RIAZ TEXTILES MILL (PVT.) LTD. VS PAKISTAN CENTRAL COTTON COMMITTEE, 2018 PTD-LAHORE-HIGH-COURT-LAHORE 910 (2018)

Cotton Cess Act (XIV of 1923)---

----Ss. 3, 13 & Preamble---Imposition of Cotton Cess---Imported cotton---Pakistan Cotton Cess Rules, 2012---Vires of---Interpretation of S.3 of the Cotton Cess Act, 1923---Power to frame Rules under S.13 of the Cotton Cess Act, 1923---Scope---Petitioners, who used imported cotton in their manufacturing processes, impugned notices for payment of cotton cess inter alia on the ground that imposition of said cess under S.3 of the Cotton Cess Act, 1923 was not applicable on imported cotton---Validity---Words "all cotton" used in S.3 of the Cotton Cess Act, 1923 could not be isolated and read separately from rest of contents of said section and said term had been elaborated upon and clarified by the Legislature by providing the cotton under purview of Cotton Cess Act, 1923, was to be either exported from Provinces of Pakistan to any place outside the country or consumed by any Mill meaning thereby that entire purpose of S.3 related to export of cotton and therefore it did not have any nexus to imported cotton---High Court further held that Pakistan Cotton Cess Rules, 2012 framed under S.13 of the Cotton Cess Act, 1923 were ultra vires and unconstitutional and accordingly, were struck down----Constitutional petition was allowed, accordingly.

Messrs Mustafa Impex, Karachi and others v. Government of Pakistan through Secretary Finance, Islamabad and others PLD 2016 SC 808 and Mustafa Impex in W.P. No.26772 of 2016 rel.

Mahmood Ahmad, Bilal Bashir, H.M. Azhar Ali, Hafiz Mudassar Hassan and Mian Mahmood Rashid for Petitioners.

Shakeel Ahmad Awan, M. Fiaz Hussain, Zulfiqar Ali Jehangir for Respondents.

Barrister Khalid Waheed, Addl. A.G. for Respondent.

Tahir Mahmood A. Khokhar, D.A.G. along with Dr. Rashid Mansoor, Director Cotton Cess for Respondents.

Date of hearing: 17th January, 2018.

JUDGMENT

SHAHID KARIM, J.---This petition seeks the following reliefs:-

I."That Pakistan Cotton Cess Act, 1923 and Rules vide S.R.O. 307(I)/2012 and S.R.O. 832(I)/2012 under sections 3 and 15 to be completely illegal, unconstitutional void ab initio and of no legal effect to the extent of imported raw cotton.

II.Pending disposal of the main petition restrain the respondents from collecting, imposing or taking adverse action against the petitioner.

III.Direct to issue clearance certificate of dues regarding cess to the Ministry of Textiles so that the petitioner may get renewal registration certificate Ministry of Textiles."

2.This judgment will also decide connected petitions W.P No.29667 of 2016, W.P No.48985 of 2017, W.P No.32434 of 2016, W.P No.7058 of 2017, W.P No.9390 of 2017, W.P No.9800 of 2017, W.P. No.19886 of 2017, W.P No.36987 and W.P No.51185 of 2017, which involve a common question of law.

3.Ostensibly, the challenge is to the provisions of Pakistan Cotton Cess Act, 1923 ("the Act, 1923") and the rules enacted vide S.R.O. 307(I)/2012 and S.R.O. 832(I)/2012. However, the precise contention raised by the learned counsel for the petitioners is that the case of the petitioner is not covered by the provisions of the Act, 1923 nor is it covered by the rules made under the Act, 1923. The petitioners are manufacturers under the Sales Tax Act, 1990 and export yarn to different countries. For the purpose, the petitioners import raw cotton apart from making procurement of raw cotton domestically. This petition and the connection petitions are confined to the imported cotton and are being decided separately as a category of cases which specifically alleges that the enumerations in the Act, 1923 do not cover imported cotton by any stretch of imagination. The petitioners have now been served with notices for the payment of cotton cess of imported cotton being utilized by the petitioners for the manufacture of textile yarn. By way of illustration, reference may be made to the letter dated 29.04.2014 issued by the Cotton Cess Management, Ministry of Textile Industry, Government of Pakistan by which it was impressed upon the petitioners that Pakistan Cotton Cess Rules, 2012 have been promulgated through S.R.O. (sic)(I)/2012 and that in accordance with the new format under the rules, cess was liable to be paid on all cotton consumed i.e. without bifurcation on the basis of the source whether local or imported. It is pertinent to mention that in the new Form 'A' issued under the Rules, 2012 the note previously mentioned in the old Form has now been deleted. Upon query, the learned counsel for the respondents, upon instructions, clearly stated that prior to the promulgation of Rules, 2012. cotton cess was not being charged on imported cotton. However, for the purposes of resolution of the dispute involved in these petitions, the relevant provisions of the Act, 1923 are sections 3 and 6. which are reproduced as under:-

"3. Imposition of Cotton Cess-5[(1) There shall be levied and collected on all cotton either exported from the Provinces of Pakistan to any place outside Pakistan or consumed in any mill in the Provinces of Pakistan a cess at such rate as the Federal Government may fix by notification, 7 in the official Gazette.

6. Delivery of monthly returns.-(1) The owner of every mill shall furnish to the Collector, on or before the seventh day of each month, a return stating the total amount of cotton consumed or brought under process in the mill during the preceding month, together with such further information in regard thereto as may be prescribed:

Provided that no return shall be required in regard to cotton consumed or brought under process before the commencement of this Act.

(2) Every such return shall be made in such form and shall be verified in such manner as may be prescribed"

4.Therefore, it is clear that in terms of section 3, an impost by the name of cotton cess on all cotton either exported from the Provinces of Pakistan to any place outside Pakistan or consumed in any mill in the Provinces of Pakistan. Section 6 merely relates to the delivery of monthly returns which the owner of every mill shall furnish to the Collector stating the total amount of cotton consumed or brought under process. However, these petitions require the construction to be put on section 3 with regard to the imported cotton and as to whether the imported cotton was covered by the mischief of section 3 or not.

5.The preamble of the Act, 1923 states that the Act of 1923 was "an Act to provide for the creation of a fund for the improvement and development of the growing, marketing and manufacture of cotton". Therefore, the preamble itself gives the purpose of the enactment and which is merely to create a fund for the improvement and development of growing, marketing and manufacture of cotton. Section 3 is not happily worded but the intent of the legislature is clearly discernible upon a holistic reading of section 3. The learned counsel for the respondents invited this Court to read the words "on all cotton" to mean that it includes imported cotton as well. However, this interpretation cannot be accepted in view of the entire reading of section 3 where the words "on all cotton" cannot be isolated and read separately from the rest of the contents of section 3. The term 'all cotton' has been elaborated upon and clarified by the legislature itself by providing that the cotton is to be either exported from the Provinces of Pakistan to any place outside Pakistan or consumed in any mill in the Provinces of Pakistan meaning thereby that the entire purpose of section 3 seems to be related to export of cotton which may be either from the Provinces of Pakistan to outside Pakistan or to any other Provinces within Pakistan. Clearly, it does not have any nexus with import of cotton. If the intention and the mood of the legislature was to give effect to the words "on all cotton" separately, the legislature would have used different terminology and the word 'either' would not have been used to elaborate upon the real intent of the legislature, therefore, there is no warrant to subscribe to the arguments of the learned counsel for the respondents that the imported cotton is also included in the cotton upon which a cess under Section 3 is sought to be levied.

6.However, there is a more compelling reason not to sustain the Rules, 2012. The power vests in the Federal Government and according to the note given at the bottom of the Rules, it has been vetted by the Law Division and approved by the Prime Minister. That note is to the following effect:--

"Note:--(Pakistan Cotton Cess Rules, 2012 has been vetted by Law Division vide U.O. No. 470/2012-D&L dated 06.03.2012 and approved by Honorable Prime Minister vide their U.O. No. 901/PSPM-12 dated 24-03-2012)."

7.The learned counsel for the petitioners relied upon Messrs Mustafa Impex, Karachi and others v. Government of Pakistan through Secretary Finance, Islamabad and others (PLD 2016 Supreme Court 808), to contend that the issues of the notification by which the Rules have been promulgated is in clear contradiction to the ratio settled by Mustafa Impex and ought to be struck down. This Court in similar petitions has held statutory notifications to be without lawful authority if they run counter to the holding in Mustafa Impex. In W.P No.26772 of 2016, it was held that:-

"...The learned counsel for the respondents also relied upon the rule that the judgment of the Supreme Court of Pakistan applies prospectively and not retrospectively. Reliance in this regard was placed on Pir Bukhsh represented by his Legal Heirs and others v. Chairman Allotment Committee and others (PLD 1987 SC 145). Once again, the rule expounded in the cited judgment by the learned counsel for the respondents is not a rule etched in stone. There are exceptions to this rule and it surely depends upon each precedent handed down by the Supreme Court of Pakistan to determine whether it applies prospectively or retrospectively. From a reading of the entire judgment in Messrs Mustafa Impex, Karachi and others, it leaves it in no manner of doubt that the judgment is meant to apply retrospectively. This is clearly evident from the fact that the judgment set aside notifications which had been issued by the Federal Government and which were prior in time. Moreover, there is nothing m the judgment of the Supreme Court of Pakistan which would lead to the conclusion that the judgment was meant to be applied prospectively, for, in case, the superior courts considered it necessary, an observation to this effect is generally given. Be that as it may, the tenor of the judgment in Messrs Mustafa Impex, Karachi and others is for the judgment to be applied retrospectively to all cases coining before the courts."

8.It has not been denied by the learned counsel for the respondents and learned D.A.G failed to produce documents which would show that the entire process contemplated by Mustafa Impex was clearly taken in the instant case and, therefore, the Rules, 2012 are ultra vires and unconstitutional. On the basis of the judgment passed in Mustafa Impex, these Rules are hereby struck down.

9.In view of the above, these petitions are allowed and the act of the respondents to require the petitioners to pay cess under Section 3 of the Act, 1923 is held to be without lawful authority and of no 1egal effect.

KMZ/R-3/L Petition allowed.