COLLECTOR OF CUSTOMS (APPRAISEMENT), KARACHI VS FAUJI FERTILIZER CO. LTD.

2005 P T D 2178

[Supreme Court of Pakistan]

Present: Nazim Hussain Siddiqui, C.J., Javed Iqbal and Abdul Hameed Dogar, JJ

COLLECTOR OF CUSTOMS (APPRAISEMENT), KARACHI and others

Versus

FAUJI FERTILIZER CO. LTD. and others

Civil Appeals Nos.1093 and 1876 of 1996, decided on 09/05/2005.

(On appeal from the judgments dated 18-10-1994 and 22-12-1994 of the High Court of Sindh, Karachi, in Constitutional Petitions Nos.D-1188 and D-1093/1993 respectively).

(a) Customs Act (IV of 1969)-----

----Ss. 19 & 32(3)---S.R.O. 959(I)/89 dated 23-9-1989---S.R.O.515(I)/89 dated 3-6-1989---S.R.O. 393(I)/74 dated 21-3-1974--Constitution of Pakistan (1973), Art. 185(3)---Manufacturing of fertilizers---Leave to appeal was granted to consider contentions raised which required interpretation of S.R.O. 959(I)/89 dated 23-9-1989 and were of general importance involving duties and taxes and to determine the points viz. whether "catalyst" was integral or component part of machinery/plant and whether "catalyst" was a chemical and consumable.

(b) Customs Act (IV of 1969)---

---Ss. 19 & 32(3)---S.R.O. 959(I)/89 dated 23-9-1989---S.R.O.515(I)/89 dated 3-6-1989---Manufacture of fertilizers---"Catalyst"---Definition---Exemption of "catalyst" from customs duty and sales tax---"Catalyst" is an essential and integral part of the plant including all chemical reactors without which the whole machinery remains incomplete and which is utilized in fertilizer production---Catalyst cannot be considered as raw material---Catalyst being an integral part of the fertilizering plant and machinery, shall be exempted from the customs duty and sales tax---S.R.O.959(I)/89 dated 23-9-1989 has made the position clear which indicates that "plant and machinery" not manufactured locally and imported for the expansion of the existing unit manufacturing fertilizer shall be exempted from whole of the customs duty and sales tax subject to conditions specified under S.R.O.515(I)/89 dated 3-6-1989---Merely because catalyst does not find mentioned in Chapters 84 and 85 of Pakistan Customs Tariff and mentioned separately would have no substantial bearing on merits of, the case because the controversy has been set at rest by the S.R.Os. which are capable enough to meet all sorts of such eventualities---Catalysts, Expoxy Grout and Speciality Paints being integral parts of the plant and machinery, shall be exempted from customs duty and sales tax pursuant to the provisions contained in S.R.O.515(I)/89 dated 3-6-1989 and S.R.O.959(I)/89 dated 23-9-1989 being the relevant S.R.Os.---Principles.

Carbide and Carbon Chemicals Corp. v. Coe, 102 F.2d 236, 240, 69 App. D.C.372; General Chemical Co. v. Standard Wholesale Phosphate and Acid Works, 22 F. Supp. 332 at 340. D.C. Md.; Certificate from M/s. Foster Wheeler, U.K.--the Consultants; Certificate from M/s. Haldor Topsoe, Denmark--the Manufacturer and Supplier of Catalysts and Ammonia Technology; Words Customs Organizations and Central Board of Revenue vide their CGO-13/2002 dated July 4, 2002; Cambridge Advanced Learner's Dictionary Catalyst noun (c); Merriam-Webster Dictionary; American Heritage Dictionary 4th Edn. 2000 and Encyclopaedia Britannica Catalyst ref.

(c) Plant and Machinery---

----What includes---"Plant and machinery" are not two different entities because a plant cannot be functional without machinery and machinery being integral part of the plant, both "plant and machinery" can be considered interchangeable- and synonymous, keeping in view a little difference between the two and their dependence upon each other because they are not separable and a plant cannot be made functional without a machine--Principles.

Corpus Juris Secumdum Vol. 70; Halsbury's Laws of England Vol. 23; Yarmouth v. France (1887), 19 Q.B.D. 647 p.658; Sundaram Motors (Pvt.) Ltd. v. Commissioner of Income Tax, Madras 1972 PTD 119; Chambarbaugwalla (RMD) v. Union of India 1957 SCR 53 ITR 165 (SC); Commissioner of Income Tax v. Raju (1966) 60 ITR 246 (SC); Holome v. Guy (1877) 5 Ch. D 901; National Provincial and Union Bank of England v. Charnley, 1 KB 1923 (CA); Hinton (Inspector of Taxes) v. Maden and Ireland Ltd. (1959) 3 All. Err. 356; Munby v. Furlong (Inspector of Taxes) 1977 Ch. 539; IRC v. Barclay Curie & Co. Ltd. (1969) 1 AII.ER 732; Hohn Hall, Junior & Co. v. Rickman (1996) 1 KB 311; McVeigh Inspector of Taxes v. Arthur Sanderson & Sons Ltd. (1969) 2 All ER 771; Cooke Inspector of Taxes v. Beach Station Caravans Ltd. (1974) 3 All. ER 159; Scholfield (Inspector of Taxes) v. R and H Hall Ltd. (1975) STC 353 (NI CA); IRC v. Scottish and Newcastle Breweries Ltd. (1982) 2 All ER 230 and Leeds Permanent Building Society v. Procter (Inspector of Taxes (1982) 3, All ER 925 ref.

S.M. Zafar, Senior Advocate Supreme Court for Appellants.

Abdul Hafeez Pirzada, Senior Advocate Supreme Court, M.Afzal Siddiqui, Advocate Supreme Court and M.S. Khattak, Advocate-on-Record for Respondents (in C.A.No.1093 of 1996).

Khalid Anwar, Senior Advocate Supreme Court for Respondent No.1 (in C.A.1876 of 1996).

Respondent No.2. Ex parte

Dates of hearing: 8th and 10th June, 2004.

JUDGMENT

JAVED IQBAL, J.---The above captioned appeals with leave of the Court are directed against the judgments dated 18-10-1994 and 12-12-1994 whereby Constitutional petitions preferred on behalf of Fauji Fertilizer Company Limited and others (appellants in Civil Appeal No. 1093-K of 1996) and M/s. Angro Chemical Pakistan Limited and another (Appellants in Civil Appeal No.1876-K of 1996) have been accepted. We intend to dispose of both the above captioned appeals involving similar questions of law and facts by this common judgment.

2. The leave granting order in case of Fauji Fertilizer Company Limited is reproduced hereinbelow to appreciate the legal and factual aspects of the controversy:

"The petitioners seek leave to appeal against the judgment of the learned Judges of the High Court whereby Constitutional petition filed by the respondent No.1 challenging notice under section 32(3) of the Customs Act, 1969 dated 14-2-1993 demanding Rs.13,57,57,394, which was subsequently corrected as Rs.17,93,17,627 was allowed.

2.This demand was made in respect of catalyst imported by the respondent No.1 claiming exemption on the ground that it formed an integral part of the plant machinery and was therefore, eligible for concession under Notification No.S.R.O.959(I)/89 dated 23-9-1989. It seems that the respondent imported plant and machinery in the year 1982 when such concession was allowed. However, when the respondent again imported only catalyst in February, 1992, the demand was made after the clearance on the ground that it did not form part of the machinery and therefore, it was not covered by the said notification. The respondent's Constitution petition was allowed and the following observation was made:--

"As has been pointed out earlier, the catalyst performs anessential role in the production of fertilizer. It is a part of the equipment which is used for production of ammonia which is further used for production of fertilizer. As has been pointed out earlier, during the reaction it does not lose its identity but retains its original form. But as has been observed in different dictionaries and encyclopaedias, it is so essential for production of ammonia and fertilizer on commercial level that in our opinion, the whole machinery would be incomplete without a catalyst. Consequently, although catalyst cannot be regarded as a component used in a machinery because, as pointed out by Mr.S. Tariq Ali, learned Standing Counsel, it is a chemical and has been so classified in the Pakistan Customs Tariff, however, being an essential part of the entire plant and machinery, in our view, it can be classified as a component part of such machinery identifiable for use with such machinery. It is pertinent to point out that the said notification does not only refer to such component parts of machinery which are identifiable as machinery or for use therein, but also such other parts which are identifiable as those used with such machinery. Catalyst being so essential for production of the nitrogen fertilizer cannot be regarded as separate from such plant or machinery, as in that case such machinery would be incomplete without a catalyst."

3. The learned counsel for the petitioner contended that the objection raised by the respondent which has been accepted by the learned Judges of the High Court requires interpretation of the aforesaid notification. It was further contended that reference will also have to be made to notification No.S.R.O. 393(I)/74 dated 21-3-1974 in which plant and machinery have been defined. The learned counsel referred to Chapters 84 and 85 of the Pakistan Customs Tariff and contended that the catalysts imported by respondent No.1 were independently and separately subject to classification under Chapter 38 other than Chapters 84 and 85 of the Pakistan Customs Tariff. Since catalysts are not covered under a definition and description of plant and machinery, the exemption of duty and taxes was not admissible under the S.R.O. of 1989.

4. The learned counsel for respondent No.1 pointed out that the catalyst is a component part of the machinery, it is not a chemical and is not consumed during production. The A contentions raised required interpretation of the' notification, which may be of general importance involving duties and taxes. Leave is granted."

3. The leave granting order in case of M/s. Angro Chemical Pakistan Limited is also reproduced herein below for ready reference:--

"Mr. Farooq H. Naik, learned Dy. Attorney-General, pointed out that in a similar matter (C.P. 365-K11994) leave to appeal has been granted against Sindh High Court's Judgment in C.P. No.D-1188/1993 (Fauji Fertilizer Company Limited v. Government of Pakistan) which was relied upon, in the impugned judgment.

Leave to appeal is, therefore, granted to determine the following B points:

4046Whether "Catalyst" is integral or component part of a Machinery/Plant?

Whether "Catalyst" is a Chemical and consumable?

Learned Dy. Attorney-General requests that the appeal may be heard with the Civil Appeal arising out of Civil Petition No.365-K/1994. Order accordingly.".

4. The reproduction of facts would not be necessary as the same have been mentioned elaborately in both the judgments impugned and leave granting orders.

5. Mr. S.M. Zafar, learned Senior Advocate Supreme Court entered appearance on behalf of appellant and contended strenuously that the learned High Court has not appreciated the legal and factual aspects of the controversy which resulted in serious miscarriage of justice and has misconstrued and misinterpreted S.R.O.393(I)/74 dated 21-3-1974. It is contended that the learned High Court has erred in extending the benefit of S.R.O.393(I)/74 dated 21-3-1974 to the Catalysts imported by respondent No.1. It is next contended that the learned High Court has not correctly appreciated the nature of Catalysts and erred in holding that it is an essential part of the entire plant and machinery and can be classified as a component part of such machinery, identifiable or use along with such machinery. It is pointed out that the definition of the term "component part" is laconic as made by the learned High Court. It is contended that it is a case of misreading and non-reading of evidence as the documents and the parawise comments furnished by the appellants were never examined by the learned High Court. It is argued that Catalysts which are undisputedly chemicals cannot be declared equipments as has been held by the learned High Court. It is also mentioned that the learned High Court has examined the importance of Catalysts in the light of its definition as given by various dictionaries butno judicial or legal interpretation could be made. Mr. S.M. Zafar, Senior Advocate Supreme Court has stressed with vehemence that the Catalysts are required for accelerating the process of manufacturing fertilizers by increasing the speed of chemical reaction involved therein whereas the benefit of exemption of customs duty and taxes admissible only on plant and machinery and the Catalysts do not fall in the definition of plant and machinery hence the question of benefit of exemption of duty and taxes in terms of S.R.O.959(I)/89 dated 22-9-1989 read with S.R.O. 515(I)/89 dated 3-7-1989 does not arise. It is mentioned that Catalysts may be one of the essential requirements for the manufacturing process but by no stretch of imagination it can be considered as machinery which has been defined under the customs laws i.e. `machine' means any machine, machinery, plant, equipment, apparatus or appliance classifiable under PCT Chapters 84 and 85 while the Catalysts fall under PCT heading 38 i.e. other than Chapters 84 and 85. It is urged with vehemence that mere approval by the Investment Promotion Bureau of CCI&E of list of items required to be imported for the expansion of the project does not entitle to the respondents for the exemption on goods which were not covered under the relevant items dealing with plant and machinery. It is mentioned that Investment Promotion Bureau has no jurisdiction to declare any item as `machine' which otherwise is not machine under the customs laws and mere recommendations of the Investment Promotion Bureau does not entitle the respondents to claim the exemption. It is elaborated by Mr. S.M. Zafar, learned Senior Advocate Supreme Court on behalf of appellant that if nuts, bolts, pipes etc. are imported along with the main plant they may be treated as part of the machinery for the purpose of installation of the plant but the Catalysts being not a part of the plant and machinery cannot be exempted from tax being chemicals which accelerates or retard chemical reaction during the course of production. It is also pointed out that provisional clearance of Catalysts was allowed to the respondents simply to facilitate them for completion of their expansion project pursuant to their undertaking that they would honour the decision of the Central Board of Revenue. It is argued that the Central Board of Revenue has not given any written confirmation that any commitment was made with the appellants regarding exemption on Catalysts which are not covered under the definition of `plant' and `machinery'. It is explained that definition of `machinery' has been given in the explanatory notes on the First Schedule to the Customs Act, 1969 and Catalysts do not qualify to fall in the definition of `machine' prescribed therein. It is argued that a far.-fetched interpretation of Catalysts equating it with that of machine has no footing and it is just a device to avoid payment of duty and taxes chargeable on Catalysts. On the earlier release of Catalysts without levying any tax or customs duty, it is pointed out that clarification and confirmation by the Central Board of Revenue was received subsequently and the Catalysts were released provisionally and therefore, the demand for payment of outstanding dues is legal and justified. It is contended that expansion of the project by the respondents for their own economic gains does not mean that they should be given benefit which are not admissible under the law and moreso, when the expansion project was undertaken by the respondents at their own and no assurance whatsoever was given that Catalysts will be exempted from tax/customs duty as no such exemption was allowed under the above mentioned SROs by the Customs Authorities to any importers of Catalysts and hence the question of any discrimination does not arise.

6. Mr. Khalid Anwar, learned Senior Advocate Supreme Court appeared on behalf of respondents and vehemently controverted the view point as canvassed by Mr. S.M. Zafar, learned Senior Advocate Supreme Court by supporting the judgment impugned for the reasons enumerated therein with further submission that S.R.O.488(I)/88 is manifestly not applicable to the respondents being a general notification issued for all industries in the country. It is pointed out that at subsequent stage S.R.O.515(I)/89 dated 3-6-1989 and S.R.O.959(I)/89 dated 23-9-1989 were issued which expressly include the fertilizer industry. It is argued that a specific legal provision overrides the general provision and besides that the Central Board of Revenue has expressly endorsed the said point of view in their letter dated 5-3-1990 whereby the Collector Customs Karachi was directed not to consider the provisions as contained in S.R.O.488(I)/88. It is urged with vehemence that the said SRO was not pressed into service before the Hon'ble High Court and therefore, a different case cannot be argued before this Court on the base of said notification which was neither dilated upon nor decided by the learned High Court. It is next contended that the Customs Authorities appear to be confused and not sure that which of the S.R.O. will be applicable because before the Sindh High Court the Customs Department had based its arguments on the applicability of S.R.O.393(I)/74 dated 21-3-1974 and the same notification was relied upon while arguing the petition for leave to appeal before this Court. It is mentioned that the respondents do not rely upon the said S.R.O. at all being irrelevant for their case. It is contended in an unambiguous manner that S.R.O. 515(I)/89 dated 3-6-1989 and S.R.O.959(I)/89 dated 23-9-1989 are applicable in the case of respondents being relevant notifications in the filed at the relevant time. It is also pointed out that the appellants in the past had accepted that S.R.O. 515(I)/89 dated 3-6-1989 and S.R.O.959(I)/89 dated 23-9-1989 were applicable in the case of respondents but subsequently based their case on S.R.O.488(I)/88 before this Court which aspect of the matter may be taken care of. It is also contended that in the above mentioned notification the Government of Pakistan was pleased to examine plant and machinery which were not manufactured locally and imported for the expansion of the existing units manufacturing fertilizers from the whole of the customs duties and sales tax chargeable thereon and due to that assurance the respondents embarked on an expansion of the plant at the cost of $ 119.3 millions. It is pointed out that pursuant to application of the respondents the import licences were issued for the entire `plant' including Catalysts, Epoxy Grout, Speciality Paints and Start-up Chemicals which were imported prior to 30-6-1993 when admittedly the exemption was available. Mr. Khalid Anwar, learned Senior Advocate Supreme Court on behalf of respondents also explained that Catalysts are used to bring about and control the chemical reactions without which none of the required actions would take place and urea could not be produced. According to him, the Catalysts are metal-based which do not consume in the manufacturing process and carry a long life of ten to fifteen years. Mr. Khalid Anwar, learned Senior Advocate Supreme Court has also explained that Start-up Chemicals are essential aids to the manufacturing process and do not become a part of the product being manufactured. It is also mentioned that Epoxy Grout is a speciality glue without which a plant or machinery could not be bound to its foundation and as a result the machines could soon be destroyed when they are operated because of vibrations. It is also explained that speciality paint is used to coat concrete surfaces that otherwise would erode the plant and machinery due to the corrosive nature of Urea to the point of it being rendered useless. Mr. Khalid Anwar, learned Senior Advocate Supreme Court has also highlighted the role of the Central Board of Revenue and pointed out that when the first consignment arrived in November, 1991 it was released by the Customs Authorities, however, when the respondents made a representation to the Central Board of Revenue on 19th May, 1992 which was accepted by means of letter dated 27th May, 1992 whereby the Customs Authorities was asked to release the items imported by the respondents under S.R.O.515(I)/89 against indemnity bond subject to confirmation of installation as per the conditions enumerated in S.R.O.515(I)/89 and also asked the Customs Authorities whether definition of `plant and machinery' should be incorporated in the relevant S.R.O. so as to prevent further harassment to the Fertilizer Companies which aspect of the matter remained unresponded. It is pointed out that subsequently the Central Board of Revenue has changed its earlier stance without any rhyme, reason or logic and communicated to respondents vide letter dated 4-1-1993 that due to change in the definition of `machinery' the Catalysts did not fall within the said definition and thus the respondents were not entitled to any exemption for duty. It is next contended that S.R.O.959(I)/89 cannot be confined to machinery alone and in fact expressly extends to plant and machinery. According to Mr. Khalid Anwar, learned Senior Advocate Supreme Court it is mind boggling as to why the Customs Authorities could not apply its mind to the expressly stated terms used against and again in every single S.R.O. i.e. plant and machinery and instead of its own volition arbitrarily eliminate the word `plant' from plant and machinery. It is argued that the appellants have failed to understand the nature of the exemption and also failed to consider the true scope and extent of the exemption clearly stated in the said notifications which was not confined to machinery but also extended to plant as a whole. In view .of Mr. Khalid Anwar, learned Senior Advocate Supreme Court, the entire case of the appellants has proceeded on the wholly erroneous assumption that the exemption notification is confined to `machinery' and does not include the `plant' as a whole which speaks a volume about the mala fides of the appellants. It is contended that Catalysts, Epoxy Grout and Speciality Paints are an integral part of plant without which the plant would neither be completed nor could enter into production. According to Mr. Khalid Anwar, learned Senior Advocate Supreme Court a plant is only a plant if it is capable for functioning and operating which cannot be done without the items as mentioned above. It is argued with vehemence while rebutting the arguments of Mr. S.M. Zafar, learned Senior Advocate Supreme Court that Catalysts and the said items cannot be considered as exempted from tax and customs duty being not contained in Chapters 84 and 85 of the Pakistan Customs Tariff (PCT) and are in fact mentioned in separate chapters in the said publication and pointed out that Chapters 84 and 85 apply to `machinery' and not to `plant and machinery' and accordingly the outcome of the contention as raised by Mr. S.M. Zafar, learned Sr. Advocate Supreme Court would not be conclusive for the facts of this case. Mr. Khalid Anwar, learned Senior Advocate Supreme Court while concluding his arguments pointed out that a bare perusal of import licence clearly reveals that all kind of items like pipes, tubes and numerous other items not mentioned in Chapters 84 and 85 of the PCT or in S.R.O.488(l)/88 have been duly cleared by the Customs Authorities. It is pointed out that Epoxy Grout has in the case of Fauji Fertilizer been approved for exemption whereas M/s. Angro Chemical Pakistan Limited was asked to pay duties on it which is highly discriminatory. It is also mentioned that entries of the PCT and the Import Policy Order are in complete harmony so that approval by one is equated to that of for other.

7. We have carefully examined the respective contentions of the parties, scanned the entire record and perused the judgments impugned carefully. The pivotal question which needs determination would be as to whether the Catalysts imported by the respondents is an integral part of the rest of the plant or a component part of the machinery identifiable as for use with such plant/machinery. `Catalysts' can very precisely be defined as a chemical action accelerator (Carbide and Carbon Chemicals C Corp. v. Coe, 102 F.2d 236, 240, 69, App. DC 372). Catalysts was also defined as "a substance used to stimulate chemical reaction, otherwise sluggish, between other substances by bringing reaction substances into contact with the catalyst substance, which, merely by its presence and without being used up, removes chemical resistance to reaction, just as a lubricant, by its presence, removes friction from the moving parts of a mechanical device." (General Chemical Co v. Standard Wholesale Phosphate & Acid Works, 22 F. Supp. 332 at 340. DC Md.). It is an admitted fact that major raw material for urea production is synthetic ammonia which is produced from natural gas, steam and air in several gas-phase catalytic reactions and Catalysts being metallic compounds are used for following purposes:--

(1)Natural gas Desulphurization.

(2)Steam Reforming.

(3)Autothermal Reforming.

(4)1st stage Carbon monoxide Shift Reaction.

(5)2nd stage Carbon monoxide Shift Reaction.

(6)Methanation Reaction.

(7)Ammonia Synthesis Reaction.

The following certificates testify the above conclusions:

(i)Certificate from M/s. Foster Wheeler, UK- the consultants.

(ii)Certificate from M/s Haldor Topsoe, Denmark the manufacturer and supplier of 'catalysts and ammonia technology.

(iii)Affidavit from a Chemical Engineer of Pakistan.

(iv)World Customs Organizations and Central Board of Revenue vide their CGO-13/2002 dated July 4, 2002 have allowed/ clarified classification of imported plant and machinery for projects by way of partial shipments.

8. We have also consulted different dictionaries detail whereof is mentioned hereinbelow for ready reference to understand the meaning and nature of `Catalysts':--

Cambridge Advanced learner's Dictionary:

"catalyst noun (c)

Specialized something that makes a chemical reaction happen more quickly without itself being changed."

Merriam-Webster Dictionary:

"Main Entry: Cat-a-lyst (noun)

(1)a substance (as an enzyme) that enables a chemical reaction to proceed at a usually faster rate or under different conditions (as at a lower temperature) than otherwise possible.

(2)an agent that provokes or speeds significant change or action."

American Heritage Dictionary 4th Ed. 2000:

"catalyst" (noun) A substance, usually used in small amounts relative to the reactants, that modifies and increases the rate of a reaction without being consumed in the process. 2. One that precipitates a process or event, especially without being involved in or changed by the consequences."

Encyclopaedia Britannica catalyst:

Section: Types and Importance of Catalysts

Enzymes: Natural Catalysts

Enzymes are the commonest and most efficient of the catalysts found in nature. Most of the chemical reactions that occur in the human body and in other living things are high-energy reactions that would occur slowly, if at all, without the catalysis provided by enzymes. For example, in the absence of catalysis, it takes several weeks for starch to hydrolyze to glucose; a trace of the enzyme ptyalin, found in human saliva, accelerates the reaction so that starches can be digested. Some enzymes increase reaction rates by a factor of one billion or more.

Enzymes are generally specific catalysts; that is, they catalyze only one reaction of one particular reactant (called its substrate). Usually the enzyme and its substrate have complementary structures and can bond together to form a complex that is more reactive due to the presence of functional groups in the enzyme, which stabilize the transition state of the reaction or lower the activation energy. The toxicity of certain substances (e.g., carbon monoxide and the nerve gases) is due to their inhibition of life-sustaining catalytic reactions in the body.

Laboratory and Industrial Catalysts:

Catalysis is also important in chemical laboratories and in industry. Some reactions occur faster in the presence of a small amount of an acid or base and are said to be acid catalyzed or base catalyzed. For example, the hydrolysis of esters is catalyzed by the presence of a small amount of base. In this reaction, it is the hydroxide 'ion OH, that reacts with the ester, and the concentration of the hydroxide ion is greatly increased over that of pure water by the presence of the base. Although some of the hydroxide ions provided by the base are used up in the first part of the reaction, they are regenerated in a later step from water molecules; the net amount of hydroxide ion present is the same at the beginning and end of the reaction, so the base is thought of as a catalyst and not as a reactant.

Finely divided metals are often used as catalysts; they adsorb the reactants onto their surfaces (see adsorption), where the reaction can occur more readily. For example, hydrogen and oxygen gases can be mixed without reacting to form water, but if a small amount of powdered platinum is added to the gas mixture, the gases react rapidly. Hydrogenation reactions e.g., the formation of hard cooking fats from vegetable oils, are catalyzed by finely divided metals or metal oxides. The commercial preparation of sulfuric acid and nitric acid also depends on such surface catalysis. Other commonly used surface catalysts, in addition to platinum, are copper, iron, nickel, palladium, rhodium, ruthenium, silica gel (silicon dioxide), and vanadium oxide. "

"In chemistry, any substance that increases the rate of a reaction without itself being consumed is called Catalyst. Enzymes are naturally occurring catalysts responsible for many essential biochemical reactions. Most solid catalysts are metals or the oxides, sulfides, and halides of metallic elements and of the semimetallic elements boron, aluminum, and silicon. Gaseous and liquid catalysts are commonly used in their pure form or in combination with suitable carriers or solvents; solid catalysts are commonly dispersed in other substances known as catalyst supports.

In general, catalytic action is a chemical reaction between the catalyst and a reactant, forming chemical intermediates that are able to react more readily with .each other or with another reactant, to form the desired end product. During the reaction between the chemical intermediates and the reactants, the catalyst is regenerated. The modes of reactions between the catalysts and the reactants very widely and in solid catalysts are often complex. Typical of these reactions are acid-base reactions, oxidation-reduction reactions, formation of coordination complexes, and formation or free radicals. With solid catalysts the reaction mechanism is strongly influenced by surface properties and electronic or crystal structures. Certain solid catalysts, called ploy functional catalysts, are capable of more than one mode of interaction with the reactants; bi functional catalysts are used extensively for reforming reactions in the petroleum industry."

9. After having gone through the above mentioned definition the following conclusion can be made that Catalysts are an essential and integral part of the plant including all chemical reactors without which the whole machinery remains incomplete and which are utilized in fertilizer production.

10. The fertilizer plants are designed keeping in view the utility of Catalysts which is initially meant to accelerate the process of ammonia formation which is an essential ingredient of fertilizer/urea in absence whereof the question of production of fertilizer/urea does not arise and without it the plant cannot be made functional. It is a scientific and chemical reality that the reaction of hydrogen and nitrogen to form ammonia on an industrial scale is always carried out on a Catalystic surface based on metallic iron. The iron-based Catalyst used to form ammonia is a substance that alters the velocity of chemical reversible reaction of hydrogen and nitrogen without itself appearing or absorbing itself in the product ammonia or undergoing any chemical change. The role of catalyst in ammonia synthesis is to make the reaction go sufficiently fast to produce huge quantities of urea.

11. We have also adverted to the question as to whether the Catalysts can be considered as raw material or otherwise? The answer would be in negative because raw material is always meant for consumption whereas Catalysts is not a consumable item but it retains its identity in spite of all chemical reactions because Catalysts accelerate reaction without getting itself change or the equilibria while increasing the velocity of desired reaction and maximizing formation of ammonia and thus becomes an integral part of the plant. There is no denying the fact that ammonia plant reactors cannot function without having a Catalysts belt which makes the reactor functional and the process of production starts. The under-mentioned two figures would show the significance and import of Catalysts without which the entire plant would become non-functional as such 'the Catalysts can safely be considered as an integral part of the plant. Had the Catalysts be a raw material, the position .would have been different. The following two figures would make the position abundant clear qua the significance, role, use and import of Catalysts:

12. The prime contention of Mr. S.M. Zafar, learned Senior Advocate Supreme Court is that Catalysts cannot be treated as a part of plant and machinery being simply chemical, required to accelerate or retard chemical reaction during the course of production and thus cannot be treated or termed as "machine" in mechanical terminology as well as under the Custom Laws. In order to elaborate the said point it is mentioned that definition of `machinery' has been given in the explanatory note in the First Schedule of the Customs Act, 1969 and Catalysts do not qualify to fall in the definition of 'machine' prescribed thereunder. A farfetched interpretation of Catalysts as machine is not convincing at all but a device to avoid the tax liability. Here at this juncture the question which needs determination would be, what is plant, what is machine, are they interchangeable or synonymous terms and whether machine is a part of the plant or has its own separate entity. Mr. S.M. Zafar, learned Senior Advocate Supreme Court while conceding that Catalysts may be an essential requirement for the manufacturing process but the same cannot be equated to that of 'plant or machinery' from whatever angle it may be examined. Mr. S.M. Zafar, learned Senior Advocate Supreme Court reiterated again that the definition of 'machine' is free from ambiguity which means any machine, machinery, plant, equipment, apparatus or appliance, classifiable under PCT Chapters 84 and 85 whereas the Catalysts fall under PCT Chapter 38 having no nexus with Chapters 84 and 85. Insofar as the word 'plant' is concerned that has been defined in Corpus Juris Secundum volume 70, as follows: -

"Plant.--- A broad and liberally applied term of such variable meaning that in order to be properly understood the subject matter to which it relates must be known.

As a noun, in its primary signification the word 'plant' relates to growth of a vegetable character, and there is involved in it the idea, not only of attachment to the soil, but of some degree of permanency. In this sense the word 'Plant' is defined as meaning a slip, cutting, or sapling; a young tree, shrub, or herb, planted H or ready to plant.

Within comparatively recent years the language has been enriched by a new use of the old word 'Plant', and in its newer usage the terms means an operating unit, and refers to organized physical equipment which will produce a desired result. When the word is used in this sense with reference to manufacturing, mercantile, or industrial establishments, it has a wider significance than when it is used in its primary sense.

As used with reference to manufacturing, mercantile, or industrial establishments, the word `plant' is defined as meaning the whole machinery and apparatus employed in carrying on a trade or mechanical business; property owned or used in carrying on some trade or business, the fixtures, machinery, tools, apparatus, appliances, etc. necessary to carry on any trade or mechanical business, or any mechanical operation or process; the machinery, apparatus, fixtures, etc., employed in carrying on a trade or a mechanical or other industrial business, as an electric light plant, a fishing plant, etc. the tools, machinery, apparatus, and fixtures as used in a particular business, that which is necessary to the conduct of any trade or. mechanical business often including the building business or undertaking a set of machines, tools etc., necessary to conduct a mechanical and grounds, or in case of a railroad, the rolling stock but not including material or product; everything other than supplies and stock-in-trade necessary and requisite to the carrying on of a business; whether apparatus is used by a businessman for carrying on his business, not his stock-in-trade which he buys or makes for sale, but all goods and chattels, fixed and movable, live or dead, which he keeps for permanent equipment is his business, a workshop or other apparatus complete, as a bicycle plant.

The word `plant' is an all-embracing terms, and it may include real estate. It is expressive of land and buildings, but, subject to the qualification that, while ground occupied by a factory or mill, or even that part adjoining a factory and used for office or warehouses, may be treated as part of the plant, a large tract of land many miles from the plant proper which is used for raising raw material for the factory ordinarily will not be considered a part of the plant. A plant is not merely the place of business, but the means of carrying it on, and the term includes every ting that represents capital invested in the means of carrying on a business, and it is applied to the manufacturing premises equipped with machinery and appliances required for the carrying on of the business there conducted, including the apparatus required to carry on any manufacturing operation, and no special form of machinery or appliance is necessary to constitute a plant. The term ordinarily is not applied to the raw material or the manufactured product, and does not include the supplies and stock-in-trade necessary to the carrying on of a business.

A `plant' is an entity wholly distinct from the land, buildings, machinery, and appliance which compose it, and it has a much greater value in its entirety than the aggregate value of the land with buildings and the equipment if sold separately.

While the word `plant' is defined in a large number of cases where may forms of business and manufacturing are covered, and although it is in many instances applied to manufacturing, mercantile, or industrial establishments, it is not always so restricted, and, by extension, the word `plant' may also mean the equipment of any institution, as the plant of a college; the permanent appliances needed for any institution, as a post office, and, in. the terminology employed in the field of outdoor advertising. A `plant' means a group of sign locations owned or controlled by one bill poster in one city or community."

13. A careful perusal of the above mentioned definition of the word `plant' would include the tools machinery as well as apparatus which are necessary to conduct any trade or manufacturing business. It is worth-mentioning that in Halsbury's Laws of England Vol. 23, it is stated that `plant' extends to the tool of a man's trade, including whatever apparatus is used by a businessman or a professional person for carrying on his business or profession. In Yarmouth v. France (1887), 19 QBD 647 at p.658, it was held that "there is no definition of plant in the Act; but, in its ordinary sense, it includes whatever apparatus is used by a businessman for carrying on his business,----not his stock-in-trade, which he buys or makes for sale; but all goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment in his business."

14. We must mention Lord Denning, who while dilating a similar point has observed that "in order to understand this case, it is as well to have in mind the way in which a cobbler makes shoes. He cuts the leather with a knife, then shapes it round a last (which is, of course, wooden model of a foot), and then hammers in the tacks. In this case, instead of a cobbler working by hand, you must envisage a series of machines which are, in effect, mechanical cobblers, each doing a part of the work. One mechanical cobbler is given a knife and leather. It presses down the knife and cuts the leather into the required shapes. Another mechanical cobbler is given a wooden last with the leather shaped round it. It hammers down the tacks. And so _forth. These machines are undoubtedly plant. They are plant used by the manufactures in the factory. Each of the machines-each mechanical cobbler- ispartoftheplant.Theknivesand lasts,too,are part of the plant. When the respondents buy new

machines, with the knives and lasts to go with them, they undoubtedly incur capital expenditure on the provision of new plant." (Emphasis provided)

15. It hardly needs any elaboration that "if the plant in combination with other appliances in the business effectuates and perpetuates the trade or commerce in question, then such induction or introduction of such a plant should be deemed to be such that they are placed in a position for service or sue in the business." (Sundaram Motors (Pvt.) Ltd. v. Commissioner of Income-Tax, Madras 1972 PTD 119; Chamarbaugwalla (RMD) v. Union of India 1957 SCR 53 ITR 165 (SC); Commissioner of Income-tax v. Raju (1966) 60 ITR 246 (SC); Holme v. Guy (1877) 5 Ch.D 901).

16. The word `plant' has been used in different cases and judicial consensus seems to be that it cannot be confined within a limited sphere as it has got different dimensions and as such it is to be interpreted in a broader manner. The `plant' extends to the tools of a man's trade, including whatever apparatus is used by a businessman or a professional person for carrying on his business or profession, not his stock-in-trade, which he buys or makes for sale; but all the goods and chattels, fixed or moveable, live or dead, which he keeps for permanent employment of his business. `Plant' means the fixtures, tools, machinery, and apparatus necessary to carry on a trade or business. Yarmouth v. France (1887) 19 QBD 647 [addressing the issue whether a horse is part of `plant' or apparatus facilitating business]. Motors vans, being garaged at the factory and loaded there with the products of the factory, were "plant used in or about the premises". National Provincial and Union Bank of England v. Charnely, 1 K.B. 1923 (CA). Hinton (Inspector of Taxes) v. K Maden and Ireland Ltd. (1959) 3 All. Err. 356 (knives and lasts used by a shoe manufacturer were held to be plant). Law reports and text books purchased by a barrister starting in 'practice were held to be plant. Munby v. Furlong (Inspector of Taxes) [1977] Ch. 539. Excavation and concreting for a dry dock were held to be `plant'. IRC v. Barclay Curle & Co. Ltd. [1969] 1 All. E.R. 732. Other thing which have been held to plant include a hulk used as a floating coal warehouse. Hohn Hall, Junior & Co. v. Rickman [1996] 1 KB 311; blocks, silk screens, rollers and possibly designs used in manufacturing wallpaper and fabrics (McVeigh Inspector of Taxes) v. Arthur Sanderson & Sons Ltd. [1969] 2 All ER 771; a swimming pool and paddling pool with filtration, chlorination, and heating systems, at a caravan site (Cooke Inspector of Taxes) v. Beach Station Caravans Ltd. [1974] 3 All. ER 159; silos for storing and dispensing grain Scholfield (Inspector of Taxes) v. R and H Hall Ltd. [1075] STC 353 (NI CA);. electric light fittings, decor, and murals in hotels (IRC v. Scottish and Newcastle Breweries Ltd). [1982] 2 All Er 230, and finally, decorative screens in windows of a building society branch office (Leeds Permanent Building Society v. Procter (Inspector of Taxes) [1982] 3 All ER 925. If the plant in combination with other appliances in the business effectuates and perpetuates the trade or commerce in question, then such induction or introduction of such a plant should be deemed to be such that they are placed in a position for service or use in the business.

17. In view of what has been discussed hereinabove it can safely be inferred that `plant and machinery' are not two different entities because a plant cannot be functional without machinery and machinery being integral part of the plant, therefore both 'plant and machinery' can be L considered interchangeable and synonymous keeping in view a little difference between the two and their dependence upon each other because they are not separable and a plant cannot be made functional without a machine.

18. We have also adverted upon the various S.R.Os. issued at different points of time to determine as to which of the S.R.Os. could be attractive and applicable in this case keeping in view its chequered history. It transpired from the scrutiny of record that five S.R.Os. were in the field at the relevant time which are as follows:-----

(1)S.R.O. 393(I)/74 dated 21-3-1974

(2)S.R.O. 532(I)/89 dated 30-6-1989

(3)S.R.O. 515(I)/89 dated 3-6-1989

(4)S.R.O. 959(I)/89 dated 23-9-1989

(5)S.R.O. 488(I)/88 dated 26-6-1988

19. It seems appropriate to briefly examine each of the above mentioned S.R.Os. as under:-

S.R.O.393(I)/74 dated 31-3-1974

A careful perusal of above S.R.O. reveals that it provides for extended definition of machinery which also includes, inter alia, item No.(iv) i.e. component parts of machinery as specified in items (i) (ii) and (iii) identifiable as for use in or with such machinery, but excluding maintenance spares for current use.

S.R.O.531(I)/89 dated 30-6-1989

The said S.R.O. merely rescinds S.R.O. No.393(I)/74 dated 21-3-1974.

S.R.O.515(I)/89 dated 3-6-1989

A bare perusal of the said S.R.O. would indicate that it grants exemption to `plant and machinery' if imported for setting up industrial project such as fertilizer. It is to be noted that exemption was made available for any import mentioned in the S.R.O. subject to the condition that needful must be done on or before 30-6-1993.

S.R.O. 959(I)/89 dated 23-9-1989

By virtue of said S.R.O. exemption was granted to `plant and machinery' imported for the expansion of manufacturing fertilizer units subject to the condition as enumerated in S.R.O. 515(I)/89 dated 3-6-1989.

S.R.O.488(I)/88 dated 26-6-1988

The said S.R.O. relates to the items mentioned in its Schedule which were to be treated as component parts of plant and machinery for the purpose of exemption.

20. Mr. S.M. Zafar, learned Senior Advocate Supreme Court has very elaborately discussed each of the S.R.Os. and pointed out that S.R.O.393(I)/74 dated 21-3-1974 was rescinded by means of S.R.O.531(I)/89 dated 30-6-1989 and after recession the question of invocation of S.R.O.393(I)/74 dated 21-3-1974 does not arise being rescinded and therefore, the respondents could not press into service the provisions as contained in S.R.O. 393(I)/74 dated 21-3-1974. Mr. S.M. Zafar, learned Senior Advocate Supreme Court on behalf of appellants was further of the view that S.R.O.515(I)/89 dated 3-6-1989 had no relevancy whatsoever as the appellants never claimed the concession on the point of extension of the existing plant and besides that the extended definition of `machinery' was never mentioned in the said S.R.O.. According to Mr. S.M. Zafar, learned Senior Advocate Supreme Court, S.R.O.959(I)/89 dated 23-9-1989 was applicable in the case of respondents wherein no extended definition of the machinery was included hence the question of any exemption does not arise. Mr. S.M. Zafar, learned Senior Advocate Supreme Court also pointed out that the learned High Court of Sindh in M/s. Angro Chemical Pakistan Limited's case (Civil Appeal No.1876-K of 1996) which was decided after the case of M/s. Fauji Fertilizer Company Limited on 22-12-1994 relied upon Fauji Fertilizer Company's case which was wrongly proceeded on the interpretation of S.R.O.393(I)/74 dated 21-3-1974 as it was rescinded by means of S.R.O.531(I)/89 dated 30-6-1989 and moreso the S.R.O.959(I)/89 dated 23-9-1989 was misconstrued and misinterpreted and the )earned High Court erred while observing that S.R.O.959(I)/89 dated 23-9-1989 was not a comprehensive notification by ignoring the fact that the said S.R.O. was to be read along with S.R.O.515(I)/89 dated 3-6-1989 to remove any doubt which in view of Mr. S.M. Zafar learned Senior Advocate Supreme Court was not existing. Mr. S.M. Zafar, learned Sr. Advocate Supreme Court opined that so far as S. R.O.488(I)/88 dated 26-6-1988 is concerned that hardly renders any assistance to the respondents because only the component parts which were imported with plant and machinery duly specified in the table of S.R.O.488(I)/88 will earn exemption and the case of respondents does not fall within the ambit of S.R.O.488(I)/88 dated 26-6-1988. Mr. S.M. Zafar, learned Sr. Advocate Supreme Court also contended that Chapters 84 and 85 of the Pakistan Custom Tariff cannot be ignored because Catalysts imported by respondents were subject to separate classification under Chapter 38 having no nexus whatsoever with Chapters 84 and 85. Mr. S.M. Zafar, learned Sr. Advocate Supreme Court at this point made it clear that since Catalysts were not covered under the definition of plant and machinery hence the exemption of duty and taxes was not admissible under S.R.O.959(I)/89 dated 23-9-1989 and S.R.O.515(I)/89 dated 3-6-1989 are not applicable and no exemption could be extended to the respondents.

21. Mr. Khalid Anwar, learned Senior Advocate Supreme Court on behalf of respondents while controverting the view point as canvassed by Mr. S.M. Zafar, learned Senior Advocate Supreme Court contended that the Customs Authorities appears to be confused regarding the applicability of the relevant -S.R.O. Mr. Khalid Anwar, learned Senior Advocate Supreme Court elaborated his submission by pointing out that before the High Court of Sindh the Customs Authorities had mainly argued the question qua the application of S.R.O.393(I)/74, dated 31-3-1974 and more so it was also argued before this Court while arguing the petition for leave to appeal that learned High Court has misconstrued and misinterpreted the provisions as contained in S.R.O.393(I)/74, dated 21-3-1974 but while arguing the appeal Mr. S.M. Zafar, learned Senior Advocate Supreme Court has completely taken a new stance by placing reliance on S.R.O.488(I)/88, dated 26-6-1988 having no relevancy or concern with the case of respondents. It is urged with vehemence that since the beginning respondents had relied upon S.R.O.515(I)/89 dated 3-6-1989 and S.R.O.959(I)/89, a dated 23-9-1989 being relevant S.R.Os. It is also pointed out that in fact the Customs Authorities had admitted the applicability of S.R.O.515(I)/89, dated 3-6-1989 and S.R.O. 959(I)/89, dated 23-9-1989 are relied upon the above mentioned S.R.Os in their pleadings before the High Court but on the contrary relied upon S.R.O.488(I)/88, dated 26-6-1988 while arguing the matter before this Court in order to create confusion. Mr. Khalid Anwar, learned Senior Advocate Supreme Court has stressed time and again that the S.R.O.515(I)/89 dated 3-6-1989 and S.R.O.959(I)/89 dated 23-9-1989 were applicable whereby the Government of Pakistan has granted exemption to plant and machinery which was not manufactured locally and imported for the expansion of the existing units manufacturing fertilizers from the whole of the customs duty and sales tax. It is also pointed out that respondents have never claimed such exemption if the Catalysts is imported as a spare part and

thus the S.R.O.488(I)/88 was not applicable and has no substantial bearing on the import, aim and object of the S.R.Os. 959(I)/89 and 515(I)/89 whereby exemption was granted in a categoric and unambiguous manner. We have already referred all the relevant S.R.Os. in the preceding paragraphs. There is no cavil to the proposition that the provisions as contained in S.R.O. 488(I)/88 were never pressed into service before the learned High Court of Sindli and altogether a new case has been portraited by Mr. S.M. Zafar, learned Senior Advocate Supreme Court while arguing this appeal. Be as it may, we have. carefully examined the contents of S.R.O.515(I)/89 dated 3-6-1989 which makes it abundant clear that exemption was granted from the whole of customs duty and sales tax to such plant and machinery which was not manufactured locally if imported for the setting up of industrial projects. It is to be noted that industrial projects included the fertilizer as stipulated in the table of the said S.R.O. As mentioned herein above the Catalysts being an integral part of the plant and machinery could not be separated for the purpose of levying customs duty and sales tax being inseparable part of the plant and machinery for the reasons that it is a metallic compound and thus is a part and parcel of the reactors of the plant which converts the nitrogen and hydrogen gases by a chemical reaction into ammonia and without Catalysts it cannot be made functional. Thus it can safely be considered as an integral part of the plant and machinery. It may be added here that ammonia is the basis for nearly all commercial nitrogenous fertilizers and about 85% of industrial ammonia is produced in fertilizers plant. As mentioned herein above the Catalysts being an integral part of the fertilizering plant and machinery shall be exempted from the customs duty and sales " tax. The S.R.O.959(I)/89 dated 23-9-1989 made the position abundant clear which M indicates that `plant and machinery' not manufactured locally and imported for the expansion of the existing units manufacturing fertilizer shall be exempted from whole of the customs duty and sales tax subject to the conditions specified under S.R.O.515(I)/89 dated 3-6-1989. There is no doubt in it that Catalysts is a part and parcel of urea fertilizer plant and machinery and admittedly not a raw material and does not form a part of the urea and besides that it is not locally manufactured and in order to make the plant functional being integral part of the plant and machinery the Catalysts will be exempted from sales tax as well as customs duty. We may point out here that S.R.O. 959(I)/89 dated 23-9-1989 is free from any ambiguity or confusion and both "plant and machinery" have been mentioned in it even if they are separated and one of the two is omitted, the basic characteristics of Catalysts cannot be changed and therefore, being an integral part of the machinery as well as plant it will not subject to any duty. In our considered view the plant, machinery and Catalysts cannot be separated for the generation of more income as it would be against the spirit of above mentioned S.R.Os. which are specifically meant for the fertilizer unit. There is no doubt in it that Catalysts does not find mentioned in Chapters 84 and 85 of Pakistan Customs Tariff and mentioned separately but it would have no M substantial bearing on merits of the case because the controversy has been set at naught by the above mentioned S.R.Os. which are capable enough to 'meet all sorts of such eventualities. Mr. S. M. Zafar, learned Senior Advocate Supreme Court was pointedly asked that how S.R.Os. 515(I)/89 and 959(I)/89 can be superseded merely on the ground that Catalysts do not find mentioned in Chapters 38 and 39 of the Pakistan Customs Tariff but no satisfactory answer could be given. Be as it may be above mentioned S.R.Os. are not subservient to Chapters 38 and 39 of the Pakistan Customs Tariff. It must be kept in mind that the contention as agitated on behalf of appellants would be in negation of the fertilizer policy formulated by the Government of Pakistan in the year 1989 pursuant to which S.R.O.515(I)/89 dated 3-6-1989 and S.R.O.959(I)/89, dated 23-9-1989 were issued whereby exemption was granted from the whole payment of customs duty as well as sales tax on import of plant and machinery for the production of fertilizer. Initially N the exemption was for a limited purpose but subsequently it was made available for the expansion of existing unit of the fertilizer plant and the case of respondents squarely falls within the ambit of S.R.O.959(I)/89 dated 23-9-1989.

22. In the light of what has been mentioned herein above we are of the considered view that Catalysts, Epoxy Grout and Speciality Paints being integral part of the `plant and Machinery' shall be exempted from customs duty and sales tax pursuant to the provisions as contained in S.R.O.515(I)/89 dated 3-6-1989 and S.R.O.959(I)/89 dated 23-9-1989 being the relevant S.R.Os.

The upshot of the above discussion is that appeals are dismissed and judgments impugned shall remain intact.

M.B.A./C-34/SAppeals dismissed.