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Petitioner: MOGUL TOBACCO COMPANY LTD. VS Respondent: PAKISTAN TABACCO BOARD AND 3
Court Name: Sindh High Court Judge(s): Muhammad Zahoor-ul-Haq, Ali Nawaz Budhani Title:MOGUL TOBACCO COMPANY LTD. vs PAKISTAN TABACCO BOARD AND 3
JUDGMENT
Reported As: PLD 1984 Karachi 155 Result: Order accordingly Judgment JUDGMENT ' MUHAMHAD ZAHOORUL HAQ, J.-In all these petitions the petitioners ate the manufacturers of cigarettes and they have challenged the incidence of liability in respect of Cess levied under section 9 of Pakistan Tobacco Board Ordinance of 1968 read with Collection of Tobacco Cess Rules, 1968. There are no detailed facts involved in these petitions as they are to be decided on the basis of interpretation of Pakistan Tobacco Board Ordinance, of 1968 and Pakistan Board Tobacco Amendment Ordinance, 1971 and the rules framed thereunder and Notifications issued under that Authority as well as the interpretation of Excise Rules. Mr. Rasheed A. Akhund counsel for the petitioner has raised the following contentions :- (1) That section 9 of Pakistan Tobacco Board Ordinance, 1968 (hereinafter called the Ordinance of 1968) which levies a Cess on Tobacco produced in Pakistan does not identify the person who is liable to pay the said Cess and even the rules do not fix the identity of the person liable. (2) In the alternative and without prejudice to the first submission the second submission is that even if. Excise Rules are found to be applicable in respect of the petitioners even then the petitioners not being the purchaser of Tobacco from the growers or curers they cannot be held liable for payment of the said Cess as manufacturers of Cigarettes who purchased the Tobacco from the Dealers. (3) That the Notification of 24-12-1979 issued by the Central Government fixing the assessed value of Tobacco at Rs. 2 per pound was without lawful authority as it was only the ad valorem value of the Tobacco which could be the basis of the assessment of Cess according to section 9 of
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Ordinance of 1968 and the validating section 5 of the Amendment Ordinance, 1971 could not validate the Notification in question which was clearly without any lawful authority and was without jurisdiction. (4) That notwithstanding the validating provisions of section 5 of Ordinance V of 1971 namely Pakistan Tobacco Board Amendment Ordinance of 1971 hereinafter called the Amendment Ordinance of 1971 the Notification of 24-12-1979 was invalid because it was issues: without lawful authority and also because it was having a retrospective effect from 3-8-1968. (5) That the consistent departmental interpretation of the notifications in respect of Cess levied from the petitioner in respect of the four Petitions Nos. 706, 707, 708 and 715 of 1981 was that Stems of Virginia Tobacco were not liable to any Cess, therefore, the department was now debarred from changing that interpretation now so as to include the Stems of Virginia Tobacco in the category of Tobacco and hence their present interpretation is completely justified and without lawful authority. ' Elaborating his points the petitioner's counsel submitted that section 9 of the Ordinance of 1968 provided that there shall be levied and collected in such manner as may be prescribed a Cess on Tobacco produced in Pakistan at such rate or rates not exceeding 3% ad valoram as the Central Government may specify. The counsel argued that there is no mention in the section as upon whom the liability of the Cess arises. However, the emphasis seems to be on the word Tobacco produced in Pakistan. The Collection of Tobacco Cess Rules, 1968 were made by the Central Government on 3rd August, 1968 and Rule 2 of the same is produced herewith : - "2. Procedure for collection of cess.-(1) The cess on tobacco levied under subsection (1) of section 9 of the Pakistan 'Tobacco Board Ordinance, 1968 (1 of 1968), shall be collected by the Central Excise Department and, after deducting the cost of collection, be paid to the Pakistan Tobacco Board. (2) The rules and procedures applicable to the collection of excise duty on tobacco shall, so far as may be apply to the collection under subs rule (1) of the cess on tobacco." ' The learned counsel submitted that even these rules do not specify or identify the person who is to pay the Cess and that mere application of the rules and procedures applicable to the collection of excise duty on Tobacco cannot be construed in a manner to fix the liability of Cess upon any person and hence the very incidence of the Cess remains ambiguous. Counsel contended that the petitioners can be liable for this Cess only if their liability can be fixed strictly under the letter of law and not by mere intendment. The counsel relied upon PLD 1964 SC 113 (119) where it was held as under "It is patent that before a person can be Made liable to the payment of the tax or a levy he must be shown clearly to fall within the category so made liable under the letter of the law." ' The counsel also relied upon PLD 1976 Kar. 1238 (1246) where it was observed as under :- "If a subject to be taxed is not within the letter of the law, he is free however, apparent it may be that he falls within the spirit of the law." ' Therefore, Mr. Rasheed A. Akhund contended that the Ordinance of 1968 and the Rules do not fix the liability for the payment of Cess upon any person and hence the petitioners cannot be made liable for the same. ' Mr. Saeed A. Shaikh and Mr. Aziz Munshi argued that the identity of the person liable to the Cess was quite clear if the Tobacco Cess Ordinance and Rules made thereunder are read in conjunction with the rules made under the Excise Act because rule 2 of the Tobacco Cess Rules clearly provides that rules and procedure applicable to the collection of the Excise duty shall so far as may be applied to the collection under sub-rule (1). ' It was pointed out that section 3 of the Excise Act was almost in the same terms as section 9 of the Tobacco Cess Act and that even though both these sections do not point out to the exact person liable to pay the Excise duty on Tobacco or the Cess on Tobacco as the case may be but when they are read aiongwith section 3 of the Excise Act and rule 7 of the Central Excise Rules then it
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becomes clear that every person who produces, cures, purchases or otherwise acquires without payment of duty or manufactures Exciseable goods or who stores such goods in a Warehouse shall pay the duty or duties due on such goods. The counsel esubmitted that the petitioners have paid Excise duty on Tobacco for a long time without any objection and hence they cannot now turn round and say that their identity was not fixed by section 3 of the Central Excises Act, 1944. Counsel argued that since Excise Rules.Applied to the collection of Cess on Tobacco, therefore, the petitioners who are the producers of Tobacco and also acquired Tobacco and clearly store the same in their warehouses they are clearly liable to pay the Cess. It was further pointed out that the first proviso of Rule 7 of the Excise Rules also fixes the petitioners as the persons liable to pay the Cess. That proviso is to the effect that in the case of unmanufactured products the persons purchasing or acquiring them from a curer shall assume the liability for the payment of duty. ' Mr. Rasheed A. Akhund's answer to these submissions was that section 9(f) of Ordinance I of 1968 merely makes a producer of Tobacco liable to the Cess but the petitioners are not producer of Tobacco which is produced by the farmers who grow the same. He further contended that Rule 2 of Tobacco Cess Rules merely makes the procedure for collection of the Excise duty applicable in respect of the collection of the Cess on Tobacco and, therefore, rule 7 of the Central Excise Rules cannot be made use of by the respondents because that rule 7 is really a substantive rule and not a procedural rule. The alternate argument of Mr. Rasheed A. Akhund was that without conceding that rule 7 of Central Excise Rules was applicable to the petitioners, the petitioners contended that they neither produce nor cure and nor still purchase the Tobacco from the curers and hence even proviso of rule 7 of the Excise Rules does not fix the responsibility upon them. ' Elaborate arguments were advanced by the counsel on both sides on this aspect of the case. Mr. Saeed A. Shaikh had submitted that the case cited by the petitioners' counsel PLD 1964 SC 113 was based upon the interpretation of rule 7 of the Excise Rules and hence the Rule 7 has to be necessarily read as a rule applicable to this case. We are of the view section 9 of Pakistan Tobacco Board Ordinance (I of 1968) and section 3 of the Central Excises Salt Act are almost identical in respect of imposition of Cess and Excise duty as they speak of levying of Cess on Tobacco produced and levying of duty on all exciseable goods produced and manufactured without clarifying the identity of the assessee in clear terms. But we are also clear that rule 2(2) of Tobacco Cess Rules, 1968 has clearly attracted the entire set of rules and procedure in respect of collection of Excise duty on Tobacco for the purpose of collection of the Tobacco Cess and there is nothing in Ordinance 1 of 1968 or the Rules thereunder which could militate against that position and since whole set of procedure and rules of Excise rules without any exception has been attracted to collection of Cess, therefore, even rule 7 of the Central Excise Rules is clearly attracted to the collection of the cess and also for purpose of identifying the liability of the persons liable to the Cess. ' Mr. Saeed A Shaikh drew our attention to further affidavit of Muhammad Aurangzeb Khan, dated 15-5-1975 where it is shown that Tobacco Companies purchase Tobacco from the growers in the form of cured Leaf which cannot be utilised without further process by manufacturing units. In para. 5 of the said affidavit it is stated that Tobacco Companies stem the Tobacco, humidify and re-process it and after re-drying Store it in the Companies Warehouse for aging and thereafter the same is utilised for manufacture of cigarettes or shipment abroad and this is the final stage of Tobacco production and that Virginia Tobacco cannot be used for any purpose other than manufacture of cigarettes. There is no rejoinder by the petitioners to this affidavit and, therefore, it can safely be assumed that the petitioners do not contradict this position and, therefore, they are covered by the provisions of the section 9 of Ordinance I of 1968 read with the Tobacco Cess Rules, of 1968 and also read with, Central Excise Rules of 1944. None of the petitioners deny that they store the Tobacco in their warehouses and warehouse is defined under rule 2(15) of the Central Excise
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Rules as "the place appointed or licensed under rule 140 of the Central Excise Rules," therefore, liability to this extent cannot be denied. However, more important in this respect is section 9 of Pakistan Tobacco Board Ordinance (I of 1968) which, in our opinion, itself fixes the. Liability of the producer of Tobacco for the Tobacco Cess. It provides for levy of Cess on Tobacco produced in Pakistan, and therefore, every one who produces tobacco shall be liable for this Cess. The term 'tobacco' has been defined in section 2-F as under :- "Tobacco means the commodity which is made from the leaves of the plant "nicotiania tobaccum" and is commonly known as tobacco and -includes adjacent tender stalks or green tobacco but does not include Tobacco Waste," It is interesting to note that the definition of tobacco above given clearly shows that it is not the producing or growing of tobacco leaf which is liable to the Cess under this Ordinance but it is something else i, e. a commodity which is made from the leaves of the plant including the adjacent tender stalks. It is therefore, apparent that it is the stage of making a commodity from the leaves of the plant nicottana tobaccun which is sought to be put under the liability of the Cess. If we read section 9 and section 2-F together then the only interpretation possible is that Cess is being levied on the person who is making some commodity from the leaves of the plant and thereby producing Tobacco in Pakistan. The petitioners are not using the Tobacco leaves in their original shape for the purpose of manufacture of their cigarettes but they are storing the Tobacco leaves in their warehouse admittedly for the purpose of aging and thereafter cutting and shredding the tobacco leaves C and thus converting them into a commodity which can be used for making cigarettes. It is therefore, obvious that they are producing Tobacco as defined in section 2(f) of Ordinance I ,of 1968. This definition of Tobacco further makes it clear that the grower or farmer of Tobacco is not at all intended to be made liable in this Ordinance because it is only from the stage of conversion of the. Leaves of the plant- "nicotiana tobaccum" into another commodity which is the starting stage for the Cess liability. Some other commodity from the leaves of the plant is made by the petitioners alone and by no one else and hence petitioners' liability is quite clear in our minds. The petitioners cannot deny the position that they are the makers of Tobacco as defined under section 2(f) of Ordinance I of 1968, and hence they produce the tobacco as stipulated under section 9. ' The alternate position of the petitioners that they are not covered by the provisions of Rule 7 of the Excise Rules is rather difficult to understand. In the first instance they are storing the Tobacco Leaves in their warehouse. Then again they are processing the same, and then they are cutting and shredding the Virginia Tobacco leaves and making them into a commodity different from the leaves themselves and that commodity in the shape of the shredded leaves is capable of being used in the cigarettes manufacture and hence they are clearly covered by Rules 7 of the Central Excise Rules. The position as to whether the petitioners purchase the Tobacco from the curers or from. Store Keepers is difficult to determine in this petition as the same would require going into the evidence which is not before us. And, therefore, we are D unable to give any finding in respect of the same as this issue of fact can be determined only after the Assessing Authority has applied its mind to the same. But in any case the liability of the petitioners to the payment of Cess is not really dependent upon this issue because we have come to the conclusion that the petitioners make a commodity from Tobacco leaves and therefore, they make or produce Tobacco as defined under section 2(f) of Ordinance I of 1968 and hence their liability is established by section 9 of the same Ordinance which -levies 'tobacco Cess on its production in exactly the same manner as excise duty on tobacco. ' We will take up now the point raised by Mr. Rasheed that the Notification, dated 24-12-1969 was illegal as it - had been given a retrospective effect by amending the .Notification issued on 3-8- 1968, therefore, it was illegal. We would reproduce the two Notifications hereinbelow :-
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Notifications Islamabad, the 3rd August, 1968 S, R, 0. 135(R) 68,-1n exercise of the powers conferred by subsection (1) of section 9 of the Pakistan Tobacco Board Ordinance, 1968 (1 of 1968), the Central Government is pleased to direct that a cess on Virginia Tobacco produced in Pakistan shall be levied and collected at the rate of two per cent ad valorem. ' Islamabad, the 24th December, 1969 ' No. S. R. 0. 269/(1) 69.-In exercise of the powers conferred by subsection (1) of section 9 of the Pakistan Tobacco Board Ordinance, 1968 (I of 1968), the Central Government is pleased to direct that the following amendment shall be made in this Ministry's Notification No. S. R. 0. 135(R)/68, dated the 3rd August, 1968, namely :- ' In the aforesaid Notification, after the word ad valorem, the semicolon and words" ; and for the purpose of the levy of cess the assessed value shall be two rupees per pound" shall be inserted, ' The counsel first argued that the respondents are demanding Tobacco Cess on fixed value of Virginia at Rs. 2 per pound with effect from 3-8-1968 and are thus giving retrospective effect to Notification of 24-12-1969. This is correct position. He further argued that Notification of 24-12-1969 could not have amended the Notification of 3rd August, 1968 with a retrospective effect and it could only have a prospective effect. He relied upon PLD 1964 SC 284 where it was held that a notification can never be made retrospective. We, however, do not find any retrospective effect in the Notification issued, on 24-12-1969. In our view the Notification of 24-12-1969 merely makes an amendment in the Notification of 3rd August, 1968 and does not say that the amendment shall take effect from 3rd August, 1968, therefore, the amending Notification of 24-12-1969 can only be said to be having a prospective effect so the amendment would take effect only from 2'.-12-1969 and not from 3rd August, 1968, if it is found warranted by the provisions of section 9 of the Ordinance. ' However, the more important challenge in respect of the Notification of 24-12-1969 was that Cess on Tariff value of Virginia Tobacco was not warranted at all and it was against the provisions of Pakistan Tobacco Board Ordinance, 1968 inasmuch section 9 of the Ordinance of 1968 imposed a Cess on Tobacco ad valorem, viz. On its actual value, and therefore, it did not permit any notional tariff value or imaginary value of the tobacco to be fixed by the Government. But the Notification of 24-12-1969 had in fact fixed a notional, imaginary or tariff value of Rs. 2 per pound upon Virginia Tobacco by providing that for the purpose of the levy of Cess the assessed value shall be Rs. 2 per pound. It, therefore, made a complete departure from the ad valorem assessment of the value of the Tobacco as provided under section 9 of the Ordinance I of 1968. The argument appears to be having some weight and it appears that there was a fundamental change sought to be introduced by the Notification of 24-12-1969 by fixing an imaginary price of Rs 2 per pound of Tobacco irrespective of its actual value viz, ad valorem. Since section 9 of Ordinance 1 of 1968 merely allowed a cess on the ad valorem value, it was not open to the Government to fix an arbitrary price of the Tobacco irrespective of its actual value and, therefore, the Notification of 24-12-1969 prima facie appeared to be against the unamended provisions of section 9 of Ordinance I of 1968, if the effect of section 5 of Ordinance Vof 1971 is not considered. ' The learned counsels for the respondents argued that the illegality if any, in the Notification of 24- 12-1969, has been cured and the notification has been validated by the provisions of the amending Ordinance of 1971 viz. ' Ordinance V of 1971. Submission is that subsection (1-A) and (I-B) were added to section 9 of Ordinance, 1968 which provided as under :- "(1-A). The Central Government may from time to time by Notification in the official Gazette, fix for the purpose of having a Cess under subsection (1), Tariff value of Tobacco produced in Pakistan
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and may alter Tariff value for the time being in force. "(1-B). Different Tariff values may be fixed for different classes or descriptions of Tobacco." ' The counsel further submitted that section 5 of amending Ordinance of 1971 had also validated any order or notification which had fixed the assessed value of Tobacco at Rs. 2 per pound. The said section is reproduced hereunder :- "5. Any order or Notification fixing the assessed value of Tobacco at Rs. 2 a pound and purporting to be issued in exercise of a power given by the said Ordinance and all Cess purported to be levied and collected under the said Ordinance on the basis of the assessed value so fixed shall be deemed to have been validly fixed, levied and collected as if the Central Government had power under the said Ordinance to fix the assessed value of Tobacco for tne purpose of the levy of the Cess and to levy and collect the Cess on the basis of the assessed value so fixed." ' The counsel further argued that the Notification of 24-12-1969 has thus been completely validated by the amending Ordinance of 1971 and, therefore, it should be given effect. They also submitted that subsections (I-A) and (1-B) of section 9 had positively conferred upon the Government the power to fix the Tariff value of the Tobacco produced in Pakistan and hence the Government was justified in fixing Tariff value of Tobacco at Rs. 2 per pound. ' These submissions of the counsel of respondent are relevant in respect of yet another contention of Mr. Rasheed A. Akhund, that till 23.2-1971, the Central Government had no power to fix tariff value of tobacco, therefore, Ordinance V of 1972 cannot validate any act or order which has been done or passed earlier without lawful authority. This argument is based upon the dictum of their Lordships of Supreme Court in PLD) 1973 SC 49 where it had been observed that an Act which was completely without jurisdiction, coram non judice or mala fide could not be validated. ' Petitioner's counsel argued that since the Notification of 24-12-1969 was completely without jurisdiction and in excess of powers of the Government as contained in section 9 of Ordinance 1 of 1968, as it stood, on 24-12-1969, therefore, the same could not be validated by the amending Ordinance of 1971 either by subsection (9) (1-A) or (1-B) and nor still by the validating provisions of section 5 of the said Ordinance of 1971, more particularly when subsections (1-A) and (1-B) of section 9 had themselves not been given a retrospective effect, submission was that what was a nullity in 1-w and beyond the powers of Government on 24-12-1969, could not be validated by supposing that the Government bad those powers when in fact the Government did not have those powers at all. ' Mr. Saeed A. Shaikh stressed that section 5 of Ordinance V of 1971 had provided legitimacy and had validated the Notification of 24-12-1969, by making it very clear that any order or Notification fixing the assessed value of Tobacco at Rs. 2 per pound and purporting to be issued in exercises of the powers given by the said Ordinance shall be deemed to have been validly fixed etc. As if the Central Government had power under the said Ordinance to fix the said value. He submitted that illegality, if any has thus been cured and the intention of the Legislature should be given effect. ' The counsel had seriously contended that the object of section 5 of Ordinance V of 1971 was very clear to the effect that if the Central Government had fixed the value of Tobacco by any notification or order at Rs. 2 per pound at any earlier date then, in spite of the fact that the same could not be supported by the provisions of any law, at the time of its making, yet the Legislature wanted the said defect to be cured with retrospective effect. Therefore, if any Notification as such had been issued earlier in the purported exercise of the powers under Ordinance I of 1968 then the same should be treated to have been validly made. It was pointed out that the Notification of 24-12-1969 had been issued by the Central Government in exercise of powers conferred by subsection (9) (1) of Ordinance I of 1968. But since section 9 of Ordinance I of 1968 of 24-12-1969 did not give the power to the Government to fix the value of Tobacco, therefore, it was in the purported exercise of its power under section 9, that he Government had fixed the value, and therefore, section 5 of
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Ordinance V of 1971 has come as a remedial measure and provided validity to the Notification of 24-12-1969 with retrospective effect. The learned counsel pointed out that the Legislature has the authority to make laws with retrospective effect and therefore, it could also validate a law or Notification with retrospective. Effect. ' Mr. Saeed A. Shaikh particularly relied upon PLD 1967 SC 289 (291) where it was held that subject to any Constitutional Bar there is no li:nit to making and unmaking of laws by a Legislature. He also relied upon 1973 SCMR 2(5) where it was held that it was open to the Legislature to confer retrospective operation on the laws made by it. The strongest case in this respect relied upon was PLD 1975 SC 50 (53) where it was held as under :- "The Legislature competent to legislate on a particular subject, was competent to undertake any remedial or curative legislation after discovery of defect in existing law." ' This was a case where Cotton fee had been imposed on factories. The factories which were run by Diesel Engine had challenged their liability and their petitions had been accepted by the High Court and levy of Cotton fee upon factories run by diesel had been declared as illegal. Thereafter, the Legislature had passed remedial…
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