HAFEEZ IQBAL OIL AND GHEE INDUSTRIES (PVT.) LIMITED VS GOVERNMENT OF PAKISTAN through Secretary, M/O Commerce, Islamabad, 2012 PTD-ISLAMABAD 1503 (2012)

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

----Ss. 37, 219 & Third Sched. Item-VI---Customs Rules, 2001, R.297(2)(a) [as substituted by S.R.O. 1130(I)/2010, dated 13-12-2010]--Constitution of Pakistan, Arts. 18, 18(b), 25 & 199---Constitutional petition---Prime Minister's Rehabilitation Plan and Fiscal Relief Package for industries in Khyber Pakhtunkhwa in areas most affected by terrorist activities---Issuance of S.R.O. 1130(I)/2010 by Federal Board of Revenue (FBR) in pursuance of such Plan and Package exempting ghee industries located in Province of Khyber Pakhtunkhwa except in area of Hattar allowing such industries while exporting ghee/cooking oil to receive back 100% excise duty and taxes paid on import of raw material---Petitioners' plea was that their ghee industries located in Hattar were exporting 80% of total ghee to Afghanistan, while remaining 20% of ghee was being exported by factories of private respondent located in area mentioned in impugned S.R.O.; that under S.219 of Customs Act, 1969, FBR could exempt goods from levy of tax, but could not exempt area; and that exclusion of area of Hattar from benefits provided under impugned S.R.O. was not only violative of petitioners' fundamental rights guaranteed under the Constitution, but had created monopoly of private respondent and made impossible for petitioners to compete with private respondent---Validity---FBR regarding Duty and Tax Remission for Exporters (DTRE) had power under S. 37 of Customs Act, 1969 and under S. 219 thereof could amend rules regarding DTRE---Section 219 of Customs Act, 1969 would be read with S. 37 thereof, which was only about goods and whereunder area could not be excluded---Federal Government could exclude a particular area, but exemption of goods or exclusion of area, if found to be voilative of any of thefundamental rights enshrined in the Constitution, could be struck down---Government would be bound to promulgate regulations in interest of free competition---Law disturbing free competition in market and providing an edge to one person over other would be violative of Art. 18 of the Constitution---Fiscal benefits provided to private respondents through impugned S.R.O., if allowed to continue, would create its monopoly and petitioners would not be in a position to compete with private respondent, which would be violative of Art. 18(b)oftheConstitution---FBR had bifurcated areas in impugned S.R.O. without showing any reason therefore---Petitioners and private respondent were similarly placed and engaged in same business, thus, edge provided to private respondent by virtue of impugned S.R.O. would definitely disturb fair competition---Both petitioners and respondents for being engaged in same business were entitled to equal protection of law---Impugned S.R.O.in absence of reasonable classification was violative of Art. 25 of the Constitution, whereunder one could not be given an edge over the other---Impugned fiscal facility could be given by FBR, but not High Court---High Court accepted constitutional petition by observing that FBR, if deemed proper, might extend impugned fiscal benefit to area of Hattar or in alternative such facility should not be provided to any one.

PLD 2005 SC 193; PLD 1990 SC 57; PLD 1990 SC 295; PLD 1997 SC 44 andPLD 1965 SC 527 ref.

2002 SCMR 312; 1999 SCMR 709; PLD 1997 SC 342 and PLD 1997 SC 582 rel.

(b) Constitution of Pakistan---

----Art. 199---Constitutional petition involving factual controversies---Jurisdiction of High Court under Art. 199 oftheConstitution---Scope---High Court could not step into such controversies as same would require recording of evidence, which was notpossible in exercise of constitutional jurisdiction.

Malik Qamar Afzal for Petitioners (in Writ Petitions Nos. 51 and 224 of 2011).

Issac Ali Qazi for Petitioner (in Writ Petition No.1127 of 2011).

Muhammad Abid Raja, D.A.G. for Respondent No.1.

Rao Abdul Ghaffar, Standing Counsel.

Muhammad Nasir-ud-Din Mahboob and Ms. Farhat Zafar for Respondents Nos. 2 and 3.

Date of hearing: 17th April, 2012.

JUDGMENT

RIAZ AHMAD KHAN, J.---This judgment is directed to dispose of instant Writ Petition No.51 of 2011 as well as Writ Petitions Nos. 224 and 1127 of 2011.

2.Brief facts of the case are that petitioners in all the three petitions are private limited companies, engaged in the business of manufacturing of cooking oil and vegetable ghee and exporting the same to Afghanistan. The factories of all the petitioners are located in Hattar, Khyber Pakhtunkhwa. The Province of Khyber Pakhtunkhwa is facing the acts of terrorism since 2007 and during these acts, the industries of the Province were severely affected. The Federal Government, therefore, launched Fiscal relief Package for Rehabilitation of Industries in Khyber Pakhtunkhwa. The miseries of the people were aggravated by the devastating floods. The Prima Minister of Pakistan announced Rehabilitation plan and package of the Federal Government. Under the said plan, the Province was divided into three zone i.e. most affected areas, moderately affected areas and lesser affected areas. The industries located in the most affected areas were exempted from income tax, sales tax and federal excise duty. The districts of Abbottabad, Mansehra and Kohistan were placed in Less Affected Areas, so above said exemption was not extended to these areas. Pursuant to the Prime Minister Rehabilitation Plan and Package, the Federal Board of Revenue issued S.R.O. 754(I)/2010, dated 9-8-2010. This Notification was to the following effect:--

NOTIFICATION

(Income Tax)

S.R.O. 754(I)/2010.---In exercise of the powers conferred by subsection (2) of section 148 of the Income Tax Ordinance, 2001 (XLIX of 2001), and in pursuance of the Prime Minister's Fiscal Relief to rehabilitate economic life in Khyber Pakhtunkhwa, FATA and PATA, the Federal Board of Revenue is pleased to specify that the provisions of section 148 of the Income Tax Ordinance, 2001 shall not apply on import of raw material for own consumption of the taxpayers located in the most affected areas of Khyber Pakhtunkhwa, (district Peshawar, Malakand Agency, and districts of Swat, Buner, Shangla, Upper Dir, Lower Dir, Hangu, Bannu, Tank, Kohat and Chitral) and taxpayers located in moderately affected areas of Khyber Pakhtunkhwa (Charsadda, Nowshera, D.I. Khan, Batagram, Lakki Marwat, Swabi and Mardan), FATA and PATA:

Provided that such exemption shall be availed on production of a certificate from the Chief Commissioner, Inland Revenue concerned and such exemption on imports of raw material shallbe limited to the installed capacity of such manufacturing units in each case:

Provided further that such exemption shall not be applicable to the manufacturers and suppliers of cement, sugar, beverages and cigarettes.

(Shahid Hussain Asad) Member (Policy Direct Taxes)"

3.By virtue of the above said Notification, the areas mentioned in the Notification being most affected areas were declared as exempted from payment of Income Tax. Since Hattar where the industries of the petitioners are located, were not mentioned in the Notification, therefore, the petitioners filed Writ Petition No. 224 of 2011 with the prayer that S.R.O. No. 754(I)/2010, dated 9-8-2010 be declared as ultra vires to the Constitution and to hold that the petitioners are entitled to the benefits of above said S.R.O.

4.Federal Board of Revenue also issued S.R.O. 1130(I)/2010, dated 13th December, 2010 which was to the following effects:--

NOTIFICATION

(Customs)

S.R.O. 1130(I)/2010.---In exercise of the powers conferred by section 219 of the Customs Act, 1969 (IV of 1969), the Federal Board of Revenue is pleased to direct that the following further amendments shall be made in the Customs Rules, 2001, namely:--

In the aforesaid Rules, in rule 297, in sub-rule (2), for clause (a), the following shall be substituted namely:--

(a)raw sugar and cooking oil or vegetable ghee or their raw materials:

Provided that notwithstanding anything contained elsewhere in these rules:--

(i)the DTRE facility shall be allowed to the manufacturers-cum-exporters of ghee only and in respect of only those units which are located in the provinces of Khyber Pakhtunkhwa and Balochistan excluding the areas of Hatter and Hub;

(ii)the DTRE facility shall be subjected to provision of average exporters made by the manufacturers-cum-exporters of ghee during the last four years plus enhancement upto 20% and the facility be provided on the basis of industries track record and performances.

(iii)the time limit shall be ninety days for utilizing the imported palm oil and this period shall be counted from the date of Import General Manifest (IGM) to export date of the consignment; and

(iv)the exports of ghee shall be allowed in foreign currency only"

(Tariq Ahad Nawaz)

Chief (Exports)"

5.The petitioners are aggrieved of the S.R.O. to the extent that the area of Hattar has been excluded from the benefits provided under the above said S.R.O. Writ Petition No. 51 of 2011 was filed with the prayer thattheactofexcludingareaofHattarintheS.R.O. dated13-12-2010 be declared as without lawful authority and violative of petitioner's rights guaranteed under the Constitution. It was further prayed that the petitioner be declared to be entitled to the facility available under the said S.R.O.

6.Writ Petition No. 1127 of 2011 was filed regarding the same relief as prayed for in Writ Petition No. 51 of 2011 that is regarding exclusion of Hattar from the benefits provided in the S.R.O. No.754(I)/2010, dated 9-8-2010. In the alternative, it was also prayed that the petitioners in Writ Petition No. 1127 be declared as entitled to the return of 100% federal excise duty as provided in S.R.O. 342(I)/2010, dated 20th May, 2010.

7.Learned counsel for the petitioners in Writ Petitions Nos. 51 and 224 of 2011 submitted that ghee factories of the petitioners are situated in Hatter and these companies export 80% of total ghee being exported to Afghanistan. The remaining 20% of ghee is produced by the factories situated at Peshawar. The factories situated at Peshawar belong to respondent No. 4, which is a political family and the said respondent got S.R.O. 1130(I)/2010, dated 13-12-2010 issued. According to learned counsel for the petitioners, the object of this S.R.O. was to create a monopoly of respondent No.4, as in presence of this S.R.O. the petitioners could not compete with respondent No.4 and petitioner's industry was bound to be destroyed. It was further submitted that S.R.O., dated 13-12-2010 was violative of Articles 3, 18, 25, 37 and 38 of the Constitution of Islamic public of Pakistan, 1973. The learned counsel further submitted that the said S.R.O. was purportedly issued under section 219 of Customs Act, 1969 and under the said Section, the Federal Board of Revenue could exempt goods from levy of duty, but area could not be exempted.

8.Learned counsel in respect ofS.R.O. No.754(I)/2010,dated9-8-2010 submitted that the said S.R.O. was purportedly issued pursuant to Prime Minister Fiscal Relief to Rehabilitate, Economic Life in Khyber Pakhtunkhwaand the area specified in S.R.O. was exempted from income tax. Learned counsel further submitted that the District Hazara was equally affected by the terrorist activities and it was incorrect to hold that the area specified in S.R.O. No.754(I)/2010 was most affected area and Hatter was not included in the area affected by terrorism. According to learned counsel for the petitioners, the petitioners were also entitled to the relief provided in S.R.O. No. 754(I)/2010 and as such, the petitioners should be declared exempted from payment of income tax on import of raw material. Learned counsel for the petitioners in Writ Petition No. 2217 of 2011 made the same averments regarding exclusion of area of Hatter, however, added that on the basis of S.R.O. 993(I)/2006, dated 21st September, 2006, the facility of repayment-cum-drawback of sales tax and federal excise duty was allowed, however, vide S.R.O. 342(I)/2010, dated 20th May, 2010 amendment was made and it was provided that 100% of federal excise duty shall be paid back as drawback to the exporters of vegetable ghee and cooking oil located in areas of FATA and PATA and moderately affected case. In all those areas, Hatter was not included. Learned counsel further submitted that the above said facility was provided to the terrorist affected areas, while Hatter was excluded. Learned counsel also submitted that petitioners were entitled to the same facility. He further submitted that no doubt the petitionersare also returned the amount of excise duty paid at the time of import, but not 100%, whereas the manufacturers located in the areas mentioned in S.R.O. are returned 100% of duty and tax paid at the time of import. The difference counts about 10% and the same provides an edge to the manufacturers, whose factories are located in the areas mentioned in S.R.O. According to learned counsel for the petitioners, this difference is discriminatory and, therefore, the application of S.R.O. 342(I)/2010 should be non-discriminatory. The petitioners be declared as entitled to the same facility/benefits as provided for the persons mentioned in S.R.O. Learned counsel in support of his contentions referred to 2002 SCMR 312, PLD 2005 Supreme Court 193, PLD 1990 SC 57, PLD 1990 SC 295, PLD 1997 SC 44, PLD 1965 Supreme Court 527 and 1999 SCMR 709.

9.Learned counsel for the respondents submitted that the Province of Khyber Pakhtunkhwawas hit by terrorist activities and devastated by floods, so Provincial Government had to divide the areas in accordance with the affects of terrorism and floods. After conducting survey the areas were divided into most affected, moderately affected and less affected areas. It was in accordancewith the factual position that these S.R.Os. were issued, so there was no question of nepotism or malice on the part of respondents. It was further submitted that the respondents had the authority to issue S.R.Os. and the authority under which the S.R.Os. were issued cannot be questioned.

10.I have heard learned counsel for the parties and have also perused the record.

11.First of all I would take S.R.O. 1130(I)/2010, dated 13th December, 2010. On the basis of this S.R.O. DTRE facility was allowed to the manufacturers-cum-exporters of ghee only and in respect of those units, which are located in the Province of Khyber Pakhtunkhwa and Balochistan excluding the areas of Hattar and Hub. DTRE means Duty and Tax Remission for Exporters. Any person who imports raw material and through process of value addition, manufacture and finish products, which are exported to some foreign countries, then at the time of export he would be entitled to return of duty and taxes paid on the raw material at the time of import. Originally under Rule 297 sub-rule (2), DTRE facility was not provided on cooking oil or ghee or their raw material, but through S.R.O. 1130(I)/2010, the said Rule was amended and the facility of DTRE was allowed to the manufacturers-cum-exporters of ghee, but in exclusion to those units, which are located in Hattar.

12.As far as the authority to amend the Rule regarding DTRE is concerned that is not disputed. The contention of learned counsel for the petitioner is that under section 219 of the Customs Act, 1969 read with item-VI of the Third Schedule, the Federal Board of Revenue has the authority to amend the Customs Rules regarding DTRE, however, section 219 provides that the Board may by Notification in the official gazette make rules for carrying out the purpose of this Act. It obviously means that rules are to be made under the authority conferred by Customs Act. The authority in respect of DTRE is provided in section 37 of the Customs Act, so section 219, which empowers the Federal Board of Revenue to make rules, is to be read with section 37 of the Customs Act, 1969. Section 37 is only about goods and under this section area cannot be excluded.

13.The contention of learned counsel for the petitioner is not correct. In the present case, the DTRE facility is in respect of goods, however, the area of Hattar and Hub have been excluded. The benefit as such, is not provided in respect of a particular area. As far as exclusion of area is concerned, neither section 219 nor section 37 debars the Government from excluding a particular area, however, the same is to be seen at the touchstone of fundamental rights as provided in the Constitution and if it is found that the exemption of goods or exclusion of area is in violation of any of the fundamental rights enshrined in the Constitution, then the same can be struck down.

14.It has been admitted by both the parties that 80% ghee and oil is being exported by units located in Hattar and remaining 20% ghee and oil is exported by respondent No.4. It has also been admitted that there is no other industry except that of respondent No. 4 in whole of Khyber Pakhtunkhwa except Hattar, which can export ghee or cooking oil to Afghanistan. In such like conditions, if impugned S.R.O. is allowed to prevail, the same would create monopoly of respondent No.4, as the petitioners would not be in a position to compete with the respondent No.4. The said facility would provide an edge to respondent No.4 and the same would be violativeof Article 18(b) of Constitution of Islamic Republic of Pakistan, 1973. The Government infact, is bound to promulgate regulations in the interest of free competition and any law which would disturb free competition in the market and provide an edge to one person over the other, the same would be violative of Article 18 of the Constitution. There is no doubt that the right under Article 18 is not an absolute right and is liable to certain restrictions. The Government has the authority to make law providing classifications in the exercise of right under Article 18, but that would be for regulating any trade. In the present case, bifurcation has been made in areas without showing any reason. The petitioners and respondent No.4 are similarly placed, engaged in the same business, but even then, by virtue of impugned S.R.O. an edge has been provided to respondent No.4, which definitely would disturb the fair competition:--

In judgment reported as PLD 1997 SC 342, it was held that Pakistan having been founded on the basis of Islam, effort has to be made to bring about an egalitarian society based on Islamic concept of fair play and social justice. State functionaries are expected to act fairly and justly in a manner, which should not give to any one any cause of complaint on account of discriminatory treatment or otherwise. While discharging official functions, efforts should be made by State functionaries to ensure that no one is denied the right to earn his livelihood because of the unfair or discriminatory act on their part.

In judgment reported as 2002 PTD 2850, it was held that an act which is established to be mala fide and colourable cannot be regarded as an action in accordance with law and the rights guaranteed under the Constitution. If the act is not reasonable is without any basis and jurisdiction it is always for extraneous and irrelevant consideration and is bound to be struck down being manifestly against the fundamental rights granted in the Constitution.

15.The impugned S.R.O. is also violative of Article 25 of the Constitution as all people are entitled to equal protection of law. The petitioners and respondent No.4 being in the same position are entitled to equal protection of law, but at the same time one cannot be given an edge over the other. They have the right to carry on the lawful business in the atmosphere of open competition:--

In judgment reported in 1999 SCMR 709, it was held that there is power in the legislature and other taxing authority to classify persons or properties into categories and to subject them to different rates of taxes, there is none to target incidence of taxation in such a way that similarly placed persons are dealt with not only dissimilarly but discriminately.

Similarly in judgment reported in 2002 SCMR 312, it was held that functions of judiciary is not to legislate or question the wisdom of Legislature in makinga particular law not it can refuse to enforce law even if the result of it be to nullify its own decision, provided the law is competently made.

In judgment reported in PLD 1997 SC 582, the hon'ble Supreme Court of Pakistan held that Legislature is competent to classify persons or properties into different categories subject rates of taxes . if the same class of property similarly situated is subject to an incidence of taxation, which results in inequality amongst holders of the same kind of property, it is liable to be struck down on account of infringement of fundamental right to equality.

In the present case, there is no reasonable classification, so S.R.O. is violative of Article 25 of the Constitution.

16.The contention that respondent No.4 being located in Peshawar, which is the most affected area, is entitled to extra ordinary facility is not correct. The reason is that in the S.R.O. it has not been provided that this facility has been extended because of terrorism or because of the fact that units located in Peshawar are affected by terrorism. There is nothing to that effect in the impugned S.R.O.

17.Learned counsel for respondent No.4 also submits that respondent No.4 has got no objection if the same facility is given to the petitioners as well. It obviously means that respondent No.4 admits that petitioners and respondent No.4 are equally placed and are in similar position. However, extension of this facility to the petitioners concerns the F.B.R. and the Court cannot pass such an order.

18.As far as S.R.O. 754(I)/2010, dated 9-8-2010 isconcerned,it clearly providesthat income tax exemption was granted on the import of raw material for own consumption of the taxpayers located in the most affected areas of Khyber Pakhtunkhwa as well as moderately affected areas of Khyber Pakhtunkhwa, FATA and PATA. The S.R.O. further provides that it was issued in pursuance of Prime Minister's Fiscal Relief to Rehabilitate Economic Life in Khyber Pakhtunkhwa, FATA and PATA. The authority for issuance of S.R.O. has not been questioned. The only grievance of the petitioners is that Hattar is also an affected area, but this contention cannot be acceded to for the reason that it requires evidence. In addition to that, the Government bifurcated most affected areas moderately affected areas and lesser affected areas, which cannot be questioned for the simple, reason that in writ jurisdiction, this Court cannot step into factual controversies. The legal authority of S.R.O. has not been questioned and nothing has been pointed out to show that the same is violative of any Article of the Constitution.

19.Similarly S.R.O. 342(I)/2010, dated 20th May, 2010 also extends 100% return of Federal Excise Duty to violence affected areas. In such a way, a reasonable classification has been created and a facility has been provided to the affected people. To question the extension of this facility and to hold that the petitioners are similarly placed as other affected people would require evidence, which is not possible in exercise of writ jurisdiction.

20.In view of the aforementioned facts, Writ Petition No.51 of 2011 is accepted and it is held that S.R.O. 1130(I)/2010, dated 13th December, 2010 by virtue of which the area of Hattar has been excluded from the benefits provided in the S.R.O. is unconstitutional, unlawful and therefore, to the extent of exclusion of area of Hattar is struck down. However, by virtue of this order, the facility provided in the said S.R.O. would not stand extended to the area of Hattar. Federal Board of Revenue may extend the same facility to Hattar and other areas if deem proper or in alternative, such facility should not be provided to any one. Writ Petition No.1127 of 2011 to the extent of S.R.O. 1130(I)/2010, dated 13th December, 2010 is allowed and the remaining petition is dismissed. Writ Petition No.224 of 2011 also stands dismissed.

S.A.K./104/IslOrder accordingly.