ASTRO PLASTICS (PVT.) LTD. VS MINISTRY OF FINANCE, GOVERNMENT OF PAKISTAN, 2016 PTD-KARACHI-HIGH-COURT-SINDH 1824 (2015)

Customs Act (IV of 1969)---

----S. 25---Pakistan Customs Tariff Code---Duty structure---Classification---Discrimination---Petitioner was manufacturer of BOPET film (polyester films) and its grievance was that duty for PET Resin for making PET film was higher to PET Resin imported for making bottles and polyester yarn, which was discriminatory---Validity---Yarn grade was not only being used for textile purpose that catered to the most fundamental need of people (clothing) but for export as well, whereas film grade resin was being applied for making sticker etc., which were put on plastic bottles used in many drinks (plastic industry) and consumed locally---Such was not merely chemical formula of subject raw material (Intrinsic Viscosity) that was considered solely for imposing a certain customs duty on its import but the purpose and object for which was physically utilized by two different manufacturers that mattered the most in introducing two different regimes of duty on the same item---Rationale behind such decision was not against the principle of reasonable classification or any of the fundamental rights of petitioners to justify invoking Constitutional jurisdiction of High Court under Art. 199 of the Constitution---End use of a particular item, the purpose for which it was being used and import and the scope/limit to which it was being used could be the rational factors to maintain two different regimes of duty on the import of given items---Petitioner was not entitled to receive back differential amount of duty---Constitutional petition was dismissed in circumstances.

Abdul Sattar Pirzada and Umair A. Kazi for Petitioners.

Abid S. Zuberi for Respondent No.3.

Kashif Nazeer for Respondent No.3 (in C.P. No.D-3045 of 2014 and in C.P. No.D-128 of 2015).

Salman Talibuddin, Additional Attorney General for Pakistan.

Date of hearing: 3rd November, 2015.

ORDER

MUHAMMAD IQBAL KALHORO, J.---Alleged disparity in classifying the duty structure for the import of polyethylene terephthalate (PET) Resin has been essentially challenged in the these petitions. Of a particular reference is a notification dated 04.03.2013, which is also under dispute here, whereby it has been laid down that if PET Resin is imported by BOPET film manufacturers, the duty would be 8%.

2.Petitioner, a Pakistani company, is one of the only two manufacturers of BOPET film (polyester films) in Pakistan. PET Resin is the raw material used for making PET bottles, Polyester yarn and PET film. Chemically all PET Resins are identical as they are produced by same material i.e. Pure Terephthalic Acid (PTA) and Mono Ethylene Glycol (MEG), and in same stoichiometric proportion namely 0.85 units of PTA and 0.37 units of MEG to produce one unit of PET Resin. The petitioner claims that it is made by a combination of PTA (duty 3%) and MEG (duty 0%) in a Continuous Polymerization (CP) unit and the finished product has an IV (intrinsic viscosity) of 63. But to make bottle grade resin the IV value has to be raised to over 75 and for that a separate Solid State Poly-Condenser is required after the resin is produced in Continuous Polymerization unit. Petitioner's aim to describe all this detail is to show that PET resin for "yarn" grade and for "film" grade is physically identical as they have the same Intrinsic Viscosity. One can use yarn grade resin to manufacture film and vice versa. However, a varied duty structure has been imposed to increase petitioner's cost of production solely for the purpose of benefiting the other company and thus eliminating all chances of competition. The varied structure of duty, per petitioner, is PET Resin (Yarn Grade), H.S. Code 3907.6010, Custom Duty 3%. PET Resin (Bottle Grade), H.S. Code 3907.6020, Custom Duty 9%. PET Resin (Other Grade), H.S. Code 3907.6090, Custom Duty 20%. And, the custom duty levied on PET Film Grade (raw material) is 20% and BOPET Film that is a finished product it is also 20%. Similarly custom duty on PET Bottle Grade (raw material) is 9%, whereas on PET Preform, which is an intermediary product, it is 20% and on finished PET Bottle the duty is 10%.

3.It is the case of the petitioner, which was emphatically argued by Mr. Abdul Sattar Pirzada the learned advocate, that charging different rates of duty on different grades of PET Resin disregarding the fact that all grades of PET Resin are produced from same raw material through similar manufacturing process is inequitable, arbitrary and unlawful. Such duty structure encourages imports of finished products but it badly affects local manufacturers. By using non-price barriers PET Resin is being supplied to customers who are competing in down-stream market. There is increase/decrease in prices of PET Resin film grade that is inconsistent with the cost of product and market forces of demand and supply. Respondents are keeping tariff rates high in order to prevent new entry and as such monopolizing market of PET Resin and using transfer pricing in intercompany and intergroup sale to harm competitors. Much emphasis was laid on the contention that the petitioner was paying 8% duty, although it was importing PET Resin that holds IV 64 (intrinsic viscosity) and was already classified as PET Resin yarn grade under the PCT Code with an applicable duty at 3%.

4.Canvassing the opposite view, Mr. Abid S. Zuberi learned advocate for respondent No.3/Collectorate of Customs, Karachi argued that fixation of custom duty was a matter of policy and the duty on film grade PET Resin for BOPET film manufacturers was fixed at 8% purposely to promote and protect its production locally. That policy of cascading tariff, to promote and protect local industry, was a uniform policy that was being applied in all other industries and sectors. The allegations that a particular company was being unduly favored by the respondents were frivolous and false. According to him, film grade resin and yarn grade resin might be similar but were not identical as they were part of two entirely different value chains or sectors; yarn grade resin was relevant only to and was being used by the Textile industry, whereas film grade resin belonged to plastic and packaging chain.

5.We heard the counsel and with their assistance had a glance on relevant record. What it reflects is that PET Resin is covered under PCT Code 3907.60 of the Pakistan Custom Import Tariff, but is further sub-divided into three different categories with three different codes. It is yarn grade, bottle grade; and the third comes under the heading as "others". Keeping in view dissimilar purpose and use for which it is imported for three different products, different rate of duties has been made applicable thereon. For the first time in the year 2012, the petitioner and Messrs Novatex (who have filed application under Order I Rule 10, C.P.C.) set up plants for manufacturing Biaxially Oriented Polyethylene Terephthalate (BOPET) packaging film in Pakistan. For this film grade PET Resin was required as raw material having import duty of 20% under PCT Code 3907.6090. Therefore, both film grade PET Resin and BOPET Film had import duty of 20%. Thereafter, the petitioner sought reduction in the duty on film grade PET Resin, which was partly supported by Messrs Novatex. The main contention of the petitioner was that since Messrs Novatex had set up a unit for manufacturing film grade PET Resin locally and thus was producing it economically, where as it had to import it and thereby had to pay custom duty, it had become costly for it. Record reflects that argument of the petitioner was duly considered and after all the necessary parleys between the petitioner and the quarters concerned particularly Inter-Ministerial Committee set up for this purpose, the matter was referred to National Tariff Commission for a detailed study of all grades of PET Resin to decide tariff issue. After a thorough examination in the subject, it gave its recommendations and subsequently in the light of those recommendations, the custom duty on the film grade was reduced to 8% and accordingly SRO dated 04.03.2013 was issued.

6.It is worth noting that during pendency of these petitions, the petitioner filed a C.M.A. No. 22666/15 for seeking release of amount deposited by the petitioner against various Goods Declaration (GDs) lying with the Nazir on the ground that First Schedule to the Finance Act, which had amended the first Schedule of the Custom Act, 1969, has placed yarn grade resin and film grade resin under the same PCT heading i.e. 3907.6010. And in view of such fact the petitioner also sought disposal of the petitions. We have seen the Budget Instructions-2015 attached with the above miscellaneous application, in part III clause (f) thereof, it is written "PET resin of yarn grade and film grade, being identical in nature, have been classified under single PCT code 3907.6010 at 5% in Tariff. However, concessionary rate on PET resin bottle grade (3607.6020) has been maintained at 8.5% in Fifth Schedule." This application to the extent of release of amount lying with the Nazir of this Court was however opposed by the counsel for the respondents by pleading that policy of duty structure on the subject item was pro local industry and was need of the relevant time; and only after its benefit duly accrued during the interregnum, the duty of PET resin of yarn grade was brought at par with PET resin film grade. There was no discrimination with the petitioner and the amount lying with the Nazir belonged to the Government exchequer. From the above, it is now obvious that tariff structure pertaining to PET resin of yarn grade and film grade has been brought at par with each other from this year i.e. 2015; and now the controversy is not with regard to duty structure as is being applied currently but on the differential amount paid by the petitioner for the two years i.e. 2013 and 2014 that is lying with the Nazir of this Court. Contention of the petitioner in this regard was that since it was admitted by the Government that the two PET Resins namely yarn grade and film grade were identical and required to be taxed equally on import, there was no justification to withhold the amount of difference paid by the petitioner with the Nazir and he be directed to return it to the petitioner. That was however vehemently opposed by the learned counsel for the respondents. We have observed that custom duty was 3% for yarn grade and 8% for film grade in year 2013, however in the year 2014 it was 4% and 8.5%. Duty at 3% on PET resin of yarn grade was imposed by the Government in the light of recommendations of National Tariff Commission to fulfill international commitments and obligations about textile sector. But it was not the only duty the textile chain was paying to the Government at that time. Besides above, the textile industry, which involves many intermediate products also, was paying 15% duty on the finished product as well. Therefore, it does not occur to us that the petitioner in any way was being discriminated against in those two years. The petitioner was at liberty to install its own plant for manufacturing film grade PET Resin and be benefited from the concession in tariff being extended to the local industry. The Government's policy of protecting and encouraging indigenous industry for making the subject item was not without any reason. The factors of investment made by the only other stake-holder (Messers Novatex) in setting up the Unit for making required PET Resin locally, thus creating opportunities of employment for indigenous people, reducing reliance on imports and overall reduction in the deficit in the balance of payments appear to have weighed with the Government to decide to extend concession in tariff on the raw material being produced locally in comparison to one being imported. Applying the principle of cascading tariff on the import of BOPET film chain in such a situation was not altogether unjustified or discriminatory. Apart from that, the difference of use between the two PET Resins i.e. film grade and yarn grade was the strong reason before the Government for keeping two different duty structures on the raw material being imported. The yarn grade was not only being used for textile purpose that catered to the most fundamental need of the people (clothing) but for export as well, whereas the film grade resin was being applied for making stickers etc. which are put on the plastic bottles used in many drinks (Plastic industry) and consumed locally. It was not merely the chemical formula of the subject raw material (Intrinsic Viscosity) that was considered solely for imposing a certain custom duty on its import, but the purpose and object for which it was physically utilized by the two different manufacturers that mattered the most in introducing two different regimes of duty on the same item. The rationale behind such decision does not appear to be against the principle of reasonable classification or any of the fundamental rights of the petitioners to justify invoking constitutional jurisdiction of this Court under Article 199.

7.Learned counsel for respondent No.3 during his arguments also informed that initially the petitioners were importing film grade PET Resin under the license No.05/2-12-MFG-BOND/EXP issued under S.R.O. No.450(I)/2001 dated 18.06.2001 at 0% for the sole purpose of exporting finished goods abroad. But, instead of doing so, they were selling and consuming the finished product namely BOPET film within Pakistan fraudulently, hence evading not only the requisite custom duty but also committing breach of terms of the manufacturing bond license. A detailed enquiry in this regard was conducted and an amount of Rs.84.3154 million was reported to have been evaded by them. They in response to the enquiry made payment of Rs.59 million to cover such evasion. These aspersions have not been categorically denied by the petitioners and we have no reason to disbelieve them. This also seriously casts doubt on the credibility and the manner in which the petitioner has approached this Court for relief prayed herein. In these circumstances, in our view as discretionary and equitable relief as the constitutional one, cannot be granted.

8.Merely because after two years duty structure on the two different grades of PET Resins was brought at par by identifying them identical would not mean that the difference in duty maintained earlier was without any logic. As we have discussed above that the end use of a particular item, the purpose for which it is being used and the import and the scope/limit to which it is being used can be the rational factors to maintain two different regimes of duty on the import of a given item. Under the circumstances, we do not find the petitioner entitled to receive back the differential amount of duty lying with the Nazir. Consequently the above stated miscellaneous application is dismissed. The petitions were dismissed vide short order dated 03.11.2015 and these are the reasons for the same.

MH/A-166/SindhPetition dismissed.