DEWAN SALMAN FIBRE LTD. VS FEDERATION OF PAKISTAN, through Secretary, M/O Finance, 2015 PTD-ISLAMABAD 2304 (2015)

(a) Good governance---

----Sovereign commitments---Scope---Great importance is attached to government adhering to sovereign commitments made by it, whether in the form of statutory orders or notifications issued by it or in the shape of policies announced by it---Commitment made on behalf of government should neither be lightly disregarded nor deliberately ignored---Orderly development of a civilized society requires that citizens should be entitled to place implicit faith and confidence on representations which are made by or on behalf of duly constituted governmental authorities.

(b) General Clauses Act (X of 1897)---

----S.21---Locus poenitentiae, principle of---Scope---Mere fact that power to withdraw exemption notification exists with government does not necessarily imply that such power should be exercised---Such power cannot be exercised in violation of settled principles of law and it should only be utilized for valid and sufficient reasons and in furtherance of justifiable policy objectives.

(c) Administration of justice--

--What cannot be done directly can also not be done indirectly.

AIR 1949 Privy Council 190; Madden v. Nelson and For Shppeard Respondent Co. 1899 A.C. 626 at P 627 and Dagl Baloch v. Government of Pakistan PLD 1968 SC 313 rel.

(d) Notification--

--Retrospective effect---Principle---Notification which purports to impair an existing or vested right or imposes a new liability or obligation cannot operate retrospectively in absence of legal sanction.

(e) Sales Tax Act (VII of 1990)---

----Ss. 2 (26) (42) & 7 (2)(iv)---Protection of Economic Reforms Act (XII of 1992), S. 6---S.R.O. No.477(1)/1995, dated 14-6-1995---S.R.O. No. 515(1)/95, dated 14-6-1995---Constitution of Pakistan, Art. 199---Law Reforms Ordinance (XII of 1972), S. 3---Intra-court Appeal---Exemptions, withdrawal of---Grievance of appellant company was that exemptions granted by law could not be withdrawn with executive notifications-Validity---If an exemption from payment of excise duty or any other tax was granted for a specified period on certain conditions and if a person had fulfilled those conditions, such person acquired a vested right and he could not be denied the exemption before expiry of such specified period through an executive instrument like a notification but he could be denied his vested right by a legislative provision such as (disputed) amendments in sections 2 and 7 of Sales Tax Act, 1990---Appellant fulfilled all his obligations to avail facility/incentive of exemption from sales tax and there was no fault on its part in discharge of its obligations was made out from record---Appellant established its two units in specified area within the stipulated period i.e. before 30-6-1996 and those units had started production before the target date---When exemption from some tax was matured in a vested right, it could not be subsequently withdrawn through exercise of any executive authority in the garb of notifications and thereafter it could only be withdrawn through legislation---Any excessive amount received by authorities after issuance of disputed notifications was to be refunded to appellant---Division Bench of High Court declared disputed notifications illegal and ineffective on the rights of appellant and set aside judgment passed by Single Judge of High Court---Intra-court appeal was allowed in circumstances.

1998 SCMR 1404; 1992 SCMR 1652; PLD 1997 SC 582; 2009 PTD 1902; 2005 PTD 2505 and 1999 SCMR 1072 rel.

1999 MLD 2994; 2002 PTD 2874; 2000 SCMR 814; PLD 1998 SC 64; 2001 PTD 1; 2011 SCMR 551; PLD 2011 SC 811; PLD 1968 SC 313; 2011 CLC 130; PLD 2011 Kar. 400; 2010 CLD 988; 1982 SCMR 833, PLD 1991 (SC) 546; 1999 SCMR 412 1997 SCMR 641; Al Samrez Enterprises's case 1986 SCMR 1917; (1947 I.K.D. 130) and 1986 SCMR 916 ref.

Sikandar Bashir Mohmamad, Hamid Ahmad, Mustafa Aftab Sherpau, Nasir Mehmood and Mumtaz Niazi for Petitioners.

Hafiz Munawar Iqbal, Mazhar-ul-Haq Hashmi and Anwar Ali Khan for Respondents.

Afnan Karim Kundi, A.A.-G.

Jehangir Khan Jadoon, learned Standing Counsel.

Date of hearing: 10th March, 2015.

JUDGMENT

SHAUKAT AZIZ SIDDIQUI, J.---With this single order we intend to deicide the above titled I.C.A. No.82 of 1997, Writ Petition No.287/1996 and Writ Petition No.1105/1996 as common questions of facts and law are involved in the appeal and writ petitions.

2. Precisely, the necessary facts for the decision of the lis before the court are that the petitioner Dewan Suleman Fibre Limited Company (hereinafter to be referred as DSF) had filed the Writ Petition No.1554/1995 against the respondents alleging that the Federal Government of Pakistan in order to encourage the growth of underdeveloped areas of the country and for the dispersal of industrial undertakings, away from the major urban centers, designed national policy and granted certain incentives in the form of tax exemptions in respect of specified areas. The said exemptions were introduced for national and multinational enterprises to avail the benefit of fiscal incentives by establishing the industrial concerns in the far flung and underdeveloped areas of the country. As per the version of the appellant one such area was Deh Dingi, District Haripur in the NWFP presently KPK and the Government encouraged the establishment of industries in the said area through various fiscal incentives including total exemption from the payment of Sales Tax on finished products and for this purpose it issued S.R.O. No 580(1)/91 dated 27-6-1991 and S.R.O. No 561(1)/94 dated 9-6-1994. That according to the said SROs all goods produced/manufactured by such industries to be established in KPK province up to 30th June 1996 would be exempted from the levy of sales tax payable under the Sales Tax Act for a period of five years from the date of production from the industry; that the appellant set up an industry/undertaking for manufacture of Polyester staple fibre at Haripur NWFP; that Unit No. 1 was set up as joint venture between Mitsubishi Corporation of Japan, Sam Yang Company of Korea and DSF Group of Pakistan representing investment of US$ 100 Mn and it commenced its production in Jan 1992 and accordingly this unit by virtue of S.R.O. No.580(1)/91 was eligible for exemption from the payment of sales tax till December 1996 at the least.

3. That like-wise Unit No. 2 of the petitioner company was established as joint venture amongst the aforementioned companies at similar cost and it commenced production on 14 June 1995 and thereafter, it was eligible for sales tax exemption on the basis of supra SRO read with the Protection of Economic Reforms Act, 1992 least till 14-6-2000. Appellant challenged the legality of S.R.O. No. 477(1)/1995 dated 14-6-1995 by virtue of which the respondents imposed the Central Excise Duty @ 5% ad volerum on polyester Stable Fiber manufactured by appellant company and through S.R.O. 515(1)/95 dated 14-6-1995 it reduced the sales tax from 15% to 10% for extraneous reasons as the appellant were absolutely exempted from the payment of sales tax and reducing the quantum of sales tax was not any benefit to the appellant, whereas appellant was bound-down to pay the Central Excise Duty @ 5%.

Through Writ Petition No. 287/1996 petitioner who is the appellant in ICA has narrated the same facts and has disputed the legality of S.R.O. No. 482(1)/92 dated 14-5-1992 on the ground that through the disputed SRO the respondents reduced the target date by two years i.e. from 30-6-1996 it was curtailed to 30-6-1994 for the establishment of the industrial units in the specific area to claim the absolute exemption from the sales tax. Petitioner claims that respondents cannot subsequently curtail the target date and fix it as 30-6-1994. Through this writ petition the appellant has prayed that the disputed SRO be declared as null and void and respondents be directed to refund the amounts which they have received under the said SRO.

5. Through Writ Petition No. 1105/1996 the petitioner/appellant have challenged the legality of the amendments made in clauses 26 and 42 of Section of 2 and Clause IV of Subsection (2) of Section 7 of Sales Tax Act on the ground that these amendments have been introduced to deprive the petitioner from exemption of sales tax with mala fide intentions and again these amendments are against the mandate of Section 6 of the Protection of Economic Reforms Act, 1992. It is further maintained that the above referred amendments are prospective and cannot be made to affect the rights of exemption of the petitioner retrospectively. Petitioner has alleged that before these amendments Section 7(2)(iv) read as follows:--

7(2) the registered person shall not be entitled to conduct input tax from output tax unless:-

(iv) in case of purchase of goods from a registered person making and exempted supply, he holds and invoice issued by such person"

And after amendments it reads as follows;-

"7(2)

(iv) In case of tax supplied of goods by registered importer the distributor or whole seller not charging output tax on supply of these goods to other registered persons. The latter holds replacement invoice indicating the amount of paid at the stage of import or supply by manufacturer".

The petitioner has further alleged that the subject of the replacement invoice has been introduced through clause 26 of Section 2 which reads as under.

"Replacement of invoice means a document required to be issued by registered importer, distributor, and whole seller not charging output tax supplies made by them"

Petitioner further alleged that the tax supplies has been introduced through the amendment in clause 42 which reads as under:--

"Tax supply means a supply of goods by registered importers, distributor or whole seller on which tax has been paid at the stage of import or supply by manufacturer and no further out put tax is payable throughout at the time of supply thereof by such importer, distributor or whole seller."

6. Petitioner has challenged the above referred amendments on the ground that the investment incentives/exemption, granted to the petitioner was time bound as the exemption of sales tax for Unit No. 1 was up to December 1996 and for Unit No. 2 it was upto 14-6-2000; that petitioner had made a huge investment and incurred extra huge expenses for putting out the plant in the area of Village Dingi District Haripur KPK on the basis of investment incentives as promised and assured by the State of Pakistan. That this investment incentive/ exemption had become the property of the petitioner and no law can be made to deprive the petitioner of his property right under the Constitution save in accordance with law; that Section 6 of the Protection of the Economic Reform Act, 1992 provides that fiscal incentives for investment provided by the Government through statutory orders enlisted in the schedule for the terms specified therein and shall not be altered to the disadvantage of investors. It is further alleged by the petitioner that the disputed amendments have been made against the guarantees provided in the Section 6 of the Protection of the Economic Reform Act, 1992.

7. Learned Single Judge of Lahore High Court, Rawalpindi Bench, dismissed the said writ petition of appellant through its order Dated 29-5-1996 and the appellants have challenged the said order through the ICA under section 3 of the Law Reforms Ordinance, 1972 on the grounds that the respondents were not authorized to do that indirectly which they were not authorized to do directly; that by virtue of S.R.O. No. 580(I)/91 dated 27-6-1991 and S.R.O. 561(I)/94 dated 9-6-1994, the appellant was to enjoy the total exemption of the payment of sales tax for a period of five years from the date of the start of production from his industrial units established in the specified area. The learned counsel for the appellant has argued that the rival industrial groups were devising plans to deprive the appellant from the exemption of sales tax and for this purpose they managed the reduction of sales tax from 15% to 10% and supplemented the said reduction in the sales tax by imposing the Central Excise Duty 0 5%. This imposition of 5% of the Central Excise Duty did not affect the industrial concerns who had already been paying the sales tax 0 15% and they continued to pay the same Duty with the imposition of 5% Central Excise Duty but as the petitioner was absolutely exempted from the payment of sales tax he was forced to pay the 5% Central Excise Duty. The learned counsel has further argued that as per the principle of promissory estoppel the respondents were not authorized to curtail the exemption of 5 years and the reduction of sales tax to 10% and the imposition of 5% Central Excise Duty was result of mala fide and in violation of the mandate of the Protection of Economic Reform Act, 1992; that the disputed S.R.O. dated 14-6-1995 are in direct conflict with the Section 6 of the Protection of Economic Reform Act, 1992. These arguments were supplemented with case-laws reported as "1998 SCMR 1404", "1992 SCMR 1652". "PLD 1997 SC 582", "2009 PTD 1902", "2005 PTD 2505", "1999 MILD 2994", "2002 PTD 2874", "2000 SCMR 814", "1999 SCMR 1072", "PLD 1998 SC 64", "2001 PTD 1", "2011 SCMR 551", "PLD 2011 SC 811", "PLD 1968 SC 313" "2011 CLC 130", "PLD 2011 Karachi 400" and "2010 CLD 988".

8. Respondents through Para-wise comments have denied the claim of the petitioner/appellant and prayed for dismissal of the ICA and the writ petitions. Respondents have alleged that the notification through which Central Excite Duty has been enforced has caused no loss to the petitioner, that the said duty is indirect tax and is ultimately passed on to the consumer, therefore, the profitability of the petitioner enjoyed by them as result of concession, remained unchanged. That even the SRO under which the impugned notification was issued are legislative in nature and in the exercise of the legislative powers the question of mala fide, penalty or motive becomes irrelevant; that the subject of the exemption with reference to taxation pre-supposes a liability, therefore the exemption always constitute a temporary immunity from the liability and non-exercise by the respondents of their statutory functions at given time does not create any vested right to the petitioner to be exempted from the payment of tax ipso-facto when such tax are enforced at later stage or exemption is withdrawn; that even if it is said that exemption was granted by the Federal Government even then its withdrawal by legislative through Finance sector is legal but Federal Executive authority which enjoys a delegated legislative power within the framework of Sales Tax Act cannot fetter, surrender, limit or curtail the Federal Legislative powers as such; that no harm has been done to the petitioner through the impugned notification or the amendments in the Sales Tax Act and that the instant petition of the petitioner/appellant is liable to be dismissed.

9. Learned counsel for respondents has contended that petitioner/ appellant claimed that his factory is situated in the village Dingi District Haripur and it stands exempted from the payment of sales Tax on the finished products but the petitioner cannot claim that it has concealed the project depending upon the presentation of government in shape of exemption on raw material. The learned counsel argued that the petitioner company was incorporated in 1989 and at that time S.R.O. 529(I)/88 dated 26-6-1988 was in existence. That the petitioner could not have concealed that another S.R.O. 580(I)/91 dated 27-6-1991 would be issued. That the petitioner company had not envisaged production from Unit No. 1, till May, 1992 and till had not acted on S.R,O. 529(1)/88 which was applicable to the industrial setup by 30-6-1991, therefore, the petitioner cannot take advantage of it. That the production in Unit No. 1 commenced in the year 1990 i.e. before the issuance of S.R.O. 580(1)/91 and therefore it did not deserve the exemption granted through the said notification. That in fact under the said notification the stipulated ' exemption from payment of sale tax was at the time of clearance of finished goods (output tax) for a period of five years after the unit was setup. The learned counsel has further argued that the learned single Judge in chamber had rightly dismissed the Writ petition of the appellant and the said order does not call for any interference. The learned counsel has further argued that the Writ Petition No. 287/96 whereby the S.R.O. 482(1)/92 dated 14-5-1992 has been challenged is at all not maintainable as the said S.R.O. has been issued in accordance with the authority envisaged in the respondents. The learned counsel has further argued that the petitioner has no locus standi to challenge the amendments made in section 7 and section 2 of the Sales Tax Act, as the Act provides that inputs are to be claimed only by those Units who were' not enjoying exemptions, therefore, the petitioner cannot claim the benefit of getting adjustments of the input tax without payment of output tax. The learned counsel has prayed that the appeal along with both the writ petitions should be dismissed. Learned counsel has supplemented his arguments with the case-law 1982 SCMR 833, PLD 1991 (SC) 546, 1999 SCMR 412 and 1997 SCMR 641.

Arguments heard record perused.

10. DSF is a public limited company which is listed on the Stock Exchange. It represents a joint venture between the Dewan Group of Pakistan, Mistubishi Corporation of Japan and Sam Yang Company limited of Korea. This collaboration led to the setting up of the DSF which constructed a major polyester fibre producing plant, located in Deh Dingi District Haripur Frontier Province. It represents a major trilateral investment on the part of all three participants. The project was conceived in 1990 when a joint venture agreement was executed on February 14, 1990. It intended to utilize the latest technology which was to be introduced into the country. The project cost was US $ 100 Mn each for both Units. At the time the project was conceived a sales tax exemption had been granted to all industries set up in NWFP vide S.R.O. 529(I)/88 dated 26-6-1988. The exemption was originally available for all projects set up by June 30, 1991 but by means of S.R.O. 500(1)/91 dated 14-6-1993 was subsequently extended to June 30, 1996. The project came into production in December 1991.

11. A radical change in relation to the fiscal duty structure, was introduced by means of S.R.O. 482(1)/92 dated 14-5-1992 at the time of the 1992 budget in terms of which 12.5 percent sales tax was imposed on the import of major raw materials (i.e. PTA and MEG) for the manufacture of polyester staple fibre. The impact of this imposition fell principally on DSF. The reason arises out of the fact that sales tax already existed on the finished product (i.e. polyester Staple Fibre) in relation to the other major manufacturers who are not located in economically under developed areas like NWFP. The levy of sales tax is structured in such a manner that any producer who pays sales tax on the import of raw materials is entitled to a corresponding adjustment or deduction at the time he sells the finished product. Since DSF is not liable to sales tax on the finished product because of the exemption notification, it necessarily follows that .no question of an adjustment arises in its case and in consequence it is burdened with the additional duty. The net result therefore is that the exemption granted to it earlier stood diluted to a corresponding extent of about 50%. It is this dilution or partial withdrawal which led directly to the present dispute.

12. DSF selected the far off area of Deh Dingi a rural area of NWFP for the project in the expectation of utilizing the various fiscal benefits provided by the Government of Pakistan. These included an income tax holiday, custom duty exemption as well as the disputed exemption of sales tax at the rate of 12.5%. The feasibility proposal for the project states at page 13 that Central Excise Duty and other taxes are shown as zero. The decision to locate the project in Deh Dingi involved a heavy additional capital cost. It is obvious that in order to attract a high level of managerial expertise for a project based in a comparatively remote rural area, extra facilities have to be provided for this purpose. These have involved the construction of executive and staff families accommodation, the construction of a primary school, a shopping center and a mosque, in addition to the factory building, a bank terminal at Deh Dingi was also constructed in addition to a power house. It appears that a power house is required in order to obtain a consistent supply of power. The lack of an infrastructure meant that even roads had to be constructed by DSF. A break of the additional costs, incurred has been provided millions of rupees. Apart from the extra capital cost there is an additional recurring cost. Computed on an annual basis DSF estimates, that the transportation of the raw materials involve a recurring cost of Rs. 54 Million per annum, the transpiration of the finished goods Rs. 12.5 Million per annum and the various additional running expenses those for school as well as hospital construction by DSF. The concern and anxiety of the DSF is that after having made this massive investment both initially as well as on recurring basis, the decision of the CBR to abruptly withdraw the benefit of the exemption in part, has had a major impact on it But for the exemption granted, there was no reason for DSF to have located its project in such a remote area. At this later stage within the span of few months after the project had gone into operation instead of the benefit of the exemption being made available for five years it was abruptly curtailed by the issuance of the impugned notification.

13. The concern and anxiety expressed by DSF have been supported by the Japanese Government. DSF has placed reliance on a letter dated October 18th 1992 sent by the. Ambassador of Japan to the CBR expressing his concern lest this problem detract between our two countries. The letter concludes by expressing the hope that a satisfactory solution would be found to the problem which would encourage the prospective investors planning to invest in Pakistan in the near future. The Japan Chamber of Commerce and Industry is also on record expressing its deep anxiety. It has written a letter dated June 8th, 1992 to the Government of Pakistan which states as this joint venture project is regarded as one of the most ideal and monumental investment from Japan to Pakistan and all Japanese potential investor are carefully watching its progress, therefore Japan Chamber of Commerce and Industry is showing grave concern to this matter and asking him to clarify if this withdrawal of major incentives mean change of the investment policy of the Government of Pakistani The letter goes on to state that success of this venture will have a great impact on the future direct investment from Japan. It expresses the concern that this kind of inconsistency of the policy of the Government of Pakistan will damage credibility of its policy and ruin all the efforts made to induce foreign investment.

14. We now turn to the stand of the CBR. We have dilated at length on the merits of the submissions. We have also noted that the Central Board of Revenue is essentially a revenue collecting agency. Its central function is to collect revenues for the public exchequer and it is understandable that any proposal which leads to an enhancement in taxes should be viewed by it in a favorable light. Although no doubt, the CBR is required to be fair in the framing of fiscal policy it is clear that a perception of its predominant function is such as will not necessarily lead, in every case, to a structuring of fiscal levies on broader policy considerations. It is under a statutory mandate to advise the Government on the structure of tariff and duties. In the present case it formulated its views and forwarded them to the Ministry of Finance which accepted them at least in relation to the levy of duty on the raw materials. Thereafter for unexplained reasons the CBR adopted a completely different stand. We do not intend by so observing, to criticize the CBR. It may be that there were valid reasons for its stand. It is precisely for this reason that it is advisable for different government departments to co-ordinate their functioning. Orderly governmental procedures do require that decisions taken by responsible and highly placed functionaries of the state should not be disregarded without compelling reasons. No such reasons have been brought to our notice in the present case.

15. We now turn to the legal issues arising in the case. The first question of which our opinion has been sought originally reads as under:--

"Whether the fiscal incentives provided through sales tax on fibre precluded imposition of Sales Tax on the import of its raw material within the meaning of Protection of Economic Reform Act, 1992.

This was subsequently substituted by following question;-

Whether the Central Board of Revenue was justified in law or in equity in imposing the Sales tax on the import of raw material by the company?

As is obvious the scope of the question has been expanded in two directions firstly it is no longer tied only to the ambit of the Protection of Economic Reform Act, 1992 and secondly it also extends to consideration of equity as well as law.

16. Although the importance and significance of the Protection of Economic Reform Act, 1992 has diminished by reason of the amended question, it still requires consideration. The Act, as the name indicates, primarily relates to the protection, of various economic reforms. The concept of economic reforms is elucidated in section 2(b) as meaning economic policies and program, laws and regulations announced promulgated and implemented by the Government on or after 7th November, 1990 relating to privatization of public sector enterprises and nationalized banks, promotion of savings and investments, introduction of fiscal incentives for industrialization and deregulation of investment of banking, finance, exchange and payments systems and holding and transfers of currencies. Section 3 of the Act states that it shall have effect notwithstanding anything contained in any other law for the time being in force. Sections 4 and 5 relates to foreign currency accounts. Section 7 relates to companies which have been privatized; Section 8 relates to the protection of foreign and Pakistan investors and Section 9 relates to secrecy of banking transactions. The two sections which may be perused are sections 6 and 10 which reproduced below:--

Section 6.---Protection of fiscal incentives for setting up of industries. The fiscal incentives for investment provided by the Government through the statutory orders listed in the schedule or otherwise notified shall continue in force for the terms specified therein and shall not be altered to the disadvantage of the investors.

Section 10.---Protection of Financial obligations. All financial obligations incurred, including any instrument, or any financial contractual commitment made by or on behalf of the Government shall continue and remain in force and shall not be altered to the disadvantage of the beneficiaries.

17. It has been contended before us that the definition of economic reforms relates exclusively to those reforms which were carried out after 7th November, 1990 and accordingly the Act has no applicability whatsoever in the present case. The arguments is misconceived since admittedly S.R.O. No.500(I)/91 dated 22-6-1991 which is the notification under which the exemption was granted to DSF was issued after 7th of November 1990. It is true that original notification bearing S.R.O. No. 529(1)/88 was issued in 1988 but since the exemption in question was granted to DSF under the latter and not the earlier notification. In the case of Al-Samrez Enterprises (1986 SCMR 1917) the Supreme Court dealt with a case in which an importer had imported a consignment of goods on the basis of an exemption notification which was in force on the date on which he entered into a contract with his foreign suppliers. When the consignment arrived at Karachi, the exemption had been withdrawn. Under Section 30 of the Custom Act, 1969 it has been clearly provided that the rate of duty applicable will be that prevailing on the date on which the bill of entry is filled by an importer. Accordingly, the Customs Department refused to allow the importer the benefit of the exemption. The importer challenged this decision and ultimately succeeded before the Supreme Court which held as under:--

"All these facts which occurred prior to the date of the amended notification issued on 11th June 1977 clearly established that the appellants had acquired a vested right to the exemption under the prior notification applicable at that time. These acts including the contractual commitments made by them were done on the assurance contained in the prior notification extending the exemption from the payment of duty. Indeed it is well settled that tax exemptions are founded on public policy such as the encouragement of manufacturing and other industries or trades. They are granted on the theory that they will benefit the public generally or are awarded as compensation for services rendered the performance of some function deemed socially desirable. Therefore, the exemption notification is basically addressed 'to public at large or in any case to prospective importers. It will be inequitable and unjust to deprive a person who acts upon such assurance of the right to exemption and expose him to unforeseen loss in the business transaction by suddenly withdrawing the exemption after he has made legal commitment."

18. The principles of promissory estoppels although originally laid down in England in the High Trees Case (1947 I.K.D. 130) as far back as 1946 in a classic judgment given by Lord Denning, have been significantly developed and expanded over the years. The Supreme Court of Pakistan has taken due note of the developments of these principles both in India and elsewhere and made them an integral part of the law of Pakistan in a number of decisions, reliance in this regard is placed on (1986 SCMR 916 and PLD 1991 SC 546). The principles of vested rights and promissory estoppels which march hand in hand, constitute a major bulwark in the development extension and protection of the rights of citizen in any civilized policy. They have not been given effect of statutory recognition and protection by the protection of Economic Reform Act, 1992. They are in our opinion to be borne in the present case also.

19. We lay great stress on the impotence of the Government adhering to sovereign commitments made by it, whether in the form of the statutory orders or notification issued by it or in the shape of policies announced by it. The commitments made on behalf of the Government of the Islamic Republic of Pakistan should neither be lightly disregarded nor deliberately ignored. The orderly development of a civilized society requires that citizens should be entitled to place implicit faith and confidence on representations which are made by or on behalf of the duly constituted governmental authorities. The importance of this underlies the sustained thrust towards the industrialization of the country in which both the nationals of Pakistan as well as nationals of foreign countries should have complete confidence that official commitments will be duly honored and acted upon in letter and spirit.

20. On a broader plane pertaining to the merits of the case there is one fundamental aspect of the matter which needs to be stressed. Every manufacturer has a choice at the point in time when he seeks to locate his project. He can neither do so in a well-developed location. He thereupon obtains the very substantial financial advantages of a developed infrastructure, availability of qualified staff, low transportation costs both for the input of raw materials and the output of finished goods as well as the other entire incidental or ancillary advantages which flow from a developed location. The price that he must pay for this however is that he obtains no fiscal or duty advantages other than those which are common to the country as a whole. As against this if he chooses to get to a remote or under developed location he gets the benefit of area specific fiscal incentives which have been designed precisely in order to persuade him to forego the advantages of a developed location and attempt to surmount the disadvantages at a lack of infrastructure, lack of qualified staff, high transpiration expenses and other ancillary costs. The disadvantages are dual, firstly there is the higher level of initial investment and secondly there is a continuing level of recurring costs which are substantially higher. It is obvious that there is a substantially higher cost structure which is operative in its case. It can be seen therefore that there is essentially a trade off in which a manufacturer can either select a low level of costs and a high level of duties or vice versa. This choice has to be made by each manufacturer for him. No manufacturer can have the best of both worlds. In the present case, Rupali have now opted for the fiscal advantage of a sales tax exemption by locating their new project for polyester filament yarn in Azad Kashmir PSL and have chosen an intermediate location in Hub in terms of which they have obtained some, but not all of the fiscal advantages that they could have enjoyed, if for example they had travelled further to Azad Kashmir, NFL have announced that they propose to locate their new project not in the comparatively developed area of Hub in Balochistan but in Wider, where they will be entitled to full benefits of all the exemption which exist for NWFP. It appears to us therefore that the protests so vehemently urged by some of the manufacturers are not really justified on the factual plane.

21. As we have pointed out in the above, the scope and ambit of the first question is extremely wide. It covers both the legal as well as the equitable aspects of the case. On the strictly legal plane we have enumerated in the above paragraphs the principles of vested rights and promissory estoppel. These principles have now been, in effect, accorded statutory recognition as well. The underlying thrust of these principles really tests on the concept that it would be unconscionable for governmental authorities to induce persons to act on the basis of their recommendations and thereafter to resile therefrom. Any arbitrary act which is antithetical to these basic principles is liable to be assailed.

22. In the present case a massive investment was made by DSF in the remote and far off area of Deh Dingi. There was, and indeed could not be, any other motive for setting up the project there than to obtain the benefits of the fiscal incentives published by the Government. These incentives were given for the benefit of DSF alone but for the accelerated development of NWFP as a whole. By locating the project at Deh Dingi, DSF has significantly contributed to the uplift of the backward region of Deh Dingiin NWFP. This not only meets with the Government's objective of balanced region at growth through dispersal of Industries to less developed area but will also stimulate the growth of other industries in the area including downstream industries. Any dilution of these incentives, either directly or indirectly is clearly undesirable.

It may be noted that the incentives have a fixed span of time to run i.e. 05 years no reason whatsoever has been advanced before us by the representatives of the CBR to justify the arbitrary curtailment of this period. Indeed the only argument put forward by them is to assert their right to do so.

23. The legal right of the Government to grant or withdraw an exemption notification is not in question. Section 21 of the General Clauses Act, although not relied upon by the CBR is explicit on the point. It stipulates that any statutory body authorized to issue a notification can also withdraw the same. This section has often been relied upon (although unsuccessfully) by the Government in contesting the applicability of the principles of vested rights and promissory estopple. The essential point can be stated quite simply. There is a fundamental distinction between the existence of a legal power and the justification for use of the same. The mere fact that a power to withdraw an exemption notification exists with the Government does not necessarily imply that power should be exercised. In any event it cannot be exercised in violation of the principles enunciated in the above. It should only be utilized for valid and sufficient reasons and in the furtherance of justifiable policy objectives. No such policy objectives have been brought to our notice. Indeed the policy desiderates, uniformly point in the opposite direction.

24. We have seen the deep concern and anxiety evident by the Government of Japan which is a major aid donor to Pakistan. We have also noticed the alarm expressed by the Korean Government. The Ministry of Industries has also expressed its dissent from the impugned policy. The National Tariff Commission, in its presentation, has also adversely commented on the change in policy. The Pakistan ambassadors in Japan and Korea have opposed it, as have their counterparts in Pakistan.

25. We have also noted that the impact of the new policy falls adversely on one company and one company alone, namely, DSF there does not seem to be any justification for this other than the vehement opposition of the other manufacturers whose arguments we have separately discussed in the above.

There is one additional argument raised on behalf of the CBR which we would like to comment upon. It has been asserted that the exemption notification has been left intact and Sales Tax has been imposed by means of separate notification on the import of raw materials. This is correct in literal sense, but substantively it has not been disputed and nor indeed can it possibly be disputed that the affect is to dramatically cut down the scope of the exemptions.

26. There is no other conceivable reason for the imposition of this levy but to cut down the entitlement of DSF. This policy decision is therefore tailored, made to have an exclusive impact on one company alone and to substantively undo the benefit conferred on it under the exemption notification. On the plane of principle surely this is open to question. The imposition of the levy on raw materials seeks to do indirectly, what clearly could not have been achieved or justified directly. On the narrower legal plane, our comment on this is that the rule of law is what cannot be done directly can also not be done indirectly. There are numerous legal decisions on this point (See for example AIR 1949 Privy Council 190 in which reliance was placed on "an established rule of construction in such cases, viz, that regard must had to be substance and not to the mere form of the enactment, so that you cannot do that indirectly which you are prohibited from doing directly (per Lord Hallsbury in Madden v. Nelson and For Shppeard Respondent Co. 1899 A.0 626 at P 627. Similarly, in the case of Dagl Baloch v. Government of Pakistan (PLD 1968 SC 313) the Supreme Court observed that "what cannot be done directly cannot be allowed to be done indirectly". On the wider plane, both of laws, as well as equity on which we lay it have concerns ,about the governmental commission providing, a stable and favorable economic environment both domestically as well as abroad on continuing basis. It has created uncertainty in the minds of the potential investor from whom the Government wishes to attract to the under developed regions of the country. It has no doubt pleased a small but vocal lobby, consisting of the other manufacturers within the polyester fibre Industry. But that is all. We consider that the disadvantages of the policy clearly outweigh the advantages and the first issue is answered accordingly.

27. We turn now to the second issue. This requires us to determine the impact of the impugned levy on the profitability or viability of the project. Since DSF's investment is larger, its burden of debt servicing is higher, its recurring costs are significantly greater, it would follow that if the other procedures are facing an acute financial crisis of potentially devastating dimensions. DSF's position would be still worse. However, as we have clarified in the above, we have viewed these extreme statements made by the other manufacturers with a measure of skepticism. We consider that they are more reflective of an excess of competitive zeal than a dispassionate relationship to reality. We are not convinced therefore that the result of the levy is necessarily disastrous in the case of DSF. We accept that it is likely to have a severe adverse effect on its profitability, but on the existing state of the record, it is not possible for us to quantify this. But even this, in our opinion is sufficient to call for remedial measures. In the case of Motilal Sugar Mills this specific aspect of the matter was also discussed by the Indian Supreme Court as the following extract from the judgment reads.

"The State however, contended that the doctrine of promissory estoppels had no application in the present case because the appellant did not suffer any detriment by 'acting on the representation made by the Government, the vanospati factory set up by the appellant was quite a profitable concern and there was no prejudice caused to the appellant. This contention of the State is clearly unsustainable and must be rejected. We do not think it is, necessary, in order to attract the applicability of the doctrine of promissory estoppels, the promised should suffer any detriment. What is necessary is only that the promise should have altered his position in reliance on the promise."

28. It is to be observed that the notifications through which the exemption of sales tax was granted to the appellant were time bound. If the notification would have not been time bound, then the government would have been within its legal right to withdraw the said notification and that withdrawal should have been retrospective. The power to issue notification includes the power to withdraw said notification but this power should not have been exercised arbitrarily to defeat the expressed promise made by the government to invite the investment in the country. This act of the concerned authorities amounts to discourage the interested investors. It is settled law that a notification which purports to impair an existing or vested right or imposes a new liability or obligation, cannot operate retrospectively in, the absence of legal sanction. It is also settled proposition of law that if an exemption from payment of excise duty or any other Tax has been granted for a specified period on certain conditions and if a person fulfills those conditions, he acquires a vested right, he cannot be denied the exemption before the expiry of the, specified period through an executive instrument like a notification but he can be denied his vested right by a legislative provision such as the disputed amendments in section 2 and section 7 of the Sales Tax Act. In the case in hand, the available material establish that the petitioner/ appellant had fulfilled all his obligations to avail the facility/incentive of exemption from sales tax and no fault on his part in the discharge of his obligations is made out from the record. The appellant had established both Units in the specified area within the stipulated period i.e. before 30-6-1996 and those Units had started production before the target date.

29. There is a chain of case-laws on the subject that when the exemption from some tax has matured in a vested legal right it cannot be subsequently withdrawn through the exercise of any executive authority in the garb of notifications and thereafter it can only be withdrawn through the legislation. Therefore, any excessive amount received by the respondents after the issuance of disputed notifications is to be refunded to the appellant/petitioner. Reference can be made to the case of Messrs MY-Electronics Industries (Pvt.) v. Government of Pakistan (1998 SCMR 1404), Messrs Army Welfare Sugar Mills v. Federation of Pakistan (1992 SCMR 1652), Messrs Elahi Cotton Mills (Pvt.) v. Federation of Pakistan (PLD 1997 SC 582), Ibrahim Fibre Limited v. Collector of Custom (2009 PTD 1902), Al-Hamra Industries v. Federation of Pakistan (2005 PTD 2505), Getron Industries v. Government of Pakistan (1999 SCMR 1072) and Messrs Pfizer Laboratorie4 v. Federation of Pakistan (PLD 1999 SC 64).

30. Having considered the respective contentions of the parties from all possible angles, we are of the considered opinion that the impugned order of the learned single Judge in chamber whereby it dismissed the Writ petition of the appellant is not sustainable, therefore, the appeal in hand is liable to be accepted. As far as the Writ Petition No. 287/96 is concerned it will also succeed on the strength of above quoted reasoning as the respondents were not authorized to curtail the target date of the establishment of the industrial concerns in the specified area by two years. On the other hand the petitioner has absolutely failed to point out that the disputed, amendments in the Sales Tax Act are against the Constitution and designated to discriminate the petitioner. The State functionaries cannot be allowed to back out from the concessions granted and the incentives promised to the investors for inviting the investment in the country and especially in the far flung and underdeveloped areas of the country but there is no restriction on the rights of the legislature to exercise its power of legislation within the mandate of the Constitution. The petitioner has failed to make out the case to set aside the impugned amendments.

31. The crux of the above discussion is that the Intra-court appeal along with the Writ Petition No.287/96 are hereby accepted and the impugned S.R.Os. are declared illegal and ineffective qua the rights of the appellant whereas the Writ Petition No.1105/96 is hereby dismissed. Parties are left to bear their own cost. Files be consigned to record room.

MH/69/IslAppeal allowed.