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Petitioner: ZAIBTUN TEXTILE MILLS LTD., KARACHI AND OTHERS VS Respondent: CENTRAL BOARD OF JUDGMENT
Court Name: Sindh High Court Judge(s): Ghulam Safdar Shah, Abdul Qadir Sheikh, Noorul Arfin Title:ZAIBTUN TEXTILE MILLS LTD., KARACHI AND OTHERS vs CENTRAL BOARD OF
JUDGMENT
Reported As: PLD 1971 Karachi 333 Result: Petitions dismissed Judgment JUDGMENT GHULAM SAMAR SHAH, J.--These 24 petitions are directed against what is called the production capacity tax imposed on the textile and sugar manufacturing mills by the Central Board of Revenue exercising power under section 3(4) of the Central Excises and Salt Act, No, 1 of 1944 (hereinafter called the Act). Since the petitions in question involved common questions of law and facts they were heard together. But considering that it would have been difficult to dispose of each petition on merits the learned counsel for the petitioners agreed that except for one or two petitions which may be disposed of both on facts and law the judgment in the other petitions should be confined to the disposal of legal questions and thereafter each petition should be argued on facts. Under the circumstances this suggestion appears to be both practical and convenient and what I propose to do is first to dispose of by this judgment the legal questions arising in all the petitions and thereafter take up each petition separately for disposal on merits. 2. The relevant facts, shortly stated, are these. By Act No, II of 1966 (the Constitutional (6th) amendment Act, 1966) Entry 43 of the 3rd Schedule of the Constitution was amended authorising the levy of production capacity tax on any plant, machinery, undertaking, establishment or installation in lieu of the taxes and duties specified in items (b), (c), and ( f ) thereof. After this amendment the Central Legislature, by Finance Act XI of 1966, amended section 3(4) of the Act in order to effectuate the constitutional amendment. Section 3(4), as amended, reads :
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"(4) With the prior approval of the Central Government, the Central Board of Revenue may, in lieu of levying and collecting under subsection (I) duties of excise on excisable goods, by notification in the official Gazette, levy and collect duties on the production capacity of plants, machinery, undertakings, establishments or installations producing or manufacturing such goods ; and such notification shall specify-- (a) the guiding principles for the determination of production capacity, (b)the production capacity, as determined in accordance with such guiding principles, of the plants, machinery undertakings, establishments or installations affected by it, (c)the duty or the rate of duty on production capacity, and (d)the manner of collection of such duty. (5) The production capacity of any plant or machinery or part thereof specified in a notification under subsection (4) shall, upon an application made to the Central Government within thirty days of the notification by any aggrieved person, be reviewed by a Review Board constituted under subsection (6) to which the application shall be referred ; and the decision of the Review Board shall be final. (6) The Central Government shall, for the purpose of subsection (5), constitute a Review Board consisting of the following : (a)the Secretary to the Government of Pakistan, Ministry of Finance, who shall be the Chairman, (b)the Secretary to the Government of Pakistan, Ministry of Commerce, and (c)the Secretary to the Government of Pakistan, Ministry of Industries. (7) The Central Board of Revenue may, by notification in the official Gazette at any time, cancel a notification under subsection (4) ; and where a notification is so cancelled or, for any reason whatsoever, cannot be given effect to, the duty ur der subsection (1), in lieu whereof the duty under subsection (4) was levied by such notification, shall be levied and, with necessary adjustment, collected for the financial year during which such notification is cancelled or for the period for which it cannot be given effect to." The case of the respondents is that since the levy of production capacity tax was dependent upon the determination of the production capacity of each mill the Central Government, in consultation with the Central Board of Revenue, appointed High Powered Committee for that purpose. This Committee consisted of Mr. S. B. Awan, C. S. P., Joint Secretary to the Government of Pakistan, Islamabad, Mr. S. Nizamuddin, Deputy Director-General, Department of Investment Promotion and Supplies, Karachi, Mr. M. A. Jagirwalla, Chief Accounts Officer, Ministry of Finance, Karachi and Mr. M. Akbar Khan, Director of Textiles, Department of Investment Promotion and Supplies, Karachi. The names of these gentlemen, and the functions which they were required to perform, were notified in the Gazette of Pakistan, Extraordinary, dated 12-8-1967. Since this notification has been the subject of considerable arguments from both sides we would like to reproduce it. In relevant parts it reads : "No, 5/16-CX (R & L)/67.--The Government of Pakistan are pleased to appoint the following officers as Members of the Committee which will determine the production capacity of individual cotton textile factories for the levy of duty on the production capacity of such factories : (1) Mr. S. B. Awan, C. S. P., Chairman. (2) Mr. S. Nizamuddin, Member. (3) Mr. M. A. Jagir walla, Member. (4) Mr. Muhammad Akbar Khan, Member." (2) The Chairman of the Committee may appoint such persons as he may consider necessary to assist the Committee in its work. The Members of the Committee, or such persons as are appointed by the Chairman, will be authorised to call for such information and inspect such records as they may consider necessary. (3) The duty on the production capacity of a cotton textile factory as determined by the
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Committee will be levied under subsection (4) of section 3 of the Central Excises and Salt Act, 1944, and the notified capacity of individual factories will be subject to review, on application by the manufacturers, by the Review Board constituted under subsection (6) of section 3 of that Act. The relevant provisions of the Act are reproduced below : "(4) (a) (b)The entire section 3 (4) (5) (6) has been already reproduced. (c) (5) (6) (4) The guiding principles, to be notified under subsection (4) of section 3 of the Act, on the basis of which the Committee should determine the production capacity of individual cotton textile factories, are as follows :-- (i)The national average annual production of each statutory category of cotton fabric/cotton yarn on a per loom/ spindle basis taking production of the past three years into account. (ii)Category-wise annual production of the individual units for the past three years or such lesser period as may be available. (iii)Category-wise annual production of comparable units for the same period. (iv)Production capacity of an individual unit calculated on the basis of the technically possible maximum production potential of the plant and machinery installed in the Unit, if it were to aim at maximising its profits before tax. (v)Growth factor, keeping in view the past rate of improvement in production and likely to increase in efficiency relating to improvement in technical, managerial, labour and financial factors of individual mills. (5) The annual production capacity of individual factories shall be expressed for each statutory category of cotton fabrics in terms of square yards, and for each category of cotton yarn in terms of pounds. (6)For the purpose of determining the liability to duty of a factory, the production capacity of the factory for each Excise category of fabrics/yarn, determined on the basis of the above principles, will be multiplied by the statutory rate of excise duty for that category. (7)The Committee should determine the number of working days/shifts on the basis of which the annual production capacity of cotton textile factories should be determined. The Committee will also recommend the basis on which abatement in the annual production capacity may be allowed on account of the closure of the factory for reasons beyond its control within the number of working days/shifts reckoned for fixing the annual production capacity of individual factories. (8)The Committee should also recommend the proce-dure for the grant of refund in respect of various categories of cotton fabrics and cotton yarn which are exported. (9)The Committee shall submit its recommendations to the Central Board of Revenue of Ministry of Finance by a date not later than the 15th November 1967." 3. The High Powered Committee, by virtue of the power given to it by this notification, appointed working groups each consisting of an account Member and a textile technical expert. These working groups were to assist the Committee in determining the production capacity of mills and for that purpose were required to visit each mill to collect the necessary data. Before visiting the mills, however, the working groups sent to each mill, in advance, a pro forma informing them about the particulars which they were required to furnish. Later, when the working groups visited the mills the management supplied them the filled-in-pro formas in which the required information was furnished. This information was then discussed by the working groups with the respective managements and thereafter the working groups inspected each mill to see the manner in which
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it was working, the production processes it followed, the efficiency of the management, the number of shifts and the type of machinery and labour it employed and the supply of power and climatic conditions affecting its production capacity. The data thus collected by the working groups was submitted to the Committee which, keeping in view the guiding principles given in notification dated 12-8-1967 and all other factors bearing upon the production capacity, calculated the production capacity of each mill and submitted its report to the Central Board of Revenue as required by the said notification. After this report was received by the Central Board of Revenue, the case of each mill was scrutinized in the light of the guiding principles and the data collected by the working groups. It was only after the Central Board of Revenue thus satisfied itself that it determined the production capacity of each mill and notified it in the schedules attached to the cotton fabrics rules and cotton yarn rules 1968, published in the Gazette of Pakistan, Extraordinary, dated 22-4-1968. Consequent upon the publication of this notification, the petitioners filed Review Applications before the Review Board under section 3(5) of the Act. In these proceedings the petitioners are alleged to have been heard, assisted by their Advocates and textile experts, and in many cases the Review Board reduced the production capacity of the mills after the managements were able to point out that the determination in their case was erroneous. After the proceedings before the Review Board ended, the petitioners were given notices by the respondents directing them to pay the production capacity tax by specified dates failing which they were warned that action would be taken against them under the provisions of Act. Being aggrieved of these orders the petitioners have filed these petitions under Article 93 of the Constitution. 3. On behalf of the petitioners the arguments on law points were mainly addressed by the learned Advocates Messrs A. S. Pirzada, A. K. Brohi, S. A. Nusrat, Khalid M. Ishaq and the late lamented Mr. Manzare Alam who expired a few days ago in one of the hospitals at Karachi. These arguments were adopted by the learned Advocates appearing in other petitions. The respondents in the proceedings were represented by Mr. Shah Jamil Alam, the learned Deputy Attorney-General, assisted by Mr. S. M. Shafiq, Advocate, and at our request Syed Sharifuddin Pirzada, the learned Attorney-General for Pakistan, appeared in the proceedings to assist us on certain points of constitutional importance. 5. The first objection of the petitioners is that the amended provisions of section 3 (4), (5), (6) and (7) of the Act are unconstitutional on the ground of excessive or impermissible delegation. The grievance is that by leaving it to the Central Board of Revenue to formulate The guidelines, to determine the rate of the production capacity tax and even to levy the tax the Legislature has totally effaced itself of its essential legislative authority. In support of this argument reliance is placed on the two well-known cases of the American Supreme Court reported as Panama Refining Co. v. Ryan and Schechter Poultry Corporation v. United States . Reliance is also placed on few judgments of the Indian Supreme Court in the cases of Corporation of Calcutta and another v. Liberty Cinema , New Manek Chowk Spg. & Wvg. Mills Co. Ltd. v. Municipal Corporation of the City of Ahmedabad and others , Messrs Devi Das Gopal Krishan etc. v. State of Punjab and others and Messrs Jalan Trading Co. (Private) Ltd. v. Mill Mazdoor Sabha . It is true that the two American judgments and the dissenting views expressed in the judgments of the Indian Supreme Court appear to support the contention of the petitioners. But the learned Attorney-General pointed out that these judgments have out-lived their utility in that the American Supreme Court has not followed the said two judgments while the Supreme Court of India, whose earlier views were mainly based on these two American cases, has changed its opinion in the subsequent judgments. In support of this contention the learned Attorney-General referred to three cases of the American Supreme Court in which the delegated legislation was unsuccessfully impugned for want of standards or guiding principles. These cases are reported in Fehey v.1 2 3 4 5 6
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Mallonee , St. Louis, I. N. & S. R. Co. v. Taylor and McKinley v. United States . By reading these cases it is clear to me that the Court not only repelled the attack on delegated legislation for want of standards but in effect dis-approved the principles laid down in earlier two cases of Panama Refining Co. and Schechter Poultry Corporation. The fact that this is so is clearly demonstrated by the following excerpts from the treatise on Administrative Law by Kenneth Culp Davis (Vol. I), 1958 edition, pp. 75-76 :-- ' Congress may and does lawfully delegate legislative power to administrative agencies, Lawyers who try to win cases by arguing that congressional delegations are unconstitutional almost invariably do more harm than good to their client's interests. Unrealistic verbiage in some of the older judicial opinions should not now be taken seriously. The effective law is in accord with a 1940- statement of the Supreme Court : `Delegation by Congress has long been recognized as necessary in order that the exertion of legislative power does not become a futility. Much of the judicial talk about requirement of standards is contrary to the action the Supreme Court takes when delegations are made without standards. The vaguest of standards are held adequate, and various delegations without standards have been upheld. Moreover, the Supreme Court sometimes releases agencies from standards provided in the statutes. In only two cases in all American history have congressional deiegations to public authorities been held invalid. Neither delegation was to a regularly constituted administrative agency which followed an established procedure designed to afford the customary safeguards to affected parties. The Panama's case was influenced by exceptional executive disorganization and in the absence of such a special factor would not be followed today. The Schechter's case involved excessive delegation of the kind that Congress is not likely again to make. The fact is that Congress avoided such delegation through the entire period of the Second World War. In the absence of palpable abuse or true congressional abdication, the non-delegation doctrine to which the Supreme Court has in the past often paid lip service is without practical force'. Recent opinions of the Supreme Court have generally been reasonably 'frank in recognizing the law-making power as delegable. Thus Mr. Justice Cardozo once observed: What is done by the Tariff Commission and the President in changing the tariff rates to conform to new conditions is in substance a delegation, though a permissible one, of the legislative process'. Mr. Justice Douglas has declared, with only Mr. Justice McReynolds dissenting: 'Delegation by Congress has long been recognized as necessary in order that the exertion of legislative power does not become a futility'. Even as early as 1916 Elihu Root asserted that 'the old doctrine prohibiting the delegation of legislative power has virtually retired from the field and given up the fight'. 'Beware of the Supreme Court's misleading language. That the literal opinions in the Panama and Schechter's cases do not embody the effective law is entirely clear. This is dramatically shown when a lower Court takes those opinions seriously. For instance, the opinions were followed to the letter by a three-judge district Court, which held a delegation invalid because; we are unable to find in the Act a declaration of policy or standard of action which can be deemed to relate to the subject. Because the lower Court took literally what the Supreme Court had said in the Panama and Schechter opinions, the Supreme Court reversed it." In this opinion the learned author is supported by the above three judgments of the American Supreme Court which are of comparatively recent origin. Therefore, the learned Attorney-General appears to be right that according to the latest trend a delegated legislation would not be struck down for want of standards even in the U. S. A., unless it leads to palpable abuse or true abdication by the Congress of its legislative authority. 9. The learned Attorney-General then referred to the judgments of the Indian Supreme Court, upon which reliance is placed by the petitioners, and successfully pointed out that the dissenting views7 8 9
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expressed therein were mainly influenced by the two American cases of Panama Refining Corporation and Schechter Poultry Farm, but nevertheless the majority of their Lordships had repelled the attack on delegated legislation for want of standards or guiding principles. Not only this but he also referred to a number of other judgments of the Indian Supreme Court to show that delegated legislation has never been struck down for want of guiding principles and further that after noticing the change in the United States of America the Indian Supreme Court also started modifying its earlier views. In this respect he referred to the case of In re: Art. 143, Constitution of India etc., Special Reference No, 1 of 1951 which appears to be the first judgment on the subject. The law laid down in this case was that the Legislature could validly authorise an executive authority to modify either existing or future laws but not in any essential Nature. Their Lordships however held that what exactly would constitute an essential feature cannot be enunciated in general terms, but at least it would not include a change of policy. 10.The second judgment of the Indian Supreme Court is reported in Rajnarain Singh v. Chairman, Patna Administration Committee, Patna and another . In this judgment the same principle was reiterated except that upon the peculiar facts of the case the delegated legislation was struck down as it was in conflict with sections 4, 5 and 6 of the main Act. 11.The third judgment of the Indian Supreme Court is reported in Pandit Banarsi Das v. State of Madhya Pradesh and others . In this case, which was evidently an extreme case, the Central Provinces of Berar Sales Tax Act XXI of 1947 was impugned on the ground of permissive delegation. What had actually happened was that by a notification the State Government amended the schedule of the Act and as a result the petitioners were subjected to sales tax upon goods sold to the Government from which they were exempted under the unamended Schedule. Notwithstanding this however the challenge against the impugned legislation was repelled after the Court took into consideration all its previous judgments on the subject as well as judgments from foreign jurisdiction. The conclusion of the Court was that in taxation matters it was not unconstitutional for the Legislature to leave it to the executive to determine details relating to the working of taxation laws such as to selection of persons on whom the tax is to be levied, the rates at which it is to be charged and the selection of goods which were to be subjected to the tax. 12.The next case is State Trading Corporation of India Ltd. v. The Commercial Tax Officer and others . This was a case of excise duty in which the delegated legislation was impugned on the ground of excessive or impermissible delegation. However the conclusion reached was that in taxation laws the Legislature had wide discretion by leaving it to the executive to select the objects which were to be taxed and therefore the delegated legislation would be unobjectionable. 13.The next case of the Indian Supreme Court is Kalawati Devi Harlalka v. The Commissioner of Income-tax, West Bengal and others . This was also a tax case in which the impugned legislation was challenged on the ground of impermissible delegation. The conclusion reached by the Court however was that in taxation matters the Legislature could validly authorise the executive to work out the details such as fixing the rates at which the tax is to be levied and the executive action in that behalf would be immune from attack on the ground of excessive or impermissible delegation. 14. The other cases of the Indian Supreme Court are the Corporation of Calcutta and another v. Liberty Cinema (upon which the petitioners also relied) and V. Venngopala Ravi Varma Pajah v. Union of India and another . AIR 1965 Supreme Court appears to be an extreme case in which the constitutionality of delegated legislation came up for consideration. The facts of the case were that the Calcutta Municipality, exercising power under section 548 (2) of the Municipality Act, 1951, enhanced the rate of tax on cinema houses from Rs, 400.00 to Rs, 6,000.00 per annum in view of the new formula by which the tax was imposed at the rate of Rs, 5.00 per seat. This action of the Municipality was challenged on the ground that section 548 (2) of the Act, under which the new tax was levied, was in the nature of excessive or impermissible delegation as it furnished no guidelines10 11 12 13 14 15 16
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as to how the Municipality was to impose taxes on cinema houses. The objection was repelled by the majority of their Lordships with these observations :-- "No doubt a delegation of essential legislative power would be bad. But the fixation of the rates of taxes is not of the essence of legislative power of taxation. The fixation of rates of taxes may be legitimately left by a statute to a non-legislative authority, for there is no distinction in principle between delegation of power to fix rates of taxes to be charged on different classes of goods and power to fix rates simpliciter, if power to fix rates in some cases can be delegated then equally the power to fix rates generally can be delegated. No doubt when the power to fix rates of taxes is left to another body, the Legislature must provide guidance for such fixation. The validity of the guidance cannot be tested by a rigid uniform rule, that must depend on the subject of the Act giving power to fix the rate." And further : "The validity of the guidance required to make delegation of power good cannot be judged by a stereotyped rule. The guidance furnished must be held to be good if it leads to the achievement of the object of the statute which delegated the power. The validity of the power to fix rates of taxes delegated to the Corporation by section 548 of the Act must be judged by the same standard. All taxes including the one under section 548 can be collected and used by the Corporation only for discharging its functions under the Act. The Corporation, subject to certain controls is an autonomous body. It has to perform various statutory functions. It is often given power to decide when and in what manner the functions are, to be performed. For all this it needs money and its need will vary from time to time with the prevailing exigencies. Its power to collect tax, however, is necessarily limited by the expenses required to discharge those functions. It has, therefore, where rates have not been specified in the statute, to fix such rates as may be necessary to meet its needs. That would be sufficient guidance to make the exercise of its power to fix the rates valid." 15. The learned Attorney-General lastly referred to a judgment of the Privy Council in the…
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