Present
Mr. Justice Mushir Alam.
Mr. Justice Aqeel Ahmed Abbasi.
Date of hearing : 25.11.2009
Date of judgment : 19.01.2010
Applicant : Collector of Sales Tax and Federal
Excise, Large Taxpayer Unit, Karachi,
through Mr. Syed Mohsin Imam, Advocate.
Versus
Respondent : M/s Pakistan State Oil Co. Ltd.,
through Mr. Aziz A. Shaikh Advocate
Mr. Khalid Javed Khan, Amicus Curiae
JUDGMENT
Aqeel Ahmed Abbasi, J. Through this Federal Excise Reference Application under Section 34 (3) of the Federal Excise Act, 2005, the Collector of Sales Tax and Federal Excise Large Taxpayer Unit, Karachi, has impugned the order passed by the learned Customs, Excise and Sales Tax Appellate Tribunal, Karachi Bench-I, Karachi, in Central Excise Appeal No.K-48/2001 dated 10.6.2006, the following questions of law are said to arise out of the impugned order:
(1) Whether or not the concessionary rate are applicable if the particular item is used for the specific industrial use and under the prescribed procedure?
(2) Whether or not non-specific industrial or commercial uses were entailed to concessionary rate?
(3) Whether or not the case involves the question of exemption/concession or classification?
2. It appears that while hearing the instant reference application on 19.9.2009 both the counsel for the parties were put to notice that this reference application would be finally disposed of at Katcha Peshi stage. On 24.9.2008 during the course of hearing of this reference application, Mr. Khalid Javed Khan, advocate was appointed as Amicus Curiea to assist the Court on the legal issue. The matter finally came-up for hearing on 25.11.2009, on which date both the counsel for the parties, as well as the learned Amicus Curiea have concluded their arguments.
3. It has been argued by the learned counsel for the applicant that the learned Tribunal has seriously erred in fact and law by holding that Solvent 30/40, Xylene and Tolune are to be classified under item 04.03 (a) of the First Schedule to the Act, as thinners in the case of paint manufacturers. Learned counsel has further argued that as per finding by the Adjudicating Officer, the products namely Solvent 30/40, Xylene and Toluene are covered under item 03.14 and 03.16 of SRO 500 (I)/93 dated 14.6.93 as POL Products, hence are not liable to exemption or concessionary rates. According to the learned counsel, this issue has already been decided in the case of Muhammad Ashraf v. The Collector of Customs (Appraisement), Karachi reported as P.L.D 1991 Karachi 281. Learned counsel for the applicant referred to the Show Cause Notice dated 18.1.1991, issued by the Collector of Central Excise and Sales Tax, Karachi, wherein it was contended that during the course of audit and scrutiny of the records maintained by M/s Pakistan State Oil, Karachi, pertaining to BTX Solvent 30/40, Xylene and Toluene for the period from June 1991 to August 1993, it was revealed that the respondents were supplying Solvent 30/40, Xylene and Toluene to different paint manufacturing units and other than paint manufacturing units at a flat rate of 10% of the retail price in violation of provisions of S.R.O. 500(I)/93 dated 14.6.93 read with provisions S.R.O. 555(I)/79 dated 28th June 1979 and S.R.O 945(I)/92 dated 3.10.92. The respondent was also confronted with the judgment dated 19th March 1991 passed by the Hon'ble High Court in C.P.No.D-202 of 1986, (the said judgment is referred as Berger Paints Pakistan Ltd v. Government of Pakistan 1991 CLC 1277), wherein according to the learned counsel for the applicant, it was held that products being Thinner and Ancillary are to be classifiable under item 04.03 of 1st Schedule of the Central Excise & Salt Act, 1944 and are to be supplied to Paint and Varnish manufacturers under bond without payment of Central Excise Duty provided the provisions of Rules 96 TT of Central Excise Rules, 1944 are followed as required under clause (9) of S.R.O. 555(I)/79 dated 28.6.1979 as superseded vide S.R.O. 500(I)/93 dated 14.6.1993. Whereas in other case these items namely 30/40, Xylene and Toluene are to be supplied at appropriate rate of 80% Advalorum and 15% Advalorum respectively. Learned counsel for the applicant has further argued that the Adjudicating Officer was fully justified in refusing exemption to the respondent under item No.04.03 of First Schedule to the Central Excise and Salt Act, 1944 and has rightly held that the respondent is liable to pay duty at the appropriate rate of 80% and 15% Advalorum where subject product supplied to other than paint and varnish manufacturers.
4. Conversely, learned counsel for the respondent had vehemently opposed the contention of the learned counsel for the applicant and argued that the order passed by the learned Customs, Excise and Sales Tax Appellate Tribunal is strictly in accordance with law and is based on the finding of facts of the instant case. It has been further argued that a product for the purposes of classification under a heading in the schedule to the Central Excise Rules, the concept of single classification of a product is relevant. According to Rule 3 (c) of these rules, if after application of the rules in their sequence and hierarchy, if an article falls under two equally possible classifications, the classification last occurring shall apply. It has been argued that the learned Tribunal has correctly observed that since in the instant case heading 04.03 occurs after 03.14 and 03.16, therefore, the heading 04.03 shall prevail over earlier headings. To support his contention, learned counsel for the respondent has referred to an unreported judgment passed by Division Bench of this Court in the case of ICI Pakistan Ltd. V. Pakistan and others C.P.No.D-1635 of 1987, wherein reference to the judgment by a Division Bench of this Court in C.P.No.D-202 of 1986 and CPLA No.229-K of 1991 dated 2.7.91 is made. The Hon'ble Supreme Court in the above referred case has held as followed:
"There can be no doubt about the fact that the thinners as understood in common sense are liquids added to paints and varnishes to facilitate application, and are amongst the goods mentioned in item No.04 of first schedule of the Central Excise and Salt Act, 1944. The thinners are even otherwise ancillaries of paints and receive treatment with the paints and varnishes. While spirit, xylene and toluene are thinners within its common meaning and definition. Petitioners had entered into an agreement of procurement of thinners namely while spirit (solvent 30/40), xylene and toluene from Pakistan State Oil Company Limited and were therefore entitled to receive the said thinners duty free in terms of notification dated 29.6.1979."
5. It was, therefore, argued that the product of the respondent namely Solvent 30/40, Xylene and Toluene are classifiable under item 04.03 (a) of the First Schedule to the Central Excise and Salt Act, 1944.
6. Mr. Khalid Javed Khan, leaned Amicus Curiae at the first instance has referred to the judgment of Muhammad Ashraf v. The Collector of Customs (Appraisement) Karachi, reported as P.L.D 1991 Karachi 281, wherein Division Bench of this Court has held as under:
"The controversy here is whether the sap called gum-kino will fall under 1302.1990 or 1302.1910. The petitioner asserts that because of its use in pharmacy it will fall under heading 1302.1910 and is duty free. The learned counsel for the respondent has, however, taken a different view and according to him it is capable of being used in tanning and not exclusively for pharmacy and therefore will be covered by 1302.1990. The classification reproduced above clearly shows that those goods which are used in pharmacy will be duty-free but goods not used for pharmacy or used for multipurpose are classified as 'other'. The purpose of such classification is that only those kind of goods which are exclusively used in pharmacy should be duty-free. The words 'of a kind' used in pharmacy as well as for tanning or any other purpose, then it will be excluded from the description of 1302.1910. The simple reason seems to be that if any goods are used for multipurpose and not exclusively for the purpose it has been made duty-free, then it will be hardly possible to charge duty on it though not used in pharmacy. We therefore, find no force in the petitions which are dismissed."
According to learned Amicus Curiae, there is a possibility where a product can be classified in more than one heading subject to conditions imposed in this regard. The learned Amicus Curiae has drawn our attention to the contents of item 04.03(a) to the First Schedule Central Excise and Salt Act, 1944, which is reproduced hereunder for the sake of relevance.
"04.03 (a) All sorts of paints (including products known as or used as cement paints), pigments, distempers, colours, dyes, enamels, varnishes, glazes, lusters, thinners "1.(including xylene and toluene used as thinners)", blacks, cellulose lacquers and polishes (Except creams and polishes falling under item No.04.01) and their ancillaries in any form, liquid, solid, semi solids, paste, powder or granules used in the manufacture of the goods falling under item No.04.03 of the First Schedule to the Act, which are subject to excise duty, provided that the provisions of rule 96-TT of the Central Excise Rules, 1944, are followed."
(1.The words in the bracket were inserted vide SRO No.945 (I)/92 dated 3.10.92)
7. According to the learned Amicus Curiae, after the amendment the product Xylene and Toluene used as thinners were included in the heading 04.03 (a). It is further argued by the learned Amicus Curiae that from the plain reading of the contents of above referred heading it emerges that the thinners and ancillaries (xylene and toluene), if used in the manufacture of goods fall under item No.04.03 (a). After having followed the provision of Rule 96 TT of the Central Excise and Salt Act, 1944, the applicant will be exempted from the levy of central excise duty. According to the learned Amicus Curiae, the xylene and toluene are thinners and ancillary products but the same will be exempted from levy of central excise duty in terms of heading 04.03 only if used in manufacture of goods falling item No.04.03 (a) of the First Schedule of the Central Excise and Salt Act, 1944. The learned Amicus Curiae was of the view that the relevant facts appear to have not been identified either in the show cause notice or by the learned Tribunal to this effect.
8. We have heard both the learned counsel for the parties as well as the learned Amicus Curiae on this legal issue. We have also perused the record of the case and the case law referred and relied upon by the parties. The precise controversy involves around the interpretation to item 04.03 (a) of the First Schedule to the Central Excise and Salt Act, 1944.
9. Before we venture to examine and interpret the contents of the above referred article as provided in the First Schedule to the Central Excise and Salt Act, 1944, we would like to observe that the above said schedule relates to grant of general exemptions from excise duty vide SRO No.555(I)/79 dated 28th June 1979. It is trite principle of interpretation of a tax statute that the provisions relating to grant of exemption are to be strictly construed and burden to claim such exemption is upon the claimant/assessee/taxpayer. It has also been held in the judgment of this Court as well the judgments by the Hon'ble Supreme Court that the claim of exemption is to be granted to the extent it is specified in the exemption granting clause and not beyond the specific word used therein through process of interpretation etc. In this regard we are guided by the judgment of Hon'ble Supreme Court in the case of Pakistan Machine Tool Factory (Pvt) Ltd., Karachi v. Commissioner of Sales, Central, Zone-B, Karachi reported as 2006 SCMR 1577, which reads as follows:
"The question of interpretation of fiscal statute/notification granting exemption was considered by this Court in the case of Messrs Bisvil Spinners Ltd v. Superintendent, Central Excise and Land Customs Circle Sheikhupura and another PLD 1988 SC 370 and pronounced as under:-
"As a general rule grants of tax exemptions are given a rigid interpretation against the assertion of the tax-payer and in favour of the taxing power. The basis for the rule here is the same as that supporting a rule of a strict construction of positive revenue laws that the burden of taxation should be distributed equally and fairly among the members of the society. However, exemption claimed by the State or its sub-divisions are usually liberally construed and the same rule has frequently been applied to exemptions made in favour of charitable organization."
"In view of the above pronouncement the contention of Mr. Afzal Siddiqui that a liberal interpretation is required to be made for granting exemption from levy of sales tax in respect of an article and that the provision of Exemption Notification are to be stretched in favour of the tax-payer has no force and is repelled accordingly."
10. In the case of Genertech Pakistan Ltd. V. Income Tax Appellate Tribunal of Pakistan, Lahore 2004 PTD 2255, it has been held as under"
"But in instant case, position is altogether different because the share capital deposits in the Banks by the assesses are providing a separate income to them after post-production stage of the Power Generating activity, therefore, on the income of interest no exemption can be claimed by the appellants under item 176 Second Schedule of the Ordinance as it is a different income from the profits/gains being earned from post-production activity of power generation."
"In this behalf it may be noted that under section 80-B such concession is not available to Public Limited Companies as its sub-section (1) in categorical terms has extended its benefits to an individual unregistered firm, association of persons, Hindu undivided family or artificial juridical person, therefore, the contention of learned counsel is accordingly repelled."
11. In another judgment of Hon'ble Supreme Court in the case of Messrs Army Welfare Sugar Mills Ltd v. Federation of Pakistan 1992 SCMR 1652, it has been held as under:
"As a general rule grants of tax exemptions are given a rigid interpretation against the assertion of the tax-payer and in favour of the taxing power. The basis for the rule here is the same as that supporting a rule of a strict construction of positive revenue laws that the burden of taxation should be distributed equally and fairly among the members of the society. However, exemption claimed by the State or its sub-divisions are usually liberally constructed and the same rule has frequently been applied to exemption made in favour of charitable organization."
Craies on Statute Law, Seventh Edition, page 431.
"In Smithett v. Blythe (1830) B. & Ad. 509, on a claim for lighthouse dues against the Crown, it was held that the claim was not maintainable as to post packet shops owned by the Crown, although the express exemption was as to ships of war only. It was said that the express exemption raised no implication that the general right to take charges granted by the Act extended to other vessels owned by the Crown."
Crawford on Statutory Construction page 506
"258. Exemption from Taxation, Tariff Acts, and laws to prevent fraud on the Revenue….Provisions providing for an exemption may be properly construed strictly against the person who makes the claim of as exemption. In other words, before an exemption can be recognized, the person or property claim to be exempt must come clearly within the language apparently granting the exemption."
N.A. Bindra on the Interpretation of Statutes, Third Edition page 488.
"Since all exemptions from taxation increase the burden on other members of the community, they should be deprecated, except to the extent permissible by the express language of the statutes itself. All exemptions from taxation must be strictly construed and must not be extended beyond the express requirements of the language used. Taxation laws are not in the nature of penal laws, they are substantially remedial in their character and are intended to prevent fraud, suppress public wrong and promote the public good. They should be, therefore, construed in such a way as to accomplish those objects."
12. Further reliance can be placed in the following reported cases (i) Bisvil Spinners Ltd. V. Superintendent Central Excise & Land Customs Circle Sheikhupura PLD 1988 SC 370, (ii) Commissioner of Income Tax/Wealth Tax Companies Zone Faisalabad v. Rana Asif Tauseef C/O Rana Hosiery & Textile Mills Ltd. 2000 PTD 497 and (iii) Commissioner of Income Tax/Wealth Tax, Multan Zone, Multan v. Allah Yar Cotton Ginning & Pressing Mills 2000 PTD 2958. 1
13. Keeping in view the above parameters in mind, while interpreting the contents of the above referred item, we would prepare to concentrate on the plain language used therein. Item No.04.03 (a) can be divided into two parts for the purposes of its application and effect. The first part ends on the word and used in the middle of the exemption clause under consideration, whereas the remaining is considered as the second part of the said clause. From perusal of the first part of the instant exemption clause it emerges that the exemption is available to the products specifically mentioned therein, whereas the second part of the instant exemption clause grants exemption to all the ancillaries in any form i.e. liquid, solid, semi solids, paste, powder or granules provided the said ancillaries are used in the manufacture of the goods falling under item No.04.03 of the First Schedule to the Act, which are subject to excise duty and further subject to compliance of rule 96-TT of the Central Excise Rules, 1944. It is pertinent to mention that an amendment was brought vide SRO No.945(I)/92 dated 3rd of October 1992 in the above item 04.03 in column (1), in clause (a) and entry relating thereto in column (2), after the word "thinners" the brackets and words "(including xylene and toluene used as thinners)" were inserted. The effect of such amendment is that the xylene and toluene used as thinners were included in the first part of the exemption granting clause i.e by virtue of product specification with effect from 3.10.1992, hence exempt from levy of excise duty.
14. On perusal of the order passed by the learned Tribunal in this case it appears that the real controversy relating to interpretation of the exemption clause 04.03 (a) has not been fully dilated upon. It further appears that the relevant facts have not been examined in their true perspective by the learned Tribunal. Since in reference jurisdiction, this Court cannot examine the factual controversy or deficiency if any in this regard, we would remand this case to the learned Tribunal to examine the facts of this case in the light of above findings. The learned trial Court after examining the facts, shall record its finding on facts and thereafter shall decide the legal question relating to application and interpretation of item No.04.03 strictly in consonance with the finding recorded by this Court herein above.
15. Accordingly, impugned order is set aside, the case is remanded back to the learned Tribunal, who after hearing both the parties shall dispose of the same preferably within a period of three months from the date of receipt of this judgment.
16. Before parting with this judgment, we would express our appreciation for the valuable assistance provided by the learned Amicus Curiae, Mr. Khalid Javed Khan, Advocate in this regard.
17. Office is directed to send the copy of this judgment under the seal and signature of the Registrar to the Appellate Tribunal, which shall pass such orders as are necessary to dispose of the case conformably to this judgment.
JUDGE
JUDGE
Karachi
Dated: 19.01.2010