COMMISSIONER INLAND REVENUE VS COCA COLA BEVERAGES (PAKISTAN) LTD., 2017 PTD-LAHORE-HIGH-COURT-LAHORE 2255 (2017)

Federal Excise Act (VII of 2005)---

----Ss. 4(2) & 3---Sales Tax Act (VII of 1990) S. 47---CBR Letter C. No. 1(20)-CEB/94 dated 27.9.1994---Filing of return and payment of excise duty---Determination of value for the purposes of excise duty---Retail price---Deduction of "chilling charges" from retail price by manufacturers of beverages---Scope----Question before the High Court was "whether for payment of excise duty for the retail price, under the Federal Excise Act, 2005, manufacturers of aerated water could deduct chilling charges"---Held, words "charges and taxes" used in S. 4(2) of the Federal Excise Act, 2005 were to be given the same meaning on the principle of ejusdem generis and it was nobody's case that charges incurred in furtherance of an economic activity should be considered among "charges" contemplated by S. 4(2) of the Federal Excise Act, 2005---Per CBR Letter C. No. 1(20)-CEB/94 dated 27.9.1994, chilling charges were to be excluded from consumer price of a chilled bottle for arriving at retail price and when the same was read with subsequent letter of the CBR dated 13-4-1995, it left no doubt that packages which were sold un-chilled were not allowed backward deduction of chilling charges from retail price---Reference was answered, accordingly.

2001 PTD 1854; Messrs Riaz Bottlers (Pvt.) Ltd. v. Central Board of Revenue and others 2000 PTD 353; C.P.L.A. No.3811 to 3817 of 2001 decided on 16-9-2003 and Atlas Battery Ltd. v. Superintendent, Central Excise and Land Customs, Circle 'C', Karachi and others PLD 1984 SC 86 rel.

Ch. Muhammad Zafar Iqbal for Petitioner.

Date of hearing: 9th May, 2017.

JUDGMENT

TARIQ SALEEM SHEIKH, J.---This application by way of reference under Section 47 of the Sales Tax Act, 1990 (the "Act"), is directed against Order dated 15-1-2013 passed by the Appellate Tribunal Inland Revenue, Lahore (the "Tribunal"), in S.T.A. No.1823/LB/2009.

2.The Petitioner Department has framed as many as six questions for determination by this Court which according to it arise from the Tribunal's Order dated 15-1-2013. However, we have found only the following three questions relevant to the controversy and shall take them up for consideration:

1. Whether the learned Appellate Tribunal has considered the provisions of law that Central Excise Duty is to be calculated and paid on the basis of retail price, including all charges and taxes, other than sales tax levied and no deduction on account of chilling charges shall be made by Respondent/manufacturer of aerated water?

2. Whether the learned Appellate Tribunal has rightly interpreted the law upheld by the Hon'ble Supreme Court of Pakistan in case of Messrs Riaz Bottlers (Pvt.) Limited (C.P.L.As. Nos. 3811 to 3817-L/2001) vide judgment dated 16-9-2003 on the instant issue?

3. Whether the learned Appellate Tribunal has considered that Respondent made short payment of Sales Tax and Central Excise Duty due to under valuation of supplies in violation of Sections 7, 9, 10(2), 210 and 236 of the Central Excises Act, 1944, read with Rule 7 of the Federal Excise Rules, 2005, and Sections 11, 12(4), 14, and 19 of the Federal Excise Act, 2005 and Sections 3, 3(1), 6, 11(2), 33, 34 of the Sales Tax Act, 1990?

3.The brief facts of the case are that the Respondent is a manufacturer of aerated beverages. During the course of its sales tax and federal excise audit for the period July-2005 to February-2006 it was inter alia observed that the Respondent had manufactured and cleared 2,699,014 crates/cartons of 1500 ml and 176,059 crates/cartons of 1000 ml bottles and had deducted chilling charges thereon purportedly in pursuance of Letter C.No.1(20) CEB/94 dated 10-10-1994 issued by the Central Board of Revenue (the "CBR")---now Board of Revenue. The audit objection was that as the 1000 ml and 1500 ml bottles were sold unchilled, the Respondent was not entitled to deduct chilling charges thereon which were admissible under the CBR's aforesaid letter at the rate of 5% of the consumer price of the chilled bottle. Accordingly, the Additional Collector issued Show Cause Notice dated 30-9-2006 to it which was followed by adjudication proceedings. Eventually, vide Order-in-Original dated 30-8-2007, the Adjudicating Officer ruled against the Respondent and directed it to make payment of the short paid amounts of sales tax and federal excise duty along with default surcharge, penalties @ 3% of the sales tax under Section 33(1)(19) of the Sales Tax Act, 1990, and Rs.10,000/- under Section 19(1) of the Federal Excise Act, 2005. Aggrieved, the Respondent preferred an appeal before the CIR (Appeals) but the same was dismissed vide Order dated 22-3-2008. The Respondent then filed S.T.A. No. 1823/LB/2009 before the Tribunal which was accepted vide Order dated 15-1-2013. The Department has now come up in reference before this Court.

4.Notice on this reference application was issued to the Respondent but it did not enter appearance despite service. It is thus proceeded ex parte.

5.Perusal of the record shows that the parties rely on two judgments of the Hon'ble Supreme Court of Pakistan in support of their standpoints. Therefore, before we examine their respective contentions we make a short digression to see what these judgments are.

Civil Appeal No.1512 of 1999 and other connected matters decided on 31-1-2001 (reported as 2001 PTD 1854):

In the year 1994, the CBR permitted the manufacturers of aerated waters and beverages to deduct chilling charges while calculating the retail price of their products. These charges were fixed at 10% of the consumer price for 250 ml packs and 5% for larger packs. This allowance continued till 1999 when it was suddenly withdrawn. The beverage manufacturers challenged CBR's letter dated 12-6-1999 before this Court through various constitutional petitions which were heard and allowed as per judgment/orders of different dates and the CBR's action was declared to be without lawful authority and of no legal effect. The main judgment passed in the matter is reported as "Messrs Riaz Bottlers (Pvt.) Ltd. v. Central Board of Revenue and others" [(2000 PTD 353)]. The Respondent filed W.P. No.3543/2000 which was also accepted on 20-3-2000. The Department filed appeals against these judgments/orders before the Hon'ble Supreme Court of Pakistan (Civil Appeals Nos.1512 of 1999 etc.) which were also dismissed vide judgment dated 31-1-2001. In this case the Apex Court ruled:--

"Admittedly, the retail price is to be fixed by the manufacturer but while fixing such price he has to include all charges and taxes incurred and payable by the manufacturer. It is only the charges incurred by the manufacturer/producer and tax payable by him which are to be taken into account while fixing retail price of the goods. It is the right of manufacturer to fix retail price of the goods/articles consequently he cannot be dictated to include the chilling charges when he has not incurred in the production of saleable goods/articles. It has been conceded by the learned counsel for the Appellants/Petitioners that aerated water/juices are supplied to the whole-sellers and retailers in un-chilled condition consequently the chilling charges could not be included in the retail price of articles/goods sold. It has also been admitted before us that retail price is printed on each bottle or packet as required by subsection (2) of Section 4 of the said Act. Therefore, excise duty would be charged only on the retail price fixed by the manufacturer, considering that the manufacturer has not incurred any amount on the chilling process therefore cannot charge the same towards the retail price to be fixed by him. The inclusion of the chilling charges towards the retail price of the article when the same is not incurred by him would be against the spirit of subsection (2) of Section 4 of the said Act. Even if it is presumed that the retailers sell their aerated water/juices in chilled condition, then also, because the factories supply the said beverages/juices in un-chilled condition, the expenses incurred on chilling cannot be included in the retail price by the manufacturers. There is no logic to burden the retailers, who have to sell the articles to the consumers, with the chilling charges when the same have not been received by them in chilled condition. In the circumstances, the Respondents cannot be compelled to add chilling charges, not incurred by them, towards the retail price."

C.P.L.As. Nos. 3811 to 3817-L of 2001 decided on 16-9-2003.

In another development, during audit and inspection of the record of Messrs Riaz Bottlers (Pvt.) Limited (hereinafter referred to as "Riaz Bottlers") the Department found that it was deducting 5% chilling charges from the retail price of every bottle even in the case of 1000 ml and 1500 ml bottles. The Department alleged that Riaz Bottlers had illegally deducted chilling charges on those bottles because they were not sold in chilled form. Accordingly it issued show-cause notices to it for recovery of the evaded excise duty relating to different periods of time along with additional duty and penalty. The Adjudicating Officer delivered a judgment against Riaz Bottlers which was upheld by the then Appellate Tribunal (Customs, Central Excise and Sales Tax) as also by this Court. Riaz Bottlers then filed C.P.L.As. Nos. 3811 to 3817-L of 2001 in the Hon'ble Supreme Court of Pakistan which were also dismissed vide consolidated order dated 16-9-2003. It was observed that the claim of Riaz Bottlers was that the bottles in question were sold in chilled form while the Department alleged otherwise. It was thus a question of fact which was consistently decided against Riaz Bottlers and it did not call for interference by the Apex Court.

6.Reverting to the instant case, we have observed that the primary contention of the Department is that in view of the Hon'ble Supreme Court's Order dated 16-9-2003 passed in C.P.L.As. Nos. 3811 to 3817-L of 2001, the Respondent is entitled to deduct 5% chilling charges only when the bottles are sold in chilled condition. The labels pasted by the Respondent on various brands of its 1000 ml and 1500 ml bottles carry a clear-cut instruction "Chill before serve." It is thus evident from these labels that the said bottles are being supplied to the consumer un-chilled. Therefore, the question of deduction of chilling charges does not arise. The Petitioner relies on the following excerpt of Order dated 16-9-2003:

"4. The admitted legal position is that the Petitioner-company is entitled to deduct 5% of the price of each bottle from its assessable value if the same is sold in a chilled form but no such deduction can be made if the bottle is not offered to the customer in a chilled condition. It is the case of the Petitioner-company that they were selling 1000 ml and 1500 ml bottles in chilled form while it was the finding of the department that the said bottles which were infact economy packs were not used as instant drinks and they were, therefore, not sold in chilled form. It was rightly held by the learned High Court that the burden lay rather heavily on the Petitioner-company which was claiming a concession in deviation of the normal law to establish that they had sold the bottles in question in a chilled form and that as per the order-in-original, the order-in-appeal and the order of the learned Tribunal, this question of fact stood decided against the Petitioner. The issue being one of the fact and having been consistently resolved by more that one competent forum against the Petitioner, does not warrant re-opening of the same and a fresh decision thereon by this constitutional Court. No illegality, however, could be shown to exist in the decisions which have led to these petitions."

7.On the other hand, the Respondent contends that it sells aerated beverages to its customers through various modes but always in un-chilled form. It is the "retailers" at the end of the supply chain who perform the chilling part. Since the Respondent does not perform this activity, chilling charges are never ever included in its price structure and it has also conveyed this fact to the Department in the price declarations that it submitted to it from time to time. According to the Respondent, the Hon'ble Supreme Court in its judgment dated 31-1-2001 passed in Civil Appeal No. 1512 of 1999 and other connected matters has conclusively held that chilling charges have to be allowed for the purpose of determining the retail price by the manufacturer. This judgment was passed by the Apex Court in the Respondent's own case while the subsequent Order dated 16-9-2003 was an order in personam passed in the case of Messrs Riaz Bottlers (Pvt.) Limited. It was distinguishable on facts. More importantly, it did not decide any question of law. The august Bench simply declined to grant leave to appeal on the ground that the matter involved a question of fact and the Court could not undertake any factual inquiry.

8.We have heard the learned counsel for the Petitioner and have perused the record.

9.Before proceeding in the matter we would like to reproduce Section 12(4) of the Federal Excise Act, 2005 (the "FEA"), which reads as under:--

"(4) Where any goods are chargeable to a duty on the basis of retail price, duty thereon shall be paid on the retail price fixed by the manufacturer, inclusive of all charges and taxes other than sales tax levied and collected under Section 3 of the Sales Tax Act, 1990, at which any particular brand or variety of such goods should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest of such price and such retail price shall, unless otherwise directed by the Board, be legibly, prominently and indelibly indicated on each goods, packet, container, package, cover or label of such goods".

Since reference is made to Section 4(2) of the Central Excises Act, 1944, in certain parts of this judgment we may point out that the said provision is similar to Section 12(4) of the FEA.

10.While interpreting Section 4(2) ibid, in "Atlas Battery Ltd. v. Superintendent, Central Excise and Land Customs, Circle 'C', Karachi and others" (PLD 1984 SC 86), the Hon'ble Supreme Court observed that upon a proper analysis thereof it would appear that for the assessment of excise duty, the "retail price" constitutes the following ingredients:

(i)It shall be the price fixed by the manufacturer;

(ii)It shall be inclusive of all charges and taxes;

(iii)It shall be the price at which the particular brand or variety of such article should be sold to the general body of consumers;

(iv)If more than one such price is so fixed for the same brand or variety, it shall be the highest of such price.

The Hon'ble Supreme Court also observed that although the manufacturer was entitled to determine the retail price for his product he was not to act arbitrarily and was to exercise that right subject to law.

11.It is noteworthy that Section 4(2) supra---as also Section 12(4) of the FEA---use the phrase "charges and taxes". These two words are to be given the same meaning on the principle of ejusdem generis. It is nobody's case that chilling charges which are incurred in furtherance of an economic activity should be considered among the "charges" contemplated by this provision.

12.In order to understand the controversy it is necessary that we get to its root. It all started when the Central Board of Revenue (CBR) issued Letter C.No.1(20) CE.B/94 dated 3-8-1994 in which it was noticed that some manufacturers of aerated beverages were not including retail/wholesaler's margin and chilling cost etc. in the retail price on which excise duty had to be calculated. The field staff were directed to ensure that no deductions were made in the sale price except octroi and sales tax. They were also directed to forward contravention cases in respect of the goods that were got cleared without proper assessment. On the issuance of this letter the Pakistan Beverages Manufacturers Association made various representations to the CBR whereafter it was decided that in addition to sales tax and octroi the following chilling charges would be excluded from the consumer price of a chilled bottle for arriving at the retail price.

(i)Packing containing upto 250 ml10% of consumer price of chilled bottle

(ii)Packages exceeding 250 ml5 % of consumer price of chilled bottle.

The above decision was publicized through CBR Letter C.No. 1(2)-CEB/94 dated 27-9-1994. Thereafter, certain complaints were received by the CBR whereupon, vide Letter C.No.1(20)-CEB/94 dated 13-4-1995, it issued a specific clarification that the above-mentioned allowance/deduction was not admissible in respect of packages which were sold unchilled. These arrangements continued until 1999 when the CBR issued Letter No. 1(7)-CEB/99 dated 12-6-1999 to withdraw the same. The CBR directed that the central excise duty shall be calculated and paid on the basis of retail price and no deduction whatsoever shall be made by any manufacturer of aerated waters and fruit juices on account of chilling charges.

13.In Civil Appeals Nos. 1512 of 1999 etc. (2001 PTD 1854) (in which the Respondent was also a party in one of the connected matters), the vires of the CBR's letter dated 12-6-1999 were questioned and the case of the Respondent (and other beverage manufacturers) was that under Section 4(2) of the Central Excises Act, 1944, the manufacturer was entitled to fix the retail price on the basis of which the central excise duty was to be charged. As the Respondent was supplying beverages in unchilled form to the general body of customers CBR was not competent to direct that the chilling charges be included in the retail price. The Hon'ble Supreme Court accepted the said plea and struck down CBR's letter dated 12-6-1999.

14.As already stated, in the above-mentioned appeals challenge was exclusively laid to CBR's letter dated 12-6-1999 but the Hon'ble Supreme Court's judgment dated 31-1-2001 passed therein has a ripple effect and makes CBR's earlier letter/orders dated 3-8-1994, 27-9-1994 and 13-4-1995 also questionable. It is, however, observed that the parties have not challenged them all these years. Rather, they have consistently followed them as these arrangements were made by the Pakistan Beverages Manufacturers Association and the CBR with mutual consultation. Therefore, unless the said arrangements are knocked down by a competent Court in appropriate proceedings or are otherwise revised in accordance with law, the parties must hold to them and comply with them in letter and spirit. The Hon'ble Supreme Court's order dated 16-9-2003 should be viewed in this context. There is no contradiction in the two decisions as the parties attempt to suggest.

15.As per CBR Letter C.No.1(20)-CEB/94 dated 27-9-1994 chilling charges are to be excluded from the consumer price of a chilled bottle for arriving at the retail price. These charges are fixed at 10% for 250 ml package and 5% for the larger ones. Although the said letter is quite explicit, when read in conjunction with the subsequent clarification dated 13-4-1995, it leaves no room to doubt that packages which are sold unchilled are not allowed backward deduction of chilling charges from retail price. The Hon'ble Supreme Court's Order dated 16-9-2003 reinforced this arrangement.

16.In the instant case, the Adjudication Officer as also the CIR (Appeals) observed that the 1000 ml and 1500 ml bottles manufactured and sold by the Respondent carried the inscription "Chill before serve" which leads to an ineluctable inference that they were not sold in chilled form. Even the Respondent's reply to the Show-Cause Notice dated 30-9-2006 does not attempt to suggest otherwise. Therefore, we are inclined to uphold the order-in-original dated 22-3-2008.

17.In view of the foregoing, we answer the above questions in the negative (i.e. in favour of the Department and against the Respondent) and allow this application. Office shall send a copy of this judgment to the Tribunal under the Seal of the Court as required by law.

Appendix-I

C.B.R. LETTER C.NO.1(20)CE.B/94, DATED 3RD AUGUST, 1994

[Central Excise]

SUBJECT:RETAIL PRICE OF AERATED BEVERAGES.

It has come to the notice of the Board that some manufacturers of aerated beverages are not including retail/wholesaler's margin and chilling cost etc., in the retail price at which excise duty has to be calculated. You are therefore, requested to please ensure that no deductions are made in the retail price except octroi and sales tax as prescribed in section 4(2) of the Central Excise Act, 1944. As regards the previous clearances assessed at incorrect retail prices, contravention cases should be made out.

2.Further more, it is emphasised that whenever any manufacturer changes the declared retail price, strict compliance with the conditions prescribed in the Central Excise General Order of 1 of 1990 should be ensured.

Appendix-II

C.B.R. LETTER C.NO.1(20)CE.B/94, DATED 27TH SEPTEMBER, 1994

[Central Excise]

SUBJECT:RETAIL PRICE OF AERATED BEVERAGES.

I am directed to refer to the Board's letter of even number dated 3rd August, 1994 on the above subject and to say that various representations have been received in the Board regarding variations in valuation for the purposes of levy of central excise duty and sales tax on aerated waters especially with reference to inclusion of chilling charges in the retail price of a bottle. In consultation with representatives of the Pakistan Beverages Manufacturers Association it has been decided that in addition to sales tax and octroi the following chilling charges shall be excluded from the consumer price of a chilled bottle for arriving at the retail price:--

2.Manufacturers are allowed a period of 10 days to print retail price on crown corks/packages.

3.Pakistan Beverages Manufacturers Association has also confirmed that minimum retail price for the period 1-7-1994 to date of an unchilled aerated bottle of 250 ml. was not less than Rs.4.50 inclusive of central excise duty and sales tax but excluding octroi and chilling charges. Manufacturers who had paid central excise duty and sales tax on price below Rs.4.50 may be asked to pay the difference amount of central excise duty and sales tax.

Appendix-III

C.B.R. LETTER C.NO.1(20)/CEB/94, DATED 13TH APRIL, 1995

[Central Excise]

SUBJECT:-- RETAIL PRICE BEVERAGES

I am directed to refer to your letter No.10(17)/DGCl/ Excise/94/1193, dated 30th March, 1995, on the above subject and to say that the Board's letter of even number dated 9th October, 1994 clearly mentioned that chilling charges not exceeding 10% for packages containing upto 250 ml and 5% for packages exceeding 250 ml. shall be excluded from the consumer price of a "chilled" bottle for assessing the normal retail price. As such package which are generally sold unchilled are not allowed backward deduction of chilling charges from retail price. This fact has been reiterated by the Board vide its letter of even number dated 2nd April, 1995.

KMZ/C-22/L Order accordingly.