Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: FLYING KRAFT PAPER MILLS (Pvt.) LTD., CH ARSADDA VS Respondent: CENTRAL BOARD OF JUDGMENT
Court Name: Supreme Court of Pakistan Judge(s): Raja Afrasiab Khan, Saeeduzzaman Siddiqui, Mukhtar Ahmed Junejo Title:FLYING KRAFT PAPER MILLS (Pvt.) LTD., CH ARSADDA vs CENTRAL BOARD OF
JUDGMENT
Reported As: 1997 SCMR 1874 Result: Appeal dismissed Judgment JUDGMENT SAIDUZZAMAN SIDDIQUI, J.---The above appeal with the leave of this Court is directed against the judgment of a learned Judge in Chambers of Rawalpindi Bench of Lahore High Court dated 29-2- 1996. Leave was granted in the above appeal to consider the following contentions of the appellant: The learned counsel for the petitioner contended that after liquidation of Pakistan Paper Corporation (Pvt) Limited, it lost its legal entity and having been purchased by the petitioners under the Court order, it was a new owner and not successor of the liquidated company. It was contended that for qualifying for the exemption under the notification, the goods should have been produced or manufactured by such industries, which are set up in the given area between 1-7-1991 and 30-6- 1996. The learned counsel further contended that the word: 'industries' and 'set up' are key words. The word 'industry' has a definite meaning distinct from the words 'machinery and factory' and further that if a party after purchasing factory and machinery also invests huge amount to convert it into a factory to produce a completely new product will be covered by the term 'set up'. According to the learned counsel it is not necessary that the industry should be set up completely a new one having no connection or relation with the machinery purchased earlier. The learned counsel has relied on Commissioner of Wealth Tax, Mardan v. Ramaraju Surgical Cotton Mills Ltd (AIR 1967 SC 509). The contentions raised seem to be questions of first impression which require interpretation of the notification. Leave is granted. 4.The learned counsel for the petitioner has applied for stay of the recovery of sales tax. However, M.K.G. Sabir, Advocate-on-Record for respondents Nos.2 and 3 has filed documents to show that the petitioner has been charging sales tax from the customers. In these circumstances, stay is refused."
---
## Page 2
2. The relevant facts of the case are that in the year 1960 Pakistan Paper Corporation (Pvt) Limited (hereinafter to be referred as 'the Corporation' only), established an integrated Pulp and Paper Mill at Charsadda (hereinafter to be called as 'the Mill' only) for producing white writing paper. The Mill continued ,production untill 1971 but thereafter, it ran into financial difficulties. The Mill stopped production in the year 1987 and finally went into liquidation under the orders of learned Company Judge of the Peshawar High Court dated 8-9-1990. The assets belonging to the Mill were sold under the orders of the learned Company Judge which were purchased by the appellant. The Sale Certificate, dated 29-2-1992 issued by the Court in respect of the assets of the Mill purchased by the appellant, reads as follows: "IN THE PESHAWAR HIGH COURT, PESHAWAR C.C.2/90 Pakistan Industrial Credit & Investment Corporation Ltd. v. Pakistan Paper Corporation Ltd. SALE CERTIFICATE This is to certify that the assets of M/s. Pakistan Paper Corporation Ltd., Charsadda have been purchased by M/s. Flying Kraft Paper Mills (Pvt.) Ltd. Having its registered office at Charsadda and Head Office at Lahore and the sale has been confirmed by this Court. The assets sold to the said purchaser include land, building, machinery, spareparts and other facilities fully described n the schedule of property annexed herewith. It is declared that M/s. Flying Kraft Paper Mills Ltd. Will be full owners of the said properties and are vested with absolute title in the said properties. The purchaser has paid Rs.35,000,000 income out of the total sale consideration and has furnished Bank Guarantee for the balance amount of Rs.90,000,000 payable within a period of 345 days after taking over possession of the entire assets. (Sd.) Jamaluddin Khattak/Masood Ahmed Iftikhar uddin Official Liquidators (Sd.) Countersigned Judge, Peshawar High Court, Peshawar dated 29-2-1992." SCHEDULE OF PROPERTY (1) Land Measuring 160 acres 5 Kanls 2 Marlas, situated in Mera Prang, Nowshera Road, Tehsil and District Charsadda. (2) Building Factory building, halls, boiler's establishment godown, out houses, residential colonies, junior colony, and senior officers colony, Chowkidar barracks, bachelors' hostels, four walls and all other buildings constructed on the land mentioned above. Machinery (a) Bagasse Preparation/Store (b) Pulp Mills (c) Stock Preparation Unit (d) Chemical Preparation Unit (e) Two Paper Machines, (f) Finishing Unit , (f) Chemical Recovery Plant (g) Water Supply System (h) Water Supply System (i) Electrical Installations
---
## Page 3
(j) Steam Generation System (k) Compressed Air Supply System and Instrumentation. (1) Tools and other equipment, furniture, fixture and office equipment present in the factory building, offices and residential accommodation. (Sd.) Jamaluddin Khattak/Masood Ahmed, Iftikhar Uddin Official Liquidators. " The appellants were put in possession of all the properties mentioned in the above sale certificate on 29-2-1992. After taking over possession of the properties mentioned in the sale certificate the appellants approached the Excise Department for issuance of licence to re-start the Mill which was granted. The appellants informed the Excise Department by letter dated 24-9-1992 that they intend to go into trial production shortly which was likely to commence in October 1992. The initial production programme of appellants as intimated by them to Excise Department through their letter addressed to Superintendent, Central Excise and Sales Tax Nowshera Circle, Nowshera, between the period from 21-11-1992 to 22-8-1993, included manufacturing of Wood Free White Writing Paper (S.H.F. 55 GSM) W.F. White Writing Paper (S.H.F. 60 GSM). W.F. White Writing Paper (S.H.F. 50 GSM) and Kraft Paper 80 GSM. It is worth mentioning here that production of Kraft Paper (80 GSM) in the Mill was the result of balancing, modernization and replacement of existing machinery of the plant as intimated by the appellants to the Superintendent of Central Excise and Sales Tax, Nowshera Circle, Nowshera, through their letter dated 22-8-1993 which reads as follows:- "Flying Kraft Paper Mills (Pvt.) Limited, Nowshera Road Charsadda, Tel: 2530.2529,2629. Ref: Excise/Corrs/10/92 Dated: 22nd August, 1993. The Superintendent Central Excise & Sales Tax, Nowshera Cirle, Nowshera. Subject: Production of Kraft Paper Dear Sir, We have to inform you that, after .B.M.R. Of the plant, we have resumed production of Kraft Paper 80 GSM with effect from today, on trial basis. The price for the paper produced during the trial will be Rs.18 per k.g., excluding excise duty and sales tax. This is for your information. Yours faithfully, For Flying Kraft Paper Mills (Pvt.) Ltd. (Sd.) (Muhammad Yunas) General Manager" The production of Extensible Sack Kraft Paper (Clu Pak) 80 GSM also started in the Mill of appellants with the help of existing facilities of the plant on trial basis as would appear from the letter of appellants dated 21-10-1993 addressed to the Superintendent Central Excise and Sales Tax, Nowshera Circle, Nowshera, which reads as follows:- Flying Kraft Paper Mills (Pvt.) Limited Nowshera Road, Charsadda, Tel: 2529,2530,2629. Ref: Excise/Corrs/09/44/92Dated: 21st October 1993. The Superintendent Central Excise & Sales Tax, Nowshera Circle, Nowshera. Subject: Production of Kraft/Sack Paper
---
## Page 4
Dear Sir, With reference to our letter No.Excise/09/43/92 dated 18th Oct. 1993, we are pleased to inform you, that after maintenance of the plant, we have resumed production of Kraft Paper/Extensible Sack Kraft Paper (Clu Pak) 80 GSM with effect from today, on trial basis. The price for the Sack Kraft Paper 80 GSM, produced during the trial will be Rs.25 per k.g., excluding excise duty and sales tax. This is for your information. Yours faithfully, For Flying Kraft Paper Mills (Pvt.) Ltd. (Sd.) (Muhammad Yunas) General Manager" The appellants appear to have applied for the first the for grant of exemption from sales-tax on the production of Extensible Sack Kraft Paper under S.R.O. 580(1)/91, dated 27-6-1991 on 14-9-1993 on the plea that they have set up a new plant for producing a totally new product. The above request of appellants for grant of exemption was turned down by the Collector of Customs, Central Excise and Sales Tax, Customs House, Peshawar, vide its letter dated 26-4-1994 as under:-- "Government of Pakistan Collectorate of Customs, Central Excise and Sales Tax, Customs House Peshawar. C.No.IV-ST (Notification) 41/93/5007 Dated: 26-4-1994 To The Management of M/s. Flying Kraft Paper Mills (Pvt.) Ltd., Charsadda. Subject:- Sales Tax Exemption Under SR0.580(1)/91 of 27-6-1991. Please refer to, your application for grant of exemption from sales tax under S.R.O. No.580(1)/91, dated 27-6-1991. Since your factory was set up in 1970 and change of name style or alteration, addition or modernisation of machinery does not qualify the said factory to the treated as new industries in terms of SR0.580(1)/91, dated 27-6-1991 and amended S.R.0.281(1)/94, dated 3-4-1994. (Sd.) (Hafiz Matiullah) for Collector" The appellants thereafter, approached the Central Board of Revenue for grant of sales tax exemption under SRO 580(1)/91, dated 27-6-1991 which to was declined on 18-10-1994, as follows:- "Government of Pakistan Central Board of Revenue (Sales Tax Wing) U.O.No.1/100-STT/1994, Islamabad the 18th October, 1994 From Javed Iqbal Mirza, Secretary (Tariff) To Messrs Flying Kraft Paper Mills (Pvt.) Ltd. Head Office, 15 Bridge Colony, Lahore Cantt. Subject: Registration Under SR0.580(1)/91, Dated 27-5-1991. I am directed to refer to Messrs Flying Kraft Paper Mills (Pvt.) Limited, Letter No.FKPMPL/11051/94, dated 12th October, 1994 on the above subject and to say that your request regarding exemption under SR0.580(1)/91, dated 27-6-1991 has been considered in the Central Board of Revenue but it is regretted that cannot be accorded to. The appellants then filed Writ Petition No. l of 1995 before the Lahore High Court, Rawalpindi Bench, challenging the order of Collector of Customs dated 26-4-1994 and that of Central Board of Revenue dated 18-10-1994 respectively, refusing to grant exemption to appellants in respect of their
---
## Page 5
new produce "Extensible Sack Kraft Paper (Clu Pak)" under S.R.O. No.580(I)/91, dated 27-6-1991. The petition was contested on behalf of Collector of Customs and C.B.R. But a learned Judge in chambers after hearing the counsel for the parties allowed the petition as follows:- "Resultantly the matter is remanded to the Collector, Central Excise and Sales Tax, Collectorate of Customs Peshawar who shall, after giving an adequate opportunity of being heard to the petitioner company and a proper field enquiry, determine the following matters:- (i) The legal effect of liquidation of Pakistan Paper Corporation (Pvt.) Limited and the question whether the petitioner Company would be deemed to be the successor of the previous establishment; (ii) Whether the petitioner Company had set up a 'New Industry' as claimed by it or by merely buying of premises of an older set up it would disqualify itself to lay claim to be anew Industry." The Collector after determing the above factors shall pass an appropriate and reasoned order regarding the petitioner Company's request for grant of exemption under the aforementioned S.R.O. Writ Petition stands disposed of. " It appears that the matter did not proceed further before the Collector of Excise and Sales Tax in terms of the above order of High Court and sales tax continued to be recovered from the appellants as before. This led to the filing of another Writ Petition No.580 of 1995 by the appellants before the Lahore High Court, Rawalpindi Bench, which was dismissed summarily on 8-5-1995 as follows:-- "3. Learned counsel for the petitioner has been heard. Recovery of sales tax pending enquiry was not restrained while disposing of Writ Petition No. l of 1995 for the reasons that the amount paid by the petitioners as sales tax can be determined in real terms which can be refunded in case the same is found to be not recoverable. As far as the second limb of the argument is concerned, it is hoped that the Collector, Customs, Peshawar and other functionaries who had to undertake the enquiry will not sit on the same indefinitely. The petitioners may approach the Collector, Customs and Sales Tax at Peshawar for initiation and conclusion of enquiry by an early date. 4. With the above observation the writ petition is disposed of in limine. " The appellants then approached this Court through Civil Petition for Special Leave to Appeal No.227 of 1995 which was disposed of on 21-5-1995 after notice to Attorney-General. Of Pakistan as follows:- "Raja Muhammad Bashir, Deputy Attorney-General. Mr. Irfan Qadir, Advocate Supreme Court. Mr. Muhammad Munir Peracha. Mr. Ejaz Muhammad Khan, Advocate-on-Record. 1. After hearing learned counsel for petitioner as well as learned Deputy Attorney-General, it has transpired that the petitioner has already paid the customs duty for the current month and the next payment falls due on 20-6-1995. Learned Deputy Attorney-General, on instruction from an officer of the department, present in Court, states that the Collector Customs can conclude the inquiry within a fortnight. 2. With the consent of the parties, I direct that Collector Customs concerned shall conclude the inquiry within 15 days from the date of the order without fail. 3. As the inquiry proceedings are to conclude before the next payment falls due, order of stay of recovery proceedings is, therefore, recalled." Thereafter, the matter was taken up by the Collector of Customs and Central Excise, Peshawar, in terms of the order of this Court dated 21-5-1995, and by order dated 12-6-1995, the claim of exemption in respect of "Extensible Sack Kraft Paper (Clu Pak)" put forth by the appellants was rejected. The Collector of Customs and Central Excise, in its final analysis reached the conclusion that the appellants are the same old industry which was run by Pakistan Paper Corporation, with only a change in the name; that after taking over possession of the building and machinery belonging to M/s Pakistan Paper Corporation, the appellants started producing paper including the
---
## Page 6
alleged new product, and that installation of new machinery by the appellants was to years after the Mill had gone into production. On these considerations, the claim of the appellants for exemption under SRO No.580(1)/91, dated 27-6-1991 was found untenable. The above order of the Collector was not challenged any further in the hierarchy of the Department but a petition under Article 199 of the Constitution being Writ Petition 1571 of 1995 was filed before the Lahore High Court, Rawalpindi Bench, which was dismissed by the impugned judgment, against which leave to appeal was granted as aforesaid. 3. Mr. S.S. Pirzada, the learned Senior Advocate Supreme Court for the appellants raised the following contentions in support of the appeal: (i) That the effect of winding up order was that the old company (M/s Pakistan Paper Corporation) legally came to an end and ceased to do any business and, therefore, purchase of the assets of M/s Pakistan Paper Corporation by the appellants in a Court sale did not have the effect of transferring the business of the wound up company to the appellants; (ii) That the establishment of the appellants' company with the help of building, machinery and plant of the wound up company, gave birth to a totally new legal entity which could not be considered as a continuation of the liquidated company; (i.e) That the exemption granted under S.R.O. 580(1)/91, dated 27-6-1991 was in the nature of incentive to the investors to set up industries for the development of backward areas of the country. The appellants having acted upon the incentive by investing huge amount for setting up an industry could not be denied the benefit of exemption by the Government on the principle of promissory estoppel, and; (iv) That the provisions relating to exemption from taxes in respect of backward areas were enforced for promotion of social justice and eradication of social evils as contemplated by Article 37 of the Constitution and, therefore, such measures are to receive a liberal construction from the Courts. Elaborating the above formulations, Mr. Pirzada, the learned counsel for the appellants contended that the appellants acting on the incentives contained in S.R.O. 580(1)/91, dated 27-6-1991 invested huge amount for import of new plant and machinery as well in acquiring locally made new machinery, to facilitate production of "Extensible Sack Kraft Paper (Clu Pak)" in their Mill on the strength of a new technology acquired from foreign manufacturers under an agreement of royalty entered into between the appellants and the foreign manufacturers. The learned counsel, accordingly, argued that the new unit thus set up in the existing Mill for producing a totally new item was an 'industry', 'set up', within the contemplation of SRO 580(1)/91, dated 27-6-1991, as not only the new product but the new unit also were identifiable from the old product and the Mill. The appellants, therefore, according to Mr. Pirzada could not be denied the benefit of exemption arising under the above S.R.O. In respect of the new product "Extensible Sack Kraft Paper (Clu Pak)." 4. The learned Deputy Attorney-General opposing the above contentions of the learned counsel for the appellants argued that the writ petition filed by the appellants before the Rawalpindi Bench of Lahore High Court was incompetent as the dispute related to an order passed by the functionary located at Peshawar and, therefore, Rawalpindi Bench of Lahore High Court, had no territorial jurisdiction in the matter. The next contention of the learned Deputy Attorney---General (D.A.-G.) is that the order passed by the Collector of Customs and Central Excise was appealable in the hierarchy of the department, therefore, without exhausting the departmental remedies the order could not be challenged by way of petition under Article 199 of the Constitution. The third contention of the learned Deputy Attorney-General is that the controversy raised in the petition before the High Courts by the appellants related primarily to a question of fact which was found against the appellants by the Collector and the finding of Collector was accepted by the High Court in the writ petition, therefore, this Court will not interfere with such findings of the Tribunal below. The learned
---
## Page 7
Deputy Attorney-General accordingly, contended that neither on facts nor in law the appellants were successful in making out a case for grant of exemption under the above S.R.O. 5. We will first deal with the contention of learned Deputy Attorney-General relating to maintainability of the above proceedings. The first objection of the learned Deputy Attorney- General is that the Rawalpindi Bench of Lahore High Court, had no territorial jurisdiction in the case 'is the order impugned in the writ petition was passed by the Collector of Customs and Central Excise functioning at Peshawar. In support of his contention the learned counsel relied on the case of Sandalbar Enterprises v. C.B.R. (PLD 1997 SC 334). In reply to the above contention of learned Deputy Attorney-General. Mr. Pirzada argued that no objection regarding -territorial jurisdiction of the Rawalpindi Bench of Lahore High Court was raised by the respondent either in the first round of the litigation or in the second round, though in the second round the matter came up before this Court also. It is, accordingly, argued by Mr. Pirzada that the subject matter of the present litigation having arisen from the to previous rounds of litigation, the respondents are not entitled now to raise the objection regarding territorial jurisdiction of the Court for the first the before this Court. Mr. Pirzada in support of his contention referred to section 21, C.P.C. Which requires that objection as to the place of suing must be raised at the earliest opportunity and unless such objection has been raised before the Court of first instance, the revisional or appellate Court will not entertain such objection except in cases where it resulted in the failure of justice. Mr. Pirzada further contended that in the present case not only the order of Collector of Customs and Central Excise was in question but relief is also claimed against the Central Board of Revenue, which functions at Islamabad and, therefore, the High Court at Peshawar and Rawalpindi Bench of Lahore High Court had concurrent jurisdiction in the matter. The contention of. Mr. Pirzada, the learned counsel for I the appellants is not without force. 6. In Writ Petition No.1 of 1995 filed before the Rawalpindi Bench of Lahore High Court the appellants had not only challenged the order of Collector of Customs and Central Excise, Peshawar, dated 26- 4-1996 but also challenged the order of C.B.R. Dated 18-10-1994. The respondents appeared in the above petition and contested the case but no objection regarding territorial jurisdiction of Rawalpindi Bench of Lahore High Court was raised. The petition was accepted and case was remitted to the Collector of Customs and Central Excise, Peshawar, for decision on to points framed in the remand order of the High Court. The order of High Court remanding the case to Collector was not challenged any further by the respondents. Again when the above order of remand was not implemented, the appellants filed another writ Petition No-580 of 1995 before the Rawalpindi Bench of Lahore High Court which was dismissed summarily on 8-5-1995 and against the above order of Rawalpindi Bench of Lahore High Court a petition for leave to appeal was preferred before this Court which was disposed of after notice to respondents but no objection as to the territorial jurisdiction of Rawalpindi Bench of Lahore High Court was raised even then. Even in the final round of litigation no objection to the territorial jurisdiction of Rawalpindi Bench of Lahore High Court was raised when the Writ Petition No. 1571 of 1995 was heard and decided as would appear from the impugned order. Apart from it, Mr. Pirzada rightly pointed out that right from the beginning not only the order of Collector of Customs and Central Excise, Peshawar, was challenged but the order of C.B.R. Islamabad, was also questioned before the High Court and as such the High Court at Peshawar and Rawalpindi had concurrent jurisdiction in the matter. Since the respondents failed to raise objection as to the territorial jurisdiction of Rawalpindi Bench of the Lahore High Court which was the Court of first instance in this case, an4 there was no allegation that any prejudice was caused to the respondents by filing the petition before the High Court at Rawalpindi, we are not inclined to allow the respondents to raise the objection as to the territorial jurisdiction of Lahore High Court, Rawalpindi Bench, for the first the before this Court. Apart from it, we find that besides the order of Collector of Customs and Central Excise, in the first petition filed before the High Court at
---
## Page 8
Rawalpindi, the order of C.B.R. Which functions at Islamabad, was also questioned. In the writ petition filed after post-remand proceedings, not only the order of Collector was challenged but relief was also claimed against C.B.R. And as such it could not be argued that in the circumstances, the Rawalpindi Bench of Lahore High Court had no territorial jurisdiction in the matter. We have examined the facts of Sandalbar Enterprises (Pvt.) Ltd. v. C.B.R., (supra), cited by the learned Deputy Attorney-General and are of the view that the facts of that case were quite distinguishable from the facts of the present case. 7. The second objection of the learned Deputy Attorney-General with regard to the maintainability of the above proceedings is that the appellants without exhausting the departmental remedy filed a writ petition before the Lahore High Court, Rawalpindi Bench. Mr. Pirzada, the learned counsel for the appellants in reply to the above second objection of the learned Deputy Attorney-General contended that in Writ Petition No. l of 1995 filed by the appellants the order dated 20-4-1994 passed by the Collector Customs, Peshawar, and the order dated 15-10-1994 passed by the C.B.R. Were challenged. However, the learned Judge in Chambers while disposing of the above writ petition without specifically setting aside the to orders impugned in the writ petition remanded the case to the Collector Central Excise and Sales Tax, Peshawar, to…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.