Messrs SHAFI SONS ENGINEERING (PVT.) LTD., LAHORE VS COLLECTOR (APPEALS) CUSTOMS, EXCISE & SALES TAX, LAHORE, 2007 PTD-LAHORE-HIGH-COURT-LAHORE 486 (2006)

Central Excise Act (I of 1944)---

----Ss. 3-B, 12-A & 36-C---S.R.O. 798(I)/90, dated 30-7-1990---Liability to pay central excise duty and additional duty-Exemption--Claim for---Appeal against judgment of Excise and Sales Tax Appellate Tribunal---Appellant who was a manufacturer of PVC pipes, had supplied UPVC riser pipe and top sleaves to UNICEF and cleared same without payment of central excise duty payable thereon, presuming the same to be exempted under S.R.O. 798(I)/90 dated 30-7-1990---Order in-original was passed against appellant holding him liable to pay central excise duty along with additional duty as stipulated under S.3-B of Central Excise Act, 1944 in addition to a penalty---Contention of appellant was that parts of machinery used in process directly connected with extraction of minerals, were covered by definition of machinery---S.R.O. 798(I)/90 dated 30-7-1990, contained exemption to central excise duty only to machinery and equipment which were produced by a unit and supplied against international tenders to the projects financed out of funds provided by the international loans or aid giving agencies--Definition of machinery was also provided in the said S.R.O.---UPVC riser pipes supplied by appellant to UNICEF were classifiable under PCT heading 3917 of the Tariff and those pipes could not be termed as machinery and equipment as said pipes were of specific size, length and diameter and were neither machinery nor equipment---Meaning of term "machinery" could not be stretched too far to bring in its ambit the UPVC riser pipes---Non-payment of central excise duty in the present case, was not deliberate, but was due to misinterpretation of S.R.O.---Appellant, in circumstances was not liable to pay any additional central excise duty---Appeal was allowed to the extent of waiver of additional tax, but impugned order to the extent of levy of central excise duty, was upheld.

Hasham Ahmad Khan for Appellant.

Zahid Farani Sheikh for Respondents.

Date of hearing: 12th October, 2006.

JUDGMENT

SYED HAMID ALI SHAH, J.----Relevant facts of the case are that the appellant is a manufacturer of PVC pipes under a valid Central Excise Licence. In the year 1996, the appellant supplied UPVC riser A pipe and top sleaves to UNICEF and cleared the same without payment of central excise duty payable thereon presumably being exempted under S.R.O. 798(I)/90 dated 30-7-1990, the amount of central excise duty involved in this matter was Rs.359,685. The record of the appellant was audited and in pursuance thereof a show-cause notice was served upon the appellant by the Additional Collector-I, Collectorate of Central Excise, Custom House, Lahore, whereby CED amounting to Rs.359,685 (claimed as exempted) was raised. Consequently, the Order-in-Original No.60 of 1997 was passed against the appellant who was held liable to pay central excise duty to the tune of Rs.359,685 along with additional duty as stipulated under section 3-B of Central Excise Act, 1944 in addition to a penalty of Rs.719,370. This order was challenged through Appeal No.1931 before the Collector of Customs, Central Excise and Sales Tax (Appeals), Central Zone, Lahore, which met the fate of dismissal. The appellant then approached the Customs Excise and Sales Tax Appellate Tribunal, Lahore where the liability of principal amount of central excise duty along with additional duty was upheld, while penalty amount to Rs.719,370 imposed upon the appellant company was set aside. Hence this appeal.

2. Learned counsel for the appellant has contended that as per general explanatory notes to the Custom Harmonized Code, parts solely used for any particular machinery or apparatus are to be treated and classified in the same heading. The imported consignment in parts/component for Afridev Deepwell Hand Pumps according to design specification of UNICEF, therefore enjoy the benefit of exemptions under S.R.O. 798(I)/90 dated 30-7-1990. Learned Tribunal as well as the respondents have failed to take into consideration the peculiar circumstances. of the case. He added that according to explanation parts of machinery used in process, directly connected with extraction of c minerals, is covered by the definition of machinery. Learned counsel then contended that learned Tribunal has held that appellant while claiming exemption has not, acted dishonestly and set aside the penalty imposed. He has argued that additional tax is also in the form of penalty was not thus leviable.

3. Learned counsel for the respondent, on the other hand, vehemently and firmly stood behind the conclusion drawn by the learned Collector as well as the learned Tribunal.

4. Heard learned counsel for the parties and examined the record.

5. The controversy relates to two issues namely:---

(i) whether or not UPVC riser pipes are covered under the definition of machinery thus entitled to exemption from central excise duty prescribed under S.R.O. 798(I)/90.

(ii) whether additional duty is chargeable in case the appellant is not entitled to exemption available in the aforesaid S.R.O.

6. S.R.O. 798(I)/90, dated 30-7-1990 contains exemption to central excise duty only to machinery and equipment which are produced by a unit and supplied against International Tenders to the projects financed out of funds provided by the international loans or aid giving agencies. Definition of machinery is also provided in the S.R.O. in the following manner:---

"Explanation.---In this notification, "machinery" means:---

(a) Machinery operated by power of any description (excluding agricultural machinery or implements into Pakistan) such as is used in any industrial process, including the generation, transmission and distribution of power, or used in processes directly connected with the extraction of minerals and timber, construction of buildings, roads, dams, bridges and similar structure and manufacture of goods;

(b) Apparatus and appliances, including metering and testing apparatus and appliances specially adapted for use in conjunction with machinery, specified in clause (a) above;

(c) Mechanical and electrical control and transmission gear adapted for use in conjunction with machinery as specified in clause (a) above; and

(d) Component parts of machinery as specified in clauses (a), (b) and (c) above, identifiable as for use in or with such machinery."

7. The UPVC riser pipes supplied by the appellant to UNICEF arc classifiable under PCT heading 3917 of the Tarrif and these pipes cannot be termed as machinery and equipment. The pipes supplied by appellant company, according to relevant record were usable for conveyance of water pumped from the earth through water pumps called Afridev Deepwell Hand Pumps. These pipes were of specific size, length and diameter; and were neither machinery nor equipment thus, cannot be E defined as machinery. The pipes in question are classified under PCT heading 3917 of the Tariff and as such no other definition is justified. The meanings of the term "machinery" cannot be stretched too far to bring in its ambit the UPVC riser pipes. Bare perusal of above referred definition of machinery in the S.R.O., reveals that UPVC riser pipes fall outside the purview of machinery. We have gone through the relevant provisions of Central Excise Rules and more relevant in this regard is section 3-B of Central Excise Act, 1944 which reads as under:---

"Levy of additional duty.---If a person fails to pay the duty within the prescribed time, he shall, in addition to the duty payable under section 3, be liable to pay additional duty at the rate of two per cent per month."

8. On the plain language of this provision, it is apparent that imposition of additional tax is discretionary/nor obligatory and the Additional Collector and Collector Appeals who passed orders were obliged by law to examine the reasons for non-payment of CED, as stated by the appellant in his written reply. The learned Appellate Tribunal has modified the order-in-original to the extent that the failure to pay the central excise duty was not deliberate and remitted the penalty amounting to Rs.719,370. This position takes us to conclude that the non-payment of central excise duty was not deliberate but was due to misinterpretation of S.R.O. The pipes in question, were released after completion of all requisite formalities prescribed under law and rules, therefore, the non-payment of CED cannot be treated as deliberate evasion. That being so, the appellant is not liable to pay any additional central excise duty.

9. For the foregoing, the appeal is allowed to the extent of waiver

of additional tax and impugned order to the extent of levy of central excise duty is upheld. The copy of this judgment be sent to Appellate Tribunal with the directions to pass necessary orders to dispose of the case in conformity to this judgment as required under relevant provisions of Central Excise Act, 1944. The appeal is disposed of accordingly.

H.B.T./S-205/LAppeal partly allowed.