DATA STEEL PIPE INDUSTRIES (PVT.) LTD. VS LARGE TAXPAYER UNIT (L.T.U.) through Chief Commissioner Inland Revenue, 2016 PTD-KARACHI-HIGH-COURT-SINDH 2734 (2016)

Customs Act (IV of 1969)---

----Ss.19, 20 & 196---S.R.O. No.601(I)/83 dated 11-6-1983---S.R.O. No.434(I)/2001 dated 16-6-2001---Reference---Exemption from customs duty---Explanatory note---Federal Board of Revenue---Jurisdiction---Dispute was with regard to denial of concessions provided to importers in customs duty, on the basis of explanatory notes/interpretation made by Federal Board of Revenue regarding Exemption Notifications---Validity---Merely for the reasons that an importer was provided a relief or concession under one regime could not make him non-suited for another---Importer was eligible and could validly take benefit of special exemptions notwithstanding that it was also eligible for a concessionary treatment under different notifications---Federal Board of Revenue had no legal standing to add explanatory notes or to plainly interpret exemption notifications once those were issued and rights of parties had been created from the general reading of the notifications---Reference was allowed in circumstances.

Government of Pakistan v. Saif Textile Mills 2003 PTD 355; Central Insurance Co. v. Central Board of Revenue 1993 SCMR 1232 and Ravi Spinning Ltd. v. Collector of Customs 1999 PTD 1078 rel.

Khaild Jawed Khan for Applicant.

Amjad Jawaid Hashmi for Respondent.

Date of hearing: 2nd December, 2015.

JUDGMENT

ZULFIQAR AHMAD KHAN, J.---By this common judgment we intend to dispose of SP. C.R.As Nos. 283/2011 and 284/2011. The aggrieved Applicant has proposed the following identical questions of law in both the references for the opinion of the Court.

a.Whether on the facts and circumstances of the case, the consignments imported by the Applicant for the purpose of the project of Sui Northern Gas Pipelines Limited (SNGPL) were entitled to exemption from customs duty under Special Exemption Order No.43/2001?

b.Whether the learned Tribunal and the Collector below erred in law in assuming that the letter/clarification dated 18.09.2002 issued by the Central Board of Revenue was binding on them?

2.During years 2000-2001 Suit Northern Gas Pipeline Limited (SNGPL), a Pakistan government owned company, initiated a program namely Infrastructure Rehabilitation and Expansion Project Phase-I and II (the project) for which it needed a substantial quantity of steel line pipes. A tender was issued in this behalf, to which the Applicant responded by submitting quotations on 07.12.2000. Pursuant thereto, on 06.02.2001, a purchase order was issued by SNGPL in favour of the Applicant, who is a manufacturer of steel line pipes, for the supply of 17,000 meters of steel line pipes. In order to manufacture and supply the steel line pipes to SNGPL as a part of the project, the Applicant imported raw material namely Hot Rolls (H/R) Coils vide six different bills of entry in the period of 21.04.2001 up to 23.08.2001. The Applicant paid customs duty on the said H/R Coils at the prevalent rates vide S.R.O. No.601(I)/83 dated 11.06.83 and S.R.O. No.434(I)/2001 dated 16.06.2001 issued under section 19 of the Customs Act, 1969 generally applicable to all importers-cum-manufacturers of H/R Coils. The Applicant manufactured steel pipes from the said H/R Coils and supplied the duly manufactured steel pipes to SNGPL for the project. The Applicants were accordingly issued with a certificate to that effect by SNGPL.

3.On 28.11.2001 Central Board of Revenue (CBR) issued Special Exemption No.43/2001 (the Special Exemption) under section 20 of the Customs Act, 1969 which exempted the whole of customs duty on the imports of H/R Coil by the manufacturers of steel pipes supplying the pipes to SNGPL or Sui Southern Gas Co. to be used in the project. The Applicant, who imported H/R Coils, paid customs duty as per the prevalent rates, manufactured steel pipes from the H/R Coils imported and supplied the steel pipes to SNGPL, sought refund under the Special Exemption from the higher customs duty paid by him. The Applicant was accordingly refunded with an amount of Rs.85,88,396 since the Applicant was neither a beneficiary nor a claimant of the said refund, it immediately passed on the said refund to SNGPL which was the sole beneficiary thereof on 19.09.2002.

4.On 12.11.2002 the Applicant received a show cause notice from the customs authorities stating that, on the advice of CBR, the department has concluded that the benefit of the Special Exemption was not available retrospectively to the Applicant (being a private party) as it has already availed the benefit of the concessions provided by the S.R.Os. (referred in the paragraph 1) therefore the said refund was recoverable from the Applicant.

5.The Applicant submitted a reply to the said notice stating that the imports of H/R Coils were made by the Applicant specifically the manufactures of steel pipes which the Applicant supplied to SNGPL in order to meet the requirements of the project to which the Special Exemption applies, therefore the excessive customs duty paid by it was rightly refunded. The Department did not agree to this stand taken by the Applicant and an Order-in-Original was passed against it maintaining that refund was not admissible retrospectively under the Special Exemption, therefore, the sum of Rs.85,88,396 was wrongly refunded.

6.The Applicant preferred an appeal, which was dismissed in terms of the impugned order of the Tribunal on the grounds that the Applicant cannot benefit from the Special Exemption as it has already availed the benefit of concessionary SROs therefore refund was wrongly made, whereupon, the Applicant filed the instant reference, where the above referred questions of law are posed.

7.We have heard Mr. Khalid Jawed Khan, the learned counsel for the Applicant and Mr. Amjad Jawaid Hashmi, the learned counsel for the Respondent.

8.The learned counsel for the Applicant vehemently argued in favour of the Applicant's case. He raised the following grounds in support of his client's case:--

a.That the learned Tribunal and the Collector erred in law in assuming that the interpretation by CBR as to the applicability of exemption in terms of Special Exemption to the consignments imported by the Applicant exclusively for the manufactures of steel pipes for SNGPL for the sole purposes of being used in the project was conclusive and binding. He relied on the judgment of the Hon'ble Supreme Court in the case of Central Insurance Co. v. Central Board of Revenue (reported as 1993 SCMR 1232) to support his contention that the letters, opinions, clarifications, interpretation of law or documents issued by CBR are not binding or conclusive on the authorities for a exercising judicial or quasi-judicial power.

b.That the Applicant was neither beneficiary nor claimant of the refund, which was passed on to SNGPL, since SNGPL was the eventual beneficiary of the scheme provided by the Special Exemption

e.That the Applicant was fully entitled to avail the benefit of the exemption from customs duty under Special Exemption in spite of the availability of general exemption vide SROs providing concessional rate since there is no restriction in law that prevented the Applicant from invoking the Special Exemption.

d.That the learned Tribunal as well as the Collector below misconstrued scheme provided by the Special Exemption and wrongly denied its applicability to the consignments imported by the Applicant.

e.That there was no bar that having availed concessionary rates under the applicable SROs the Applicant was disentitled to avail Special Exemption and no such condition could be read into or superimposed by custom authorities or CBR.

f.That the Collector did not have the power to reopen the refund order therefore the show cause notice issued was without jurisdiction since the refund amount received by the Applicant from the Collectorate was duly and promptly passed on to SNGPL; and

g.The order passed by the learned Tribunal as well as the Collector below are contrary to the law as well as the facts of the case.

9.To the contrary, the learned counsel for the Respondent argued that chargeability is done on the date of import and since there was no special exemption in the field on the dates H/R Coils were imported, the Respondent rightly paid the duties at the then prevalent rates and the instant case doesn't file in the exemption regime created at a later date. This contention was opposed by the learned counsel of the Applicant and assertion was made as to applicability of the Special Exemption being effectuated for the imports in both the cases (i.e. made or to be made) for the purposes of the project.

10.Reverting to the controversy over the implications of the Special Exemption and the relevant SROs, it would be prudent that we review text of the Special Exemption, which is reproduced hereunder for the ease of reference:--

Government of Pakistan

Central Board of Revenue

Islamabad, the 28th November 2001

C. No. 1(3)/Mech/Gas/2000

Special Exemption Order No. 43/2001

Subject: Exemption from Payment of Customs Duties on Material for the Infrastructure Rehabilitation and Exemption Project Phase I & II Including HR Coil Imported by M/s Sui Southern Gas Co., and Sui

Northern Gas Pipe Line Limited

In exercise of powers conferred under section 20 of the Customs Act, 1969 (IV of 1969), the Central Board of Revenue is pleased to exempt, as a special case, material as per list at (Annex-A) and (Annex-B) imported/to be imported by M/s Sui Southern Gas Company Limited and Sui Northern Gas Pipelines Limited for the Infrastructure, Rehabilitation and Expansion Project I and II including HR Coil, by manufacturers of steel line pipe, from payment of Customs duty to the tune of Rs.3,387/- million or the whole of customs duty chargeable thereon, whichever is less.

This exemption is being granted subject to the following conditions that:

(i)the importer at the time of import shall make a written declaration on the bill of entry that the goods had been imported in accordance with this order;

(ii)the importer shall furnish an indemnity bond in the form set out below to the extent of customs-duty exempted under this order and the said bond shall not be discharged till production of an installation certificate/consumption certificate, within three years from the date of importation of goods from the Assistant Collector or Deputy Collector of Central Excise and Sales Tax, in whose jurisdiction the project is located and such certificate shall clearly state that the goods imported in accordance with this order have been duly installed/consumed; and

(iii)in the event of non-production of such certificate by the importer or contravention of any provision of this order or any other provisions of Law, the Collector of Customs shall enforce the indemnity bond and proceed to recover Government dues under section 202 of the Customs Act, 1969 (IV of 1969), and the rules made thereunder besides taking any other punitive action under the law.

(Gul Rehman)

Second Secretary (Cus.Exm)

11.Having examined the above text, we note from the file that in order to take benefit from the said Special Exemption, the Applicant provided documents proving that it has fully met the said requirements and the fact that a refund was already granted to the Applicant which is a proof of latter's ability to successfully pass through the strict formalities prescribed by the said Special Exemption compounded by the fact that no objection has been raised on the qualifications and bona fide of the Applicant either in the Order-in-Original, the Order-in-Appeal or in the impugned decision, we safely assume that the eligibility of the Applicant to benefit from the Special Exemption (other than that the questions raised in this reference as to the Applicant having already taken benefit of concessionary SROs), is an undisputed fact.

12.Having perused full text of the Exemption Notification, we now would consider the conditionalities attached with the two SROs in respect whereof it is admitted that the Applicant has already taken benefit of. These being S.R.O. No.601(I)/83 dated 11.06.83 and S.R.O. No.434(I)/2001 dated 16.06.2001 issued under section 19 of the Customs Act, 1969. For the ease of consideration, we reproduce material portions of the said SROs in the following:--

a.S.R.O. No.601(I)/83 dated 11.06.83

This SRO exempts raw materials imported by recognized industrial units for the manufacture of specified articles from so much of the customs duty as in the excess of 20% ad volerem subject to the following conditions:

(i)the manufacturer shall have suitable in-house facilities to manufacture the articles in respect of which he claims exemption under this notification;

(ii)the manufacturers shall furnish to the Chief, Survey and Rebate or any other officer authorised by the Central Board of Revenue in this behalf in the prescribed form the list of articles that he is manufacturing or intends to manufacture along with details of the raw materials required and the Chief or such authorised officer in consultation with the Collector of Customs or the concerned Government Department will certify the annual capacity of the unit for the manufacture of various articles and the total annual requirements of various types of raw materials along with the quantity required for the manufacture of each article;

(iii)at the time of import of raw materials the manufacturer shall make a written declaration on each copy of the bill of entry to the effect that the raw materials have been imported in accordance with his entitlement in terms of condition (ii);

(iv)the manufacturer shall furnish to the Collector of Customs a bank guarantee or indemnity bond along with post-dated cheque equivalent to the customs duty in excess of 20% ad valorem and sales tax leviable on each consignment subject to the satisfaction of the Collector of Customs;

(v)the manufacturer shall maintain record of the raw materials and components and the articles manufactured out of them in such form as may be prescribed by the Central Board of Revenue; and

(vi)the manufacturer shall, within one year of the date of filing of bill of entry for home consumption relating to the raw materials, apply to the Collector of Customs for discharging the bank guarantee or insurance guarantee, the application being supported by a certificate in the form set out below issued by the Assistant Collector, Central Excise and Customs, within whose jurisdiction the manufacturing unit is located.

b.S.R.O. No.434(I)/2001 dated 16.06.2001

This SRO exempts raw materials, sub-components and components, as are not manufactured locally, imported for the manufactured goods specified therein subject to the following conditions:

(i)the manufacturer has suitable in-house facilities for manufacture of goods in respect of which he claims exemption under this notification;

(ii)the manufacturer shall furnish to Chief (Survey), Central Board of Revenue, or any officer authorized in this behalf, in the prescribed form, the list of goods that he is manufacturing or intends to manufacture along with the details of raw materials, sub-components and components required and the Chief (Survey), Central Board of Revenue, or such authorized officer, in consultation with the Collector of Customs or, as the case may be, Collector of Central Excise or Collector of Central Excise and Sales Tax, will certify the annual capacity of the unit for the manufacture of such goods and total requirements of various types of raw materials along with the quantity required for the manufacture of each specified item:

(iii)the manufacturer shall chalk out indigenization programme spreading over a maximum period of five year within which period he shall achieve a minimum indigenization of the manufacture of vehicles, machinery and equipment as approved by the Indigenization Committee of the Engineering Develop-ment Board. In case of any default in the indigenization programme, the components imported in violation of the indigenization programme shall attract statutory duty chargeable on the relevant finished item. Defaulted percentage in the annual indigenization targets will be determined by the Indigenization Committee and the continued availability of the exemption under this Notification shall be contingent upon, the achievement of progressive annual indigenization;

(iv)the manufacturer shall, at the time of import of raw materials and components make a written declaration on the bill of entry to the effect that the inputs have been imported in accordance with his entitlement in terms of condition (i) above. The manufacturer shall also declare that the imported raw material, components and sub-components shall be consumed for the purpose of manufacture or assembly of the permissible products within a period of one year;

(v)the manufacturer shall communicate to the concerned Collector of Customs in writing about the consumption of imported raw materials and components within fifteen days of consumption of goods. In case of non- consumption within one year, the importer shall pay the customs-duty and other taxes involved or shall give plausible reasons to the Collector of Customs in an application to get extension for a reasonable period not exceeding six months; and

(vi)in case the manufacturer does not provide information regarding consumption or otherwise of the imported raw materials within the prescribed period of one year, or if otherwise deemed necessary, the Duty Suspension Audit Organization (DSAO) constituted by the Central Board of Revenue shall carry out audit of the manufacturing unit. If the audit team is not satisfied regarding the consumption of raw materials, they shall report their finding to the concerned Collector of Customs who shall initiate proceedings for the recovery of leviable customs-duty and penal action under the relevant provisions of the law.

13.A review of the above reproduced conditions imposed by both S.R.Os. show that none of the SRO disqualifies an importer from taking benefit of any additional relief provided by the Government from time to time, in particular if the forthcoming relief offers complete exemption from the whole of customs duty.

14.It is important to distinguish at this point that SROs in question are issued under Section 19 of the Customs Act, whereas, the Special Exemption notification is issued under section 20. Examination of section 20 reveals that the said section is non-obstante in nature, standing tall independently by not requiring any previous sanctions or subject to any limitations. Another feature of section 20 is that while orders issued under section 19 are required to be notified, no notification is required under section 20. This section corresponds to the second para of section 23 of the Sea Customs Act, 1878 which provided that the Chief Customs-authority may, with the previous sanction of the Central Government, by special order in each case, exempt from the payment of duty, under circumstances of an exceptional nature to be stated in such order, any goods on which customs-duties are leviable. A comparison of 1878 Act's text with the text under the 1969 Act makes a very clear indication as to the inherent powers of orders made under section 20. Section 20 is therefore is also referred to in legal writings as a provision of law providing exemption in customs duty in exceptional circumstances in the public interest.

15.In the light of the foregoing analysis, the general question that emerged in the present case of the simultaneous or otherwise applicability of SROs under section 19 alongside any Special Exemptions under section 20 can now be reduced to a basic question as to whether an importer entitled to seek benefits of some percentage of customs duty under section 19 can be non-suited to seek benefit for the exemption of whole of the customs duty under section 20? We find the case of Government of Pakistan v. Saif Textile Mills reported as 2003 PTD 355 of great relevance where the Hon'ble Supreme Court while interpreting the expression "Exemption from whole of the Customs Duty" held that the said expression includes customs duty chargeable under section 18(1). The apex Court set the principle by holding that 'relief of grant of exemption from the whole of customs duty cannot be withheld because the respondents are entitled for a relief they cannot be non-suited merely for technical reasons'. We therefore, are of the view that merely for the reasons that an importer is provided a relief or concession under one regime does not make him non-suited for another. Thus the Applicant though rightly eligible could validly take benefit of the Special Exemptions notwithstanding that it was/is also eligible for a concessionary treatment under the SROs.

16.With regard to the objection of the Respondents as to the retrospectivity of the Special Exemption, we do not find any merit in this assertion. Language of the Special Exemption is very clear. The opening paragraph of the notification provides that "... is pleased to exempt, as a special case, material... imported/to be imported... for the Infrastructure, Rehabilitation and Expansion Project I & II including HR Coil...." We don't see any ambiguity as to the applicability of this notification for the manufacturers of steel line pipe importing H/R Coil for the purposes of the Infrastructure, Rehabilitation and Expansion Project before or after the date of the notification, since the text of the notification is very clear. Any transgression from this clear reading would be an attempt to fraud on the people for whom the said project was designed and implemented for.

17.As to the binding effect of the letter/clarification dated 18.09.2002 issued by the CBR, the learned counsel of Applicant referred to the case of Central Insurance Co. v. Central Board of Revenue (reported as 1993 SCMR 1232) wherein Hon'ble Supreme Court clearly held that "Board's views as to the interpretation of law do not have the force of law, and the exception would be, where a fiscal statute is involved, which should be implemented with strict impartiality". Also in the case of Ravi Spinning Limited v. Collector of Customs reported as 1999 PTD 1078, the Hon'ble Supreme Court, dilating on the powers of exemption notification held that "levy of the customs duties will depend on the language used in the notification". We therefore tend to agree with the contention that BoR had no legal standing to add explanatory notes or to plainly interpret exemption notifications once they has been issued and rights of parties have been created from the general reading of the notification.

18.For the reasons recorded above, the questions referred to this court for opinion are answered in favour of the Applicant and against the Respondent.

19.The reference is allowed accordingly and the office is directed to send copy of this judgment under seal of this Court to the Tribunal in respect of the above referred application pursuant to section 196(5) of the Customs Act, 1969.

MH/D-5/Sindh Reference allowed.