Messrs DEWAN SONS VS FEDERATION OF PAKISTAN
2006 P T D 1012
[Karachi High Court]
Before Muhammad Mujeebullah Siddiqui and Khilji Arif Hussain, JJ
Messrs DEWAN SONS and another
Versus
FEDERATION OF PAKISTAN through Secretary, Ministry of Finance, Islamabad and 3 others
Constitutional Petition No. D-399 of 2002, decided on 03/03/2006.
(a) Customs Act (IV of 1969)---
----S.19---Exemption from customs duty---Principles---Exemption pre-supposes the chargeability of tax and if the exemption is unconditional such charge of tax is allowed to escape for all times to come---If the exemption is conditional then the exemption is to be enjoyed in terms of such conditions---Exemption from payment of customs duty is allowed under S.19 of Customs Act, 1969, subject to such conditions, limitations or restrictions. as Federal Government thinks fit to impose.
(b) Customs Act (IV of 1969)---
------Ss. 18 & 19---Notification S.R.D. 320(I)/75, dated 14-3-1975---
Constitution of Pakistan (1973), Art.199---Constitutional petition---Customs duty, liability to pay---Conditional exemption---One of the petitioners purchased the ship in question from Pakistan National Shipping Corporation and after plying it on commercial voyages for few years, sold it to other petitioner who brought it for breaking---Ship was exempted from customs duty under Notification S.R.O. 320(I)/75, dated 14-3-1975, till the time it was plying but customs duty was to be payable if the ship would be broken---Petitioners claimed that the ship was exempted from duty and if at all duty was to he recovered_ it was for the Shipping Corporation to pay---Validity---So long the ship was owned by the Corporation, the exemption was available and, thereafter, as long as it was plying for commercial voyages, the exemption continued to prevail but after sale of the ship for the purpose of breaking thereof, followed by seeking of permission for breaking, such event brought the exemption to end---Payment of customs duty was no more to be allowed to be escaped, thereby making the petitioner liable to pay the customs duty in terms of provisions contained in S.18 of Customs Act, 1969, read with S.18 thereof and Notification S.R.O. 320(I)/75, dated 14-3-1975, issued thereunder---Customs authorities had rightly demanded the duty from the petitioner, which was valid and in accordance with law to which no exception could be taken---Petition was dismissed in circumstances.
Akhtar Ali Ahmad for Petitioners.
Sajjad Ali Shah, D.A.-G. for Respondent No.1.
Date of hearing: 21st October, 2005.
JUDGMENT
MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---The petitioners have sought declaration that they are not liable for payment of any customs duty in respect of Vessel Dewan-I Ex-SHIP M.V. OCEAN ENVOY. They have further sought declaration that the customs duty if in this behalf is liable to be recovered from the respondent No.4, Pakistan National Shipping Corporation.
2. The facts giving rise to this petition are that the petitioner No.1 is a partnership concern engaged in the business of ship breaking and scrap metal dealing, at Gadani. The petitioner No.2 is a Private Limited Company, engaged in the trade of ships.
3. The respondent No.4, Pakistan National Shipping Corporation offered their ship M.V. Ocean Envoy (subsequently named by the petitioners as Dewan-I) through advertisement in newspaper on as is where is basis for employment/scrapping. The terms and conditions of sale inter alia included the following:--
"(i) In addition to sale price, the purchaser shall have to pay sales tax and income tax under section 50(7A) of the Income Tax Ordinance, 1979.
(ii) The ship was assessed to customs duty as nil under the free list No.956, dated 21st November, 1975. In case of demand of customs duty, if any, on the import of ship arises as of date, Pakistan National Shipping Corporation will be liable to pay the same. The purchaser shall, however, be responsible for any and all duties, taxes and fees that may be attracted, demanded or imposed on the ship by any competent authority in consequence or by virtue of the sale and transfer of its ownership to the purchaser."
4. It is alleged in the petition that the respondent No.4 did not disclose that the said vessel might attract payment of customs duties in case of scrapping or breaking thereof. According to the petitioners, if there was any such liability it was payable by the respondent No.4. The petitioner No.2 submitted the offer for purchase of the vessel ship, which was accepted, and the sale transaction was completed in the year 1997 in favour of petitioner No.2. The letter of acceptance of the offer given by the petitioner No.2, issued by respondent No.4, dated January 16, 1997 contains the following terms:
CUSTOMS DUTY, TAXES ETC.
"The ship is not encumbered either by customs duty or any other customs liability as of date. You will, however, be responsible to pay any and all duties, taxes, imports, levies etc. that might be attracted, demanded or imposed on this ship by the customs or other authorities in consequence or by virtue of the transfer of ship."
5. The petitioner No.2, used it for commercial voyages for few years and thereafter sold it to petitioner No.1 in the year, 2002 for scrapping. The petitioner No.1 sought permission from the respondent No.3, Assistant Collector of Customs, Gadani for beaching of the ship, which was granted without prejudice to the levies of customs duty and all taxes. Thereafter permission was sought for breaking of the ship stating therein that at the time of import the ship was assessed to customs duty at nil. The respondent No.3 informed vide letter, dated 16-2-2002 that the vessel was imported in the year 1975, under S.R.O. 320(1)/75, free of customs duty S.K.O. 320(1)/75, dated 14-3-1975 reads as follows:
"S.R.O. 320(I)/75.---In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969), the Federal Government is pleased to exempt ships as correspond to the heading No.89.01 B(ii) of the First Schedule to the Tariff Act, 1934 (XXXII of 1934), from the whole of the customs duties chargeable thereon, subject to the condition that if any ship which is so imported but is subsequently broken up, it shall be liable to customs-duties chargeable on ships imported for breaking up at the time that such ship is broken up."
6. The respondent No.3, demanded the taxes in the sum of Rs.84,20,596 stating that after deposit of the above amount, the breaking/delivery permission shall be further, processed. This amount included customs duties at 10% amounting to Rs.26,37,720 and sale tax at 20% amounting to Rs.57,82.,876. The petitioner No.1 furnished document to show that the sale tax and income tax were already paid. However, it was contended that the demand of the customs duty was untenable as the vessel was not imported by the petitioner No.1 and that the customs duty, if any should be demanded from the respondent No.4, Pakistan National Shipping Corporation. The petitioner No.1 requested the respondent No.4 for. payment of customs duty but they refused to do so, and took plea vide their letter, dated 1st March, 2002, that according to the terms and conditions contained in their letter, dated 16-1-1997, the purchaser was responsible for duties, taxes, imports, levies etc. attracted, demanded or imposed on the ship by any competent authority in consequence or by virtue of sale and transfer of its ownership to the purchaser. It was further informed that the PNSC was not responsible for any liability and it was a matter between the petitioners Nos. l and 2.
7. The respondent No.3, in its para-wise comments has stated that the vessel was imported by PNSC under the provisions of S.R.O. 320(I)/75, issued under section 19 of the Customs Act, 1969, which empowers the Federal Government to wholly or partly exempt the customs duty conditionally or unconditionally. The Federal Government had exempted the vessel from payment of whole of the customs duty under the then shipping policy conditionally to the effect that if any ship which is so, imported but subsequently broken it shall be liable to customs duties chargeable on the ship imported for breaking at the time such ship is broken. It is averred that if PNSC would have broken the ship in the year, 1997, it would have become liable to pay the customs duty and if after purchasing the ship the petitioner No.2 had broken the ship it would have become liable to pay the customs duty. However, petitioner No.2 kept plying it for commercial voyages and continued to enjoy the same exemption as was available to other commercial vessels. According to respondent No.3 the vessels imported for braking even in 1975 was chargeable 'to customs duty and in this context the exemption was allowed on the condition that the exemption shall not be available if the vessel was subsequently broken. It is alleged that in terms of S.R.O. 320(I)/75, the petitioner No.1 was liable to pay customs duty. It is further contended that the petitioner No.1 is liable to pay the customs-duty as in terms of S.R.O. 320(I)/75, exemption was available to the ship corresponding to the heading No.89.01 B(ii) of the First Schedule to the Tariff Act, 1934, and the customs duty was to be paid on a future date when the vessel was broken. The ship was brought to beach for breaking by the petitioner No. 1, and not by PNSC and there-fore, petitioner No.1 was liable to pay the customs duty and not the PNSC.
8. We have heard Mr. Akhtar Ali Mahmud, learned counsel for the petitioners and Mr. Sajjad Ali Shah, learned D.A.G. for the respondents Nos.1, 2 and 3.
9. The learned counsel for the petitioners after reiterating the facts as narrated above has submitted that it was stated in the advertisement that the ship was assessed to customs duty as nil and so was stated in the Certificate of Sale issued by the respondent No.4 on 16-1-1997. He has submitted that it was further contained in Term No.7 of the advertisement and the Sale Certificate that the ship was not encumbered either by customs duty or any other customs liability and in case of demand of customs duty, if any, on the import of ship arises, Pakistan National Shipping Corporation will be liable to pay the same and, therefore, the respondent No.3 may demand the customs duty from respondent No.4 and not from the petitioners. He has further maintained that the dispute pertains to the liability of customs duty, therefore, it is required to be considered as to what is the event which gave rise to charge of customs duty i.e. whether it is import or breaking of ship. He has argued that the event which gives rise to the liability of customs duty is the import and, therefore, the customs-duty became payable in the year 1975, which was not charged on account of exemption.
10. On the other hand, the learned D.A.G. has pointed out that in the advertisement, dated 8-1-1997 as well as, Sale Certificate issued by respondent No.4, dated 16-1-1997, it is contained that the ship was assessed to customs duty as nil at the time of import in the year, 1975 and in case of demand of any customs duty, `as of date' the respondent No.4 was liable to pay the same. The learned D.A.G. has emphasized that the learned counsel for the petitioners is reading these terms and conditions by omitting the words `as of date', which words are key to the entire controversy. He has submitted that the words, `as of date' suggest that if there is any liability on account of customs duty on the date of advertisement or on the date of conclusion of sale transaction, the PNSC shall be liable to pay the customs duty. He has pointed out that the ship was sold in January, 1997 to the petitioner No.2, who continued to ply the ship for commercial voyages for a period of five years and then sold the same to petitioner No.1 in January, 2002, and continued to enjoy exemption in terms of S.R.O. 320(I)/75. In these circumstances, the respondent No.4, PNSC was not liable to pay any customs duty on account of exemption on the date of sale and even for five years thereafter. He has further submitted that even otherwise the petitioner No.1 who brought the ship to beach and sought permission for breaking the same has no privity of contract with the PNSC. According to learned D.A.-G., the liability of the customs duty is governed under the provisions of section 18 of the Customs Act, and the exemption from payment of customs duty is governed under section 19 of the Customs Act, and the notifications issued thereunder, from time to time. According to section 19 these exemptions are subject to such conditions, limitations or restrictions as the Federal Government thinks fit to impose and in this case the exemption was allowed under S.R.O. 320(I)/75 subject to the condition that if subsequently the ship is broken it shall be liable to pay customs duty chargeable on ship imported for breaking-up at the time that such ship is broken-up. He has, therefore, argued that the customs-duty was liable to be paid on the value of the ship and the recovery whereof was deferred on account of exemption and as soon as the ship was brought for breaking-up the exemption expired making the owner of the ship liable to pay the customs-duty and therefore, in this case the event for liability of customs-duty was though the date of import but on account of exemption the collection thereof was deferred and the customs duty became liable on the event of breaking of the ship.
11. Replying to the contentions raised by the learned D.A.G., Mr. Akhtar Ali Mahmud has contended that the words, `as of date' occurring in the advertisement and the Sale Certificate are superfluous having no significance or consequences.
12. We have very carefully considered the contentions raised by the learned Advocates for the parties, in the perspective of facts and circumstances of this case.
13. So far, liability of the customs duty is concerned, it is no body's case that it was not to be charged by the Customs Department. The first point of controversy is as to who is liable to pay the customs duty whether petitioners or PNSC.
14. We are persuaded to agree with the submission of learned D.A.G., that the matter between the petitioners and PNSC is to be governed in terms of the contract entered into between the petitioner No.2, and PNSC as contained in the advertisement and Certificate of Sale. In both these documents, it is clearly stated that the PNSC shall be liable to pay customs duty, `as of date'. These words are very significant and provide terminus a quo. We are of the considered opinion that these words indicate the limit when the liability of the PNSC comes to end and the liability of the petitioner No.2 in whose shoes the petitioner No.1 has stepped-in starts. Thus, it is obvious that in terms of the conditions agreed upon between the petitioner No.2 and PNSC, if there was any liability accrued or incurred by the date of sale it was to be paid by PNSC, and if there was any liability after the said date in consequence or by virtue of the transfer of ownership of ship in favour of the petitioners it was to be discharged by the petitioners and not PNSC.
15. So far, exemption claimed is concerned, it is the trite law of taxation that exemption pre-supposes the chargeability of the tax and if the exemption is unconditional such charge of tax is allowed to escape for all the times to come. However, if the exemption is conditional then A the exemption is to be enjoyed in terms of such conditions. The exemption from payment of customs duty is allowed under section 19 of the Customs Act, 1969, subject to such conditions, limitations or 'restrictions, as the Federal Government thinks fit to impose. The exemption in this case was admittedly granted under S.R.O. 320(I)/75. The exemption was granted from the whole of the customs duties chargeable on the import of the ship subject to the condition that if it is subsequently broken up the liability of the customs duties shall be chargeable on ship. It is important to note that the customs duty is chargeable on the ship and thus, whosoever is the owner at the time of breaking of the ship is liable to pay the customs duty. It is admitted position that so long the ship was owned by the respondent No.4 PNSC, the exemption was available and, thereafter, as long as it was in the ownership of petitioner No.2, who was plying it for commercial voyages, the exemption continued to prevail but after sale of the ship by petitioner No. 2 to petitioner No. 1 for the purpose of breaking thereof, followed by seeking of permission for breaking, such event brought the exemption to end and thus the payment of customs duty was no more to be allowed to be escaped, B thereby making the petitioner No.1 liable to pay the customs duty in terms of the provisions contained in section 18 of the Customs Act, read with section 19 thereof and the notification S.R.O. 320(I)/75 issued thereunder.
16. For the foregoing reasons, it is held that the respondent No.3, rightly demanded the customs duty from petitioner No.1. The demand is valid and in accordance with law to which no exception can be taken. The petition is without substance, which stands dismissed accordingly.
17. At the time of admission of petition for regular hearing, on 12-3-2002, the respondent No.3 was directed not to adopt any coercive action against the petitioners subject to their depositing bank guarantee in the sum of Rs.26,37,720 to the satisfaction of Nazir of this Court. Such guarantee was furnished by Bank Al-Habib through its attorney's. In view of the dismissal of petition, the respondent No. 3 is entitled to get the bank guarantee encashed towards the outstanding customs duty.
Petition dismissed.
M.H./D-30/K?????????????????????????????????????????????????????????????????????????????????????? Petition dismissed.