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Petitioner: M/s. Haidri Beverages (Pvt.) Limited and Another VS Respondent: Federation of Pakistan & Others
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar Title:M/s. Haidri Beverages (Pvt.) Limited and Another vs Federation of Pakistan
& Others Case No.: (1) Suit No. 92 of 2014 (2) Suit No. 47 of 2014 (3) Suit No. 276 of 2014 Date of Judgment:2020-04-16 Reported As: PTCL 2020 CL.553, 2021 PTD 362, 2020 SHC 296 Result: N/A Judgment Muhammad Junaid Ghaffar , J. All these three Suits involve a common legal question, and therefore, they have been heard together finally and are being decided through this common Judgment. 2. The precise controversy involved herein is that whether the Plaintif f's industry ("beverage industry ") is an agro- based industry , being entitled for exemp tion and benefits allowed vide SRO No.575(I)/2006 dated 05.06.2006 ("SRO 575"). Additionally , the Plaintif fs have also impugned certain letters issued by the Defendants, whereby , such exemption has been denied; however , the precise question remains that whether the Plaintif fs are entitled for the exemption as claimed. 3. At the very outset I may state, and this is without any disrespect to any of the learned Counsel, that their arguments have been noted and recorded in this judgment collectively for ease, convenience and to avoid overlapping, if any, as it is only a common legal question which has to be addressed. It has been contended that serial No.1(I) Clause 9 of SRO 575 grants exemption from customs duty and sales tax on the machinery imported by the Plaintiffs for filling, closing, sealing or labeling bottles, cans etc. under HS Code 8422.3000; whereas, the Ministry of Food and Agricultural in the past had been certifying the beverage industry as an agro-based industry; that this was a consistent past practice and reliance has been placed on Letter dated 09.01.2008; that pursuant to such inducement, the Plaintiffs imported the said machinery; however, vide impugned Letter dated 02.01.2014 unilaterally and without providing any opportunity, such requisite certificate has been refused by the Ministry of Food on the basis of some clarification dated 19.06.2013 issued by the Federal Board of Revenue ("FBR") in respect of SRO 575; that the SRO in question is a legislative instrument issued by the Federal Government under Section 19 of the Customs Act, 1969 and Section 13 of the Sales Tax Act, 1990 for which FBR has no lawful authority of interpretation; that the competent authority to issue certificate regarding bonafide use of the imported plant and machinery is the Ministry of Food who had since long been issuing such certificates and suddenly
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pursuant to clarification of FBR, has refused to issue fresh certificates to the Plaintif f's which is against the consistent practice followed; that no opportunity was provided to the Plaintif fs so as to rebut and challenge the action of the Defendants; that there is no speaking order in field and the impugn ed clarification lacks reasoning; hence, liable to be set aside; that the question that whether beverage industry falls within the ambit of agro-based industry already stands clarified by Minist ry of Food vide Letters dated 09.01.2008, 08.08.2006 and 28.08.2006 by holding that classification of beverage industry in the category of agro based industry , is based on the United Nation' s International Standard Industrial Classification of all Economic Activities ISIC System, Revision-4; that the documents title "Agro Industry for Development" published by Food and Agricultural Organization (FAO) of the United Nations and the United National Industrial Development Organization provides that agro-based industrial sector is taken to include manufacture of foods, beverages, tobacco etc., as per FAO, 1997; that the document titled "Agro Industry Water Resources and Public Health" published by Food and Agricultural Organization (FAO) of the United Nations and the United National Industrial Development Organization provides that agro-based industry can be classified in one of the following categories that includes beverage industry as well; that Section-C, Division- 11 of United Nation' s International Standard Industrial Classification of all Economic Activities ISIC System, Revision-4 provides manufacturing of beverages, ISIC, Rev.; that there are various categories of industries specified in the relevant SRO which includes the beverage industry in question; that the definition in the SRO is not exhaustive as it is using the word "like" and "etc.".; that the assumption by FBR in its impugned letter dated 19.06.2013 that input of beverage industr y is dependent on synthetic / carbonated concentrate is misconceived, as primarily the beverage industry utilizes sugar which is an agro-based produc t; that concentrate for aerated beverages in all forms including syrup are classified under HS Code 2106.9010, whereas, the Plaintif fs use natural flavors combined with sugar; hence, their industry is an agro-based industry , and therefore, the Plaintif fs are entitled for exemption and the benefit of the SRO in question. In support they have relied upon the cases reported as R. B. Avari & Co. (Pvt.) Ltd. V. Federation of Pakistan and 2 others (2006 PTD 1609 ), M/s. Ihsan Sons (Pvt.) Ltd., Karachi V. Federation of Pakistan and 2 others (2006 PTD 2209 ), M/s. Central Insurance Co. & Others V. The Central Board of Revenue Islamabad and Others (1993 SCMR 1232), Javed Akhtar V. Punjab Provincial Transport Authority (1997 CLC 1168), Commissioner of Income Tax V. Miss Aasia Film Artist (2001 PTD 678), Taj Muhammad V. Town Committee, Fateh Jhang (1994 CLC 2214), Chief Commissioner, Karachi & Another V. Mrs. Dina Sohrab Katrak (PLD 1959 (Pak) 45), Gouranga Mohan Sikdar V. The Controller of Import and Export & 2 Others (PLD 1970 SC 158), Mollah Ejahar Ali V. Government of East Pakistan (PLD 1970 SC 173), Chairman, Federal Board of Revenue, Islamabad and another V. Mrs. Naureen Ahmed Tarar and others (2020 SCMR 90), M/s. Radaka Corporation & Others V. Collector of Customs & Another (1989 SCMR 353), Nazir Ahmed V. Pakistan & 11 Others (PLD 1970 SC 453) and Commissioner of Income Tax V. Shiva Shanker Bore Wells (1999 PTD 498). 4. Learned Counsel appearing on behalf of the Customs Department has contended that the Plaintif f's industry i.e. beverage industry is not specifically mentioned against Clause 9 of serial No. 1(I) of the SRO, whereas, it cannot be presumed that their industry is falling within the word, "like"; that certification of the Ministry of Food and reliance so placed on its earlier letters by the Plaintif fs is misconceived, as it is the assessin g officer who has to decide and apply his mind as to whether an import er is entitled for any exemption claimed; that earlier through Order-in- Original dated 06.04.201 1, in an identical issue of another beverage industry , the exemption was denied which has attained finality , and the Plaintif fs presently , cannot plead any ignorance nor can rely on any departmental practice in their favor; that the beverage industry does not fall within the definition of an agro-based industry as it is using synthetic / carbonated concentrate inputs; hence, is disqualified; that mere use of sugar in any manufacturing process could not ipso facto classify an industry as an agro-based industry; that if the intention would have been to grant any exemption to the beverage industry , then clause (9) ibid as above would have included it. In view of these submissions, he has argued that the Plaintif fs are not entitled for any such exemption. 5. Learned Assistant Attorney General has contended that the impugned letters and notifications have been issued after proper consideration and application of mind and cannot be disputed, whereas, the Plaintiffs industry is not an agro-based industry and reference to the classification of United Nations is misconceived.
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6. I have heard all the learned Counsel and perused the record. The precise facts as stated are that Plaintif fs are manufacturers of beverages under various brand names including Pepsi and Mountain Dew. Their contention is that beverage industry is an agro-based industry as it utilizes sugar as a major component of its input along with natural flavors, and therefore, they are entitled for the benefit of exemption as contemplated in SRO 575. It is their case that they have imported machinery for bottling purposes classifiable unde r HS Code 8422.3000 which is covered and mentioned against Clause No. 9 of serial No. 1(I) of the SRO; hence , the said exemption is available to them. Their case is also premised on the doctrine of departmental past practice, as according to them, Ministry of Food, had in the past, issued certificate s to that effect, and has suddenly , retract ed from such consistent practice which cannot be approved by the Court in view of settled law. Finally , they have also relied upon certain recommendations and clarifications issued by the Food and Agriculture Organiza tion of United Nations. All these Suits have been heard finally by consent on the following legal issues in terms of Order 14 Rule 2 CPC. 1) Whether the Suit is maintainable? 2) Whether the Plaintif fs are entitled for exemption from Customs Duty and Sales Tax under SRO 575 on the import of machinery in question? 3) Whether the Plaintif fs industry i.e. beverage industry is an agro-based industry for the purposes of exemption under SRO 575? 4) What should the Decree be?" 7. Insofar as Issue No.1 that as to whether the Suits are maintainable is concerned, it appears that after passing of the judgment by the Hon'ble Supreme Court in the case reported as Searle IV Solution (Pvt.) Ltd and others V. Federation of Pakistan and others (2018 SCMR 1444 ), the Bank Guarantees furnished by Plaintif fs pursuant to ad-interim orders, through which the consignments in question were released, have been encashed to the extent of 50% of the disputed amount pursuant to various orders passed on different dates in all these Suits, and therefore, in view of such compliance, all these Suits are maintainable notwithstanding the ouster clause as provided in Section 217 of the Customs Act, 1969. However , the fate of the amount of 50% already paid to the department, and the 50% still lying secured / deposited with the Nazir of this Court, would depend on the final outcome of these Suits. This issue is answered accordingly . 8. Issue No. 2 & 3 are interlinked and therefore, they are being dealt with and decided together . The exemption in dispute is provided against Serial No.1(I) clause (9) of the Table to the said SRO. It would be advantageous to refer to the relevant provisions of SRO 575 which reads as under: - S.R.O. 575(I)/2006 .- In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969), and clause (a) of sub-section (2) of section 13 of the Sales Tax Act, 1990, and in supersession of its Notification No. S.R.O. 575(I)/2005, dated the 6th June, 2005, the Federal Government is pleased to exempt plant, machinery , equipment and apparatus, including capital goods, specified in column (2) of the Table below , falling under the HS Codes specified in column (3) of that Table, from so much of the customs-duty , specified in the First Schedule to the said Act, as is in excess of the rates specified in column (4) thereof, and the whole of Sales Tax leviable under the Sales Tax Act 1990 12[,provided that sales tax exemption shall not apply to Sr. Nos 13[ 1, 5, 17[5A] 21, 22, 23, 28, 28A, 29 and 36] of the said Table] , subject to the following conditions, besides the conditions specified in column (5) of the Table, namely:- TABLE S. No. Description PCT headingCust om DutyConditions (1) (2) (3) (4) (5) 1 Agricultural Machinery (I) Machinery , Equipment and Other Capital Goods for 1. In respect of goods of Sr.No.1(I), the
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Miscellaneous Agro-Based Industries Like Milk Processing, Fruit, Vegetable or Flowers Grading, Picking or Processing etc.[Division concerned] shall certify in the prescribed manner and format as per Annex-B that the imported goods are bonafide requirement. The Authorized of ficer Of [that Division] Shall furnish all relevant information online to Pakistan Customs Computerized System [omitted] against a specific user ID and password obtained Under section 155D of the Customs Act, 1969. 1) Packing or wrapping machinery (including heat shrink wrapping machinery).8422.4000 0% 2. The goods shall Not be sold or otherwise disposed of within a period of five years of its import except with the prior approval of the FBR. 2) Scales for continuous weighing of goods on conveyors.8423.2000 0% 3) Machinery for the preparation of meat or poultry .8438.5000 0% 4) Conveyor belt of a kind used in slaughter house.[8428.3300] 0% 5) Evaporators for juice concentrate.[8419.8990] 0% 6) machinery used for dehydration and freezing8419.3100, 8418.69900% 7) Heat exchange unit. 8419.5000 0% 8) Machinery used for filtering and refining of pulps/juices.[8421.2200] 0% 9) Machinery for filling, closing, sealing or labeling bottles, canes etc.8422.3000 0%
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9. Perusal of the aforesaid SRO reflects that in exercise of the powers conferred by Section 19 of the Customs Act 1969 and Section 13 of the Sales Tax Act, 1990, the Federal Government has exempted plant, machinery , equipment and apparatus, including capital goods, specified in column (2) of the Table to the SRO and falling under HS Code specified in column (3) of that Table from so much of the customs-duty , specified in the First Schedule to the said Act, as is in excess of the rates specified in column (4) thereof, and the whole of Sales Tax Act, 1990 subject to certain conditions, including the conditions specified in column (5) of the Table. Serial No.1 of the Table covers agricultural machinery , whereas, at sub-serial No.(I) machinery , equipment and other capital goods for agro- based industry , like Milk Processing, Fruit, Vegetable or Flowers Grading, Picking or Processing etc. has been specified and against Clause 9 of this Serial No. machinery for filling, closing, sealing or labeling bottles, cans etc. classifiable under HS Code 8422.3000 has been mentioned. Similarly, the said exemption as above is subject to a further condition as specified in Column (5) of the Table which provides that in respect of goods at Serial No.1(I), the [Division concerned] shall certify in the prescribed manner and format as per Annex-B that the imported goods are bonafide requirement. It further provides that the authorized officer of [that Division] shall furnish all relevant information online to Pakistan Customs Computerized System. As to Column (5) of the Table, for the present purposes, there are two aspects involved insofar as this certification is concerned. First is, that whether the certification of Ministry of Food is required at all. And second, that whether the Ministry of Food is required to certify that any industry is an agro-based industry or not. This is important and relevant because all along learned Counsel appearing on behalf of the Plaintiffs have premised their case on various such certificates and letters issued in the past and according to them such consistent past practice cannot be deviated to the detriment of the Plaintiffs. However, when condition in Clause (5) ibid is minutely examined, it transpires that though the Ministry of Food has to issue a certificate in a prescribed manner; but it is only to the extent that the imported goods are bonafide requirements of the importer. Now the condition, with utmost respect, though itself seems to be very vague; but at least does not require that a certificate is to be issued to the extent that a particular industry or for that matter, the imported machinery by that particular industry is for an agro-based industry. The only requirement is that it should be certified in the prescribed manner (Annex-B) that the imported plant and machinery is a bonafide requirement of the importer. And the only inference once can draw is that the certification should be (like in the instant case) that the machinery imported by the Plaintiffs (for filling or closing bottles and cans) is their bonafide requirement i.e. pertaining to beverage industry. In that situation, the other argument of the Plaintiffs' Counsel that since HS code 8422.3000 is also mentioned against clause (9) of the relevant Serial Number, is also of no relevance. Machinery for filling or closing bottles and cans, irrespective of its use in any type of industry would be classified under this HS code; but that would not, impliedly, also mean that it is for agro- based industry as mentioned or described against Serial No.1(I) ibid. Therefore, having imported machinery which is classifiable under HS code 8422.3000 would not ipso facto entitle the Plaintiffs to qualify for the exemption in question. This argument is totally misco nceived and cannot be entertained. Similarly, if the same machinery is imported by any of the industries specifically mentioned against Serial No. 1(I), be it a milk processing industry; or fruit or vegetable; or picking or processing industry , a similar certification ought to have been made. Nowhere in column (5) as above, any certification of Ministry of Food has been provided or mandated so as to certify that a particular industry is an agro based industry . This apparently has been adopted as an illegal or wrong practice so to say. The notification does not mandate any such certification. In view of such position, even if in the past any such certificates have been issued by the Ministry of Food, they are of no help to the Plaintif fs case and they cannot claim to be protected under any past consistent departmental practice. Any argument predicated on any such certification fails and is of no help to the Plaintif fs case. Resultantly , no such departmental past practice can come to their rescue. 10. Insofar as the exemption and interpretation of the relevant serial number and the description provided therein is concerned, it would suffice to observe that though the words used are Machinery for miscellaneous Agro-based industries like milk processing, fruit, vegetable or flower grading, picking or processing etc. and is not exhaustive as correctly contended on behalf of the Plaintiffs' Counsel; but at the same time, one needs to appreciate that the use of word "like" has to be related to the type of industry already mentioned in the SRO. "like" means of the same
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appearance, kind, character, similar, analogous or bearing resemblance. Black's Law Dictionary (seventh Edition) defines it as equal in quantity or degree; corresponding exactly; and similar or substantially similar. Therefore, mere use of word "like" will not make the beverage industry as an agro based industry as it has no relevance with the type of industries mentioned before it. It is also an admitted fact that the product being manufactured by the Plaintiffs has no direct nexus with any agro-based industry. Mere use and consumption of sugar would not make an industry so as to be called as an agro-based industry. The intention of the legislature appears to be to promote the industry which are dependent on agriculture. If the argument of the Plaintiff's Counsel that major consumption of sugar makes their industry as an agro-based industry is accepted, then I am afraid even various other industries would then fall within the ambit of an agro-based industry. The Plaintiffs are manufacturers of aerated beverages like Pepsi and Mountain Dew as mentioned in their plaint and have contended that since sugar is their main consumption as raw material, which in turn is an agriculture produce; hence, their industry is an agro-based industry. This argument, is though attractive; but does not seems to be correct or appreciable. Further, it is also pertinent to note that if the intention had been to grant exemption to beverage industry as well, then nothing prevented the legislature from mentioning the beverage industry under serial No. 1(I) as this industry is not a new industry and was existing when this SRO was issued. Once again and for the sake of repetition it may be observed that mere use of the word "like" cannot be stretched so as to include any industry which is using sugar and be called as an agro-based industry. It has to have some nexus or like nature with that of the industries mentioned against Serial No.1(I) as above. It does not appear to be the intention of the legislature to grant any exemption to the beverage industry as is being claimed, and therefore, I am of the view that based on the settled principles of interpretation specially an exemption notification or clause, the Plaintiffs industry does not fall within the definition of agro based industry; hence, they are not qualified or entitled for any such exemption. 11. Insofar as reliance on the classification given by United Nations or any other authority is concerned, with respect I may observe that such classification has no nexus with the notification of exemption in question, and may at the most, has a persuasive consideration or value; but cannot be relied upon while interpretating an exemption notification. Similarly , as noted earlier , since the Ministry of Food has no authority to give any certification to the effect that a particular industry is an agro-based industry; hence, even if such certification has been given in the past, this would not entitle the Plaintif fs to claim any benefit of such departmental practice. 12. In this matter what the Plaintif fs are seeking is an exemption under a particula r Notification. And the principles governing the grant of or refusal of such claim are already settled. The first is that the onus of such a claim is on the person seeking such an exemption who is required to show that his case falls within the exemption so claimed. The second is that if there are two reasonable interpretations possible in respect of such exemption, the one against the taxpayer will be adopted. However, the third is that if a taxpayer's case comes fairly within the scope of such exemption, then it is not to be denied on the basis of any supposed intention, contrary to the legislative intent. Here in this matter, the Plaintiffs case falls within the first two; hence, not entitled for the exemption in question. A learned Division Bench of this Court in the case reported as Commissioner Inland Revenue, Zone-II, Karachi V. Messrs Kassim Textile Mills (Pvt.) Limited, Karachi (2013 PTD 1420), while dealing this issue has been pleased to hold as under; 10. The position with regard to any exemp tion from a tax is different, although the relevant principles are again well established. These principles may briefly be stated as follows. Firstly , the onus lies on the taxpayer to show that his case comes within the exemption. Secon dly, in case two reasonable interpretation s are possible, the one against the taxpayer will be adopted. But, thirdly , if the taxpayer's case comes fairly within the scope of the exemption, then he cannot be denied the benefit of it on the basis of any supposed intention to the contrary of the legislature or authority granting it. Subsection (2)(c) is of course not an exemption from the tax imposed under subsection (1). However , it confers a benefit and in a larger and broader sense, an exemption also confers a benefit. The interpretation of subsection (2)(c) can therefore be analogized to that of an exemption, at least for purposes of applying the aforesaid principles of interpretation." 13. Similar view has been expressed recently by the Hon'ble Supreme Court in the case reported as Oxford University Press V. Commissioner of Income Tax, Companies Zone-I, Karachi and others (2019 SCMR 235),
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in the following terms; "9. The principles relating to the proper interpretation and application of exemption clauses in fiscal legislation are well established and require only a brief recapitulation. As correctly submitted by learned counsel for the appellant, as presently relevant these are as follows. Firstly , the onus lies on the taxpayer to show that his case comes within the exemption. Secondly , if two reasonable interpretations are possible the one against the taxpayer will be adopted. But, thirdly , if the taxpayer's case comes fairly within the scope of the exemption then he cannot be denied the benefit of the same on the basis of any supposed intention to the contrary of the legislature or authority granting it. It is in light of these principles that Clause 86 must be interpreted and applied." 14. As to the other objection regarding interpretation by FBR of an exemption notification issued by the Federal Government is concerned, this again is though attractive; but at the same time, the Courts have also held that if an interpretation is in line with the legislative…
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