PUNJAB BEVERAGES COMPANY (PVT.) LTD. VS PAKISTAN through Secretary Ministry of Finance, Economic Affairs, 2013 PTD-ISLAMABAD 1046 (2013)

(a) Federal Excise Act (VIII of 2005)---

----Ss. 6(3) & 6(1)---S.R.O 650(I)/2005 dated 1-7-2005---Constitution of Pakistan, Art. 199---Constitutional petition---Adjustment of duties of excise---Variation of duty structure by the Federal Board of Revenue under S. 6(3) of the Federal Excise Act, 2005---Delegated authority---Exercise of discretion by executive---Scope---Petitioner, a beverages company, contended that vide. notification issued by the Federal Board of Revenue, exercising discretion under S. 6(3) of the Federal Excise Act, 2005, it disallowed adjustment of duty on concentrates in all forms, which had the effect that the duty paid by the petitioner on the concentrate used by the petitioner was no longer deductible at the time of sale, thereby the entire burden of the excise duty , at time of input and at time of output of produced goods, was shifted on the petitioner; that S. 6(1) Federal Excise Act, 2005 conferred a vested statutory right upon the petitioner to deduct excise duty, which could not be taken away by S. 6(3) of the Act, and that S. 6(3) of the Act was therefore, ultra vires the Constitution as the Federal Board of Revenue was not competent to exercise legislative authority---Validity---Legislation was the exclusive domain of the legislature and even the Legislature could not delegate the power to the executive but the Legislature had no authority or domain to ensure the implementation of the intent of the Legislature at the grass root level, which was the domain of the Executive---Legislature, in the present case, performed its duty through the promulgation of the Federal Excise Act, 2005, wherein guidelines and principles were laid down for the collection of excise duty in accordance with the mandate of the Act,and it was left to the discretion of the Executive, that was, the Federal Board of Revenue, through the impugned S. 6(3) of the Act, to disallow or restrict wholly orpartly the adjustment of excise duty already paid on input goods at time of calculation of duty on manufactured goods from the input goods---Subsequent notification issued by the FBR was within the mandate given to it by the Legislature, and in the exercise of said mandate, the FBR had not done any legislation but had exercised discretion on the Executive side for the calculation of the excise duty, and on such score, exercise of delegated authority under S.6(3) of the Federal Excise Act, 2005 was not unconstitutional or illegal---Petitioner had not been singled out and had been treated like other beverage companies, and there was thus no violation of its fundamental rights---Federal Board of Revenue, in the present case, had actedfairly and have exercised authority in a just manner---Constitutional petition being without merit, was dismissed, in circumstances.

PLD 1965 DACCA 117; Gul Cooking Oil and Ghee v. Pakistan Custom PLD 2007 Pesh. 39; Allied Bank Limited v. District Officer Revenue and others PLD 2011 Lah. 402; Noorani Traders v. Pakistan Civil Aviation Authority PLD 2002 Kar. 83; Airport Services Limited v. Manager Airport 1992 SCMR 2268; Collector of Central Excise Land Custom v. Aziz Ullah PLD 1970 SC 439 and "Shahid Mehmood v. Faisal 2011 SCMR 55 and PLD 2001 SC 811 distinguished.

(b) Constitution of Pakistan---

----Arts. 7, 8 & 77---State and Fundamental Rights---Levy of taxes, duties etc by State---Scope stated.

Individuals created the State and it is the responsibility of the State to protect itself from the aggression of other States, to organize a political body to run its affairs and protect individuals. The State is not expected to generate funds like a business concern to discharge its obligations and has to collect the resources from the individuals who being members of an organized society, that is, the State are expected to help out the State in the discharge of its duties, therefore, the levy of a particular duty on any product by the State is neither against the fundamental rights guaranteed under the Constitution nor it is unIslamic.

Muhammad Afzal Siddiqui and Hamid Ahmed for Petitioners.

BabarBilalandMs.ShaziaBilalforRespondentsNos.2and3.

Javed Iqbal, Standing Counsel for Respondent No.1.

Date of hearing 7th March, 2013.

JUDGMENT

SHAUKAT AZIZ SIDDIQUI, J.---Brief facts glean out from the petition are that, petitioner, Punjab Beverages Ltd. is a private limited company and is engaged in production of aerated beverages, (Pepsi Cola and other brands) the basic raw material forwhich "concentrate" which is purchased duty paid from the suppliers and used directly as input goods for the production and this item is included in the First Schedule at Serial No. 3 heading number 2106.9010, therefore, the duty paid is deductible at the time of output of finished product.

2.It is the contention of the petitioner that on very date of enforcement of the Act, i.e. on 1st July 2005, CBR issued Notification No.S.R.O. 650(I)/2005, under section 6(3) of the Act, by singling out "concentrates" form the list and has disallowed adjustment of duty on concentrates in all forms falling under above mentioned heading, with the effect that duty paid by the petitioner on concentrates used directly as input goods for production of aerated beverages, is no longer deductible at the time of sale, thereby placing entire burden of duty paid on input goods and to doubly pay the duty at the time of output of produced goods (beverages). Section 6(1) of the Act constitutes a statutory representation of deduction of duty paid on input goods at the time of output and this statutory representation which constitutes vested statutory right cannot be taken way by section 6(3) and to this extent section 6(3) is ultra vires of the constitution and the Act and is liable to be struck down inter alia on the principles of:

(a)Excessive, unguided delegation,

(b)Imposition of impermissible double taxation;

(c)Arbitrary, fanciful, unjust and unfair exercise of discretion;

(d)Frustrate a statutory provision and nullification of a statutory right by an executive action or subordinate legislation (Notification);

(e)Frustration of essential legislative intendment and purpose;

(f)Substantive unfairness; and

(g)Discrimination

3.Learned counsel for petitioner argued that effect of section 6(3) is that whatever is granted or allowed as relief (adjustment) by the statute itself, can by virtue of delegation, be undone or disallowed by FBR and the Central Constitutional objection is that FBR is not a legislative body, hence to it cannot be delegated legislative functions or powers to frustrate letter of law, in any circuitous delegation of legislative powers. The Federal Excise Act, 2005 was enacted to consolidate and amend the law relating to duties of excise on goods manufactured, produced, imported or consumed and services provided or rendered in Pakistan. Section 6 of the Act relates to "adjustment of duties of excise" which reads as under:

"6. Adjustment of duties of excise:

(1)For the purpose of determining net liability of duty in respect of any goods, the duty already paid on goods specified in the First Schedule and used directly as input goods for the manufacture or production of such goods shall be deducted from the amount of duty calculated on such goods.

(2)Adjustment of duty of excise under subsection (1) shall be admissible only if a person registered under this Act holds a valid proof to the effect that he has paid the price of goods purchased by him including the amount of duty and has received the price of goods sold by him including the amount of duty through banking channels including online payment whether through credit card or otherwise.

(3)"(3) Notwithstanding the provision of subsection (1), the Board may, by notification in the official Gazette, disallow or restrict whole or part of the amount of or otherwise regulate the adjustment of duty in respect of any goods or class of goods."

It is contended that in the First Schedule, Table-I of the Act, the excisable goods covered by section 6(1) of the Act, are listed at Serial No.3 of the List is "concentrates for aerated beverages in all forms including syrup form" heading No.2106.9010 and the rate of duty thereon is 50% advalorem. The concentrates used by the petitioner in production of its goods thus fall in this item of the said list. Thus under subsection (1) of section 6 any duty already paid on goods specified in First Schedule and used directly as input goods for the manufacture or production of such goods shall be deducted from the amount of duty calculated on such goods. This constitutes statutory representation of the Federal Government. This representation has been frustrated by a subordinate functionary (FBR) which has no legislative powers. Petitioner is therefore, direct beneficiary of this adjustment and since the adjustment allowed by the statute has been disallowed on the same day by FBR, petitioner has direct and substantial interest in the subject matter, therefore, undefined powers given to the CBR under subsection (3) of the Section 6 of the Act have to be interpreted in a manner that the substantive intent of the Act is achieved and not nullified.

4.Learned counsel for petitioner further argued that, very scheme, rationale and intent of the Federal Excise Act, 2005 is to harmonize "indirect taxation scheme" was that for the purpose of finished product used by the general body of consumers/public is burdened with only a single taxand not double taxation. Any duty paid on input product used for manufacture/production of end product has to be deducted so that only the output product is taxed. The intention of the legislature is absolutely clear form subsection (1) of section 6 of the Act and has been frustrated by FBR. Learned counsel for petitioner, placed his reliance on case-laws reported as PLD 1965 DACCA 117, PLD 2007 Peshawar 39 (DB), PLD 2011 Lahore 402, PLD 2002 Karachi 83, 1998 SCMR 2268, PLD 1970 SC 439, 2011 SCMR 551 and PLD 2001 SC 811.

5.In above perspective of the case, it is the prayer of petitioner through written arguments that:--

(A)Section 6 of Federal Excise Act, 2005, be construed on recognized touchstone, and it be declared that subsection (3) of section 6 of the Federal Excise Act, 2005, is ultra vires of the constitution, violative of the Act itself, and is otherwise bad, and opposed to the principles of public policy, confers unguided, fanciful, and arbitrary powers to the Central Board of Revenue, and is liable to be struck of the Statute Book;

(B)Upon construction of section 6 of the Act, it may graciously be determined that subsection (1) of section 6 of the Act, constitutes a statutory representation to the manufacturers/ producers that duty paid on input materials used for their manufacture/ production shall be deducted at the time of output of finished products, and this deductibility is a vested statutory right, saved on the principles of Statute Estopped, which cannot be taken away by a non-legislative executive action;

(C)Within the statutory scope of section 6(1), it may graciously be determined and declared that Notification No.S.R.O. 650(I)/ 2005 dated 1st July, 2005 issued by the Central Board of Revenue, is unconstitutional and without lawful authority, and in effect nullifies a statutory provision, takes away a vested right, is without reasons, hence violates section 24A of General Clauses Act, is discriminatory, frustrates the statutory intent, is mala fide, oppressive exercise of excessive delegation of powers and in law and under the Constitution a nullity hence liable to and may graciously be struck down.

(D)All the three notifications namely Notifications S.R.O. 649(I)/ 2007 dated 27th June 2007 granting partial exemption and S.R.O. No.399(I)/2010 dated 5th June 2010 whereby S.R.O. of 2005 was rescinded, be examined in truest perspective so as to judicially determine whether withdrawals constitute acknowledge-ment of inherent void nature of the impugned notification or a subterfuge and it be declared that petitioners are entitled to be restored to the position of 1st July, 2005 under the Act, so as to be able to claim benefit of statutory adjustment under Federal Excise Act, 2005 and thus to claim adjustment of full amounts illegally and forcibly recovered by the respondents under the impugned notification.

6.On the other hand, respondents Nos.2 and 3 filed their replyand parawise comments. Respondent No.2 also submitted written submissions/arguments and prayed for dismissal of writ petition inter alia on the grounds that Federal Excise Act, 2005 is a valid law duly passed by the Parliament. Section 6(3) of the Federal Excise Act, 2005 provides as under:-

"Notwithstanding the provisions of subsection (1), the Board may, by a notification in the official Gazette, disallow orrestrictwholeorpartoftheamountoforotherwiseregulatethe adjustment of duty in respect of any goods or class of goods".

It is contended that Federal Board of Revenue has acted in accordance with law and has exercised the powers within the limits of the Act and section 6(3) of the Federal Excise Act has an overriding effect. The wisdom of the legislature cannot be questioned nor the same can be termed as unguided or redundant and the Power of the Board to vary the duty structure is, not a new concept as a similar provision was also provided under section 3(2) of the Central Excise and Salt Act of 1944. Moreover, under section 8(1)(b) of the Sales Tax Act, 1990, similar powers are vested in the board whereby the Federal Govt. may by Notification in the Official Gazette refuse any person to reclaim or deduct input tax paid. It is further contended that power to regulate the duties has been given to Federal Board of Revenue not only under the FederalExcise Act but also under various other laws such as the Sales Tax Act, 1990, Income Tax Ordinance, 2001 etc. hence no discrimination and the petitioner has been given the same treatment as given to all other industries in the business. Lastly, it is concluded that since the impugned notification is no more in field, therefore, writ petition has become infructuous.

I have heard the learned counsel for the parties and perused the record.

7.From the perusal of the pleadings and the arguments advanced by the learned counsel for the parties it is apparent that the main claim of the petitioner is that clause (3) of section 6 of the Federal Excise Act, 2005 and thereafter the impugned notification issued by the CBR No. S.R.O. 650(I)/2005 dated 1-7-2005 are unconstitutional and liable to be declared as such. The section 6 of the Federal Excise Act, 2005 is hereby reproduced for ready reference:--

Adjustment of Duty of Excise:-

(1)For the purpose of determining net liability of duty in respect of any goods, the duty already paid on the goods specify in the first schedule and used directly as input goods for the manufacture or production of such goods shall be deduced from the amount of duty calculated on such goods.

(2)Adjustment of duty excise under subsection (1) shall be admissible only if a person registered under this act holds a valid proof to the effect that he has paid to the price of goods purchased by him including the amount of duty and has received the price of goods sold by him including the amount of duty through banking channels including the online payment whether through credit card or otherwise.

(3)Notwithstanding the provision of subsection (10), the board may, by notification in the official gazette, disallow or restrict whole or partly of the amount of or otherwise regulated the adjustment and duty in respect of any goods or class of goods.

Perusal of the above section reveals that as per clause (1) for the purpose of determining net liability of dues in respect of any goods the duty already paid on the goods specified in the First Schedule and used directly as input goods for the manufacture of such goods shall be deducted from the amount of duty calculated on such goods. The clause (2) of this Section provides that the facility of the adjustment of the excise duty of the input goods is only admissible to a person registered under the Federal Excise Act, whereas clause (3) of this section empowers the FBR to disallow or restrict whole or part of the amount or otherwise regulate the adjustment of the duty in respect of any goods or class of goods subject to the notification in the official gazette. In the exercise of the power conferred on the Federal Board of Revenue (hereinafter to be referred as FBR) under clause (3) of section 6, the FBR issued the impugned notification Annexure "A" on the same day i.e. 1-7-2005 when the Federal Excise Act came into force, and through this notification, the Central Board of Revenue now the FBR disallowed the adjustment of the duty on the concentrates and thereafter the petitioner and the other beverages dealing in business of the manufacture of aerated waters were refused the adjustment duty of the input goods i.e. concentrate in all forms. Subsequently, FBR issued another Notification S.R.O. No.649(I)/2007 on 27-6-2007 whereby the adjustment of 25% of excise duty was allowed on input goods and through S.R.O. 399(I)/2010 dated 5-6-2010, the impugned Notification No S.R.O. 650(I)/2005 dated 1-7-2005 was rescinded and 100% duty was allowed to be adjusted for concentrate to be used as input goods for the manufacture of aerated water.

8.Adverting to the grievances of the petitioner, it will be appropriate to discuss the legality/illegality of clause (3) of section 6 of the Federal Excise Act, 2005. Here it is observed that the adjustment of the duty to avoid the double taxation was not first time introduced through the Act of 2005 but this adjustment was introduced through the Central Excise Act, 1944 and thereafter this adjustment was also provided in the Sales Tax Act, 1990.

9.Learned counsel for petitioner has filed the written submissions on behalf of petitioner wherein it is provided that under section 6 of the Federal Excise Act, duty already paid on any goods specified in the first schedule that are used directly as the input goods for the manufacture of such goods, is to be deducted from the amount of the duty calculated on such manufactured goods and this right is recognized and allowed by sub-clause (1) of section 6 of the Federal Excise Act but in violation of the principle that the legislator cannot delegate its power to non-legislative body, the authority/power given to the FBR through clause (3) of Section 6 to disallow or restrict the adjustment of the duty is unconstitutional and ultra vires and sub-clause (3) of section 6 is liable to be struck down as ultra vires of the Constitution and the Act. Petitioner has placed his reliance upon the case of "Ghulam Zamin and another v. AB Kondkar and others" (PLD 1969 Dacca 156), case of "Gul Cooking Oil and Ghee v. Pakistan Custom" (PLD 2007 Peshawar 39), case of "Allied Bank Limited v. District Officer Revenue and others" (PLD 2011 Lahore 402), case of "Noorani Traders v. Pakistan Civil Aviation Authority" (PLD 2002 Karachi 83), case of "Airport Services Limited v. Manager Airport" (1992 SCMR 2268), case of "Collector of Central Excise Land Custom v. Aziz Ullah" (PLD 1970 SC 439) and case of "Shahid Mehmood v. Faisal" (2011 SCMR 55).

In the case of "Ghulam Zamin and another v. AB Kondkar and others" full bench of Hon'bale Dacca High Court observed that legislative power vests exclusively in legislator and no power is inherent in Executive except that vested in it by law. It is further observed by the Hon'ble Court that legislator cannot abdicate its function but it can after initiating principles and standards, delegate functions essential to exercise of legislator power. There is no cavil with the preposition that the legislation is the exclusive power/domain of the legislator and even the legislator cannot delegate this power to the executive but it is to be observed that legislator has no authority or domain to ensure the implementation of the intention of the legislation at the grass root level, it is domain of the executive and in this way where the duty and domain of the legislator stops, the function of the executive commences. In the case in hand, the legislator did perform its duty through the legislation of the Federal Excise Act wherein the guide lines and principles were laid down for the collection of the excise duty in accordance with the mandate of the Act and it is left to the discretion of the executive i.e. FBR through clause (3) of section 6 to disallow or restrict wholly or partly the adjustment of excise duty already paid on input goods at the time of calculation of the duty on the manufactured goods from the input goods and thereafter the disputed notification was issued by the FBR within the mandate given to it by the legislate and in exercise of this mandate, the FBR has not done any legislation but it has exercised the discretion on the executive side for the calculation of excise duty, therefore on this score that the FBR or the Central Board of Revenue had exercised any delegated authority under clause (3) of section 6 of the Federal Excise Act, this clause does not become unconstitutional and illegal. The same principle has been discussed in the case of "Gul Cooking Oil v. Pakistan through Chairman Revenue Division Central Board of Revenue and 06 others" by a Division Bench of Hon'ble Peshawar High Court and learned Division Bench of Peshawar High Court observed that the court was empowered to look into intent and purpose behind the legislation done and that the thing that cannot be done directly could not be allowed to be done indirectly. In the case before the Hon'ble Peshawar High Court, the controversy was about the application of the Customs Act in the Tribal Area and the Hon'ble Court observed that the domain of the department to recover custom and regulatory duty specifically through un-extended Amended Act in Tribal Area was unconstitutional, arbitrary and unjustified, therefore, this lis before the Hon'ble Peshawar High Court was on separate footing.

In the case of "Allied Bank Ltd. v. District Officer Revenue", the learned Single Bench of Lahore High Court observed that the double taxation was not permissible as in that case the petitioner had already paid the capital value tax beside other taxes and the domain of the Sub-Registrar to order recovery of the Capital value tax at the rate of 10% per Sq. Ft. of constructed area was incompatible with section 6(4)(b) of the Punjab Finance Act, 2010. In the case in hand, the legislator laid the principles for the adjustment of the excise duty paid on input goods and through clause (3) of the same section, the legislator qualified clause (1) and empowered the FBR to disallow or restrict whole or part of the amount or otherwise regulate the adjustment of duty in respect of any goods or class of goods and therefore, it is the legislator which has qualified the concession of adjustment of duty and it has not been done by the executive i.e. FBR. The action of the FBR through the disputed notification of disallowing the adjustment of the duty on the concentrate may be declared as illegal if it is established that the powers exercised by the FBR is arbitrary and discretion has not been exercised fairly. This is also a ground in the petition for striking clause (3) of section 6 and the impugned notification. In this regard the petitioner has referred to the case of "Noorani Traders v. Pakistan Civil Aviation Authority" (PLD 2002 Karachi 83) and case of the 'Airport Services Limited v. Manager Airport" (1992 SCMR 2268). In the first case, the Hon'ble Division Bench of Sindh High Court observed that if a statute conferred any power to make any order or given any discretion to any authority, office or person, the same should be exercised reasonably, fairly, justly and for the advancement of purpose of the enactment. In the caseof "Airport Services Limited v. Manager Airport", the august Supreme Court of Pakistan held that the section 24-A in the General Clauses Act, 1997 has declared that where a statute conferred a power to make any order or to given any discretion to any authority or person, such discretion would be exercised reasonably, fairly, justly and for the advancement of the purpose of the enactment. With reference to the above said observations of the august Supreme Court of Pakistan and the Hon'ble Sindh High Court, learned counsel for the petitioner has argued that the respondents have not exercised the discretion fairly, justly and in order to the advancement of the purpose of the enactment. With reference to this contention of the learned counsel for the petitioner, it is observed that there must be hundreds of the beverages using the concentrate as input goods for the manufacture of the aerated waters and all of them have been disallowed the adjustment of the excise duty paid at the time of purchase of input goods i.e. concentrate at the time of calculation of excise duty on the output goods manufactured directly from the concentrate and reportedly none of these beverages have made any complaint/challenged the impugned notification of the FBR and therefore, the petitioner has not been singled out to deprive the adjustment of the duty.

It will not out of place to observe that as per Article 4 of the Constitution of the Islamic Republic of Pakistan the rights of the individuals are guaranteed to be dealt with in accordance with law, Article 8 of the Constitution of the Islamic Republic of Pakistan provides that all the laws inconsistent with or in derogation of the fundamental rights provided in the Constitution are void. In the case in hand the petitioner can compel Articles 18 and 25 of the Constitution of the Islamic Republic of Pakistan to strengthen his claim. Article 18 of the Constitution of the Islamic Republic of Pakistan provides the freedom of trade, business or profession, whereas Article 25 of the Constitution guarantees the equality of all the citizens. At the cost of repetition it is observed that the petitioner has not been singled out and he has been treated like other beverages, there is no violation of the rights guaranteed under Article 18 of the Constitution as the petitioner has not been restrained from his lawful trade of the production of the beverages and only the legislator through the Federal Excise Act, 2005 qualified the concession provided in clause (1) of Section 6 through clause (3) of the same Section and the FBR issue the disputed notification in the exercise of the power given to it by the legislator. It will also not be out of place to observe that the individuals created the State and it is the responsibility of the State to protect itself from the aggression of the other States, to organize a political body to run its affairs and to protect the individuals. The State is not expected to generate funds like a business concern to discharge its obligations and it has to collect the resources from the individuals who being the members of an organized society i.e. State are expected to help out the State in the discharge of its duty, therefore, the levy of a particular duty on any products by the State is neither against the fundamental rights guaranteed under the Constitution nor is un-Islamic. No malice, ill will or grudge of the legislator in the disputed legislation of clause (3) of section 6 of the Federal Excise Act, 2005 or of the FBR through the disputed notification specifically to target the petitioner is made out. In this way the respondents have acted fairly and they also exercised authority in a just manner. It is further observed that during the pendency of this writ petition, the respondents had withdrawn the impugned notification through the notification dated 5-10-2010 and the facility of adjustment of the excise duty paid on the input goods was extended to all the beverages and again this shows that the respondents have acted in a fair and just manner.

In view of the above discussion, the writ petition is without any merits and same is hereby dismissed.

KMZ/82/IslPetition dismissed.