COLLECTOR OF SALES TAX AND CENTRAL EXCISE, LAHORE VS MITCHELL'S FRUIT FARM (PVT.) LTD., OKARA and 3 others, 2006 PTD-SUPREME-COURT 2320 (2006)

(On appeal from the judgment, dated 15-11-2001 of the Lahore High Court, Lahore in Writ Petitions Nos. 5662 and 5663 of 1990).

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

----S. 4(2), First Sched. Item No.02-01-B(a)---Central Excise Rules, 1944, R.85---Constitution of Pakistan (1973), Art.185(3)---"Fruit Juice" or "beverage"---Tinned fruit juices, production and marketing of---Such juices cleared under exemption to Item No.02-01-B(a) of First Sched. to Central Excise Act, 1944---Validity---Supreme Court granted leave to appeal to consider question, whether such liquid being produced and marketed by company was "Fruit Juice" or "Beverage".

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

----S. 4(2), First Sched. Item No.02-01-B(a)---Central Excise Rules, 1944, R.85---Tinned Orange and Grape Juices---Clearing such juices under exemption to Item No.02-01-B(a) of First Sched. to Central Excise Act, 1940---Validity;--Laboratory Report showing percentage of soluble solids in Orange Juice as 13.78%, while in Grape Juice as 14.03% and water contents as 83.55% and 84% respectively---Juices requiring water to make them drinkable would fall under Item No.02-01-B(b), while drinks under question would be treated as `Beverages"---Beverages prepared from fruit juices in manner prescribed in R.85 of Central Excise Rules, 1944 would fall within ambit of exemption to Item No.02-01-B(a) and not under Item No.02-01-B(b).

A. Karim Malik, Senior Advocate Supreme Court for Appellant.

Syed Mansoor Ali Shah, Advocate Supreme Court for Respondent No.1.

Date of hearing: 19th April, 2004.

JUDGMENT

ABDUL HAMEED DOGAR, J.--- These appeals by leave of this Court are directed against the judgment dated 15-11-2001 passed by learned Single Judge of Lahore High Court, Lahore whereby Writ Petitions Nos.5662 and 5663 of 1990 filed by respondent No.1 were allowed 'and it was directed that excess amount recovered by appellant shall be refunded.

2. Precisely, stated the facts of the case are that on 22-12-1986 and 11-1-1988 show-cause notices were issued by respondent No.3 Deputy Collector, Collectorate of Central Excise and Sales Tax, Lahore to respondent No.1, which are reproduced as under:--

"Show-cause notice dated 22-12-1986

Whereas it has been reported to the undersigned that during the course of audit of the accounts of Messrs Mitchell's Fruit Farms, Ltd., Renala Khurd relating to the years 1984-85 and 1985-86, the staff of the DRRA observed that the juices manufactured by them were charged to central excise duty @ Re.0.40 per container which was less than the duty payable @ 5% of the retail price in terms of Item No.02-01-B(b) of the First Schedule to the Central Excise and Salt Act 1944. Thus, they evaded central excise duty amounting to Rs.1,34,007.52 in contravention of the provisions of rules, 7, 10, 226, and 241 of the Central Excise Rules, 1944 read with section 4(2) of the Central Excise and Salt Act, 1944.

(2) Now, therefore, on the basis of the facts stated above the said Messrs Mitchell's Fruit Farms (Pvt.) Ltd. Renala Khurd are charged with the contravention of rules mentioned above and are called upon to show cause within 10 days of the date hereof as to why penal action should not be taken against them under Rules 7, 10, 226 and 241 of the Central Excise Rules, 1944 and why central excise duty amounting to Rs.1,34,007.52 be not recovered from them."

"Show-cause notice dated 11-1-1998

Whereas it has been reported to the undersigned by the Deputy Superintendent, Central Excise and Sales Tax I/C Messrs Mitchell's Fruit Farms (Pvt.) Ltd., Renala Khurd that during the audit conducted by the staff of Directorate Revenue Receipt Audit, Lahore, it was observed that Messrs Mitchell's Fruit Farm (Pvt.) Ltd., Renala Khurd, are the manufacturers of syrups, squashes and juices. Quantity of all products were indelibly/legibly and prominently printed on each bottle/ container, as such the same are liable to Central Excise duty at the rate of 5% of the retail price in terms of Item No.02-01-B(b) of the First Schedule to the Central Excise and Salt Act, 1944. It was however, observed that syrup and squashes were charged to duty at correct rate while the juices were charged to duty @ Re.00.40 per container which is not in accordance with the prescribed rate of duty i.e. 5% of the retail price as mentioned above. Thus, the party has contravened Rules, 7, 10, 226 and 241 of the Central Excise Rules, 1944 read with section 4(2) of the Central Excise and Salt Act, 1944 and evaded Central Excise duty amounting to Rs.57,514.66.

(2) Now, therefore, the said Messrs Mitchell's Fruit Farms (Pvt.) Ltd., Renala Khurd are charged with the contravention of legal provisions mentioned above and are called upon the show cause within 10 days of the date hereof as to why action should not be taken against them under Rules, 7, 10, 210 and 241 of the Central Excise Rules, 1944 read with section 4(2) of the Central Excise and Salt Act, 1944, beside recovery of Excise duty amounting to Rs.57,514.66."

Respondent No.1 replied by stating that their tinned fruit juices are made wholly from juices and pulp indigenous vegetables, foodgrains of fruits and do not contain any other ingredient, indigenous or imported, other than sugar, colouring materials, preservatives or additives in quantities prescribed under the West Pakistan Pure Food Rules, 1965 (hereinafter referred to as "the Rules") and are correctly cleared under exemption to Item No.02-01-B(a). The respondent No.3 feeling not satisfied with the reply conducted proceedings and on conclusion held that the charges levelled in the show-cause notices were established and respondent No.1 was liable to pay excise duty @ 5% of the retail price as mentioned in Item No.02-01-B(b). This order was assailed by respondent No.1 in appeals before Collector Central Excise and Land Customs (Appeals) Northern Zone, Lahore which were dismissed vide order, dated 21-5-1989. Against which revisions were filed before Additional Secretary, Government of Pakistan, Ministry of Finance which also met the same fate. Said orders were assailed in writ petitions before learned High Court which were allowed vide impugned judgment.

3. Leave to appeal was granted by this Court on 23-5-2003 to determine whether the liquid in question being produced and marketed by respondent-company was "Fruit Juice" or "Beverage".

4. We have heard Mr. A. Karim Malik, learned Senior Advocate Supreme Court appearing on behalf of appellant and Syed Mansoor Ali Shah, learned Advocate Supreme Court appearing on behalf of respondent No.1 at length and have gone through the record and proceedings of the case in minute particulars.

5. Learned counsel for the appellant vehemently contended that learned High Court has erred by holding that the products in dispute are covered under Item No.02-01-B(a) and not under Item No.02-01-B(b) according to which rate of duty was 5% of the retail price. According to him respondent No.1 contravened the provisions of Rules 7, 10, 226 and 241 of the Central Excise Rules, 1944 read with section 4(2) of the Central Excise and Sales Tax Act, 1944 and evaded duty amounting to Rs.1,34,007.052 for the years 1984-85 and 1985-86 and Rs.57,511 for the year 1986-87. According to him, appeals and revisions filed by respondent No.1 were rightly rejected by holding that the products in question were not meant for instant drinking, and as per criteria laid down in the Rules did not qualify the classification of beverages and were thus, not covered by the exemption to it as laid down vide Notification No.S.R.O.555(I)/79, dated 28th June, 1979 as amended by the Federal Government vide Notification No.S.R.O.572(I)/83, dated 11-6-1983. He attacked the impugned judgment and contended that same is liable to be set aside as it suffers from material illegality.

6. On the other hand, learned counsel appearing on behalf of respondent No.1 controverted the above contentions and supported the impugned judgment. He contended that the learned High Court has elaborately discussed each and every aspect of the matter and there is no material apparent on record warranting interference by this Court. He further contended that' products in question were instant drink, and as per criteria laid down in the Rules, the products qualify the classification of beverages and were thus covered by the exemption to Item No.02-01-B(a).

7. We have considered the arguments of learned counsel for the parties and have gone through the relevant provisions of law relating to the facts and circumstances of the case. The precise question involved in these cases is as to whether the products in question are "beverage made from Juice" or "Juices". The terms have been described in exemption B(a) and B(b) to Item 02-01 in the First Schedule to the Central Excise and Salt Act, 1944 which are reproduced as under:

"B(a) Beverage.---made wholly from juices or pulp of indigenous vegetables; foodgrains or fruits and which do not contain any other ingredient indigenous or imported, other than sugar, colouring materials, preservatives or additives in quantities prescribed under the West Pakistan Pure Food Rules, 1965,---

(b) Juices, syrup and squashes, if the retail price and quantity of such items are indelibly, legibly and prominently printed on each container or its cork or lable - 5% of the retail price."

It would also be advantageous to reproduce here Rule 85 of the Rules:---

"85. Fruit Beverage or Fruit Drink or Fruit Crush means any beverage or drink which is purported to be prepared from fruit juice and water or carbonated water, by whatever name it is called, and containing sugar, dextrose, invert sugar, or liquid glucose, either singly or in combination and with or without peel oil, fruit essences or flavours, citric acid, ascorbic acid, permitted preservatives and colours. It shall conform to the following standards:--

(b) The beverage prepared artificially by mixing the separated components of juices shall be labelled `Artificial'."

A combined reading of the above would show that in case of beverages prepared from fruit juices in the manner prescribed in the Rules the product would fall within the ambit of exemption of Item No.02-01-B(a) and not under 02-01-B(b). The products in dispute were also got analyzed from P.C.S.I.R. Laboratories, Lahore. The bare reading of the said report would show that the products do conform to the standards prescribed in Rules. The percentage of the said soluble solids in orange juice is 13.78% while in Grape fruit juice is 14.03%. The water contents were 83.55% and 84.9% respectively. In view of above, it is clear that juices which require water to make them drinkable fall under Item No.02-01-B while instant drinks are to be treated as "Beverages". As such products prepared from fruit juices in the manner prescribed would fall within the ambit of exemption to Item No.02-1-B(a) and not under 02-01-B(b). We do not find any illegality, infirmity, misreading or non-reading in the impugned judgment warranting interference by this Court.

8. For the foregoing reasons and discussion both the appeals are found without any substance. Accordingly, the same are dismissed with no order as to costs.

S.A.K./C-13/SCAppeals dismissed.