SAMI PHARMACEUTICALS (PVT.) LTD. VS FEDERATION OF PAKISTAN
2019 P T D 718
[Supreme Court of Pakistan]
Present: Mushir Alam, Faisal Arab and Munib Akhtar, JJ
SAMI PHARMACEUTICALS (PVT.) LTD.
Versus
FEDERATION OF PAKISTAN and others
Civil Petition No. 458-K of 2015, decided on 07/02/2019.
(On appeal against the judgment dated 09.05.2015 passed by the High Court of Sindh, Karachi in C.P. No. D-2271 of 2011)
Per Faisal Arab, J; Mushir Alam, J, agreeing; Munib Akhtar, J dissenting.
(a) Customs Act (IV of 1969)---
----Ss. 19 & 31A---Sales Tax Act (VII of 1990) S. 13(2)(a)---Exemption from customs duty and sales tax under SRO No.575(I)/2006 dated 5.6.2006---Import of "Air Handling Units"---Certification by Engineering Development Board of Pakistan (EDB)---Procedure---Petitioner-company imported 'Air Handling Units' and sought concession on customs duty and exemption from sales tax under SRO No.575(I) 2006 dated 05.06.2006 on the ground that the 'Air Handling Units' imported were of such specification that were not manufactured locally---[Per Faisal Arab, J (Majority view): Exemption from customs duty and sales tax could not be claimed under SRO No.575(I)/2006 in case the item was either listed in the locally manufactured items notified through a Customs General Order (CGO) issued by the Federal Board of Revenue or certified by the Engineering Development Board of Pakistan (EDB) that the item in question was locally manufactured---In order to confirm whether exemption grantedunder SRO No.575(I)/2006 on an item was available or not one could take recourse to CGOs issued from time to time or seek certification from the EDB---Apart from seeking recourse to CGO, the need to seek certification from EDB seemed to have arisen as there was a strong possibility that a name of local manufacturer of a particular item may not have been updated in the CGO hence not reflecting the latest position of the local industry---Under SRO No.575(I)/2006, EDB had been entrusted with the function to certify whether an item was also locally manufactured which was done by gathering information from the local industry---Any person including the Customs Authorities could seek such certification---EDB's certification only confirmed a pre-existing position i.e. an item was or was not locally manufactured---In case EDB certified that imported item was also locally manufactured, exemption under SRO No.575(I)/2006 would be denied---After such certification the fact that a particular item may not have been listed in the CGO as a locally manufactured item would be of no legal consequence---Date on which certificate was issued by the EDB could not be taken as the date on which an item had become a locally manufactured item---Where a letter of credit was opened for import of an item which was already being locally manufactured and such pre-existing factual position was later certified by the EDB, it was good enough to disentitle an importer to claim exemption under SRO No.575(I)/2006---Timing of seeking certification from EDB would be immaterial in such circumstances---Only exception to this could be that the local manufacture of an item was so recent that it could not have been ordered from the local market when the letter of credit for its import was established---In such exceptional situation benefit granted under SRO No.575(I)/2006 could be availed---In absence of such an exception, the effect of certification in the affirmative by EDB would be that it confirmed that at the time when the importer opened the letter of credit in favour of a foreign supplier it was already one of the locally manufactured items and thus not entitling an importer to claim concession under SRO No.575(I)/2006---Where an item was required to be custom-built e.g. an item with the same technical specifications was required to be supplied with different dimensions not readily available in the local market even then exemption on such item could not be claimed where a local manufacturer was fully capable to supply it had an order been placed with him---In the present case, the Engineering Development Board of Pakistan (EDB) certified that the 'Air Handling Units' imported by the petitioner were also being manufactured by four local manufacturers with the same technical specifications---Moreover the petitioner sought certification from EDB on 14.3.2011 i.e. at the time when the consignment was in the process of being shipped to Pakistan, much after the letter of credit dated 9.9.2009 was opened---Petitioner was rightly denied the exemption from customs duty and sales tax under SRO No.575(I)/2006]---[Per Munib Akhtar, J (Minority view): Language used in the SRO No.575(I)/2006 in specific context of "Air Handling Units" provided that the exemption was available only to units of "specifications which were not manufactured locally"---Such condition clearly recognized that Air Handling Units came in more than one type of specifications, of which some sorts only were being locally manufactured, thus, it required that the CGO to be issued by Federal Board of Revenue, or the certificate that could be issued by the EDB, had to list (or at any rate clearly relate to) the specifications of the "Air Handling Units" that were to be regarded as being locally manufactured---Only listing without more, "Air Handling Units" (with or without their PCT heading) in the CGO or the EDB certificate would be insufficient---For purposes of exemption/ concessionary notifications, the Customs General Order 11 of 2007 dated28.8.2007 ('CGO 11') was the relevant CGO for the present case---Entry No. 504 of the CGO 11 listed two companies that locally manufactured Air Handling Units---For CGO 11 to apply the question was not whether either of the two companies manufactured "Air Handling Units" with the same specifications as those imported by the petitioner, rather, the true and correct question was whether the petitioner's "Air Handling Units" were of the specifications as listed in CGO 11, and manufactured by the two companies---Record showed that this was not the case---Furthermore the Al-Samrez' principle enunciated by the Supreme Court in the case of Al-Samrez Corporation v. Federation of Pakistan (1986 SCMR 1917) would apply to the present case---Certificate, issued by EDB on 1.4.2011, could not, as a matter of law and for purposes of SRO No.575(I)/2006 have any retrospective effect---As a certification that "Air Handling Units" of the sort imported by the petitioner were being locally manufactured, it could only apply prospectively from the date of its issuance---In considering whether the issuance of the EDB Certificate amounted to a "withdrawal" of the exemption under SRO No.575(I)/2006 within the meaning of S. 31A of the Customs Act, 1969, a restrictive view would have to be taken---When so considered there was no withdrawal of the exemption---Exemption ceased to apply in relation to the petitioner's goods when the certificate was issued by EDB on 1.4.2011, however, that was not, in the context of S. 31A, a withdrawal of the exemption; thatcouldtakeplaceonlyasaresultofanactoftheauthorityissuing the same, which would have to be the Federal Government---Petitionerwasentitledto the benefit of SRO No.575(I)/2006inrespectofthe "AirHandlingUnits"forwhichthegoodsdeclaration was filed on 22.7.2011; this was so by an application ofthe Al-Samrez principle, which was not ousted or negated by reason of S. 31A of the Customs Act, 1969]---Petition for leave to appeal was dismissed in circumstances.
Per Munib Akhtar, J
(b) Customs Act (IV of 1969)---
----S. 19---Sales Tax Act (VII of 1990) S. 13(2)(a)---Principle enunciated by the Supreme Court in the case of Al-Samrez Corporation v. Federation of Pakistan (1986 SCMR 1917)---Scope---Effective rate of duty---Scope---Principle enunciated in Al-Samrez case provided that if an importer altered his position in reliance on an exemption notification (e.g., by entering into a contract or opening a letter of credit), he then acquired a vested right in the exemption to which he remained entitled even if the exemption itself stood withdrawn by the time the goods arrived in Pakistan.
Al-Samrez Corporation v. Federation of Pakistan 1986 SCMR 1917 ref.
Khalid Javed Khan, Advocate Supreme Court for Petitioner.
Muhammad Siddiq Mirza, Advocate Supreme Court for Respondent No.1.
Vijil Ahmed Abbasi, Advocate Supreme Court and M. Iqbal Ch. Advocate-on-Record for Respondent No.2.
Muhammad Khalil Dogar, Advocate Supreme Court for Respondent No.3.
Date of hearing: 19th December, 2018.
ORDER
FAISAL ARAB, J.---The petitioner is engaged in the business of manufacture and supply of pharmaceuticals and for its newly established pharmaceutical facility the petitioner wanted to import 34 'Air Handling Units' from China for which it opened a letter of credit on 09.09.2019. The invoice described the goods as 'Air Handling Units' with VFDs and Plug Fans' classifiable under PCT Heading 8415.8300 and chargeable to customs duty at the rate of 35% ad valorem. When the first lot of 16 units arrived on 14.02.2011, the petitioner wrongly declared them as 'Air Desiccant Dehumidifier', which falls under PCT Heading 8479.8990 and chargeable to customs duty at the rate of 5%. This misdeclaration was inspite of the fact that the invoice, the bill of lading and the packing list clearly showed that the imported consignment was of `Air Handling Units'. As a consequence thereof, the petitioner was served with a show-cause notice in February, 2011 for wrongly describing the imported goods in the Goods Declaration and thus attempted to evade duties and taxes to the extent of Rs.9.47 million. The matter was adjudicated and an order-in-original was passed classifying the goods under correct PCT Heading 8415.8300. The petitioner should consider itself lucky as it escaped the penal consequences of misdeclaration and was not made to pay fine and penalty as it got the consignment of 16 units released only upon paying the usual customs duty and sales tax.
2.The present proceedings relate to the remaining consignment of 18 units which were shipped later that year and declared in Goods Declaration filed on 22.07.2011 under correct PCT Heading, however, concession on customs duty and exemption from sales tax was claimed under SRO 575(I)/2006 dated 05.06.2006 on the ground that the 'Air Handling Units' imported by the petitioner are of such specification that are not manufactured locally. We may state here that under S.R.O. 575(I).2006 plant, machinery, equipment and apparatus falling under the HS Codes specified in column (3) of its table were exempt from so much of the customs-duty as was in excess of the rates specified in column (4) of the table and the whole of the sales tax in case it met the basic condition, which is reproduced as under:--
"(i) the imported goods as are not listed in the locally manufactured items, notified through a Customs General Order issued by the Federal Board of Revenue (FBR) from time to time or, as the case may be, certified as such by the Engineering Development Board ........"
3.From the above, it is evident that exemption from customs duty and sales tax could not be claimed under SRO 575(I)/2006 in case the item is either listed in the locally manufactured items notified through a Customs General Order (CGO) issued by the Federal Board of Revenue or certified by the Engineering Development Board of Pakistan (EDB) that the item in question is locally manufactured. Hence in order to confirm whether exemption granted under SRO 575(I)/2006 on an item is available or not one can take recourse to CGOs issued from time to time or seek certification from the EDB.
4.In the present case, the petitioner vide its letter dated 14.03.2011 approached EDB to seek certification as to whether 'Air Handling Units' imported by the petitioner are being locally manufactured or not. This letter set in motion the process of determination which is evident from EDB's letter dated 15.03.2011 and the correspondence that followed. Finally, after engaging in an interactive process with the local manufacturers and the petitioner, the EDB on 01.04.2011 certified that the 'Air Handling Units' imported by the petitioner from abroad are also being manufactured by four local manufacturers. This did not satisfy the petitioner and further correspondence ensued between the petitioner and the EDB and finally a meeting was convened by the EDB on 12.05.2011 which was attended by (i) three members of the EDB, (ii) representatives of four local manufactures and (iii) the CEO as well as the consultant of the petitioner. The nine participants of the meeting unanimously came to the conclusion that there is no difference in technical specifications of the 'Air Handling Units' imported by the petitioner and those manufactured locally. Thus EDB in the said meeting further gave its stamp of approval to its certificate issued earlier on 01.04.2011.
5.Apart from seeking recourse to CGO, the need to seek certification from EDB seems to have arisen as there is a strong possibility that a name of local manufacturer of a particular item may not have been updated in the CGO hence not reflecting the latest position of the local industry. So under SRO 575(I)/2006 EDB has been entrusted with the function to certify whether an item is also locally manufactured which is done by gathering information from the local industry. Any person including the Customs Authorities can seek such certification. EDB's certification only confirms a pre-existing position i.e. an item is or is not locally manufactured. In case EDB certifies that imported item is also locally manufactured, exemption under SRO 575(I)/2006 would be denied. After such certification the fact that a particular item may not have been listed in the CGO as a locally manufactured item would be of no legal consequence.
6.It is imperative to understand that the date on which certificate is issued cannot be taken as the date on which an item has become a locally manufactured item. In case grant of exemption is reckoned from the date on which certificate was issued then any importer, in order to take advantage of this position, would first open a letter of credit for import of an item which has so far not been listed in CGO nor has been certified by EDB and then seek a certificate from EDB. Obviously the date of certification would be later in point of time inspite of the fact that the item in question was already part of the locally manufactured items. This would mean that grant of certificate either way after the letter of credit was opened would entitle an importer to claim benefits granted under SRO 575(I)/2006. This would also mean that EDB's determination of status of an item after letter of credit for its import has been established would be meaningless. In this very case the petitioner sought certification from EDB on 14.03.2011 i.e. at the time when the consignment was in the process of being shipped to Pakistan, much after the letter of credit dated 09.09.2009 was opened. In our view where a letter of credit is opened for import of an item which is already being locally manufactured and this pre-existing factual position is later certified by the EDB, it is good enough to disentitle an importer to claim exemption under SRO 575(I)/2006. The timing of seeking certification from EDB would be immaterial. The only exception to this could be that the local manufacture of an item was so recent that it could not have been ordered from the local market when the letter of credit for its import was established. In that exceptional situation benefit granted under SRO 575(I)/2006 can be availed. In absence of such an exception, the effect of certification in the affirmative by EDB would be that it confirms that at the time when the importer opened the letter of credit in fovour of a foreign supplier it was already one of the locally manufactured items and thus not entitling an importer to claim concession under SRO 575(I)/2006. We may also make it clear that where an item is required to be custom-built e.g. an item with the same technical specifications is required to be supplied with different dimensions not readily available in the local market even then exemption on such item cannot be claimed where a local manufacturer was fully capable to supply it had an order been placed with him.
7.In our view SRO 575(I)/2006 is to be interpreted in the context that the concession on customs-duty and exemption from sales tax was granted purely to encourage sale of certain types of locally manufactured items. Yet choice is still left with the buyer either to go for the local product or import it on payment of usual rates of customs-duty and taxes. In the present case, the petitioner opted to import an item which could have also been supplied by a local manufacturer had an order been placed with him thus it was not entitled to claim the concession provided under SRO 575(I)/2006. In view of the legal position discussed above, the High Court of Sindh in the impugned judgment rightly denied the relief claimed by the petitioner. This petition is, therefore, liable to be dismissed.
Sd/-
Mushir Alam, J
Sd/-
Faisal Arab, J
For the reasons set out in my judgment below, I respectfully dissent.
Sd/-
Munib Akhtar, J
MUNIB AKHTAR, J.---I have had the advantage of reading in draft the judgment proposed to be delivered by my learned brother, Faisal Arab, J., with whom my learned brother Mushir Alam, J is in agreement. It is with regret that I find myself unable to take the view that finds favour with the majority. For the reasons herein after stated, I would allow this appeal.
2.The petitioner, a company in the pharmaceutical business, seeks leave to appeal against the judgment dated 08.09.2015 of a learned Division Bench of the High Court. The petitioner claimed entitlement to the benefit of SRO 575(I)/2006 dated 05.06.2006 ("SRO 575"), whereby a partial (though substantial) exemption from customs duty and a complete exemption from sales tax at import stage, had been granted on the goods listed in the table, and on fulfilling the conditions as specified. The petitioner had imported air handling units (PCT 8415.8300), which were listed in the table. The Department having rejected the petitioner's claim it approached the High Court in constitutional jurisdiction, where the petition was dismissed by means of the impugned judgment.
3.Before proceeding further, it will be convenient to set out the relevant provisions. Beginning with SRO 575, it provided in material part as follows (emphasis supplied):
"S.R.O. 575(1)/2006.- In exercise of the powers conferredby section 19oftheCustomsAct, 1969 ... andclause (a) ofsubsection (2)ofsection13oftheSalesTaxAct, 1990 ... the Federal Government is pleased to exempt plant, machinery, equipment and apparatus, including capital goods, specified incolumn (2) of the Table below, fallingundertheHSCodesspecifiedincolumn (3) ofthatTable,from so much of the customs-duty, specified in the First Schedule to the said Act, as is in excess of the rates specified in column (4) thereof, and the whole of Sales Tax leviable under the Sales Tax Act 1990 ... subject to the following conditions, besides the conditions specified in column (5) of the Table, namely:-
(i)the imported goods as are not listed in the locally manufactured items, notified through a Customs General Order issued by the Federal Board of Revenue (FBR) from time to time or, as the case may be, certified as such by the Engineering Development Board....;.........
TABLE
| S. No | Description | PCT heading | Custom Duty | Conditions |
| (1) | (2) | (3) | (4) | (5) |
| 24 | Air Handling Units | 8415.8300 | 5% | Of those specifications which are not manufactured locally." |
Customs General Order 11 of 2007 dated 28.08.2007 ("CGO 11") had provided in material part as follows (emphasis supplied):
"Subject: LIST OF LOCALLY MANUFACTURED GOODS/ITEMS FOR THE PURPOSES OF CONCESSIONARY NOTIFICATIONS ETC.
The goods detailed in the appended list of this CGO are manufactured locally. This list is compiled and updated by the Engineering Development Board in consultation with stakeholders. Henceforth the appended list of locally manufactured goods is applicable for reference purposes to all the exemptions/concessionary notifications...."
Entry No. 504 from the list is relevant for present purposes. It had provided as follows:
| "CGO Sr. No. | PCT HS 2007 | Products | Specifications | Physical Properties | Chemical Properties | Company |
.....
| 504 | 8415.8300 | Air Handling Units | 1500 to 50,000 cfm - Horizontal draw through - Vertical draw through - Multi Zone blow through - Single Zone blow through - Double Skin | -- | -- | Sabro Technologies (Pvt) Ltd. ("Sabro") ... Habibullah Industries (Pvt.) Ltd. ("Habibullah")..." |
4.Learned counsel for the petitioner submitted that it had drawn up plans sometime in 2009 for establishing a pharmaceutical manufacturing facility at Karachi to produce vaccines, biotech products and lifesaving drugs. The manufacturing facilities had to be of a very sensitive nature requiring, inter alia, precise control over the quality and quantity of the air circulating through the plant. This, in turn, required use of sophisticated, customized and state of the art air handling units. The consultants engaged by the petitioner advised that the local manufacturers did not manufacture units of the sort required by it, and therefore they would have to be imported. Referring to CGO 11, learned counsel submitted that neither of the two local manufacturers listed in entry No. 504 produced the air handling units with the specifications required by the petitioner. The latter therefore had no option but to import the same.
5.It was submitted that the (irrevocable) letter of credit was opened by the petitioner on or about 09.09.2010 and in all 34 air handling units were imported there under. The goods declaration for 16 units was filed on 14.02.2011, while that relating to the remaining 18 was filed on 22.07.2011. The present dispute is in relation only to the latter. It was stated that in fact all the units had been imported at, or around, the same time, but a certain classification dispute (which need not detain us) arose and that delayed the filing of the goods declaration for the 18 units now in contention. Learned counsel submitted that duty was paid in full on the other 16 units and that is not now challenged, but was without prejudice and therefore does not affect the petitioner's claim under SRO 575 in respect of the 18 units.
6.As regards the units now in dispute, as noted above the Department took the position that they were manufactured locally. Referring to the two manufacturers listed in ertry No. 504 of CGO 11, learned counsel submitted that one, Habibullah, took the categorical position that it did not manufacture air handling units having the specifications of those imported by the petitioner. Reference was made in this regard to Habibullah's letter dated 24.03.2011 to the Engineering Development Board ("EDB") where it was, inter alia, stated by them that although"wehave been manufacturing Units since last several years ... but we advise that the Units with such additional technical requirements are not manufactured by us and in our opinion are only to be imported from Foreign Special Manufacturers specialized on such Units". Insofar as Sabro was concerned, learned counsel referred to its letter dated 18.03.2011 to the EDB. There Sabro, after referring to some earlier correspondence with EDB in 2009, stated as follows: "now we have develop the capability for manufacturing the (AHUs) as per specification mentioned in your letter being imported by [the petitioner]". Learned counsel submitted that it was clear from this correspondence that Habibullah did not manufacture the air handling units of the sort required whereas Sabro only claimed the capability to do so. That, however, was not enough. Mere capacity or capability was insufficient; the goods had actually to be manufactured locally at the time of import. That was patently not the situation and hence entry No. 504 of CGO 11 did not stand in the petitioner's way. In this regard strong reliance was placed on a passage (para 32 at pg. 343) from the well known judgment of this Court reported as Sohail Jute Mills Ltd. and others v. Federation of Pakistan and others PLD 1991 SC 329 ("Sohail Jute Mills").
7.Continuing with his submissions, learned counsel referred to a certificate that was issued by EDB on 01.04.2011 ("EDB Certificate"). This is of importance and stated in material part as follows:
"DETERMINATION OF LOCAL MANUFACTURING STATUS
M/s Sami Pharmaceuticals (Pvt.) Ltd.
. . .
On the basis of confirmation received from the local industry, it is informed that the "AIR Handling Units (AHUs)" being imported by you, are being manufactured locally by the following local manufacturers:
Messrs Coolpoint (Pvt.) Ltd. ...
Messrs Sabro Technology (Pvt.) Ltd. ...
Messrs Petal Engineering (Pvt.) Ltd. ...
Messrs Ageco (Pvt.) Ltd. ..."
Learned counsel submitted that after this certificate a meeting was convened by EDB on 12.05.2011, in which the petitioner's representative and representatives from three of the four companies listed in the certificate above participated, as did various EDB officials. Learned counsel relied on the following portion from the minutes of the meeting (circulated on 18.05.2011):
"In response to the above, local manufacturers confirmed that they are quite capable to manufacture the AHUs as per the requirement of the customers and have supplied AHUs with Plug Fan and VFDs to various pharmaceuticals firms and AHUs with other requirements to very sensitive organization, like SUPARCO, NESCOM and Pakistan Navy etc. They informed that they have the capability to manufacture the AHUs of over and above the parameters which are required by Messrs Sami Pharmaceuticals. As regards manufacture of AHUs with Bio-Pharma grade material and specified-filters to control microbial counts, is concerned, they explained that they can meet the requirement of Messrs Sami Pharmaceuticals by importing the same, as ordinary raw materials and filters are in the import list. The local manufacturers also informed that recently they have developed and tested the AHU with Heat Recovery Wheel. They also agreed to provide performance guarantees of their AHUs in the shape of bank guarantees, which may be encashed by Messrs Sami Pharmaceuticals (Pvt.) Ltd. in case the AHUs to be supplied by them do not meet project requirement or are not up to the mark in terms of performance."
It was submitted that the foregoing passage confirmed that at best the local industry had the capacity to manufacture air handling units of the sort imported by the petitioner but, crucially, no one actually did so. According to learned counsel, this distinction was imperative and conclusive. The petitioner could be denied the benefit of SRO 575 if, and only if, air handling units with the specifications as imported by it were being actually manufactured in the country and not otherwise. Thus, the certificate issued by EDB was contrary to the actual position and of no avail. The petitioner had been wrongly denied the exemption to which it was entitled.
8.During the course of submissions, certain queries were put to learned counsel (as also learned counsel for the respondents) with regard to what seemed to be certain differences in the language used in SRO 575 on the one hand and the notification in issue in Sohail Jute Mills on the other. Responding, learned counsel submitted that the petitioner's import did not come within the scope of entry No. 504 of CGO 11. As regards the EDB Certificate, it was issued long after the petitioner had taken steps (such as the opening of the letter of credit) that had resulted in the vesting of the right to the exemption in the petitioner. Reliance in this regard was placed on the principle enunciated by this Court in the seminal case of Al-Samrez Corporation v. Federation of Pakistan 1986 SCMR 1917 ("Al-Samrez"). When this submission led to a query as regards section 31A of the Customs Act, learned counsel submitted that that section had no application since the facts and circumstances of the case at hand did not come within the scope thereof. More particularly, the issuance of the EDB Certificate on 01.04.2011 (which was therefore in force on 22.07.2011 when the goods declaration in relation to the 18 units was filed) did not amount to any "withdrawal" of the exemption within the meaning of section 31A. Thus, according to learned counsel, on any view of the matter, the petitioner was entitled to the relief it was seeking, which had been erroneously denied by the learned High Court. It was prayed accordingly.
9.Learned counsel for the respondents (being respectively, the Federation, the EDB and the Department) strongly opposed the leave petition and prayed for its dismissal. Since their submissions were similar and to a certain extent overlapping I take them up together, without intending any disrespect. It was submitted that the record established beyond any reasonable doubt that the air handling units of the sort imported were locally manufactured, and hence the petitioner was not entitled to any exemption under SRO 575. Learned counsel referred in particular to the correspondence exchanged between the petitioner and/or EDB and the local manufacturers (as placed on record) and to the following passages from the minutes of the aforementioned meeting convened by the EDB on 12.05.2011:
"In the light of the discussions held in the meeting, it was concluded that Air Handling Unit (AHU) is a customized product and local manufacturers are technically capable to manufacture the AHUs which are being imported by Messrs Sami Pharmaceuticals (Pvt.) Ltd. As regards Bio-Pharma grade material or any other specialized component is concerned, same can be imported by the local manufacturers to meet the requirement of the client.
It was unanimously agreed by the participants that there is no difference in technical specifications of AHUs being imported by Messrs Sami Pharmaceuticals (Pvt.) Ltd. and those manufactured locally. The technical specifications of any equipment have no nexus as to the project requirements or quality, which shall not be considered while granting exemptions to an importer at the cost of public exchequer."
Itwassubmittedthattherecordwasclearandconclusive.TheEDBCertificatehadbeenrightlyissued,andwasinitsterms categorical. ThereliancesoughttobeplacedonSohailJuteMillswas misconceived. It was prayed that the leave petition bedismissed.
10.Learned counsel have been heard as above, and I have considered the record and case law cited. At first sight, the question seems simply to be this: were the air handling units, of the sortimported by the petitioner, locally manufactured at the relevant time? Certainly, the learned High Court considered this to be the point in issue. Reliefwasrefusedfortworeasons.Firstly,itwasheldthatitwasessentiallyaquestionoffact,whichhadbeendeterminedbythe EDB at its aforementioned meeting. Suchafactualfindingcould not be challenged in constitutional jurisdiction. Secondly, it was held that the facts and circumstances at hand were materially different from those in Sohail Jute Mills and hence the ratio of that judgment did not apply.
11.I have carefully considered the matter. With respect, I am of the view that perhaps the learned High Court may not have been properly assisted. The reason is that it appears that the learned High Court was not invited to consider the actual language as used in SRO 575. Now, the language used in the concerned provision is, more often than not (though not always), determinative. This is perhaps all the more so in fiscal legislation, where even a minute turn of phrase can be decisive. A classic example is the judgment of this Court in Collector of Customs and others v. Ravi Spinning Ltd. and others 1999 SCMR 412. The dispute was as to entitlement to exemption under notifications issued under section 19 of the Customs Act. As per the language used therein, some of the notifications exempted the duty specified in the First Schedule to the Act (which sets out the statutory rates of duties). Other notifications exempted the "customs duty" or "duties", without any specific reference to the First Schedule. The distinction may appear to be slight but it made all the difference. After the notifications had been issued regulatory duty was imposed under section 18(2). The question arose whether the exemption notifications extended to this imposition. It was held that those notifications, where the language referred specifically to the First Schedule, did not provide protection from the regulatory duty. However, those where exemption was granted from "customs duty" or "duties" did so extend. So, the actual language of SRO 575 is all-important and must be examined.
12.For analytical purposes, it will be convenient to compare and contrast the language used in SRO 575 with that employed in the notification in issue in Sohail Jute Mills. That was SRO 500(I)/84 dated 14.06.1984 ("SRO 500"). As presently relevant, it provided as follows (emphasis supplied):
"S.R.O. 500(1)/84.- In exercise of the powers conferred by section 19 of the Customs Act, 1969 ... and subsections (1) and (2) of section 7 of the Sales Tax Act, 1951 ... the Federal Government is pleased to direct that the plant and machinery which is not manufactured locally shall, if imported for initial installation or for balancing, modernizing, replacement or extension of the projects approved by the Government for the areas specified in column (2) of the table below, be exempt from so much of the customs-duties leviable thereon under the First Schedule to the said Act as are in excess of the extent specified in the corresponding entries of column (3) of the table, and the whole of sales tax subject to the following conditions..."
It will be seen that this notification had referred simply, and in a sense broadly, to such plant and machinery as was not manufactured locally and (as presently relevant) nothing else. In any dispute as to whether there was, or was not, local manufacture it therefore, as it were, provided an open field both to the Department and the importer. Furthermore, while the legal burden of establishing that there was no local manufacture lay on the importer (on the basis of well established principles relating to the interpretation of fiscal exemptions), the evidential burden lay on the Department. After all, the importer could not prove a negative. Initially at least the burden lay on the Department to show that there was local manufacture. It was then for the importer to show that this was not so. Of course, if ultimately he was unable to do so there was no entitlement to the exemption. Furthermore, the question throughout remained a mixed one of law and fact. Ultimately, it had to be determined whether there was, as a matter of law, local manufacture within the meaning of the exemption. This is, e.g., clearly shown by the passage from Sohail Jute Mills relied upon by learned counsel for the petitioner (para 32 at pg. 343). But the factual component was predominant, which is why, in the very passage just referred to, this Court remanded the matter "for fresh determination by the departmental officers after ascertaining the full facts of the case". In the context of the submissions as made before it, it is perhaps not surprising that the learned High Court concluded that it was the factual aspect that controlled. However, as shall be seen presently, with respect, this was actually not so.
13.When SRO 575 is considered, it is clear that the purpose was the same as SRO 500: not to extend the benefit of the exemption to goods locally manufactured. However, the language actually used was significantly different, both generally and in the specific context of the goods being imported, i.e., air handling units. I first take up the general aspect. For this purpose, it is condition (i) that has to be examined, and applied in terms of its own phraseology. Now, condition (i) clearly eschewed the sort of broad language that had been used in SRO 500. It provided instead for two specifically crafted contingencies, on the existence of any one of which the benefit of the notification became unavailable. The first was where the imported goods were listed as "locally manufactured items" in a customs general order (CGO) issued from time to time by the FBR. The second was where the imported goods were "certified as such", i.e., as being locally manufactured items, by the EDB. The reason why at first sight both SRO 500 and SRO 575 may appear to be the same is that if applicable the result in each case was the same: the goods, being locally manufactured, would not have the benefit of the exemption. But, the actual routes taken (i.e., language used) in the two notifications were different, and decisively so. SRO 500 permitted a broad exercise, essentially of a factual nature. The legal component was not dominant. SRO 575 on the other hand limited the exercisetowhethereither of the two contingencies laid out in condition (i) was applicable. Although this exercise obviously had a factualfacet,itdidnotdominateoverthelegalaspect.Oneconsequencewasthat as compared with SRO 500, SRO 575placedboth the legal and evidential burden on the importer. As long as there was a CGO and/or certificate from EDB in the field, the burden lay entirelyontheimportertoshowthathisgoodsdidnotcomewithinthe scope of either. However, there was another side of thiscoin, which is of importance for present purposes. If the importer did succeed in showing that his goods were covered neither by a CGO or an EDB certificate, then it was not open to the Department to contend that he was, nonetheless, not entitled to the exemption because, e.g., there was some other manufacturer who did locally produce the goods. Condition (i) did not merely limit the importer to the contingencies stipulatedtherein.ItalsoconfinedtheDepartmenttowhateverwasset out in either the CGO or an EDB certificate. This was clearly different from the position that emerged under the language used in SRO 500.
14.As regards the language used in the specific context of air handling units, entry No. 24 provided that the exemption was available only to units of "specifications which are not manufactured locally". This condition clearly recognized that air handling units came in more than one type of specifications, of which some sorts only were being locally manufactured. Thus, it required that the CGO to be issued by FBR, or the certificate that could be issued by the EDB, had to list (or at any rate clearly relate to) the specifications of the air handling units that were to be regarded as being locally manufactured. It would, e.g., be insufficient only to list, without more, "air handling units" (with or without their PCT heading) in the CGO or the EDB certificate.
15.The points made in the preceding paragraphs may be illustrated by taking an example. Suppose that air handling units were of three sorts: specifications A, B and C. Suppose further that there were three local manufacturers: X, who manufactured all three specifications; Y, who only manufactured A and B; and Z, who manufactured only C. Now, suppose a CGO were issued, listing only specifications A and B, and manufacturers X and Y. And, finally, suppose that there was an import of units of specification C. Was the importer entitled to the benefit of SRO 575? The answer would have to be in the affirmative. The specification in question, C, was not listed in the CGO. Therefore, the fact that it was being produced locally by a manufacturer listed in the CGO (X) and one not so listed (Z) would not be relevant. Condition (i) would not apply. But suppose that subsequently EDB issued a certificate listing specification C and manufacturer Z (and/or X). What would now be the position? Clearly, the benefit of the exemption would not be available. Condition (i) would now be applicable.
16.As the above discussion indicates, the manner in which the matter appears to have proceeded before the learned High Court did not, with respect, place the dispute in its correct perspective. SRO 575 had to be considered and applied in terms of the language actually used therein, and not as an essentially factual exercise that required (or permitted) a determination, generally speaking, of whether air handling units of the sort imported by the petitioner were locally manufactured. The exercise had to be crafted and channelized in the manner dictated by the actual language used in the notification. Having established the locus within which the determination had to be made, I now turn to consider whether thepetitioner had any claim to relief in the facts and circumstances of its case.
17.I begin with entry No. 504 of CGO 11, since that was in the field at all material times. It listed certain specifications and two local manufacturers thereof, Habibullah and Sabro. As explained above, for CGO 11 to apply the question was not whether either Habibullah or Sabro manufactured air handling units with the same specifications as those imported by the petitioner. Rather, the true and correct question was whether the petitioner's air handling units were of the specifications as listed in CGO 11, and manufactured by Habibullah or Sabro. In our view, the record shows that this was not the case. For this purpose, the correspondence addressed by these manufacturers, described in para 5 herein above, is relevant. Had the petitioner's units been of the specifications as given in entry No. 504, the two manufacturers would surely have pointed this out and stated that they were manufacturing the same. Habibullah however stated categorically that it did not manufacture units of the petitioner's specifications. This, in our view, indicates that those specifications were not the same as, and in the eyes of law and for purposes of SRO 575 had to be treated as being different from, those as listed in CGO 11. Therefore, and now turning to the Sabro correspondence, even if this manufacturer did produce units of the petitioner's specifications that did not matter, as those were different from the specifications as listed in CGO 11. The fact that Sabro was listed in entry No. 504 was, as explained above, not relevant in and of itself. No customs general order has been relied upon by the Department other than CGO 11. In our view, therefore, there was not at any time relevant for present purposes a CGO in the field as came within the scope of condition (i) in relation to the facts and circumstances of the petitioner's case.
18.What of the second contingency provided for in condition (i), namely a certificate issued by EDB? Did the EDB Certificate of 01.04.2011 qualify? Having considered the record as a whole in our view this question must be answered in the affirmative. The certificate has been reproduced in material part in para 6 herein above. In our view, it conforms to the requirements of condition (i). It stated on the face of it that the four manufacturers listed therein were manufacturing the air handling units "being imported by [the petitioner]". In the overall context of the record, this can only mean of the specifications as the imported goods. It also stated that those units "are being manufactured locally", i.e., there was not just the capacity or capability to produce, but actual manufacture. The onus therefore lay entirely on the petitioner to show that the EDB Certificate was wrong either in law or in fact, such that the Court would have to disregard it for purposes of SRO 575. For this purpose, learned counsel for the petitioner relied on the passage from the minutes of the meeting convened by EDB, reproduced in para 6 herein above. Learned counsel for the respondents on the other hand relied on the passages from the same minutes as reproduced in para 8. Reliance was also placed by them on the correspondence between the local manufacturers and the petitioner and/or EDB. It is of course trite law that a document has to be read as a whole. In our view, when the minutes are so read, and the other record taken into consideration, they serve only to confirm what was set out in the EDB Certificate. The challenge to the certificate must therefore fail.
19.This does not however end the matter. As noted above, during the course of submissions before us, learned counsel for the petitioner relied on the well known principle laid down in Al-Samrez, on the basis that while the EDB Certificate was issued on 01.04.2011, the petitioner had, inter alia, opened the letter of credit on 09.09.2010. Therefore, it was contended, although the goods declaration for the units now in contention was filed on 22.07.2011, the petitioner was entitled to the benefit of the exemption under SRO 575. To the inevitable query regarding the effect of section 31A of the Customs Act, learned counsel submitted that that section did not apply in the facts and circumstances of the case at hand. Learned counsel for the respondents submitted that the foregoing submissions were without force. It is these questions that need now to be addressed. I intend to do so in two steps. Firstly, I will consider whether, ignoring section 31A for the time being, the Al-Samrez principle would have applied to the facts and circumstances of the petitioner's case? If so then, secondly, I will consider whether section 31A would apply, thereby negating the application of the Al-Samrez principle.
20.The Al-Samrez principle, which was quickly recognized as being a seminal development in the law that was applicable generally to fiscal legislation of all sorts, has been considered in a number of judgments, and is too well known to require any elaborate exposition. As relevant for the present context, it can be described as follows: if an importer alters his position in reliance on an exemption notification (e.g., by entering into a contract or opening a letter of credit), he then acquires a vested right in the exemption to which he remains entitled even if the exemption itself stands withdrawn by the time the goods arrive in Pakistan. In our view, it is clear that the Al-Samrez principle would apply in the facts and circumstances of the present case. The EDB Certificate, issued on 01.04.2011, could not, as a matter of law and for purposes of condition (i) of SRO 575, have any retrospective effect. As a certification that air handling units of the sort imported by the petitioner were being locally manufactured it could only apply prospectively from the date of its issuance. Thus, at the time that the petitioner opened its letter of credit it was only the first contingency of condition (i) that applied, because only CGO 11 was in the field. But I have already concluded that entry No. 504 thereof did not apply to the petitioner's import. As a matter of law, and on an application of the Al-Samrez principle, it must be regarded that in reliance of the exemption contained in SRO 575 the petitioner altered its position to its detriment by opening the letter of credit. The subsequent issuance of the EDB Certificate could not affect this position. The first question must therefore be answered in favour of the petitioner.
21.This brings me to the second question. Subsection (1) of section 31A provides as follows:
"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, 30A and 31, the rate of duty applicable to any goods shall include any amount of duty imposed under sections 18, 18A and 18C 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."
It is of course well understood that the section was added (in 1988, although the inserting clause deemed it always to have been a partoftheCustomsAct)tooverrideor nullify the effect of the Al-Samrez principle. Looking at the section, it is clear that if at all the EDB Certificate is to apply in the context thereof it would have to tantamount to a "withdrawal of the whole or any part" of the exemption. It is only if this were so that, when the goods declaration was subsequently filed on 22.07.2011, the Al-Samrez principle would be rendered inoperable.
22.Section 31A was recently considered by this Court in Al-Tech EngineersandManufacturers v. Federation of Pakistan and others 2017 SCMR 673, 2017 PTD 1657. The Al-Samrez principle was described in para 7 of the judgment in terms substantially similar to what has been said herein above. It was then observed as follows (emphasis supplied):
"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 SCMR 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...."
In light of the above, in considering whether the issuance
of the EDB Certificate amounted to a "withdrawal" of the exemption under SRO 575 within the meaning of section 31A, a restrictive view will have to be taken. When so considered, in our view there was no withdrawal of the exemption. It could be said
that the exemption ceased to apply in relation to the petitioner's goods when the certificate was issued on 01.04.2011. However, that was not, in the context of section 31A, a withdrawal of the exemption. That could take place only as a result of an act of the authority issuing the same, which would have to be the Federal Government since notifications under section 19 were issued by it at the relevant time. The act could be a rescission or supersession of the relevant notification (the clearest form of withdrawal) but it could even come about as a result of an addition, amendment or variation thereof or therein. However, the result of an act of some other body, person or third party, even if acting under the sanction of the issuing authority would not count. It is only in this way that the restrictive approach to section 31A, as mandated by this Court, can be maintained. In the present context, it must also be kept in mind that the local manufacture of goods was neither absolute nor a given. Thus, goods may be being manufactured at or over a given time or period, but such activity may come to an end, in which case the exemption would revive. Or, the reverse could be true. All of this is inconsistent with the exemption being withdrawn in the sense contemplated by section 31A. The second question must therefore also be answered in favour of the petitioner.
23.In view of the foregoing, I conclude that the petitioner was entitled to the benefit of SRO 575 in respect of the 18 air handling units for which the goods declaration was filed on 22.07.2011. This was so by an application of the Al-Samrez principle, which
was not ousted or negated by reason of section 31A. Therefore, I would have converted this leave petition into an appeal and allowed the same.
Sd/-
Munib Akhtar, J
ORDER OF THE COURT
By majority of 2 to 1, we hold that as the Engineering Development Board of Pakistan vide its letter dated 01.04.2011 imported by the petitioner from China as one of the locally manufactured items, the petitioner therefore was not entitled to claim exemption/concession granted under SRO 575(I)/2006 dated 05.06.2006. This petition is accordingly dismissed and leave is refused.
Sd/-
Mushir Alam, J
| Sd/- Faisal Arab, J | Sd/- Munib Akhtar, J |
MWA/S-5/SCPetition dismissed.