which inter alia contained Plant and Machinery and other equipment for said product. The Machinery reached at Karachi Port on 3-9-1996 against IGM No.1279 of 1996, dated 3-9-1996 and IGM No.1302 of 1996, dated 8-9-1996. The petitioner company filed Bill of Entry for the partial release of the machinery ip question at Dry Port Multan, claiming the exemption of 10% regulatory duty and 18% of sales tax imposed by the Federal Government vide S.R.O. 560(I)/96, dated 1st July, 1996 but respondent No.5 through his order, dated 29-9-1996 has imposed 10% regulatory duty on the basis of S.R.O. No.560(I)/96, dated 1st July, 1996 and 18% sales tax on the basis of section 3 of the Sales Tax Act, 1990. The petitioner company has also filed a Bill of Entry for the release of remaining consignment at Karachi, wherein the Customs Authorities at Karachi, respondent No.3 are demanding the impugned regulatory duty and sales tax on the basis of aforesaid notification. Hence this writ petition.

2. Learned counsel for the petitioner does not press the prayer for enhancement of customs duty as well as the regulatory duty keeping in view the provision of section 31-A of the Customs Act, 1969. However, he maintains his grievance to the extent of difference in rate of sales tax.

3. It is contended by learned counsel for the petitioner that crucial date for the assessment of regulatory duty would be the date of opening of Letter of Credit. Since the Letter of Credit in the present case was opened much before coming into force of S.R.O. No.560(I)/96, dated 1-7-1996, therefore, the rate of regulatory duty through the said S.R.O. is not applicable to the petitioner's case. It is next submitted that provisions of section 3(1-A) of the Sales Tax Act, 1990 were introduced through Finance Act much after the opening of Letter of Credit, thus are not applicable to the petitioner's case and that provisions of section 31-A of the Customs Act, 1969 are also not applicable to the petitioner's case. He has further contended that a vested right has accrued with regard to the imposition of customs duty and sales tax. He relied on Al-Samreze Enterprises v. Federation of Pakistan (1986 SCMR 1917), Ahmad Investment (Pvt.) v. Federation of Pakistan (1994PTD 5757) and Fecto Cement Ltd. v. Collector (1994 MLD 1136).

4. On the other hand, the learned Standing Counsel has vehemently opposed the writ petition and has submitted that according to section 6(1A) of the Sales Tax Act, 1990, section 31-A of the Customs Act, 1960 shall be deemed to have always been incorporated in the Sales Tax Act, 1990; meaning thereby that enhancement in the rate of duty will be applicable to the petitioner's case. The learned standing counsel for Government of Pakistan has put his reliance on Messrs M.Y. Electronics Industries (Pvt.) Ltd. through Manager and others v. Government of Pakistan through Secretary Finance, Islamabad and others (1998 SCMR 1404), whereby their Lordships after distinguishing Al-Samrez case's (1986 SCMR 1917), Federation of Pakistan v. Punjab Steel Limited (1993 SCMR 2267) and Govt. of Pakistan v. Muhammad Ashraf (PLD 1993 SC 176), have held that language of section 31-A of the Act is wide enough to include within its ambit all those cases where exemptions have been withdrawn after the insertion of section 31-A in the Act. Relevant paras. of the above cited judgment are reproduced below:-----

"My conclusion therefore is that section 31-A has effectively achieved the purposes for which it was enacted as explained above. They only other position produced by section 31-A depriving an importer of the right to be protected against any change in the quantum of exemption, on the basis of which he has entered into a contract for the sale of goods to be imported and opened a letter of credit or performed other acts, to what extent this section can be given retrospective effect and whether

such retrospective effect can be given so as to affect past and closed transactions.

It is clear from the provisions of section 5 of the Finance Act, 1988 that by the device of the deeming clause the newly-inserted 'section 31-A is to be treated as part and parcel of the Act since its enforcement in 1969. Undoubtedly, therefore, the section is retrospective in operation. It is agreed on all hands that the well-settled principles of interpretation of statutes are that vested rights cannot be taken away save by express words or necessary intendment. It also cannot be disputed that the Legislature, which is competent to make a law, has full plenary powers within its sphere of operation to legislate retrospectively or retroactively. Therefore vested rights can be taken away by such a legislation and it cannot be struck down on that ground. However, it has also been laid down (Province of East Pakistan v. Sharafatullah PLD 1970 SC 514) that a statute cannot be read in such a way as closed or any facts or events that have already occurred. In that case the following postulation has been made:

In other words liabilities that are fixed or rights that have been obtained by the operation of law upon facts or events for or perhaps it should be said against which the existing law provided are not to be disturbed by a general law governing future rights and liabilities unless the law so intends.'

This is an important principle which has to be kept in mind in the context of the present cases. Reference may also be made to another principle which has been followed in several decisions but to quote from Mehreen Zaibun Nisa v. Land Commissioner, Multan (PLD 1975 SC 397) where it was observed:

"When a statute contemplates that a state of affairs should' be deemed to have existed, it clearly proceeds on the assumption that in fact it did not exist at the relevant time but by a legal fiction we are to assume as if it did exist". The classic statement as to the effect of deeming clause is to be found in the observations of Lord Asquith in East and Dutching Company Ltd. v. Finsbury Borough Council (1952) AC 109 namet).

However, in that case the aforesaid principle was subjected to in application to a given case to a condition that the Court has to determine the _limits within which and the purposes for which the Legislature has created the fiction. It has been quoted from an English decision that `when a statute enacts that something shall be deemed to have been done which in fact and in truth was not done, the Court is entitled and bound to ascertain for what purposes and between the persons the statutory fiction is to be restored to.

In the light of the aforesaid principles it cannot straightaway be held that the mere fact that section 31-A has been given retrospective effect it will affect even the past and closed transaction or all the vested rights that have accrued. It is in this context that the remaining contentions of the learned counsel for the appellants are to be examined.

It has been urged on behalf of the appellants that as the bill of entry was presented in all these cases before 1st July, 1988, when section 31-A was enacted and enforced, their cases are past and closed transaction.

There seems to be a great deal of force in this submission. Before the insertion of section 31-A the position was that upon the presentation of a bill of entry, by virtue of section 30 of the Act the levy of duty was crystalised. As explained in the case of Al-Samrez Enterprises, the liability to tax was created under section 18 with reference to the tax because it is the rate of duty by application of which the tax liability is to be quantified or assessed. Simultaneously, any benefit of exemption also takes effect on the same date because in the very nature of thing the liability in wiped off by virtue of the exemption at the same rate. Therefore, this is the crucial point of time at which by operation of law the liability is discharged. In other words, the rights and liabilities of the importers attained fixity on the said crucial date. Therefore a vested right has been created and the transaction is the quantification of the tax, if any, or by the discharge of liability on that date. The mere fact that any proceedings remained pending for assessment of the tax by a statutory functionary for the purpose of recovery of the dues will ,not prevent the law from operating and producing the result of closing the transaction. This is on the simple principle that every functionary is bound by the provisions of law and has to pass a lawful order which alone is protected. Besides on' this mere calculation in terms of section 30 read with sections 18 and 19 of the Act, because the rate and value of the goods become fixed with reference to this date. Indeed no adjudicative process is involved in such a matter. Viewed in this perspective, if effect is given to the provisions of section 31-A so as to undo the discharge of the liability which had already taken effect, it will amount to re-opening a past and closed transaction. The simple reason is that under the existing law there was no further liability to pay the tax and by giving retrospective operation to the new dispensation a liability is being created for the payment of the tax. I cannot see anything in the language of section 31-A, expressly or by necessary intendment, to that effect. Such result is therefore not a necessary corollary of the fiction created by the deeming provisions of section 5 of the Finance Act, 1988. Otherwise also it will be contrary to the principle, mentioned above, namely, that liabilities once fixed or rights created by operation of law upon facts or events, must not be disturbed by a general provision given retrospective effect unless such intention is clearly manifested by the language employed. In the case of Mehreen Ziabun Nisa (Supra) retrospective effect was not given to the changed law so as to invalidate certain acts of Legislature, although the entry in the relevant legislative list had been changed with retrospective effect.

The majority opinion in Malasses Trading and Export (Pvt.) Ltd. was referred with approval in the case of Federation of Pakistan v. Punjab Steel (Supra) and Government of Pakistan v. Muhammad Ashraf (PLD 1993 SC 176).

The effect of insertion of section 31-A in the Act is that when exemption from payment of customs duty granted by the Government under section 19 of the Act is withdrawn, then notwithstanding the fact that while exemption was enforced, the party had opened a letter of credit or concluded the contract with the foreign suppliers the amount of customs duty payable on the goods will be that which may have become payable as a result of withdrawal of exemption. It is, therefore, quite clear that the right to claim exemption from customs duty under a notification issued under section 19 of the Act remains available to a party only as long as the exemption notification holds the field. However, as soon as the exemption notification is withdrawn, the payment of customs duty on the imported articles is to be determined in accordance with the provisions of section 30 of the Act. The contention of the appellants that section 31-A was inserted in the Act with the sole objection of doing away with the effect of the judgment of this Court in Al-Samrez's case and therefore, the exemptions granted by the Government after insertion of section 31-A are not controlled by section 31-A does not appear to be correct. Section 31-A was inserted in the Act by section 5(2) of Finance Ordinance II of 1988 which provided that section 31-A shall be deemed always to have been so inserted in the Act, meaning thereby that it was given retrospective effect from the date the Customs Act, 1969 came into effect. There is nothing in the language of section 31-A (ibid), to justify the interpretation that this section applied only to the cases covered by the judgment of this Court in Al-Samrez's case or to those cases only, which did not acquire the character of past and closed transaction on the date of insertion of section 31-A (ibid) is wide enough to include within its ambit all those cases where exemptions have been withdrawn after the insertion of section 31-A in the Act, as well."

5. I have heard learned counsel for the parties and perused the relevant documents.

6. The provisions relevant for determination of this case are section 6(1A) of the Sales Tax Act, 1990, which are reproduced for ready reference:--

"(6) Time and manner of payment.---(1) The tax in respect of goods imported into Pakistan shall be charged and paid in the same manner and at the same time and if it were a duty of customs payable under the Customs Act, 1969 (and the provision of the said Act) including section 31-A thereof), shall, so far as they related to collection, payment and enforcement tax under this Act on such goods where no specific provision exist in the Act, apply;

(1A) Notwithstanding anything contained in any other law for the time being inforce, including but not limited to the Protection of Economic Reforms Act, 1992 (XII of 1992), and notwithstanding any decision or judgment of any forum, authority or Court whether passed, before or after the promulgation of the Finance Act, 1998 (III of 1998), the provisions of section 31-A of the Customs Act, 1969 (IV of 1969) referred to in subsection (1) shall be incorporated in and shall be deemed to have always been so incorporated in this Act and no person shall be entitled to any exemption from or adjustment of or refund of tax on account of the absence of such a provision in this Act, or in consequence of any decision or judgment of any forum, authority or Court passed on that ground or on the basis of the doctrine of promissory estoppel or on account of any promise or otherwise, by any Government department or authority."

The other provision relevant is section 31-A of the Customs Act, 1969 which is reproduced as under:-----

"31-A. Effective rate of duty.---(1) Notwithstanding anything contained in any other law for the time being in .force or any decision of any Court, for the purposes of sections 30 and 31, the rate of duty applicable to any goods shall include any amount of duty imposed under section 18 and the amount of duty that may have become payable in consequence of the withdrawal of the whole or any part of the exemption or concession from duty whether before or after the conclusion of a contract or agreement for the sale of such goods or opening of a letter of credit in respect thereof.

(2) For the purpose of determining the value of any imported or exported goods, the rate of exchange at which any foreign exchange is to be converted into Pakistan currency shall be the rate of exchange in force,--

(a) in the case goods referred to in clause (a) of section 30, (immediately preceding the date) referred to in that clause;

(b) in the case of goods referred to-in clause (b) of the aforesaid section (immediately preceding the date) referred to in that clause, and

(c) in the case of goods referred to in section 31 on the date referred to in that section."

7. There is no denying the fact that when the disputed bills of entry were filed by the petitioner for the release of the machinery in question, S.R.O. 560(I)/96, dated 1-7-1996 had already come into force. Section 6(1A) of the Sales 'Tax Act provides that provisions of section 31-A of the Customs Act, 1969 shall be deemed to have always been incorporated in the Sales Tax Act, 1990 and section 31-A of the Customs Act, 1969 provides that amount of duty may have become A payable in consequence of withdrawal of the whole or any part of the exemption or concession from duty whether before or after the conclusion of contract or agreement for sale of such goods or opening of letters of credit in respect thereof. Thus, it is evident that if even after the conclusion of contract of sale some duty has become payable the same would be recoverable. Since in the instant case when the disputed Bills of Entry were filed, S.R.O. 560(I)/96, dated 1-7-1996 was in force; therefore, the respondents were competent to claim and recover the rate of duty/sales tax accordingly.

8. For what has been stated above, I find no merit in this writ petition which is accordingly dismissed. There is no order as to costs.

M.B.A./F-108/LPetition dismissed.