AL-TECH ENGINEERS AND MANUFACTURERS VS FEDERATION OF PAKISTAN, 2017 PTD-SUPREME-COURT 1657 (2017)

(On appeal from the judgment dated 01.02.2002 passed by the Lahore High Court, Lahore in W.P. No. 6640 of 1997)

Customs Act (IV of 1969)---

----Ss. 21(c) & 31A [as in force on 16.01.1996]---Notification No. S.R.O. 5(I)/1992 dated 06.01.1992---Notification No.SRO No.(1)/1996 dated 16.01.1996---Duty drawback granted on the raw material consumed in the manufacture of exported goods---Accrued and vested rights of exporter---Scope---Past and closed transaction, doctrine of---Scope---Appellant was a manufacturer and exporter of special types of steel nuts, screws and bolts, which were primarily meant for the export market---Vide Notification No.SRO 5(I)/1992 dated 06.01.1992 ("first notification") issued by the Federal Government a benefit was conferred upon the appellant (and other similarly placed exporters) assuring duty drawback upon the raw material consumed in the manufacture of their goods etc which were exported @ 26.75% of their Free On Board (FOB) value---Subsequently, vide Notification No.SRO No.(I)/1996 dated 16.01.1996 ("second notification") the rate of duty drawback allowed on such exported goods was reduced to 7.72 % of their FOB value---Appellant applied for duty drawback on export consignments of his goods shipped after 16.01.1996, the date of issuance of the second notification on the basis that the Letters of Credit in favour of the appellant were opened by the foreign importer before the date of the second notification, i.e. 16.01.1996---Said claims were, however, declined by the customs authorities---Legality---Duty drawback granted by SRO 5(I)/1992 dated 06.01.1992 was in the nature of a concession on the basis of the value of imported material consumed in the manufacture of goods that were exported from Pakistan---Such concession granted under S. 21(c) of the Customs Act, 1969 was not an exemption, therefore, the duty drawback given for exported goods fell outside the purview of S. 31A of the Customs Act, 1969---Resultantly, the principle of past and closed transaction that safeguarded accrued and vested rights of contracting parties applied squarely to the present case---Binding legal commitment made by the appellant to honour his export contracts fixed the date on which he acquired a vested legal right to claim the rate of available duty drawback under SRO No.5(I)/1992 dated 06.01.1992---Binding legal commitment between the appellant and his foreign importer would be established when the parties had taken substantial steps demonstrating adherence to their contract inter se---When the foreign importer of goods manufactured by the appellant had established a letter of credit prior to 16.01.1996 mandating a shipment date within six months its date of issuance, then the benefit under the first notification No.SRO 5(I)/1992 dated 06.01.1992 shall constitute a vested right of the appellant---Supreme Court directed the customs authority to undertake scrutiny of the export documents of the appellant in order to establish the creation of binding legal commitments, if any, between the contracting parties prior to 16.01.1996 in order to extend the appellant benefit of SRO.5(I)/1992 dated 06.01.1992 - Appeal was allowed accordingly.

Al-Samrez Enterprise v. The Federation of Pakistan 1986 SCMR 1917 ref.

Malik Muhammad Qayyum, Senior Advocate Supreme Court for Appellant.

Sohail Mehmood, DAG for Respondent No. 1.

Ex parte for Respondent No.2.

Ibrar Ahmed, Advocate Supreme Court for Respondent No.3

Date of hearing: 31st January, 2017.

JUDGMENT

UMAR ATA BANDIAL, J.---This appeal with leave of the Court arises out of a Constitution Petition (Writ Petition No.6640/1997) filed by the appellant that was dismissed by learned Lahore High Court by judgment dated 01.02.2002. The facts of the case are quite simple in that the appellant is a manufacturer and exporter of special types of steel nuts, screws and bolts, which are primarily meant for the export market. Vide Notification (SRO 5(I)/1992) dated 06.01.1992 ("first notification") issued by the Federal Government a benefit as conferred upon the petitioner (and other similarly placed exporters) assuring duty drawback upon the raw material consumed in the manufacture of their goods etc. which are exported @ 26.75% of their Free On Board (FOB) value. Subsequently, vide Notification (SRO No.(I)/1996) dated 16.01.1996 ("second notification") the rate of duty drawback allowed on such exported goods was reduced to 7.72 % of their FOB value.

2.The appellant applied for duty drawback on export consignments of his goods shipped after 16.01.1996, the date of issuance of the second notification on the basis that the L/Cs in favour of the appellant were opened by the foreign importer before the date of the second notification, i.e. 16.01.1996. These claims were, however, declined by the respondent authorities. Such refusal to pay the duty drawback was challenged by the appellant before the High Court on the ground that a vested right to concession of duty drawback under the first Notification dated 06.01.1992 had been accrued in favour of the appellant. That the second Notification could not nullify such right because it took effect prospectively and not retrospectively.

3.The appellant's Writ Petition was dismissed by the High Court vide the impugned judgment by relying upon the judgment of this Court reported as Collector of Customs and others v. Ravi Spinning Ltd. and others (1999 SCMR 412) which in the light of section 31A of the Customs Act, 1969 ("the Act") rejects the accrual of any vested right to an exemption on imported goods that stands withdrawn or curtailed under a subsequent notification issued prior to the date of import.

4.Learned counsel for the appellant has, however, submitted that the present case concerns the claim of: duty drawback granted under section 21(c) of the Act on exported goods and not the exemption of customs duty granted on imported goods under section 19 of the Act. The said two statutory provisions as in force on 16.01.1996 are reproduced below for ease of reference:

21. Power to deliver certain goods without payment of duty and to repay duty on certain goods.---Subject to such conditions, limitations or restrictions as it thinks fit to impose, the Board may, in such general cases as may be prescribed by rules or in particular cases by special order, authorize--

. . .

. . .

(c) the repayment in whole or in part of the customs duties paid on the importation of any goods of such classes or descriptions as it may prescribe, which have been used in the production, manufacture, processing, repair or refitting in Pakistan of goods of such classes or descriptions as it may prescribe, provided such repayment shall not be made in respect of the class or description or goods for which drawback can be claimed under section 37."

"31A. Effective rate of Duty.---(1) Notwithstanding anything contained in any other law for the time being in force or any decision of any Court, for the purposes of sections 30 and 31, the rate of duty applicable to any goods shall include any amount of duty imposed under section 18 and the amount of duty that may have become payable in consequence of the withdrawal of the whole or any part of the exemption or concession from duty whether before or after the conclusion of a contract or agreement for the sale of such goods or opening of a letter of credit in respect thereof.

(2) For the purpose of determining the value of any imported or exported goods, the rate of exchange at which any foreign exchange is to be converted into Pakistan currency shall be the rate of exchange in force,--

(a) in the case of goods referred to in clause (a) of section 30, on the date [immediately preceding the date] referred to in that clause;

(b) in the case of goods referred to in clause (b) of the aforesaid section, on the date [immediately preceding the date] referred to in that clause; and

(c) in the case of goods referred to in section 31, on the date referred to in that section.

5.It is evident from section 31A of the Act that the subject matter of its provisions is the effect of withdrawal or curtailment of an exemption from customs duty chargeable on imported goods under section 18 of the Act. On the other hand, the first notification dated 06.01.1992 grants the concession of duty drawback on exported goods. Such duty drawback is not an exemption granted under section 19 of the Act on imported goods. It is an incentive to manufacture finished goods made with imported raw materials upon an assurance that a part of duties paid on such raw materials would be refunded on the export of the finished goods. Therefore, it is argued that the effectiveness of the second Notification dated 16.01.1996 is not subject to the provision of section 31A ibid. The principle of vested right and past and closed transaction as enunciated by this Court in the case of Al-Samrez Enterprise v. The Federation of Pakistan (1986 SCMR 1917) is claimed to govern the present dispute.

6.Learned counsel for the respondents are unable to justify that section 31A of the Act governs the facts of the present case. Whereas the judgments of this Court in the cases of Messrs M.Y Electronics Industries (Pvt.) Ltd. through Manager and others v. Government of Pakistan through Secretary Finance Islamabad and others (1998 SCMR 1404), Collector of Customs and others v. Ravi Spinning Ltd. and others (1999 SCMR 412 at 417) and Messrs Army Welfare Sugar Mills Ltd. and others v. Federation of Pakistan and others (1992 SCMR 1652) are relied by him to explain the consequences of the curtailment of a pre-existing exemption; the same judgments are relied by the learned counsel for the appellant to highlight that the underlying statutory provisions interpreted and applied in the said precedents do not apply to the facts of the appellant case.

7.Heard. The judgment in Al-Samrez's case (supra) was rendered in 1986 prior to the insertion of section 31A in the Act. It lays down the principle that once an importer in Pakistan has made a legal commitment to import goods from a foreign supplier which obligation is predicated upon the existence of an exemption from import duties on the goods under import then such exemption cannot be denied to the importer if it is withdrawn or curtailed subsequent to the making of that legal commitment. This is because the exemption existing at the conclusion of a binding bargain with the foreign supplier becomes a vested right of the importer. To state the principle more succinctly, the following passages in the judgment under reference, are reproduced below:

"... We are, therefore, clearly of the opinion that if a binding contract was concluded between the appellants and the foreign exporter or steps were taken by the appellants creating a vested right to the then existing notification granting exemption, the same could not be taken away and destroyed in modification of the earlier one, on the ground that under section 21 of the General Clauses Act, the Government could exercise the power of modification. The question before us is not whether the second notification was ultra vires the powers of the Government but whether the second notification would be applicable to the case of the appellants resulting in taking away the exemption already granted.

8. ... The fees for import of goods and opening of Letter of Credit were deposited with the Chief Controller of Imports and Exports on 10th June, 1977 (page 41 of the printed record). This document shows that the item under which the goods were being imported was on the Free List. 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 exemptions under the prior notification applicable at that time...."

8.It will be noted from the provisions of section 31A ibid that these purport to override the afore-noted principle laid down in Al-Samrez's case (1986 SMR 1917). Section 31A, therefore, derogates the legal right of an importer under public law principle that executive action cannot retrospectively impinge accrued right. Its provisions are therefore liable to be read restrictively within the ambit and scope intended by the statute. Whilst the express terms section 31A of the Act clearly deal with levy and available exemption of customs duty on imported goods, its ambit and scope does not extend to the nature of the present case which is altogether different. The duty drawback is also in the nature of a concession granted by SRO 5(I)/1992 dated 06.01.1992 on the basis of the value of imported raw material consumed in the manufacture of goods that are exported from Pakistan. This concession granted under section 21(c) of the Act promotes the utilization of imported raw materials for value added manufacturing of goods for their use abroad. Unlike section 19 of the Act, the concession given under section 21(c) of the Act is not an exemption on imported goods that are kept and used in Pakistan. Therefore, the duty drawback given for export goods under section 21(c) ibid falls outside the purview of section 31A of the Act. Accordingly, we consider that the right conferred by a notification issued under section 21(c) of the Act is not controlled by section 31A of the Act. Resultantly, the principle of law enunciated in Al-Samrez's case (1986 SCMR 1917) is not ousted and applies squarely to the present case. That principle, as narrated above restates the settled legal doctrine of past and closed transaction that, inter alia, safeguards accrued and vested rights of contracting parties.

9.A binding legal commitment made by the appellant to honour his export contracts fixes the date on which he acquired a vested legal right to claim the rate of available duty drawback under SRO No.5(I)/1992 dated 06.01.1992. For this purpose, it is not sufficient that his export contracts were concluded on a date prior to 16.01.1996 when the second notification came into effect. A binding legal commitment between the appellant and his foreign importer would be established when the parties have taken substantial steps demonstrating adherence to their contract inter se.

10.In the facts on record of this case, we consider that where the foreign importer of goods manufactured by the appellant has established a sight letter of credit prior to 16.01.1996 mandating a shipment date within six months of its date of issuance, then the benefit under the first notification [SRO 5(I)/1992 dated 06.01.1992] shall constitute a vested right of the appellant. Whether each export consignment shipped by the appellant satisfies the aforesaid criteria and test for the creation of a binding legal commitment to entitle the appellant to the relief claimed, is a matter of fact to be determined by the assessing customs authorities.

11.Accordingly, whilst allowing this appeal, we direct the respondent No.3 to undertake scrutiny of the export documents of the appellant in order to establish the creation of binding legal commitments, if any, between the contracting parties prior to 16.01.1996 on the criteria and test provided above in order to extend the appellant benefit of SRO. 5(I)/1992 dated 06.01.1992. No order as to costs.

MWA/A-15/SC Appeal allowe