DEWAN CEMENT LTD. VS COLLECTOR OF CUSTOMS AND SALES TAX and another
2009 P T D 1247
[Supreme Court of Pakistan]
Present: Zia Perwez, Sarmad Jalal Osmany and Ghulam Rabbani, JJ
Messrs DEWAN CEMENT LTD.
Versus
COLLECTOR OF CUSTOMS AND SALES TAX and another
C.P.L.As. Nos.319-K and 320-K of 2008, decided on 08/05/2009.
(On appeal from judgment of High Court of Sindh, Karachi dated 16-1-2008 passed in Special C.R.As. Nos.29 of 2002 and 10 of 2006).
Central Excise Rules, 1944---
----R. 10-Central Excise Act (I of 1944), S.4(2)---Central Excise General Order 23 of 1969---Recovery of duty short-levied-Application and scope of R.10, Central Excise Rules, 1944---Word "error" used in R.10 denotes one of fact as well as of law-Where there was nothing on the record to demonstrate any misdeclaration, false information or collusion and short levy of duty was by reason of misconstruction of the law, the case fell within the ambit of R.10(1), Central Excise Rules, 1944 in which event show-cause notices were time-barred---Supreme Court having held the show-cause notices as time-barred, declined to discuss the merits of the case---Principles.
A plain reading of Rule 10(1), Central Excise Rules, 1944 would amply denote that it would be applicable in the cases where due to no fault either of the assessee or the Department any charge has not been levied or has been short levied or erroneously refunded. The thrust of the Rules, therefore, is that there should have been some inadvertent error or misconstruction in the process of payment of duty due to no fault of either party which led to the short levy, refund etc. The word error denotes one of fact as well as of law.
On the other hand sub-rule (2) contemplates a conscious act on the part of the assessee i.e. an clement of mens rea is involved since the words misdeclaration, false information or collusion are in fact a state of mind in which the actor knows what he is doing and purposely does something i.e. either misdeclares a product in question or gives any false information in connection thereof or colludes with anyone in order to avoid payment of the duty or pays lesser duty than that mandated by the law and the rules. In the present case, assessee had written to the Department seeking its concurrence for supply of Cement to the Army at the contractual rate which was -lesser than the normal retail price and hence implied payment of lesser excise duty. Such permission was granted by the Department provided the conditions laid down in CEGO No.23 of 1969 were followed and a declaration was made that the Cement was not meant for sale in the open market. The exchange of, further correspondence between the parties also denoted that the permission remained intact but subject to CEGO No.23 of 1969 which provided in sum that "where excisable goods are supplied in bulk to Government Organizations at contracted prices, the retail price should also be printed on the containers/packages". Consequently both the parties were under the genuine impression that excise duty could be charged at the contractual price otherwise there was no occasion for the assessees to seek the permission from the Department. Admittedly such permission was granted, be it under a mistake of law, which was the moot question in this matter. Nevertheless, there is no escaping the fact that acting on such permission the assessees had cleared the goods in question at a lower rate and hence paid duty accordingly. It is the Department's case throughout that the law did not mandate (section 4(2)) of the Act and subsequent notification) any clearance of the goods at a rate which was below that what was printed on the cartons in question. However, it was not their case that the goods were cleared at a lower rate due to the assessees' misdeclaration, false information or collusion with the Government functionaries. In fact this could not be the case as the assessee had, even before signing the contract with the Army, sent it to the Department for approval. There was also nothing on the record to demonstrate any such misdeclaration; false information or collusion. In the circumstances, indeed the levy of the duty in question was by reason of misconstruction of the law, which squarely brings the case within the ambit of Rule 101) of the Central Excise Rules, 1944 in which even the show-cause notices are time-barred. 'Supreme Court, in circumstances, allowed the appeal of assessee and declined the necessity of discussing the merits of the case. ?
Commissioner of Sales Tax v. Kruddsons Ltd. PLD 1974 SC 180; Mollasses Trading and Export (Pvt.) Ltd. v. Federation of Pakistan 1993 SCMR 1905; Atlas Battery Ltd. v. Superintendent Central Excise and Land Customs Circle "C" Karachi PLD 1984 SC 86; Messrs Radaka Corporation v. Collector of Customs 1989 SCMR 353; Al-Samrez Corporation v. Federation of Pakistan 1986 SCMR 1917; Yunnan Corporation v. Collector, Central Excise 2001 PTD 661; State Cement Corporation v. Collector of Customs 2002 MLD 180 and Collector of Sales Tax and Central Excise v. Zamindara Paper and Board Mills 2007 PTD 1804 ref.
Dr. Muhammad Farough Naseem, Advocate Supreme Court and K.A. Wahab, Advocate-on-Record for Petitioners.
Aqeel Ahmed Abbasi, Advocate Supreme Court and A.S.K. Ghori, Advocate-on-Record for Respondents.
Date of hearing: 24th April, 2009.
JUDGMENT
SARMAD JALAL OSMANY, J.---These petitions impugn the common judgment of the learned Sindh High Court dated 16-1-2008 passed in Special C.R.As. Nos.29 of 2002 and 10 of 2006 and hence are being disposed of together.
2. Briefly stated facts of the matter are that the petitioners entered into a contract dated 27-8-1997 for the supply of 35,644 metric tons of Ordinary Portland Cement to the Directorate-General of Procurement, Pakistan Army. The unit price of the cement was fixed at Rs.1,924.35 plus Rs.38 being sales tax per metric ton, whereas the retail price for ordinary consumers was higher. Consequently, Central Excise Duty was calculated at Rs.1,308.63 per metric tons being 40% of the contract price. Accordingly the petitioners wrote to the respondent-Department on 5-8-1997 seeking approval of the proposed contract for supply of the cement to the Pakistan Army which was consented to by the Department vide its letter dated 18-8-1997 subject to adherence of CEGO 23 of 1969 and a declaration that the goods are not meant for sale in the open market. Thereafter, the petitioners again wrote to the Department on 24-9-1997 desiring instructions to the Excise Staff posted at its gate for the purpose of clearing the cement at the agreed rate of Rs.1,308.63 per metric ton being 40% of the contractual price, which was again confirmed by the Department vide letter of even date. The petitioners again addressed a letter, dated 26-5-1998 to the Department complaining of hindrances in the clearance of the Cement by the Central Excise Staff posted at its gate and seeking necessary cooperation in this respect vis-a-vis the clearing of the cement at the contractual price to the Pakistan Army to which the Department again wrote on 6-8-1998 in a positive manner. However, on 19-3-1999 the department addressed a letter to the petitioners advising that the permission earlier given vide its letter dated 6-8-1998 for the supply of 35,644 metric tons Portland Cement had been withdrawn and the supply be stopped forthwith. This was followed by show-cause notices dated 7-8-2000 and 30-5-2001 pertaining to the supplies from 24-9-1997 to 20-5-1998 and for the financial year 1998-1999 respectively whereby it has been postulated that the cement in question had been cleared at a lower rate than the retail value thereof hence causing heavy losses to the exchequer hence shortfall in excise duties plus penalties were proposed to be recovered etc. Not being satisfied with the replies to such show-cause notices, departmental proceedings were initiated against the petitioners which resulted in imposition of short-levied excise duty and penalty. The order in original dated 15-6-2001 was challenged before the Customs, Excise and Sales Tax Appellate Tribunal by the petitioners which did not meet with success and so too the appeals filed before the learned Sindh High Court. Hence these petitions.
3. Dr. Muhammad Farough Nascent, learned Advocate Supreme Court appearing for the petitioners has firstly submitted that the letter, dated 19-3-1999 received from the Department withdrawing its earlier permission etc. and asking the petitioners to pay differential excise duty from 18-8-1997 is not sustainable in law since by that time already about 13,000 metric tons of cement had been supplied to the Pakistan Army. Consequently, as this was a past and closed transaction the same could not be reopened retrospectively as it involved vested rights which had accrued to the petitioners. In support of this submission learned Advocate Supreme Court has relied upon Commissioner of Sales Tax v. Kruddsons Ltd. PLD 1974 SC 180 and Mollasses Trading and Export (Pvt.) Ltd. v. Federation of Pakistan 1993 SCMR 1905.
4. Next learned Advocate Supreme Court has submitted that essentially the case of the Department is that the duty paid was at a lesser price than that printed and declared on the cartons of the cement in question and hence this was a violation of section 4(2) of the Central Excise Act, 1944 (hereinafter referred to as the Act), according to which duty is to be paid at a higher rate. In this regard per learned Advocate Supreme Court in the old section 4(2) of the Act where more than one price is fixed than the duty is to be paid at the higher rate but this section was amended in 1994 i.e. this was subject to notification which was never issued. Hence the case of the Department which is dependent on the force of old section 4(2) of the Act and based on Atlas Battery Ltd. v. Superintendent Central Excise and Land Customs Circle "C" Karachi PLD 1984 SC 86 is not sustainable as in the present case the cement was supplied in 1997, which is subject to the new section 4(2) of the Act.
5. Learned Advocate Supreme Court has also submitted that per various permissions/approvals given by the Department, Central Excise General Orders (CEGO) No.4 of 1959 and CEGO No.23 of 1969 were applicable according to which where there are two prices and supply of excisable goods is made to the Government Departments at a lower rate than the duty is to be paid at the lower price. This is a well-settled practice of the Department and hence again creates vested rights. In support of his submission he relied upon Messrs Radaka Corporation v. Collector of Customs 1989 SCMR 353 and Al-Samrez Corporation v. Federation of Pakistan 1986 SCMR 1917. According to the learned Advocate Supreme Court this is a mere change of opinion. Consequently, once the permission is given it cannot be taken back without valid reasons for which proposition he has relied upon Yunnan Corporation v. Collector, Central Excise 2001 PTD 661. Finally learned Advocate Supreme Court has submitted that the show-cause notices are time-barred as they were issued on 7-8-2000 and 8-672001 whereas the supply was made during the years 1997 to 1999. Consequently, the matter would be governed under Rule 10(1) of the Central Excise Rules, 1944 for which time is one year since admittedly the permission in question was issued mistakenly. In this regard learned Advocate Supreme Court also referred to the impugned judgment where it has been held that the case falls under Rule 10(1) of the Rules. In this respect he relied upon State Cement Corporation v. Collector of Customs 2002 MLD 180.
6. On the other hand Mr. Aqeel Ahmad Abbasi, learned Advocate Supreme Court appearing for the Department has submitted that the permission in question only pertains to the department's acquiescence for the supply of the cement to the Pakistan Army as there is no mention of this being done at a reduced rate of duty than that to be paid at the normal retail price by the petitioners. Consequently, there is no question of any vested right having accrued to the petitioners or change of opinion etc. or for that matter any departmental practice as alleged. According to learned Advocate Supreme Court whether the permission in question had been granted or withdrawn it has to be done per the law which is section 4(2) of the Act and if this has been done unlawfully it cannot be condoned since there is no estoppel against the statute. Secondly per learned Advocate Supreme Court section 4(2) of the Act was added in the year 1994 since previously the duty was charged on wholesale price but after the amendment it was to be charged on the highest retail price hence the effect of all earlier CEGOs ceased. Per learned Advocate Supreme Court where the law on any subject-matter is very clear there is no need of any CEGO to clarify the same. In this regard he also submitted that a notification was issued in terms of section 4(2) of the Act whereby the duty was to be paid at the highest retail price. With regard to limitation, learned Advocate Supreme Court has submitted that Rule 10(1) provides for recovery of duty short levied or erroneously levied by reason of any inadvertence, error or misconstruction etc. for which the period is one year from the clearance of the goods in question. However, Rule 10(2) provides for such duty not being levied or short levied by reasons of misdeclaration, false declaration or collusion for which the period is three years from the date of clearance. According to learned Advocate Supreme Court the matter squarely comes under Rule 10(2) since false information was provided by the petitioners to the Department. Consequently, show-cause notices issued in the years 2000 and 2001 for the clearances made during the years 1997-99 are well within time. In support of his submission he relied upon Collector of Sales Tax and Central Excise v. Zamindara Paper and Board Mills 2007 PTD 1804.
7. We have heard both the learned Advocates Supreme Court. Regarding limitation vis-a-vis the show-cause notices in question it would be seen that for the supply made from 24-9-1997 to 20-5-1998 the show-cause notice was issued on 7-8-2000 whereas for the supply made during the financial year 1998-99 viz. from 1st July, 1998 to 20th June, 1999 the show-cause notice was issued on 30-5-2001. Consequently if Rule 10(1) of the Rules were to apply the show-cause notices would be time-barred being beyond one year of supply but would be within time if Rule 10(2) were made applicable as they were issued within three years of the supply. In order to fully appreciate the provisions of Rule 10 it would be beneficial to reproduce the same:---
"10 Recovery of duty short-levied or erroneously refunded etc.--- (1) Where by reason of any inadvertence, error or misconstruction, any duty or charge has not been levied or has been short-levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within one year of the relevant date by an officer not below the rank of Superintendent requiring him to show cause why he should not pay the amount specified in the notice.
(2) Where by reason of any misdeclaration, false information or collusion, any duty or charge has not been levied or has been short levied or has been erroneously refunded, the person liable to pay any amount on that amount shall be served with a notice within three years of the relevant date by the competent Adjudicating Authority, requiring him to show cause why he should not pay the amount specified in the notice and be penalized under the law and the rules."
A plain reading of Rule 10(1) would amply denote that it would be applicable in the cases where due to no fault either of the assessee or the Department any charge has not been levied or has been short-levied or erroneously refunded. The thrust of the Rules, _therefore, is that there should have been some inadvertent error or misconstruction in the process of payment of duty due to no fault of either party which leads to the short levy, refund etc. In our opinion the word error denotes one of fact as well as law.
8. On the other hand sub-rule (2) contemplates a conscious act on the part of the assessee i.e. an element of mens rea is involved since the words misdeclaration, false information or collusion are in fact a state of mind in which the actor knows what he is doing and purposely does something i.e. either misdeclares a product in question or gives any false information in connection thereof or colludes with anyone in order to avoid payment of the duty or pays lesser duty than that mandated by the law and the rules. Keeping the aforesaid discussion in mind it would be seen that the petitioners had written to the Department seeking its concurrence for supply of Cement to the Army at the contractual rate which was lesser than the normal retail price and hence implied payment of lesser excise duty. Such permission was granted by the Department provided the conditions laid down in CEGO No.23 of 1969 were followed and a declaration is made that the Cement was not meant for sale in the open market. The exchange of further correspondence between the parties also denotes that the permission remained intact but subject to CEGO No.23 of 1969 which provides in sum that where excisable goods are supplied in bulk to Government Organizations at contracted prices, the retail price should also be printed on the containers/packages. Consequently we are of the view that both the parties were under the genuine impression that excise duty could be charged at the contractual price otherwise there was no occasion for the petitioners to seek the permission from the Department. Admittedly such permission was granted, be it under a mistake of law, which is the moot question in this matter. Nevertheless, there is no escaping the tact that acting on such permission the petitioners had cleared the goods in question at a lower rate and hence paid duty accordingly. It is the Department's case throughout that the law did not mandate (section 4(2)) of the Act and subsequent notification) any clearance of the goods at a rate which is below that printed on the cartons in question. However, it was not their case that the goods were cleared at a lower rate due to the petitioners' misdeclaration false information or collusion with the Government functionaries. In fact this could not be case as the petitioners had, as observed herein, even before signing the contract with the Army, sent it to the Department for approval. There is also nothing on the record to demonstrate any such misdeclaration; false information or collusion. In the circumstances, we are very clear in our mind that indeed the levy of the duty in question was by reason of misconstruction of the law, which squarely brings the case within the ambit of Rule 10(1) of the Rules in which even the show-cause notices are time-barred. Since we have reached the conclusion that the same are time-barred, hence we do not feel the necessity of discussing the merits of the case. Consequently, these petitions are converted into appeals and allowed. The impugned judgments passed by the learned high Court as well as by the forums below are set aside and the show-cause notices are vacated.
M.B.A./D-8/SC?????????????????????????????????????????????????????????????????????????????????? Appeals allowed.