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Petitioner: M/s. COLONY SUGAR MILLS LTD. VS Respondent: PROVINCE OF PUNJAB and others
Court Name: Lahore High Court Judge(s): Muhammad Sajid Mehmood Sethi Title: M/s. COLONY SUGAR MILLS LTD. vs PROVINCE OF PUNJAB and others Case No.: W.P. No, 18345 of 2012 Date of Judgment:2016-05-02 Reported As: PLJ 2017 Lahore 21 Result: Petitions dismissed
JUDGMENT
JUDGMENT ' This single judgment shall dispose of instant petition under Article 199 of the Constituting of the Islamic Republic of Pakistan, 1973 ("Constitution") as well,' as following connected Writ Petitions which have been heard together as cannot questions of law and bleb have been raised therein: 1. W.P. 24o. 18346 of 2012 titled Noon Sugar Mills Z. u. Province of the Punjab, etc. 2. W.P. No, 18347 of 2012 titled TandiBanwala Sugar Mills Lkl. v. Province of the Punjab, etc. 3. W.P. No, 18348 ot2012 titled Abdullah Sugar Mills Ltd. v. Province of the Punjab, etc. 4. W.P. No, 18349 of 2012 titled Shaharganj Sugar Mills Ltd. v. Province of the Punjab, etc. 5. W.F. No, 18350 of 2012 titled Industries Chemicals Industries (Pvt.) Ltd. v. Province of the Punjab, etc. 6. W.P. No, 18351 of 2012 titled Premier Industries Chemicals MFG. Co. (Pvt.) Ltd. v. Province of the Punjab, etc. 7. W.P. No, 18378 of 2012 titled United Ethanol Industries (Pvt.) Ltd. v. Province of the Punjab, etc. 8. W.P. No, 3913 of 2014 titled Hunan Sugar Mills v. Province of the Punjab, etc. 9. W.P. No, 25447 of 2015 titled Madina Sugar Mills (Pvt.) Ltd. v. Provinie of the Punjab, etc. 2. Petitioner in the instant case and petitioners in above-referred connected petitions, are companies engaged in the business of manufacturing and sale of sugar, and inter-cilia, produce molasses and other by-products. From molasses, ethanol, commonly known as spirit, is extracted. Petitioner is licensed to manufacture said product under the Punjab Excise Act, 1914 ("Act, 1914"). On 03.07.2012, Secretary Excise & Taxation, Government of the Punjab, Excise & Taxation Department, upon the powers having been exercised by the Governor of the Punjab, in terms of Section 31 of the
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Act, 1914, issued Notification No, S.O.TAX(E & T)3-4/2012("impugned Notification") and imposed duty at the rate of Rs, 2 per liter on manufacturing of spirit in any distillery or brewery, w,e,f, 01.07.2012. 3. On the stamp of impugned Notification, Excise & Taxation Officer/Respondent No, 5 issued Show Cause Notice dated 10.07.2012("SCN"), whereby petitioner was required to explain his failure to pay said duty and was warned that in case of failure, said duty would be recovered from petitioner by adopting coercive measures. 4. Through instant writ petition, petitioners have challenged aforesaid provisions of law, notification and subsequent SCN, with the following prayer:- "In view of the above, it is most respectfully prayed that the impugned levy and demand of tax in terms of show cause notice as well as the impugned levy in terms of Notification dated 03.07.2012 may kindly be declared to be illegal, without lawful authority, and of no legal effect. ' It is further prayed that Section 31 of the Punjab Excise Act 1914 read with Sections 3(6) and 3(14) thereof as applied to the Petitioner may kindly be declared to be ultra vices the Constitution and thus illegal, without lawful authority and of no legal effect. ' It is further prayed that pending disposal of writ petition the respondents be restrained from recovering the impugned amount of tax from the Petitioner. ' It is further prayed that pending disposal of the writ petition, proceedings/operation of the impugned Show Cause Notice may kindly be suspended and the Respondent No, 5 be restrained from taking any coercive measure against the petitioner." 5. Mr. Ali Sibtain Fazli, Advocate, learned counsel for petitioners submits that product manufactured by petitioners is not spirit rather it is 'ethanol'; that even otherwise, the word 'spirit', as defined in Section 2(19) of the Act, 1914, means any liquor containing alcohol manufactured by distillation whether denatured or not, which means it has to be a liquor containing alcohol and not alcohol simplicitor; that ethanol is alcohol having formula as C2H5OH; that it cannot be consumed as it is not a drink and being pure alcohol it is poisonous and not drinkable; that ethanol/spirit being manufactured by petitioners does not fall in any of the items listed in Section 31 and excisable articles mentioned in Section 3(6) of the Act; that ethanol/spirit also does not come within the definition of liquor as provided in Section 3(14) of the Act for the reason that ethanol/spirit is a distilled alcoholic drink or volatile liquid obtained by distillation, therefore, it is not an excisable article and no duty can be imposed on it. ' Learned counsel for petitioners contends that levy of excise duty under Section 31 of the Act, 1914, read with Sections 3(6) and 3(14). Is unconstitutional because in terms of Article 142 of the Constitution, Provincial Assembly can only legislate in respect of matters which have not been listed in the Federal Legislative List of the Fourth Schedule of the Constitution, and, against Entry No, 44 of the Federal Legislative List, it is mentioned that excise duty can be levied by Parliament on all goods except alcoholic liquors, opium and other narcotics. The provincial legislature can levy duty on alcoholic liquor and not on alcohol; therefore, petitioners' product, being pure alcohol, is exempted from levy of excise duty under the Act, 1914. Learned counsel for petitioner has relied on Hirjina & Co. v. Islamic Republic of Pakistan and another (1993 SCMR 1342). He has also placed reliance on the judgment rendered by Indian Supreme Court in case of Synthetics and Chemicals Ltd. And others v. State of U.P. And others ((1990) 1 Supreme Court Cases 109). He further argues that impugned Notification is also violative of Article 142 read with Entry No, 27 in the Fourth Schedule of the Constitution, according to which Provincial Legislature has no jurisdiction to legislate on interprovincial trade and commerce as well as trade and commerce with foreign countries. He adds that most of the ethanol produced by petitioners is exported out of Pakistan and, therefore, Provincial Government cannot impose any tax on such goods as it is not within the legislative domain of the Provincial Legislature.
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' Learned counsel for petitioners challenges the vires of Section 31 of the Act, 1914, read with Sections 3(6) and 3(14) of the Act and Notification dated 03.07.2012 issued on the strength of Section 31 ibid, allegedly being violative of Article 151 of the Constitution. It is argued that as per said Article, Parliament is empowered to impose restrictions on freedom of trade, commerce or intercourse between one Province and another or within any part of Pakistan and Provincial Assembly or a Provincial Government is not vested with such powers. He submits that imposition of duty @ Rs, 2/- per liter on manufacture of spirit in Punjab tantamounts to impose restriction on free trade and would badly affect the business of petitioner and other manufacturers, as same product would be available in other provinces of Pakistan at cheaper rates and would ultimately affect competitiveness of the product outside Punjab. He adds that by levying impugned duty the respondent-Government has discriminated between the goods produced by the petitioners and the goods produced in other provinces of Pakistan, which is in violation of Article 151(3)(b) of the Constitution. He has relied on Murree Brewery Company Ltd. Through Secretary v. Province of Balochistan through Secretary, Excise and Taxation, Quetta and 2 others (2003 PTD 2140), Murree Brewery Co. Ltd. Through Manager Tops, M.B.C. v. Province of Punjab through Secretary, Excise and Taxation, Lahore and another (2001 CLC 1842) and Mirpurkhas Sugar Mills Ltd. v. District Council, Tharparkar and 2 others (1990 MLD 317). He submits that Article 151 of the Constitution does not permit the Provincial Assembly to impose tax affecting inter-provincial trade on the ground that said Article is intended to provide facilities or amenities which will improve the flow of trade. He adds that even if such tax is in the larger interest of public as specified in Article 151(4) of the Constitution, it must have consent of the President, but in the instant case no such consent has been sought by respondent-Government. He further submits that tax is a restriction on enjoyment of property and a 'deterrent against free flow' of trade. He has placed reliance on Mirpurkhas Sugar Mills Limited v. District Council, Tharparkezr through Chairman and 3 others (1991 MLD 715). ' Learned counsel for petitioners contends that product of petitioners is mostly exported out of Punjab as well as out of Pakistan, so it is exempted from levy of any duty as provided in Chapter 6 of the Punjab Liquor Import, Export, Transportation and Possessions Orders. Order 6.12(3)(f) ibid provides that Country spirit, Pakistan Made Foreign Spirit and rectified spirit may be exported in bond without payment of duty from any licensed distillery in the Punjab to any province of Pakistan to which the said privilege has been extended by the Punjab Government, subject to any conditions or restrictions which the Punjab Government may impose. ' Learned counsel for petitioners submits that respondents have already levied duty on spirit vide Notification No, S.O.(Excise) E&T-II7/2015 dated 30.06.2005 but without any reference of already imposed duty, respondents have levied a new duty vide impugned Notification. Thus, it amounts to double taxation, which is not permissible under the law. ' Learned counsel for petitioners maintains that impugned Notification has been issued without complying with the procedural requirement of law as given in the Act, 1914, because said notification does not provide any mechanism for recovery of the duty, and subsequent SCN issued by Respondent No, 5, on the basis of impugned Notification, is also illegal and without jurisdiction. ' Learned counsel further argues that Section 3 of the Federal Excise Act, 2005 states that there should be levied and collected, prescribed duties of excise on goods produced or manufactured in Pakistan; goods imported into Pakistan etc.; such goods as the Federal Government may specify, and services provided or rendered in Pakistan @ 15 % ad-valorem, except the goods and services specified in the First Schedule, which shall be charged to Federal Excise Duty, at the rate set forth therein. He adds that Section 16 of the said Act states that all goods imported, produced or manufactured in Pakistan and services provided or rendered except such goods and services as specified in the First Schedule shall be exempted from the whole of excise duties levied under
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Section 3. He submits that alcohol has not been listed as goods in the First Schedule and, therefore, it stands exempted from the levy of Federal Excise Duty under the Federal Excise Act, 2005. ' Learned counsel for petitioners challenges the impugned Notification on the strength of Articles 18 and 25 of the Constitution and submits that petitioners have fundamental right to conduct any lawful trade and business but levy of such huge duty on the product of petitioners would amount to deprive them to continue their lawful business to earn livelihood. Reliance has been placed on Dr. Naveeda Tufail and 72 others v. Government of Punjab and others (2003 SCMR 291), Government of Balochistan through Additional Chief Secretary v. Azizullah Memon and 16 others (PLD 1993 SC 341), Mian Manzoor Ahmad Wattoo v. Federation of Pakistan and 3 others (PLY 1997 Lahore 490), Collector of Customs and others v. Sheikh Spinning Mills (1999 SCMR 1402), The Province of Punjab and another v. National Industrial Cooperative Credit Corporation and another (2000 SCMR 567), Nishat Tek Limited v. The Federation of Pakistan, etc (NLR 1994 Tax 114), Messrs Nafees Dry Cleaners, Wahadat Road, Lahore v. The Government of Punjab through Secretary Law and Parliamentary Affairs Department, Lahore and another (2001 PTD 2018) and Kesar Enterprises Ltd v. State of U.P. & ORS. ((2011) 9 SCR 19). 6. On the other hand, Ms. Asma Hamid, learned Additional Advocate General assisted by learned Assistant Advocate General and 'learned Standing Counsel for Federation, contends that Ethanol also called Ethyl Mitchel, commonly known as Spirit, is primary alcohol; that it derives its chemical formula from its parent family of alcohol-OH group; that it is produced by fractional distillation after the process of fermentation between sugar containing materials and bacteria/yeast; that ethanol is the intoxicating agent in fermented and distilled liquors and is used in its pure or denatured form as a solvent in medicines, perfumes, cleaning agents and in fuel. She refutes the contention of petitioners that ethanol is not excisable being inconsumable item, by contending that ethanol, as a rectified spirit, is a item unless it has been specifically denatured to render it unatIor humm consumption. She adds that Section.3(6) of the Act does not provide any distinction of consumable or non- consumable products when it defines !Alcoholic liquors% that the tax statute must be read as it is and nothing coin be read in or implied, rather plain meaning is considered, which is conveyed by the language used;, that Section 3(14) of the Act defines liquor as intoxicating liquor, and includes all liquids consisting of or containing alcohol and also any substance which the. Provincial Government may, by .Notification, declare to be liquor for the purposes of the Act. Ethanol being liquid and primary alcohol coming within the definition of liquor, is, thus, an excisable item. She further submits that plea of the petitioners that ethanol, being poisonous and not drinkable, is not 'alcoholic liquor', has no legs to stand because ethanoi/ethyl alcohol is produced through fermentation and being a dilute liquid is concentrated by fractional distillation. Therefore, it is denatured purposely to make it unfit for human consumption. She maintains that the petitioners applied for and, subsequently, obtained license for the manufacture of distilled and rectified spirits, which are excisable articles within the ambit and scope of provisions of the same Act, under which the license is issued, therefore, petitioners are estoppel from approbating and reprobating in terms of what they are subject to when their own words and conduct are illustrative of their having taken advantage of the Act to commence business as distilleries. ' Learned Law Officer further argues that Article 142(c) of the Constitution contemplates that it is only the Provincial Legislature that is empowered to legislate and impose tax in relation to matters not specified in the Fourth Schedule and perusal of the same reveals that alcohol/alcoholic liquors are not covered in the Fourth Schedule. Adds that the impugned Notification has been issued by the competent authority under Section 31 of the Act, therefore, neither any special ' procedure was required nor any mechanism was needed, however, demand notices have been issued to
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petitioners wherein they have been asked to show cause as to why they are not liable to pay the accrued tax but the petitioners did not bother to file reply to said SCNs. ' Learned Addl. Advocate General maintains that there is no discrimination against petitioners regarding levy of duty as it has been levied throughout Punjab. It was imposed after due deliberations by the legislature and the executive. Purpose behind levy of said duty is to generate public revenue, which would ultimately be used in public interest and welfare. She adds that it is well within the sovereign power of the State to impose taxes to raise revenue. Reliance has been placed on Molasses Trading and Export (Pvt.) Limited v. Federation of Pakistan and others (1993 SCMR 1905) and Government of Pakistan and others v. Muhammad Ashraf and others (PLD 1993 SC 176). She argues that even otherwise, discrimination can only be claimed by a citizen and not a company as held in Federation of Pakistan through Secretary, Ministry of Finance and others v. Haji Muhammad Sadiq and" others (PLD 2007 SC 133). She continues to argue that no discrimination can be pleaded in fiscal statutes. The respondents have issued D-2 license in favour of petitioners for the manufacture of spirit and the petitioners are liable to pay excise duty levied on the manufacture of said product, which in no way amounts to encroachment upon their fundamental rights, as alleged by them. Fundamental rights are subject to other constitutional and legal restraints and regulations, and are not unfettered in their scope. She finally prays that this writ petition along with connected cases may be dismissed with costs. Reliance has been placed on State of M.P. v: Rakesh Kohli and another (2013 SCMR 34), Messrs Elahi Cotton Mills Ltd and others v. Federation of Pakistan through Secretary M Finance, Islamabad and 6 others (PLD 1997 SC 582), Sohail Jute Mills Ltd. And others v. Federation of Pakistan through Secretary, Ministry of Finance and others (PLD 1991 SC 329), Mian Ejaz Shaft and others v. Federation of Pakistan and others (PLD 1997 Karachi 604), Anoud Power Generation Limited and others v. Federation of Pakistan and others (PLD 2001 SC 340), Messrs Bisvil Spinners Ltd. v. Superintendent, Central Excise and Land Customs Circule, Sheikhupura and another (PLD 1988 SC 370), Abdul Rahim and 2 others v. Messrs United Bank Ltd. Of Pakistan (PLD 1997 Karachi 62), Government of Pakistan and others v. Messrs Hashwani Hotel Ltd. (PLD 1990 SC 68), Messrs Army Welfare Sugar Mills Ltd. And others v. Federation of Pakistan and others (1992 SCMR 1652), I.C.C. Textiles Ltd. v. Federation of Pakistan and others (2003 PTD 1017), The. Commissioner of Agricultural Income Tax, East Bengal v. B.W.M. Abdur Rehman, Manager, Taki Bara Taraf Wards Estate (1973 SCMR 445), I.T.As. Nos.1386/LB and 1387/LB of 2009, decided on 1st February, 2010 (2010 PTD 1255), (1195 (1) SCR 682), Pakistan Tobacco Company Ltd. And others v. Government of N.W.F.P. Through Secretary Law and others (PLD 2002 SC 460), (1970 (1) SCR 710), Shree Digvijay Cement Co. Ltd. And others v. State of Rajasthan and others (AIR 2000 Supreme Court 680), Messrs Quetta Textile Limited through Chief Executive v. Province of Sindh through Secretary Excise and Taxation, Karachi and another (PLD 2005 Karachi 55), Shahtaj Sugar Mills Limited v. Province of Punjab through Secretary, Food, Civil Secretariat, Lahore and 3 others (1998 CLC 1912), Mls. Saif Nadeem Kawasaki Motors Limited v. The Government of N:W.F.P. Through Secretary, Local Government Peshawar and another (PLD 1992 Peshawar 166), Mirpurkhas Sugar Mills Ltd. v. District Council, Tharparkar and 2 others (1990 MLD 317), Shahtaj Sugar Mills Ltd and 3 others v. Province of Punjab and others (1998 SCMR 2492), Pakistan Flour Mills Association and another v. Government of Sindh and others (2003 SCMR 162), The State of Bombay and another v. F. N. Balsara (A.I.R. (38) 1951 Supreme Court 318 (C.N.55), M Is. Motipur Zamindary Co. (P) Ltd. v. The State of Bihar ((1962) S.C.R. 498), Indian Mica & Micanite Industries Ltd. v. State of Bihar & ORS ((1971) S.C.R. 319), Vam Organic Chemicals Ltd. And another v. State of U.P. And others ((1997) 2 Supreme Court Cases 715), Bihar Distillery and another v. Union of India and others ((1997) 2 Supreme Court Cases 727) and Mohd. Bin Salem v. Umaji (AIR 1955 Hyderabad 113 (Vol. 42, C.N. 31)). 7. I have given anxious consideration to the arguments of learned representatives of both the parties and perused the record with their able assistance.
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8. The impugned Notification as well as provisions of Section 41 of the Act, 1914 read with Section 3(6) and Section 3(14) of the said Act assailed through instant petition are reproduced hereunder:- ' Notification dated 03.07.2012: "No, SO.TAX(E & T) 3-4/2012. In exercise of the powers conferred under Section 31 of the Punjab Racism Act, 1914 (I of 1914), Governor of the Punjab is pleased to impose a duty at the rate of RS. 2/- per liter on manufacturing of spirit in any distillery or brewery with effect from 1st July, 2012. 2. They duty shall be recovered from the distillery or the brewery, established or licensed under Section 21 of the said Act." ' Section 3(6) of the Act 10144 "excisable article means (a) any alcoholic liquor, or (b) any intoxicating drug, or ' any medicinal or toilet preparation containing alcohol." Section 3(14) of the Act. 1414: "liquor' means intoxicating liquor, and includes all liquids consisting of or containing alcohol; also any substance which the Provincial Government may by notification declare to be liquor for the purposes of this Act." ' Section 31 of the Act, 1914: "31. Duty on excisable articles. A duty at such rate or rates as The Provincial Government shall dined, may 1ps imposed, either generally of for any specified local arm, on any excisable article- (a) imported, exported or transported in accordance with the provisions of Section 16; or (b) manufactured or cultivated under any license granted under Section 20; or (c) manufactured in any distillery established, or any distillery Or brewery licensed under Section 21; 9. Petitioners have challenged Section 31 of the Act, 1914, and impugned Notification on the strength of Article 142 of the Constitution with the contention that Provincial Legislature can levy duty on alcoholic liquor and not on alcohol, so petitioners' product being alcohol is exempted from levy of duty. In this regard, learned counsel for the petitioners has placed reliance on the case of Hirjina & Co. Supra. ' Part v. Of the Constitution deals with distribution of legislative powers. Dispensation of legislative authority between the Federation and the Provinces in the Constitution is conceded through Federal Legislative List available in Fourth Schedule of the Constitution consisting of two parts. There are 59 entries in Part I and 18 in Part II. After 18th amendment,- in terms of Article 142 of the Constitution, Parliament has exclusive power to make laws with respect to any matter in the Federal Legislative List with power to make laws pertaining to such areas in the Federation as are not included in any Province. Provincial Assembly has power to make laws in respect to any matter not enumerated in the Federal Legislative List. ' Entry No, 44 appearing in the Federal Legislative List empowers the Parliament to make law for levy of excise duties including duties of sale. At the same time, levy of duties on alcoholic liquors, opium and other narcotics have been excluded from the domain of Parliament. The provisions of Article 142 and Entry No, 44 of the Federal Legislative List are reproduced below for ready reference. ' Article 142 of the Constitution reads as under: "142. Subject-matter of Federal and Provincial laws. Subject to the Constitution-- (a) Majlis-e-Shoora (Parliament) shall have exclusive power to make laws with respect to any matter in the Federal Legislative List; (b) Majlis-e-Shoora (Parliament) and a Provincial Assembly shall have power to make laws with respect to criminal law, criminal procedure and evidence. (c) Subject to Paragraph (b), a Provincial Assembly shall, and Majlis-e-Shoora (Parliament) shall not, have power to make laws with respect to any matter not enumerated in the Federal Legislative List.
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(d) Majlis-e-Shoora (Parliament) shall have exclusive power to make laws with respect to all matters pertaining to such areas in the Federation as are not included in any Province. ' Entry No, 44 of the Federal Legislative List reads as under: "44. Duties of excise, including duties on sale, but not including duties an alcoholic liquors, opium and other narcotics." 10. The primary question that requires determination by this Court is whether 'spirit' is an alcoholic liquor coming within the purview of Entry No, 44 of the Federal Legislative List and thus, within the legislative competence of provincial legislature? Let us have a visit of definitions of word 'spirit', necessary to resolve the query, as provided in the Act, 1914, as well as different dictionaries, Definition of 'spirit' provided in Section 3(19) of the Act, 1914, reads as under:- "spirit' means any liquor containing alcohol obtained by distillation, whether denatured or not." `Spirit' as defined in the Oxford English Dictionary Volume-I:- 21. A liquid of the nature of an essence or extract from some substance, esp. One obtained by distillation; a solution in alcohol of some essential or volatile principle. 22. An essence, distilled extract, or alcoholic solution, of a specified substance. `Spirit' has been defined in Words and Phrases (Permanent Edition) Volume 39C, in the following words: ' N.C. 1887. "Spirit," or…
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