IN THE HIGH COURT OF SINDH AT KARACHI.
Present:
1. Mr. Justice Muhammad Mujibullah Siddiqui
2. Mr. Justice Khilji Arif Hussain
JUDGMENT
Date of hearing : August 16, 2005
Date of judgment : August 16, 2005
Appellants : Collectorate of Central Excise, Karachi and another
through Mr. Shakeel Ahmed, Advocate.
Respondent : M/s S. Muzakkar Hussain and another through Mr.
Kh. Shamsul Islam, Advocate in HCA No.31/2000.
Respondent : M/s Bulk Shipping & Trading through Mr. Kh.
Shamsul Islam, Advocate in HCA No.32/2000.
KHILJI ARIF HUSSAIN, J.- By this common judgment we would like to dispose of above referred appeals as the same arise out of common judgment passed in Suits No.357 & 358 of 1998.
Brief facts of the case are that the respondent No.1, a stevedoring contractor, entered into a contract for three years in the year 1994 with Government of Pakistan for handling fertilizer imported by them at Karachi Port. By show-cause notices dated 09.7.1997, 10.7.1997 and July 1997, the appellant called upon the respondent No.1 to deposit central excise duty in respect of excisable services provided by him from 17.7.1995 to 30.9.1995, October 1995 to December 1995 and January 1996 to March 1997 respectively. The respondent No.1 impugned these notices by filing the Suit for declaration, direction and permanent injunction. The appellant filed written statement and denied the various allegations levied in the memo of plaint. When the Suit was listed for hearing of inter locutory applications, at the request of the learned counsel for the parties that since points involved in the matter were a legal one and since most of the documents relied upon by both the sides have been brought on record, therefore, they did not wish to lead any evidence and agreed that a final judgment may be given in the matter on the basis of documents on record. The learned Single, after hearing the learned counsel for the parties decreed the Suit and dismissed the application under Order VII Rule 11 CPC filed by the appellant. Aggrieved by the said Judgments these appeals have been preferred by the appellant.
Heard Mr. Shakeel Ahmed, learned counsel for the appellant, and Mr. Khawaja Shamsul Islam, learned counsel for the respondents in both the appeals.
The only ground, on which impugned Judgment was questioned by the learned counsel for the appellant was that the Suit filed by the respondent No.1 was not maintainable on the original side of this Court as the jurisdiction of the Court is barred under Section 40 of Central Excise Act, 1944. Since the learned counsel for the appellant has questioned the judgment only on the ground that the Suit filed by the respondent No.1 was not maintainable, we would not like to go in the merits of the matter and deal with the question raised by the learned counsel for the parties.
Mr. Shakeel Ahmed, learned counsel for the appellant, vehemently argued that the Suit filed by the respondent No.1, on the face of it, was barred by law and if respondent felt aggrieved by the show cause notices, then the remedy is available under the hierarchy of the Central Excise Act itself and and same cannot be questioned by filing Suit. In support of his contentions, learned counsel relied upon the cases of M/s. Work Trade Corporation vs. C.B.R. and others, (1999 (80) Tax 840), Mst. Sakina and 3 others vs. The Excise and Taxation Officer, ‘A’ Division, Karachi, (1989 CLC 964) and Manzoor Hussain vs. Raja Shah and others, (1999 SCMR 1881).
On the other hand, Mr. Khawaja Shamsul Islam, learned counsel for the respondents, argued that the show cause notices, on the face of it, were issued with malafide intentions and same are bad in law, issued after expiry of the period provided for issuing such notices.
In order to appreciate the contention of learned counsel for the parties we would like to reproduce Section 40 of the Central Excise Act, 1944, which reads as under:
“40. Bar of Suit and limitation of Suit and other legal proceedings.--- (1) No Suit shall be brought in any Civil Court to set aside or modify any order passed, or any assessment, levy or collection of any duty, under this Act.
(2) * * *
(3) No Suit, prosecution or other legal proceeding shall lie against the Federal Government or against any officer of the Government in respect of any order passed in good faith or any act in good faith done or ordered to be done under this Act.”
From a bare perusal of the said Section it appears that no Suit shall be brought in Civil Court to set aside or to modify any order passed or any assessment, levy or collection of any duty under the Act. It is an admitted position that the respondent has not filed the Suit calling in question any order passed under the Act or questioned any assessment or levy or collection of any duty under it. The respondent No.1 has questioned show cause notice issued by the appellant on the ground that same has been issued malafidely without any jurisdiction/lawful authority.
When special law provided hierarchy for redress of grievance, then one cannot normally be allowed to circumvent the same by invoking Civil jurisdiction of Court. However if prima facie Plaintiff can show malafide on the part of authority and any illegality, which is floating on the surface and or absence of jurisdiction, then jurisdiction of Civil Court can be invoked in the matter. Our view find support from the case of Al-Ahram Builders (PVT) Ltd. Vs Income Tax Appellate Tribunal, (1993 SCMR 29), The Batala Engineering Co., Ltd vs. The Income Tax Officer, Lahore, (1973 SCMR 282) and Regional Commissioner of Income Tax Corporate Region Karachi and 2 others vs Shafi Muhmmad Baloch, (1998 SCMR 376).
The Jurisdiction of the Civil Court to deal with the Civil Cases can be excluded by the legislature by Special Acts which deal with the special subject but the statutory provision must expressly provide for such exclusion or must necessarily and inevitable led to such inference. The bar created by the relevant provision of statute excluding jurisdiction of Civil Court cannot operate in cases, where the plea before the Civil Court goes to the root of the matter and would if upheld lead to conclusion that the impugned order is nullity.
Keeping in view the above principle of law of exclusion of jurisdiction of Civil Court now we have to see whether Section 40 of the Central Excise Act 1944 in the circumstances of the case exclude jurisdiction of the Civil Court. From bare perusal of Section 40 of Central Excise Act it appears that only such Suit cannot be brought in Civil Court in which party is seeking order to set aside or modify the order passed or question assessment of levy for collection of duty under the Act whereas in the Suit filed by the respondent No.1, respondent No.1 questioned the show cause notice issued by the appellant on various grounds as well as on the ground that same has been issued without any lawful authority, in other words in colourable exercise of jurisdiction.
If from the facts on the record before the Civil Court without going in detailed investigation in it, it can be established that very act questioned is without lawful authority and jurisdiction then instead of asking a party to go under the agony of lengthy departmental proceedings where possibility of getting relief are limited, Civil Court can grant relief to deserving party by holding that the very act of the authority is without lawful authority.
Section 3 of Central Excise Act is the charging section, which create charge on all excisable goods/services. The appellant for the first time on 9.7.1997 served a show cause notice upon the respondent No.1 that he is engaged in providing/rendering excisable services of stevedoring facilities falling under the Heading No.9805.2000 of First Schedule of Central Excise Act 1944 and that during the period from 17-7-1995 to 30.9.1995 provided stevedoring facilities of Rs.45,75,390 but did not pay Central Excise Duty at the rate of 10 per cent charges in terms of provision contained in Section 3(1) of the Central Excise Act 1944 and sum of Rs.4,75,539 being Excisable Duty for the period is recoverable from the respondent. Just after one day i.e. on 10-7-1997 another notice was served for payment of the Excise Duty pertaining to excisable service rendered for the period from October 1995 to December 1995 and then by third notice for the period from January 1996 to March 1996.
Rule 10(1) Central Excise Rules on the relevant date when the show cause notice was served provided that where by reason of any inadvertence, error or misconstruction , any duty or charge has not been levied or has been erroneously refunded , the person liable to pay any amount on that account shall be served with a notice within one year of the relevant date by an officer not below the rank of Superintendent requiring him to show cause why he should not pay the amount specified in the notice. Notices impugned admittedly were served upon the respondent No.1much after the expiry of one year. We would like to mention here that sub-rule (2) of Rule 10 provided different period of service of notice. Notice under Rule 10(2) can be served within three years if by reason of any mis-declaration, false information or collusion, any duty or charge has not been levied or has been short levied or has been erroneously refunded.
We have asked Mr. Shakeel Ahmed, learned counsel for the appellant, whether the show cause-notices issued by appellant falls under sub-rule (2) of Rule 10, he replied stated in negative. However, he stated that the show cause notices issued by the appellant also does not fall under sub-rule (1) of Rule 10 which argument is not acceptable by us, as, show-cause notices in question by itself provided that the amount mentioned in it are recoverable under Rule 10 of the Central Excise Rule 1944.
We are of the view that the notices served upon by the appellant at best falls within the ambit of sub-rule (1) of Rule 10, the same ought to have been within one year from the date when the excisable services were rendered and for which Excise Duty has not been paid.
In the case of M/s. Pioneer Belting Mills Ltd. Muridkey vs Joint Secretary Ministry of Finance, Government of Pakistan and 2 others, (PTCL 1983 (CL) 24, while dealing with similar question it was held:
“The learned Deputy Attorney General endeavored to draw a distinction between rules 7 and 10. According to him, the latter provisions is attracted only in a case where the products of a manufacturer are generally subjected to excise duty and the assessee clears the goods in a regular way but somehow or other, some consignment escapes the levy or is short levied or short paid. He urged that when the duty is purposely evaded and the goods cleared away without documentation , under rule 7, there is no bar to enforce the levy at any time and such recovery is not governed by any period of limitation.
I am unable to agree with the learned Deputy Attorney General. Section 3 of the Central Excise Act, is charging section, which creates a charge on excisable goods, the moment these are manufactured. The charge, however, remains dormant until it is quantified and the payment of the duty made or enforced under the provisions of the rules. Rule 7 can conveniently be divided into parts; the earlier part merely provides that the duty shall be paid, on the excisable goods, at such time and place and to such person as may be designated under the rules. To the extent of direction as to the payment of duty, this rule does not make any contribution, for, under section 3, the excisable goods have already been subjected to a charge. The latter part of the rule, however, ordains that in case the duty is not paid in accordance with the rules, or upon a written demand made by the departmental authorities, the person responsible to pay the duty, would be liable to a penalty, which may exceed to Rs.2,000 or 10 times of the amount of duty, whichever is greater. On the other hand rule 10 specifically lays down that when for any reason, the duty has not been levied or short levied or short paid, the person on whom the liability is cast, shall pay the duty, on a written demand being made within three years, from the date on which the duty became due. It may be observed that under Notification bearing No.SRO-1645(I)/73, dated 26-11-1973 rule 10 was amended and the time limit of three years substituted by 10 years. The purpose of this rule appears to be, to provide a limitation for the levy and recovery of the excise duty. In the matter of recovery of the duty rule 7 is not independent of rule 10. Both the rules are to be read together and the payment of duty envisaged by rule 7 has got to be enforced with the period prescribed by rule 10. The expression ‘for any reason’ figuring in rule 10, is comprehensive enough to cover the omission to levy the excise duty and so also the non-payment or short payment thereof, relatable to any cause, including the one resulting from inaction of the department and the evasion made by the assessee. The language of rules 7 and 10 is not open to the interpretation sought to be put thereon by the learned Deputy Attorney General.”
(Emphasis added)
Learned Court allowed the petition and declare the notice issued as barred by time. Since show cause notices which formed basis of claim of the appellant are barred by time and accordingly notices issued are without lawful authority. We are of the view for such colorable exercise of power by the authority can be questioned before the Civil Court.
In the case of Assistant Collector Customs and others vs. Messrs Khyber Electric Lamps and 3 others, (2001 SCMR 838), while dealing with Section 32(1) 32(2) and 32(3) of the Customs Act which is pari-materia to Rule 10 of Central Excise Rule, Hon’ble Supreme Court held:
“. . . It is necessary under subsection (1) of section 32 of the Act to show that the declarant had the knowledge or had the reason to believe that the declaration or statement made by him was untrue/false and in absence of such allegation notice would be vague and would not in accordance with law. Similarly, notice under subsection (2) of section 32 of the Act must contain the allegation of collusiveness and notice under subsection (3) of section 32 of the Act should speak inadvertence , error or misconstruction and without such allegations the notice would be defective and against law. It may be mentioned that the respondents after survey had been issued Final Certificates certifying that they were manufacturer of Electric Bulbs and the quantities of raw material required for their products were worked out. In the Survey Report the ‘Base Cap’ and Filaments were shown as raw material and the duties thereon as such were paid on the import. From the Survey report and the Final Certificates, it appears that the Customs staff itself either collusive or inadvertently short-levied the duty for which the specific notice under the relevant sub-section of section 32 of the Act had to be served on the importer within the specified time but it failed to issue/serve any such show cause notice in accordance with law in Appeals Nos.1358 and 1359 of 1997, therefore in absence of statutory notice, demand notices dated 25-7-1995 and 26-7-1995 were without lawful authority and thus, of no legal effect. Similarly, show cause notices dated 16-7-1995 and 23-8-1995 in Appeals Nos. 1360 and 1361 of 1997 have been held to be vague and not in conformity with the law, therefore, the same have no legal effect”.
(emphasis added)
It was urged by the appellants that the learned High Court after finding the notices to defective and not in accordance with law should have remanded the case to the Customs Authorities for proceeding in accordance with law, but we do not find any substance in this contention as the period prescribed by law for service of notices has already expired and it would be a futile exercises in remanding the cases to the Customs Authorities.
In the case of M/s. Irfan Ashraf and Co. (Pvt.) Ltd. vs. The Collector of Customs and 3 others, in C.P. No.D-625/03 and other connected petitions, a Division Bench of this Court while dealing Notice under Section 32(3) of the Customs Act 1969 held that Notice under Sub-section (3) of Section 32 of the Customs Act 1969 can be served within the prescribed period of time provided under it and show-cause notice after expiry of stipulated period can be termed as Notice without lawful authority and liable to be struck down.
In case of Federation of Pakistan v. Messrs Ibrahim Textile Mills (1992 SCMR 1898), Hon’ble Supreme Court held that “in case of short-levied duties on account of inadvertence, error or misconstruction, Section 32(3) of the Act provides that the recovery notice shall be served within six months, if that is not done, like a Suit for recovery of money after lapse of time prescribed by law of limitation, the recovery becomes unenforceable.”
In the case of Mian Muhammad Latif vs. Province of West Pakistan, (PLD 1970 Supreme Court 180), the Hon’ble Supreme Court held:
“There is no doubt that under Section 11 of the Sindh Revenue Jurisdiction Act 1876, ordinarily a party in revenue matters should exhaust all his remedies by way of appeal before invoking the aid of Civil Court. But there are different considerations where the allegation of a party is that the impugned order is nullity in eye of law, and Civil Courts have jurisdiction to examine into cases where statutory provisions have not been complied with or the statutory tribunal has not acted in conformity with the fundamental principles of judicial procedure.”
In another case of Hamid Husasain vs. Government of west Pakistan and others, 1974 SCMR 356, the Hon’ble Supreme Court held that:
“ It is well established principle that even where the jurisdiction of Civil Courts is barred and conferred upon special tribunals, Civil Courts being Courts of ultimate jurisdiction will have the jurisdiction to examine the acts of such forums to see whether their acts are in accordance with law or are illegal or even mala fide.”
Mr. Shakeel Ahmed, learned advocate for the appellant, relied upon the case of M/S World Trade Corporation vs. C. B. R. and others [(1999) 80 Tax 84 (H. C. Lah.)], in the said matter civil revision appeal was dismissed on the ground that prior to filing of Suit, Petitioner had filed Constitution Petition on the same cause which were disposed of with direction to Collector Customs Dry port to pass order in accordance with law, which is not the case before us.
In the case of Zamindar Paper & Boards Mills (PVT). Limited vs. Collector, Central Excise and Sales Tax, Lahore and 2 others, (2003 PTD 1257), while dealing with the identical show-cause notice, Division Bench of Lahore High Court held:
“ The learned counsel for the Department has canvassed that the applicable provisions in the present case are contained in sub-rules (1) (2) and (3) of Rule 10 of Central Excise Rules, 1994. There is no doubt that show cause notice for non-levy and or short-levy of Excise Duty can be served upon a defaulting party by the Department under above referred sub-rules of Rule 10 ibid. However, bare reading whereof makes it clear that show-cause notice had to specify the reasons(s) for non-levy and short-levy of the duty and such notice can only be served within the period of limitation given in the applicable sub-rule(s) that too with reference to reason specified therein. Sub-rule (1) of Rule 10 can only be invoked for service of a show-cause notice for the reasons of “inadvertence, error or misconstruction” leading to non-levy, short-levy or erroneous refund of duty and such show-cause notice can be served within one year of the relevant date. Under sub-rule (2) of Rule 10 ibid, a show-cause notice can be issued “within three years of the relevant date,” if non-levy or short-levy of duty is caused due to misdeclaration, false information or collusion. Similarly sub-rule 3 of Rule 10 ibid can be resorted to through a show-cause notice within ten years of relevant date for non-levy for duty occurring for reasons of “any false documents” counterfeit seal or impression, fraud or any other heinous offence.
‘8. To put more succinctly show cause notice can only be served under Rule 10 ibid, if:
(a) Any duty or charge has not been levied or has been short levied or has been erroneously refunded;
(b) Such non-levy, short-levy or erroneous refund has been caused by any of the reasons cumulatively stated in sub-rules (1), (2) and (3) of Rule 10 ibid, which cumulatively reproduced are:
Sub-rule (1) (i) Inadvertence;
(ii) Error;
(iii) Misconstruction;
Sub-rule (2) (iv) Misdeclaration;
(v) False information;
(vi) Collusion;
Sub-rule (3) (vii) False document
(viii) Counterfeit seal or
Impression;
(ix) Fraud; and
(x) any other heinous offence.
(c) Such show-cause notice is within the period of limitation prescribed in each sub-rule with reference to applicable reason of non-levy or short-levy etc.
The inescapable conclusion thereto is that mere non-levy, short-levy or erroneous refund of duty or charge cannot become the basis for show-cause notice. Instead a show-cause notice must be founded upon non-levy, short-levy or erroneous refund of duty or charge occasioned/caused by any of the above reasons to be within the scope and period of limitation separately prescribed in each sub-rule of Rule 1 ibid. In absence of any of the three pre-conditions show-cause notice will be rendered illegal and without competence.
9. In the present case show-cause notice alleged against the present appellant evasion of duty/tax yet patently omits to state anyone of the ten reasons respectively prescribed in sub-rules (1) (2) and (3) of the said Rule 10 ibid. The adjudicating Collector by observing that tax fraud had been committed, and by imposing penalty upon the appellant, presumed the appellant’s case to fall in sub-rule (2) and (3) of Rule 10 ibid. In the absence of a particular allegation or charge in the show-cause notice against the appellant for having non-paid or short-paid duty/tax owing to misdeclaration, false information or collusion or by reasons of false document, counterfeit seal, fraud or heinous offence, such presumption is obviously erroneous and could not have been drawn by the Adjudicating Authority against the appellant. Since particular reasons were conspicuously and patently missing from the show-cause notice. Adjudicating Authority lacked jurisdiction to imply applicability or sub-rules (2) and (3) of Rule 10 to the case of the appellant.”
In the case of Muhammad Jamil Asghar vs. The Improvement Trust, Rawalpindi, (1965 SC 698), the Hon’ble Supreme Court held:
“ if order of Administrative Authority based on existence of certain circumstances, Court can make an enquiry and declare order of such authority to be void if such circumstances are not found to exist and jurisdiction of Civil Court with respect to mala fides can never be taken away.”
For the foregoing reasons Appeals have no merit and accordingly dismissed by short order dated 16/8.2005. These are the reasons in support of our short order dated 16/8/05.
Judge
Judge
*HCA 31&-00/Appeal/Judgment/R*