IN THE HIGH COURT OF SINDH AT KARACHI

H.C.A.NO.265 OF 2007

Present:

Justice Mrs. Qaiser Iqbal

Mr. Justice Arshad Siraj Memon

National Insurance Company Ltd.,

having its head office at

NIC Building, Abbasi Shaheed Road,

Near FTC Building,

Karachi………………………………………….Appellant.

VERSU

Shahnawaz Engineering (Pvt) Ltd.,

having its registered office at

19 West Wharf Road,

Karachi……………………………………….Respondent.

Date of hearing 18.03.2009

Mr Khalid Mehmood Siddiqui, advocate for the appellant.

Mr.Moin Azhar Siddiqui, advocate for the respondent

JUDGMENT

ARSHAD SIRAJ MEMON, J: This appeal arises out of the order passed on 27.8.2007 by the learned Single Judge in suit No.84/2003 in which escalation charges (which included duties and taxes) accruing and arising due to devaluation of foreign exchange (US dollar) in June, 1998 was granted alongwith damages claimed by the plaintiff (respondent) and due to delay of nine years the suit was decreed with 7% markup from the date of judgment.

2. Mr.Khalid Mehmood Siddiqui, learned counsel for the appellant vehemently argued and assailed the impugned order firstly, on the ground that during the course of the proceedings of the suit the plaintiff's evidence was recorded and the appellant was not given any opportunity to cross-examine the said witness. Secondly, on the basis of the documents he submitted that there was nothing on record to show that the appellant had agreed to pay escalation charges due to devaluation of foreign currency and thus, the Respondents were not entitled to be paid the differential amount of increase in the foreign exchange rate. He further referred to the proceedings and submitted that despite the fact that it has been recorded in the order that plaintiff's witness was examined, no evidence file was available which has been duly confirmed by the Assistant Registrar (Civil)? He, therefore, submitted that since the appellant was not heard properly to put his case the appellant has been seriously prejudiced. He relied upon the judgment of Hon'ble Supreme Court reported in 1992 SCMR 1009 and contended even if defendant (appellant) had not filed written statement they had right to participate in the proceedings to defend their cause. On the other hand, the learned counsel for the respondent Mr.Moin Azhar Siddiqui very aggressively disputed the contention raised by the appellant's counsel. He submitted that from the very beginning the appellant has not pursued his case at trial level. He submitted that at earlier stage of the suit, ample opportunities were granted to file written statement and ultimately suit was directed to proceed exparte against the appellant. He further referred to the proceedings and stated that subsequently due to none filing of written statement the suit was decreed in favour of the respondent which on the application of the appellant was recalled subject to the cost and appellant was granted further time to file written statement at first instance for four weeks and thereafter two more weeks were granted to submit written statement . He submitted that despite indulgence granted, the appellant failed to file written statement. Thus, the trial court had no other option to proceed exparte. He further refuted the arguments of the learned counsel for the appellant and stated that the evidence of the plaintiff was recorded in his presence and no request for cross-examination was made. In respect of objection of the learned counsel for the appellant regarding non-availability of the evidence file he submitted that it could be true that separate files were not prepared. However, record would show that documents relied upon in the evidence are on the record in the R&P which shows that exercise of recording evidence of plaintiff was correctly made.

3. Both the learned counsel have also addressed their arguments on merits. The view of the learned counsel of the appellant was that there was nothing on record to suggest that the appellant had agreed to grant escalation charges as such judgment and decree is not based on the correct appreciation of the facts and thus liable to be set-aside. On the other hand learned counsel for the respondent submitted that the conduct of the appellant from the documents on record would show that initially they directed the respondent to approach the Consultant who gave the findings in the favour of the respondent and thereafter the appellant refused to pay without assigning any reason.

4. We have very carefully examined the divergent views and arguments of the counsels and have also minutely gone through entire record of the trial proceedings. It is admitted fact that the appellant for one reason or the other has not been vigilant in pursuing the matter before the trial court. So much so that when initially the appellant was required to file written statement on the ground that the attorney was suffering from ailment of Hepatitis “C” and due to change of the employees the written statement was not filed. The record shows that the case proceeded exparte. However, the order of exparte was recalled to provide appellant an opportunity to submit their written statement and initially four weeks were granted which period was extended for further two weeks, through the order dated 28.08.2006, the learned Single Judge declared that the appellant be proceeded, exparte against which appellant has preferred an appeal H.C.A.No.111 of 2007. Thereafter the suit proceeded exparte proof was filed by the respondent and the evidence of the plaintiff was recorded. The contention of the learned counsel for the appellant that he was not given an opportunity to cross-examine the plaintiff’s witness is devoid of any force as the presence of appellant’s counsel has been recorded. The contention of the appellant that evidence file was not available appears to be correct as has been endorsed by Assistant Registrar (Civil). However, the learned Single Judge while passing judgment has taken care of the rights of the appellant by examining the record produced by the appellant at the trial stage and the. documents relied upon by the Appellant were also considered. So far as the judgment relied by the learned counsel is concerned, there can be no cavil to such proposition. In the present case the conduct of appellant has not be of a diligent litigant. There is nothing on record to suggest that appellant was serious in participating in the proceedings.

5. However, at this stage we may observe that if the contention of the appellant’s counsel is accepted matter could be remanded to the learned Single Judge. However, considering the fact that suit was filed some six years ago and looking to the facts of the case and keeping in view a well established principle that cases be decided on merits by avoiding multiplicity of the litigation, we have taken on ourselves to examine the issue and controversy regarding claim of the respondent in respect of escalation charges due to differential in foreign exchange rate and grant of damages etc. as the appeal is continuation of the trial, we deemed fit to decide the matter in accordance with law and on its own merits.

6. The brief facts of the case are that appellants (defendants) invited quotations for supply and installation of air-conditioning and ventilation equipment in its building at Islamabad. The respondent (plaintiff) made offer for the supply of required equipments through letter dated 30.4.1998 price quoted was on the then prevalent Pakistani Rupee Dollar parity and existing taxes and duties which was followed by formal contract dated 15.5.1998. Examination of record shows that before import, delivery and installation of contract equipment could be affected, Pakistan carried out nuclear tests on 28.5.1998 which followed hue and cry on international front followed by economic restrictions. Consequently, Government of Pakistan was compelled to freeze all foreign exchange transactions besides devaluation of Pakistani Currency by 4.4.% to one US dollar. Such devaluation created substantial financial implication on the contract between the parties as the equipment contracted were to be imported against the foreign exchange. The factum of devaluation has not been denied by the appellant. The respondent/plaintiff apprised the appellant/defendant of the consequences of devaluation on the value of the contract and its consequential affect on duties and other taxes. Respondent, therefore, showed their inability to supply the equipment as they anticipated losses in the transaction. However, in pursuance of meeting between the parties the equipments were delivered on assurance that escalation will be considered favourably by the appellant (defendants) and in order to examine consequential impact of devaluation and resultant increase including duties and taxes the appellant/defendants appointed a Consultant who approved the claim of increase. The appellant/defendants despite recommendation by the said Consultant through a letter dated 30.3.2001 finally refused to pay the increase that compelled the respondent to approach the Ombudsman for claim of Rs.2,847,296/- . The learned Ombudsman after hearing both the parties came to the conclusion that for the disputed amount the parties may approach competent court of law. In pursuant to the proceedings before the learned Ombudsman the defendant paid Rs.248,183/-. However, as stated above regarding escalation charges matter remained unresolved hence the respondent filed suit No.84/2003 for recovery of the said amount in addition also claimed compensation of rupees one million. Record shows that the respondent filed all the relevant documents of import, invoices, bank documents and comparative charges to demonstrate that they had suffered the additional loss on account of devaluation of foreign currency. The factum that dollar was devalued is not disputed by the parties. Furthermore, letter dated 20.4.1998 contained important condition of the contract and subsequent letter dated 15.5.1998 was treated as part of the contract. The fact that the controversy was sent to the Consultant for his view is also not disputed. The said Consultant recommended vide letter No.835/3-15570 date 6.3.2000 and agreed with the respondent as regard to the price difference on account of devaluation. However, the Consultant with regard to excessive impact of custom duty and tax advised the appellant to obtain expert’s opinion. It would be appropriate to reproduce the relevant extract of said letter :-

"We recommend that enhancement due to increase in exchange rate 'i' amounting to Rs.969741.00 and enhancement on additional custom duties 'ii' amounting to Rs.153,790/- are justifiable and deserve due consideration.

Enhancement claimed on increase on sale tax 'iii' & claim an additional over all sales tax and enhancement claim on income tax 'iv' are some what specialized issues and we recommend that NIC may obtain a professional opinion from relevant authorities before processing the above two issues."

7. It appears that no such opinion was obtained by the appellant and the defendant/appellant through their letter dated 30.3.2003 did not accept the recommendation of the Consultant.

8. Now so far as escalation charges are concerned it has been noted by us that offer letter of the respondent which as per terms agreed between appellant and respondent became part of Contract Agreement dated 15.5.1998 which provided that offer would be valid for 15 days, force majeure was made applicable and lastly the price quoted were based on the then present rate of duty and taxes and exchange rate of US dollar to be paid at Rs.44.31. The argument of the appellant that there was nothing on record to suggest regarding escalation charges in view of the above offer letter duly made part of contract is not sustainable and the respondent have correctly claimed differential amount due to devaluation of the currency. We have examined the comparative chart available in the suit filed which clearly spells out the amount claimed under escalation charges are duly supported by the documents. In fact the appellant at no stage has questioned the quantification of such charges. The escalation charges granted by the learned Single Judge even otherwise could be granted on the analogy of Section 64-A of the Sales of Goods Act, 1930, which we shall discuss in succeeding paragraphs.

9. Through the impugned order learned Single Judge has along with escalation charges accrued on account of devaluation has also granted relief on the impact of increase of duties and taxes based on provision of Section 64-A of the Sales of Goods Act 1930 which, by law protect both the buyers and sellers in case of change in duties and taxes. The learned Single Judge on the basis of section 64-A of the Sales of Goods Act, 1930 granted the increase to the respondent and in view of the delay of payment by the appellant also granted rupees one million as compensation in addition to 7% markup from the date of the judgment.

10. We have examined the statutory provision of section 64-A of the Sales of Goods Act, 1930 , it is necessary to set out relevant provision.

“64-A In contracts of sale amount of increased or decreased duty or tax to be added or deducted. In the event of any duty of customs or excise (or tax) on any goods being imposed, increased, decreased or remitted after the making of any contract for the sale of such goods without stipulation (as to the payment of duty or tax where duty or tax) was not chargeable at the time of the making of the contract, or for the sale of such goods (duty- paid or tax-paid where duty or tax) was chargeable at that time—

(a) If such imposition or increase so takes effect that the duty or tax or increased duty or tax, as the case may be, or any part thereof, is paid, the seller may add so much to the contract price as will be equivalent to the amount paid in respect of such duty or tax or increase of duty or tax, and he shall be entitled to be paid and to sue for and recover such addition, and

(b) If such decrease or remission so takes effect that the decreased duty or tax only or no duty or tax, as the case may be, is paid, the buyer may deduct so much from the contract price as will be equivalent to the decrease of duty or tax or remitted duty or tax, and he shall not be liable to pay, or be sued for or in respect of, such deduction).

Explanation. The word “tax” in this section means the tax payable under the Sales Tax Act, 1951.”

11. In our considered view Section 64 A of the Sales of Goods Act, 1930 is a special provision which provide safeguard to the interest of parties to a contract of sales of goods where there is some increase or decrease of levy of any duty of Customs, Excise or Sales tax after the finalization of the contract. Thus it provides equal protection to the purchaser and seller on above account. The provision of this Section apply only when the incidence of imposition, increase, remission, or remitted of above mention duties and tax takes place after the making of the contract for the sale of goods.

12. In the case of Nagina Cotton Mills Ltd v. Government of Pakistan PLD 1988 Kar 1, this court in respect of Section 64 A ibid observed in the following words:

“A perusal of the above section indicates that it has been enacted for the benefit of a seller as well as of a buyer. Inasmuch as it has provided that in the event of any duty of customs or excise duty or tax on any goods being imposed, increased, decreased or remitted after making of any contract for the sale of such goods without stipulation as to the payment of duty or tax where duty or tax was not chargeable at the time of the making of the contract or for the sale of such goods duty paid or tax paid where duty or tax was chargeable at that time, a seller would be entitled to recover from a purchaser the amount of customs duty or excise duty or tax paid by him in respect of such a contract or the increased amount in respect of the above items, whereas a buyer is entitled to claim the refund of the full amount of duty of customs or excise or tax from the seller in case of abolition of the same after the making of the contract or to claim the refund of the difference amount in case the rate is decreased."

13. In the case of S.S.Moeed and another v. Messrs Ebrahim Alibhai Charitable Trust 1987 M.L.D 308, in this case it was held as under:

"It is admitted position in the case that the lifts were imported by the plaintiffs some time in early November, 1977 and as such the new rates of duty were applied. It is not denied that this duty was not payable or was not paid. The only dispute is that this was a turn key contract and according to the defendants the plaintiffs had agreed to accept a total amount of Rs.4,10,000 and provide the lifts in operational condition. Whether the duty is enhanced or reduced, is none of the concern of the defendants, it is so contended. But the question arises whether this objection can be sustained under section 30 of Arbitration Act.

Assuming for the sake of arguments that the award can be attacked on this ground then it must be shown that the Arbitrator has exceeded his authority by giving this award. The defendants would have to show that this approach of the Arbitrator is contrary to the statutory provisions and the award suffers from illegality. Not only the learned counsel for the defendants has failed to show any such provisions, the statutory provisions support the view which has been taken by the Arbitrator. Section 64-A of the Sale of Goods Act may be read in support of this view. It may be reproduced for ready reference"

"64-A In contract of sale amount of increased or decreased duty to be added or deducted,-- In the event of any duty of customs or excise or tax on any goods being imposed, increased, decreased or remitted after the making of contract for the sale of such goods without stipulation as to the payment of duty or tax where duty or tax was not chargeable at the time of the making of the contract, for the sale of such goods duty paid or tax where duty or tax chargeable at that time."

The learned counsel for the defendants contended that this section would be applicable if there is no agreement to the contrary and he relied on the words "without stipulation" occurring in the first paragraph of the section.

Even if I interpret the words "without stipulation" to mean without any contract to the contrary, then such contrary contract must be clearly proved. In the present case no such contract seems to have taken place. It is just and ordinary contract and merely the use of the words "turn key" would not show that the parties had visualized the event of enhancement of customs duty and have specifically agreed that it should be the liability of the plaintiffs. The words "turn key" have been used in the ordinary sense and they merely indicate that the plaintiff was to fully complete and accomplish the job without any further demand or additional payments on account of fluctuation in prices or increase in labour charges.

So far as customs duty or excise duty is concerned, the plaintiff was not pocketing this amount, he has merely to pass it on to the Government and obviously this payment to the Government in excess to the contractual amount would be the responsibility of the owner and not the contractor.

Learned counsel for the plaintiff has also relied upon on a case reported in AIR 1993 Sind 403 in which a Division Bench of this Court has taken the same view. In this case section 10 of the Tariff Act (1994) has been considered. Few lines from the judgment would be helpful and not without interest which are as follows:-

"There are however, exceptions to this general rule. One of them is that contained in section 10, Tariffs Act. This section is intended on the one hand to prevent a party, prejudicially affected in consequence of a charge in the duty on goods levied by the Crown whether such duty is customs duty on imported goods or excise duty on goods produced in the country, should not suffer by the act of the Crown, and on the other to make the party who stands to benefit by such change to account to the party prejudicially affected to the extent of the increase or decrease of taxation as the case may be. It goes without saying that where a tax is increased or decreased it affects the price of goods imported or produced as the case may be after the duty is altered. All that the section requires the claimant to prove is that the goods tendered against his contract should have paid the altered duty and not that he has paid it as such."

This objection of the learned counsel also fails"

14. In the case of Chaudhary Brothers v. Province of the Punjab 1993 M.L.D 2433, it was observed as under:-

"6. There is no dispute that according to this provision, if any duty or customs or excise, or tax under the Sales Tax Act, 1951 is imposed or increased or decreased, the liability falls upon the purchaser and seller is entitled to recover the amount of tax paid by him from the purchaser. Similarly, if the tax aforesaid is decreased or remitted, the benefit accrues to the buyer.

7. …………….

8. …………….

9. This contention of the Additional Advocate-General is wholly misconceived. The aforesaid clause merely requires the seller to separately indicate the amount of sales tax if any leviable on the goods while quoting the price. There is nothing in this clause which shifts the responsibility to pay sales tax subsequently levied to the seller. On the other hand, this provision appears to have been incorporated keeping section 64-A of the Sale of Goods Act, 1930 in view so that in the event of tax being subsequently enhanced or decreased, it can be found out as to amount of tax was included in the price. If as suggested by the Additional Advocate-General, the reason for prescribing such a condition was that notwithstanding increase or decrease in the sales tax, the burden or the benefit would accrue to the purchaser, there was no need of requiring that it be separately indicated as to what was the sales tax payable at the time of submission of tenders. I am, therefore, unable to agree with the learned Additional Advocate-General that the clause II of the Invitation of the Tender be construed so as to deprive the petitioner of its right to recover the amount of sales tax paid by it in respect of the goods supplied to the respondents.

9-A. From the above, it is apparent that there is no stipulation in the contract between the parties dealing with the situation arising out of increase, remission or decrease of the customs or excise duty or sales tax. Consequently, the case will have to be decided according to section 64-A of the Sale of Goods Act, which provides that any tax levied subsequent to the contract can be recovered by the seller from the purchaser. As there is no dispute that sales tax in question was levied after the execution of the contract, the petitioner is clearly entitled to receive this amount from the respondents.

15. In Habib & Company v. Chief Controller of Purchasers, Pakistan Railway Headquarter, Lahore P.L.D 2001 Lahore 521. a Constitutional Petition was filed claiming entitlement to the benefit of Section 64A of Sales of Goods Act, 1930 with a prayer that the respondents be directed to pay increase in costs to the petitioner. In case the claim was made on further de-valuation of Pak Rupee after the issuance of purchase order. Divisional Bench of Lahore High Court though on technical ground did not entertain the said petition as it required evidence. However, the Court was pleased to observe that the petitioner was entitled to enhancement in the price which accrued due to de-valuation having taken place by virtue of statutory notification issued by the State Bank of Pakistan.

16. The said provision was also examined by the Hon’ble Supreme Court in a relatively recent judgment of Fecto Belarus Tractors Ltd Vs. Government of Pakistan 2005 PTD 2286 where following observations made in the case of Army Welfare Sugar Mills Ld. Vs Federation of Pakistan 1992 SCMR 1652 have been reiterated.

‘54) it may also be observed that section 64 of the Sales of Goods Act, 1930, entitles a vendor to recover from a purchaser any duty or custom or excise or tax on any goods being imposed or increased after the conclusion of the contract for sale of such goods, if the contract does not contain any provision contrary to it.”

17. In the present case, perusal of the agreement between the parties and documents treated to be part of the contract, it is quite apparent that there is no stipulation in the contract between the parties dealing with the situation arising out of increase, remission or decrease of the customs or excise duty or sales tax. Consequently, the case will have to be decided according to section 64-A of the Sale of Goods Act, which provides that any tax levied subsequent to the contract can be recovered by the seller from the purchaser. As regard difference of price resulting from devaluation and fluctuation in currency is concerned, we are of the same view as held in the case of Habib & Company Vs. Chief Controller of Purchases (supra) that the Respondents are entitled to the entitled to enhancement in the price structure.

18. We find that in the present case the learned Single Judge has correctly appreciated the provision of law and facts of the case. However, we may state with respect and humility that the while granting the escalation charges which include increased duties and taxes, the Explanation append in section 64(A) ibid escaped the attention of the leaned Single Judge, though the said Explanation was added by Sales of Goods (Amendment) Act 1956 which reads “the word “tax” in this section means the tax payable in the Sales Tax Act 1951.” As stated above, the learned Single Judge has granted increase of the taxes which includes Income Tax, which could not have been granted in view of the Explanation to the section 64-A ibid. In view of the clear provision of the law we modify the impugned judgment to the extent that increase in ‘taxes’ other than Sales Tax cannot be granted to the respondent.

19. The perusal of the entire case also shows that at no stage neither through any documents nor through any evidence recorded in the present case, the respondent has established through any tangible material that they had suffered losses which entitled them compensation/damages of Rupees One million.

20. We have thoroughly examined the record made available before us and on the basis of the same, we are persuaded to hold that there is no iota of evidence on record to substantiate that the respondents have suffered loss on withholding of escalation charges. The claim of compensation/damages to the tune of Rupees One million has been stated to accrue to the Respondent on alleged financial losses, due to stuck up amount which according to the Respondent could have been invested in its business. It is observed that nothing has been brought on record to convince us that Respondent could have earned such rate of profit on stuck up amount which could have resulted to earn Rupees One Million.

21. In view of above, we hold that the respondent is not entitled to any compensation/damages, however grant of 7% mark-up on the payment from the date of judgment appears to be very reasonable, which we also approve.

22. The appeal is disposed off in the above terms, however, the parties shall bear their own cost.

JUDGE