KARIM CONTAINERS (PVT.) LTD. VS FEDERATION OF PAKISTAN through Secretary, Ministry of Finance, Islamabad, 2017 PTD-KARACHI-HIGH-COURT-SINDH 1085 (2016)

Central Excises and Salt Tax Act (I of 1944)---

---S. 33---Sales Tax Act (III of 1951), S. 2(11)---Notification S.R.O. No. 555(I)/79, dated 28-06-1979---Sales tax, levy of---Petitioners claimed to have fabricated metal tin containers for packing vegetable ghee and tin-tops and bottoms for combi-cans for washing powders---Assessing officer imposed recovery of Central Excise Duty and Sales Tax, which order was maintained by Appellate authority as well as Provincial Government---Validity---Action of assessing officer in imposing Sales Tax on petitioners was within his jurisdiction who had petitioners as manufacturer in respect of items manufactured by them as manufactured items fell under category of 'exempt items' under the Notification S.R.O. No. 555(I)/79, dated 28-06-1979 therefore, no Central Excise Duty could be imposed by authorities upon petitioners---High Court declared imposition of Central Excise Duty to be illegal and deleted the same---Constitutional petition was allowed accordingly.

Collector of Customs, Model Customs Collectorate of Paccs, Karachi v. Messrs Kapron Overseas Supplies Co. (Pvt.) Ltd. Karachi 2010 PTD 465; Isman Drug House Ltd. v. A.C. Customs, Airport, Lahore 1988 CLC 313; Pakistan Oxygen Limited v. Pakistan Through The Secretary, Ministry of Finance, Islamabad and others 1991 PTD 472; The Commissioner of Income-Tax, East Pakistan v. Messrs Ayurvedic Pharmacy (Dacca) Ltd. PLD 1970 SC 93; Government of Punjab v. Zia Ullah Khan and others 1992 SCMR 603; Messrs Souvenir Tobacco Co. Ltd. v. Collector (Adjudication), Rawalpindi 2004 PTD (Trib.) 1328; Messrs Sarwar & Co. (Pvt.) Ltd. v. Customs, Central Excise and Sales Tax, Appellate Tribunal, Lahore and another 2006 PTD 162 and Pakistan Oxygen Ltd. v. Pakistan and others 1992 PTD 1000 ref.

Syed Irtaza Hussain Zaidi for Petitioner.

Muhammad Javed K.K., for Respondent No.1.

Syed Irshad-ur-Rehman for Respondents Nos.2 to 4.

Arshad Siraj Memon, Amicus Curiae.

Dates of hearing: 1st, 6th and 27th April, 2016.

JUDGMENT

IRFAN SAADAT KHAN, J.---The instant petition has been filed with the following prayer:--

"i.to set aside the impugned order dated 19.9.89, 1.12.90 and 30.9.1991 (as passed by the Respondent and affirmed in appeal and in Revision) in its entirety and in toto, declaring it and the demand therein to be illegal and of no legal effect;

ii.to issue consequential orders and directions to the Respondent and all other authorities/officers acting, operating or proceeding under the Central Excises and Salt Act, 1944, and/or rules made thereunder or under the Sales Tax Act, 1951, and the rules made thereunder from acting on or enforcing the impugned orders, or any of them, and from making any demand or realizing any part thereof, or acting or taking any coercive action, for the said realization under the purported exercise of authority in any manner whatsoever;

iii.to allow costs of this petition to the Petitioners;

iv.to grant such other/further/additional relief or reliefs, order or orders, direction or direction, as this Hon'ble Court may feel disposed or otherwise consider appropriate in or about the facts and circumstances of the case."

2.Briefly stated, the facts of the case are that during the period under consideration the petitioners claim to have fabricated metal tin-containers for packing vegetable ghee and tin (metallic) tops and bottoms for combicans (being card-board cylinder) for Vim Powder for Messrs Lever Brothers Pakistan Limited (LBPL). The Assistant Collector (A.C), Customs and Sales Tax Department, issued a show cause notice dated 24.5.1989 requiring from the petitioners as to why Central Excise Duty (CED) and Sales Tax (S.T) amounting to Rs.1,14,357.40 and Rs.55,27,228.35 respectively may not be recovered from them since they are engaged in the manufacturing of Metal Tin-Containers and Card-Board Cylinder. A reply dated 14.6.1989 to the said show cause notice was given by the petitioners mentioning thereunder that since they have only fabricated the items for their customer LBPL hence they could not be termed as manufacturer of these items hence the demand of the CED and S.T. from them by the A.C. was uncalled for. After hearing the representative of the petitioners on 17.8.1989, Order-in-Original bearing No.101 of 1989 was passed by the A.C. whereby the petitioners were directed to pay the above mentioned demands within a period of thirty days since the petitioners were found to be engaged in the manufacturing of the metal tin-containers and card-board cylinders, however, no penalty was imposed upon them. Being aggrieved with this order, Customs Order-in-Appeal No.132 of 1990 was filed before the Collector (Appeals) who vide his order dated 1.12.1990 upheld the Order-in-Original passed by the A.C. Being aggrieved with the Order-in-Appeal passed by the Collector (Appeals) a revision bearing No.349 of 1991 was filed before the Additional Secretary, Government of Pakistan, Custom House, Karachi, who also vide his order dated 30.9.1991 upheld the orders passed by the two authorities below. It is against these orders of the A.C., Collector (Appeals) and the Additional Secretary that the present petition has been filed.

3.Syed Irtaza Hussain Zaidi Advocate has appeared on behalf of the petitioners and submitted that the petitioners were only a fabricator of the metal tin-containers and card-board cylinders and were not a manufacturer. He stated that a person fabricating an item could not be considered to be a manufacturer, as per the relevant provisions of the law. The learned counsel further stated that the show cause notice issued by the A.C. dated 24.5.1989 was without jurisdiction since the A.C. has no jurisdiction to deal with the issue in hand. He submitted that since the show cause notice issued by A.C. was coram-non-judice, all the proceedings initiated thereafter against the petitioners are non est in the eye of law hence the petition may be allowed by declaring said show cause notice to be without jurisdiction and without legal and lawful authority. The learned counsel further submitted that the department itself was not sure about the imposition of CED & S.T. as the Collector (Appeals) while deciding the appeal has opined that the LBPL can claim refund in respect of the duty/tax paid by them on their products by way of tax adjustment from the respective Collectorate. Hence, according to him no duty/tax could be recovered by the department when the department itself was not sure as to who has to bear the brunt of the CED & S.T. imposed by them. In support of his above contention the learned counsel has relied upon the following judgments:-

1.Collector of Customs, Model Customs Collectorate of Paccs, Karachi v. Messrs Kapron Overseas Supplies Co. (Pvt.) Ltd. Karachi (2010 PTD 465)

2.Isman Drug House Ltd. v. A.C. Customs, Airport, Lahore (1988 CLC 313)

3.Pakistan Oxygen Limited v. Pakistan Through The Secretary, Ministry of Finance, Islamabad and others (1991 PTD 472)

4.The Commissioner of Income-Tax, East Pakistan v. Messrs Ayurvedic Pharmacy (Dacca) Ltd. (PLD 1970 SC 93)

5.Government of Punjab v. Zia Ullah Khan and others (1992 SCMR 603)

6.Messrs Souvenir Tobacco Co. Ltd. v. Collector (Adjudication), Rawalpindi (2004 PTD (Trib.) 1328)

7.Messrs Sarwar & Co. (Pvt.) Ltd. v. Customs, Central Excise and Sales Tax, Appellate Tribunal, Lahore and another (2006 PTD 162).

4.Syed Irshad-ur-Rehman Advocate has appeared on behalf of the Respondents Nos.2 to 4 and has vehemently refuted the arguments of learned counsel for the petitioners and stated that the A.C. has jurisdiction to deal with the matters and invited our attention to section 33 of the Central Excise Act which deals with the jurisdiction of the Central Excise Authorities. He stated that since this is a case of evasion of tax hence the jurisdiction lies with the A.C. to deal with such like cases hence the show cause notice issued by the A.C. was well within his jurisdiction and no adverse inference in this regard could be drawn. He further submitted that the petitioners squarely fall under the definition of "manufacturers" as given in section 2(11) of the Sales Tax Act, 1951, hence the petitioners were rightly required by the department to pay the due taxes/duties. He finally stated that the petitioners have come to the Court with unclean hands hence this petition is liable to be dismissed with heavy cost.

5.Mr. Muhammad Javed K.K., Standing Counsel, has appeared on behalf of Respondent No.1 and has adopted the arguments of the learned counsel for Respondents Nos.2 to 4 and stated that the action taken by the respondents was well within their jurisdiction and since the petitioners are manufacturers, they are liable to pay the duty and the tax, in accordance with law.

6.Mr. Arshad Siraj Memon Advocate has appeared as Amicus Curiae in this case and stated that there are two grounds raised by the learned counsel for the petitioners. Firstly, whether the A.G. has the jurisdiction to deal with the present matter; and, secondly, whether the petitioners could be considered as manufacturers or not. According to him both these issues have already been decided by this Court. He submitted that so far as the issue of jurisdiction is concerned, this issue came-up for hearing in a case reported in Pakistan Oxygen Limited v. Pakistan and others (1992 PTD 1000) wherein in paragraph 4 of the said judgment it has been mentioned that the jurisdiction of the like nature matters is with the A.C. and not with the Deputy Collector. Hence, according to him the issue of jurisdiction raised by the petitioners is not tenable. According to the learned counsel so far as the issue whether the petitioners could be considered as manufacturers or not also stand decided in the case reported as Pakistan Oxygen Limited v. Pakistan and others (1991 PTD 472) wherein the High Court has held that any manufacturer who obtains raw material from the customers and by treatment or any process manufactures goods out of it, although the element of sale is not there such arrangement shall be treated as sale for the purpose of Sales Tax Act. Hence according to him in view of this judgment the petitioners fall under the definition of "manufacturers" and the petition on this issue also does not merit consideration. The learned Amicus Curiae, however, stated that so far as the imposition of CED is concerned he placed before us a list of the items enjoying exemption at that point of time and stated that as per Item No.(I) of 09.02 as given in SRO No.555(I)/79 dated 28th June, 1979, the items manufactured by the petitioners fall under the category of exempted items hence the levy of CED upon the petitioners is uncalled for.

7.We have heard all the learned counsel for the parties, so also Amicus Curiae, at considerable length and have also perused the record and the decisions relied upon by them.

8.Since the issue of jurisdiction as raised by the learned counsel for the petitioners, has already been decided by this Court in the decision referred above hence no interference is warranted. A Division Bench of this Court in 1992 PTD 1000 has decided the issue against the petitioner in the following manner:--

"4. In the instant case, the assessment was required to be made by the Assistant Collector of Customs/Central Excise and the assessment by the Deputy Collector of Customs/Central Excise was without jurisdiction."

9.So far as the issue whether the petitioners are manufacturers or not, this issue also has also been decided by a Bench of this Court in the above referred judgment i.e. 1991 PTD 472 in the following terms:--

"A perusal of this provision will show that in terms of clause 'c' where a customer supplies raw material to a manufacturers who under a contract employs his labour and machinery and from such raw material, manufactures the goods, such arrangement or any other arrangement in manufacturing such goods shall for the purpose of Sales Tax be treated as sale. The value of such sale shall be determined by the Sales Tax Officer under this Act. Therefore, where any manufacturer obtains raw material from the customers and by treatment or any process manufactures goods out of it although the element of sale is not there such arrangement shall be treated as sale for the purpose of Sales Tax Act".

10.We, therefore, hold that the action of A.C. in imposing the S.T. on the petitioners was within his jurisdiction and also hold the petitioners a "manufacturer" in respect of items manufactured by them for LBPL. However, so far the issue of imposition of CED is concerned, since the manufactured item falls under the category of exempt items, under the above referred S.R.O., hence no CED could be imposed by the respondents upon the petitioners. We, therefore, declare the imposition of CED upon the petitioners, amounting to Rs.1,03,568/-, to be illegal and delete the same, accordingly. The petition stands partly allowed in the above terms.

11.Before parting with the judgment, we would like to appreciate the able assistance provided to us by Mr. Arshad Siraj Memon, the Amicus Curiae.

12.Above are the reasons of our short order dated 27.4.2016 through which we have partly allowed the petition.

MH/K-10/Sindh Order accordingly.