2017 PTD 1706

FEDERATION OF PAKISTAN and others vs DIGICOM TRADING and others

Petitioner: FEDERATION OF PAKISTAN and others VS Respondent: DIGICOM TRADING and others

Court: Lahore High Court Decision Date: 2017-04-14

Full Judgment Text & Judicial Ruling

Court Name: Lahore High Court Judge(s): Shahid Jamil Khan, Masud Abid Naqvi Title: FEDERATION OF PAKISTAN and others vs DIGICOM TRADING and others Case No.: I.C.A. No.1179 of 2015 Date of Judgment:2017-04-14 Reported As: 2017 PT D 1706 Result: Appeals allowed

JUDGMENT

JUDGMENT SHAHID JAMIL KHAN, J.---This and connected appeals are filed by Revenue Division of Federal Government against the judgment dated 13.05.2015 passed by learned Single Bench of this Court in Writ Petition No.4879 of 2015 ("The impugned judgment"). Levy and charging of Regulatory Duty under S.R.O. No. 568(1)/2014 dated 26.06.2014 as amended by SRO 18(1)/2015 dated 14.01.2015 ("the SRO 568") was declared as inconsistent and ultra vires of proviso to Section 18(5) of the Customs Act, 1969 ("Act of 1969"). 2. Representative facts; based on which impugned judgment was delivered, are that petitioner was importer of 'cellular mobile phones' (PTC Heading-8517.1210), which were allowed to be imported free of customs duty under S.R.O. No.659(I)/2007 dated 30.06.2007 ("the S.R.O. 659"), issued under Section 19 of the Act of 1969. This SRO was claimed to have been issued in pursuance of Article 8 of 'Free Trade Agreement between Pakistan and China' ("FTA"), which envisaged progressive elimination of customs duties on import of goods originating in the territory of other party. By gradual decrease, as per schedule of tariff thereto, zero customs duty was chargeable on the imported 'cellular mobile phones' with effect from 01.01.2010. A demand of Rs.200/- per set was raised by Appellant Customs Department as Regulatory Duty under the SRO 568. The levy and charging of Regulatory Duty, in presence of the SRO 659, was challenged. 3.Learned Single Bench allowed the petition, through impugned judgment, and following the ratio connected petitions were also allowed; The FTA was held to be offshoot of 'General Agreement on Tariff and Trade' ("GATT"), hence was declared a multilateral agreement for the purpose of the proviso to Section 18(5); based on this finding and keeping in view the exemption under the SRO 659, charging of Regulatory Duty, under Section 18(3) was held ultra vires to the proviso, which

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prohibited cumulative incidence of customs duties in excess of the rates agreed under multilateral agreements. 4.Ch. Muhammad Zafar Iqbal, Advocate, arguing for appellant's side, submitted that the issue has been settled by the Supreme Court of Pakistan in case reported as Majeed and Sons Steels (Pvt.) Ltd. and others v. Federation of Pakistan through Secretary Mb o Economic Affairs, Islamabad and others (2016 SCM R 655), which was delivered in a Civil Petition filed against the decision by learned Sindh High Court in M/s Haider Industries through Sole Proprietor and 7 others v. Federation of Pakistan through Secretary, Ministry of Finance and 3 others (2015 PTD 2447), whereby constitutional petitions on same issue were dismissed. He apprised that the impugned judgment was referred, during proceeding, before learned Division Bench of Sindh High Court but disagreement was recorded in paragraph No.16 of the judgment. He argued that bilateral agreement cannot be read in the proviso to Section 18(5). Further submitted that to enforce any multilateral or bilateral agreement, legislation is a pre-requisite; Contended that no legislation to exempt charging of Regulatory Duty exists. For this submission, he has placed reliance on Societe Generale De Surveillance S. A. v. Pakistan through Secretary, Ministry of Finance, Revenue Division, Islamabad (2002 SCM R 1694) and Ms. Shehla Zia and others v. WAPDA (PLD 1994 SC 693). Mr. Babar Sattar Advocate, appearing for appellant's side, has supported the reasons given by learned Sindh High Court for judgment in Haider Industries' case. He submitted that imposition of Regulatory Duty is a policy issue to promote local industry, therefore, is delegated to executive. He argued that FTA, being a bilateral agreement between Pakistan and China, is consistent with the provisions of Article XXIV of the GATT, however, is not executed as a consequence, hence could not termed as its offshoot; It is elaborated that Pakistan and China were not obliged under GATT, to enter into FTA; Clause (5) of Article XXIV provided an exception from the terms of GATT, availing which the FTA had been executed. He reiterated the earlier argument that impugned judgment was considered but not agreed upon by learned Sindh High Court, as well as, by Apex Court, being conscious of the impugned judgment. 5. Mr. Shafqat Mahmood Chohan, Advocate, appearing in connected ICA for respondent's side, has referred to China-Pakistan Free Trade Area Rules of Origin, 2005 ("The Rules of Origin, 2005") and submitted that FTA has been translated into Rules, which has status of Law under Section 18C of the Act of 1969 and is being implemented since 2005; Submitted that this legal aspect was not brought before Hon'ble Supreme Court of Pakistan during proceedings in Majeed and Sons' case. He argued that duty is defined under subsection (2) of the Section 18C, which includes Regulatory Duty. Further argued that the SRO 568 was signed by Additional Secretary, therefore, could not be treated as issued by the Federal Government, hence has no legal value in view of law laid down by Hon'ble Supreme Court of Pakistan in Messrs Mustafa lmpex, Karachi and others v. The Government of Pakistan through Secretary Finance, Islamabad and others (PLD 2016 SC 808). Mr. Shazib Masud, Advocate, appearing for respondents in a connected appeal, submitted that FTA was being implemented through the SRO 659. He supported the findings given in impugned judgment that the FTA, being offshoot of GATT, is to be treated as multilateral agreement. He further submitted that all SROs imposing Regulatory Duty, issued prior to the SRO 568, had an exclusion clause to exempt the items covered under FTA from Regulatory Duty. It was reiterated that impugned notification being signed by Additional Secretary is against the spirit of law laid down in Messrs Mustafa Impex's case (supra) and read its paragraph No.80 in support. Mr. Shahbaz Butt, Advocate submitted that there is distinction between the decision impugned in these appeals and the one which was passed by learned Sindh High Court. He explained; in those cases accumulative effect of duties under subsections (1), (3) and (5) of Section 18 of the Act of 1969 was not more than the rates provided in bilateral agreement whereas in instant case

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accumulative effect of the duties after issuance of impugned notification of Regulatory Duty has gone beyond rates agreed in FTA. 6.Arguing in rebuttal; Ch. Muhammad Zafar Iqbal, Advocate, assisted by Nayyar Ali, Additional Collector, submitted that Regulatory Duty is chargeable under subsection (3) of Section 18, which empowers the Federal Government to impose Regulatory Duty and provide its rate; Argued that the Regulatory Duty and its rate, under the Notification, are distinct from the Duty and rates provided in the First Schedule. Explained; that Regulatory Duty being an independent levy is to be charged in addition to the Customs Duty. Further argued; that the S.R.O. 568 was challenged for the reason that exclusion clause exempting charging of Regulatory Duty in excess of the rate provided in the FTA was excluded. Further submitted that challenge to the notification, imposing Regulatory Duty, being signed by Additional Secretary was not ground in writ petitions; Contended that this argument was an afterthought, hence could not be raised, at appellate stage, on the basis of a subsequent judgment by .Hon'ble Supreme Court of Pakistan, as same is not applicable retrospectively. 7.Heard Record perused. 8.Examination of the impugned judgment, in light of the arguments, shows that the decision is based on the findings, mainly, that FTA is an offshoot of GATT (a multilateral agreement) of which Pakistan is signatory. The issue, whether FTA is a bilateral agreement or was arrived at under influence of GATT, was discussed in Haider Industries' case and it was held that FTA is an independent agreement between two States, therefore, could not be construed as an offshoot of or consequent to GAAT. In paragraph No.16 of the judgment, learned Division Bench of Sindh High Court respectfully disagreed from the findings in impugned judgment. The judgment in Haider Industries' case, being assailed by importers, was upheld by Supreme Court in Majeed and Sons' case, (supra), relevant excerpt from the judgment is reproduced for ease of reference: "7. A look at the proviso to subsection (5) of section 18 of the Customs Act in general and the words "rates agreed to" in particular shows that rates have all along been agreed to. Reference to Part-A- 2 of the relevant table will clinch the whole matter as it not only provides final bound duties but also duties prescribed for the most favoured nations. Regulatory duty imposed through the impugned S.R.0 does not in any case exceed the duties prescribed by the table. Once the table referred to above shows the rates agreed to, reference to any other provision of the General Agreement on Tariffs and Trade would not be of much significance. When we asked the learned ASCs as to how does the expression "rates agreed to" imply or contemplate the duties in force at the time of executing the multilateral agreement when they were in force independently of such agreement, he could not give any satisfactory reply and rightly so because proviso to subsection (5) of section 18 of the Customs Act being clear and unequivocal does not admit of the interpretation sought to be placed thereon by the learned ASCs for the petitioner. Had the proviso been inserted before the execution of the agreement, the argument advanced by the learned ASC would have had some force. But where the insertion of the proviso was made long after the execution of the agreement, the words "agreed to" cannot be lightly ignored. The rates reflected in the relevant heading vis-a- vis the most favoured nations clearly point to what was agreed to. An effort was made to turn the bilateral agreement into a multilateral agreement by alluding to what has been provided by clauses 7 and 8 of Article XXIV of the General Agreement on Tariffs and Trade but an agreement which is essentially bilateral cannot be given multilateral hue especially when it is between the two nations. Much stress was laid on Article 8 of Free Trade Agreement between Government of Islamic Republic of Pakistan and the Government of Peoples Republic of China providing for progressive elimination of Customs Duty on goods originating in the territory of another party but it does not provide anywhere that the rates agreed to would cease to have effect as soon as the

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agreement is entered into The words "progressive elimination" used in the Article envision step by step rather than immediate elimination of the duties. 8. Absence of the word bilateral from the proviso to subsection (5) of section 18 of the Customs Act being significant and self-speaking further narrows the gamut of controversy. We, thus cannot read bilateral in the proviso when it is not there. When the provisions of the Customs Act are clear and unambiguous, we would not like to supply omission and read in the statute what has been deliberately omitted. "It is not our function, as was held by Mr. Justice Walsh, in the case of Attorney General v. Bihari, re Australia Factors Limited (1966) 67 S. R. (N.S.W) 150; to repair the blunders that are to be found in the legislation." Let them be corrected by the legislature itself if at all they constitute blunders." (emphasis supplied) After the findings by August Court, ibid, that PTA is a bilateral agreement, hence cannot be read in the proviso to the Section 18(5); no room left for this Court to further discuss or delineate upon the issue. The judgment in Majeed and Sons' case is subsequent and binding upon this Court under Article 189 of the Constitution of Pakistan, 1973 ("Constitution"). The principle, entrenched in Article 189 has been reiterated in Shahid Pervaiz v. Ejaz Ahmad and others (2017 SCM R 206), holding that 'decisions of the Supreme Court are binding on all, including the Courts, regardless whether they were party to the proceedings before the Supreme Court or not'. 9. Now we advert to other arguments, from respondents' side, which were aslerted to have not been decided through judgment in Majeed and Sons' case. Examination of the arguments is required to be made in backdrop of the facts leading to the controversy, therefore, are recapitulated briefly, hereunder; The controversy triggered on amendment in the SRO 568 through SRO 18(I)/2015 dated 14.01.2015, issued under Section 18(3) to impose Regulatory Duty on imported goods described in its table. The amending SRO 18 added some other goods, including "cellular mobile phones", in the table and as a consequence impugned notice was served for charging Regulatory Duty at Rs.200/- per set. It is important to notice the fact; that S.R.O. No.568 was distinguishable from previous notifications issued under the same Section i.e., S.R.O. No.896(I)/ 2008 and S.R.O. 482(1)/2009. Unlike previous notification; exemption was not provided for goods imported under Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTAs). The levy and charging of Regulatory Duty was challenged through writ petition on the ground, amongst others, that "cellular mobile phones including its battery and one battery charger" being mentioned at Sr. No.4073 of table to the SRO 659 was chargeable at zero w.e.f. 01.01.2010. To understand the nature and extent of the exemption, operative part of the SRO 659 is reproduced:- "GOVERNMENT OF PAKISTAN MINISTRY OF FINANCE, ECONOMIC AFFAIRS, REVENUE AND STATISTICS REVENUE DIVISION Islamabad, the 30th June, 2007 NOTIFICATION (CUSTOMS) S.R.O. 659(1)/2007. In exercise of the powers conferred by section 19 of the Customs Act,1969 (IV of 1969), the Federal Government is pleased to exempt, with effect from the first day of July, 2007, the import into Pakistan from Peoples Republic of China of: (a)the goods specified in column (3) of the Table I bow, falling under the Heading and sub- Heading numbers of the F,irst Schedule to the said Act as specified in column (2) of the said table, from so much of the customs duty specified in the First Schedule as on 1st July, 2006, to the said Act as is in excess of the rates specified in columns (4), (5), (6), (7), (8) or (9) of that

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table with effect from the corresponding date; and (b)the goods specified in column (3) of the Table II below, falling under the Heading and sub- Heading numbers of the First Schedule to the said Act as specified in column (2) of the said table, from so much of the customs duty as specified in SRO 1296(1)/2005 dated, the 31st December, 2005; or in the said First Schedule as on 1st July, 2006, as is in excess of the rates specified in columns (4), (5), (6), (7), (8) or (9) of that table with effect from the corresponding date;" (emphasis supplied) The emphasized parts of exemption notification show that exemption is only from the rates specified in the First Schedule to the Act of 1969, which provides rates of customs duty levied under Section 18(1), whereas Regulatory Duty is levied and its rates are provided through notification, issued under the Section 18(3). This legal position is discernable from bare reading of both the subsections in comparison, which are reproduced for this purpose: "18. Goods dutiable.--- (1) Except as hereinafter provided, customs duties shall be levied at such rates as are prescribed in the First Schedule or under any other law for the time being in force on, (3) The Federal Government may, by notification in the official Gazette, levy, subject to such conditions, limitations or restrictions as it may deem fit to impose, a regulatory duty on all or any of the goods to be imported or exported, as specified in the First Schedule at a rate not exceeding one hundred per cent of the value of such goods as determined under section 25, or as the case may be, section 25-A; (emphasis supplied) 10. Similar proposition was examined in Collector of Customs and others v. Ravi Spinning Ltd. and others (1999 SCM R 412); when imposition of Regulatory Duty [under section 18(2) as it stood then] was challenged on the goods exempted under Section 19. The August Court examined the exemption notifications vis-a-vis the provisions of section 18 to hold:- "The statutory duty prescribed under the First Schedule to the Act has nexus only with the duty levied under section 18(1) of the Act. Therefore, on the language of these S.R.Os., it is not possible to hold that the exemption granted under these notifications also applied to the customs duty levied in addition to the statutory duty under section 18(2) of the Act or under other laws for the time being enforced. We have already pointed out earlier in this judgment that in contradiction to the customs duty levied under section 18(1), of the Act, which is prescribed and predetermined, the regulatory duty is neither prescribed nor pre-determined but is levied at a rate which may vary according to the circumstances. Therefore, regulatory duty imposed by the Government under section 18(2) of the Act though a species of customs duty, is a duty in addition to the duty prescribed under the First Schedule to the Act to meet a particular situation, not covered by the statutory duty. Regulatory duty, on the other hand, is neither fixed nor predetermined. It is imposed in exercise of the delegated authority, by the Government subject to limitations mentioned in clauses (2) to (4) of section 18, The regulatory duty, therefore, by its very nature is a transitory measure intended to cover and meet a situation or condition not covered by the statutory duty prescribed under section 18(1) of the Act. (emphasis supplied) The law enunciated, ibid, has been reiterated in a recent judgment in Indus Trading and Contracting Company v. Collector of Customs (Preventive) Karachi and others (2016 SCM R 842), relevant excerpt is reproduced:- "5. Under section 18 of the Customs Act, 1969, customs duties are levied under different nomenclatures. Under section 18(1) statutory customs duty is imposed whereas under section 18(2)

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(after amendment regulatory duty is covered under section 18(3) of the Customs Act) the legislature has empowered the Federal Government to impose regulatory duty through notifications. Therefore, statutory duty under section 18(1) and regulatory duty under section 18(2) are two distinct categories of duties. One should not be taken to be the same as the other. It is by now well settled by the judicial pronouncements of this Court that where import or export of any commodity enjoys exemption from statutory customs duty, even then the Federal Government can impose regulatory duty, within the confines described in section 18(2) of Customs Act through sub-ordinate legislation. Where the legislature grants exemption from the payment of customs duty that falls under section 18(1), the same cannot be made basis to avoid payment of regulatory duty imposed subsequently unless there is also a promise that such concession would also be applied to regulatory duty in case it is levied in ./ future. As the exemption in the present case does not contain such a promise it is to be applied only to duty that was chargeable under section 18(2) and not to a duty which can be competently levied under a different nomenclature." (emphasis supplied) 11. In instant case, the SRO 659 was issued under Section 19 of the Act of 1969 for granting exemption to the goods imported into Pakistan from Peoples Republic of China under FTA. The exemption is from the rates of statutory customs duty already specified in First Schedule under Section 18(1) and not from Regulatory Duty imposed under Section 18(3). Even this exemption is subject to conditions mentioned in the SRO 659 and its proviso. The proviso is to be read with Section 18C of the Act of 1969, which deals with determination of origin, of goods, under trade agreements. The trade agreements, between the Government of Pakistan and the Government of foreign country or territory, are meant only for those goods which are produce or manufacture of the foreign country or territory. To ensure this objective, Government of Pakistan may make rules for determination the origin of the goods to be imported under the Trade Agreements. S.R.O. 1286(1)/2005 dated 24.12.2005 was issued under the Section 18C(1) to promulgate 'The Rules of Origin, 2005' under FTA. The precondition of the origin for grant of exemption is ensured through proviso to the SRO 659, which is reproduced:- "Provided that the goods are manufactured or produced and imported in conformity with the Rules of Determination of Origin of Goods and the operational certification procedures for the Rules of Origin notified by the Ministry of Commerce vide SRO 1286(I)/2005, dated the 24th December, 2005 and read with the Import Policy Order and its amendments notified by the Ministry of Commerce, from time to time." (emphasis supplied) In Section 18C; the rates of duty agreed and notified to be charged under FTA (the Trade Agreement), are termed as 'Preferential Rates' and the rates already specified in First Schedule to the Act of 1969 are called 'Standard Rates'. Under subsection (2) of Section 18C, unless the importer claims preferential rates by submitting certificate of origin, the duty on imported goods shall be charged at standard rate. For facility, provisions of Section 18C are reproduced:- "18-C Rates of duty and taxes and determination of origin under trade agreements:--- (1)Where under a trade agreement between the Government of Pakistan and the Government of a foreign country or territory, duty at a rate lower than that specified in the First Schedule is to be charged on articles which are the produce or manufacture of such foreign country or territory, the Federal Government may, by notification in the official Gazette, make rules for determining if any article is the produce or manufacture of such foreign country or territory and for requiring the owner to make a claim at the time of importation, supported by such evidence as may be prescribed in the said rules, for assessment at the appropriate lower rate under such agreement.

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(2)Where in respect of any article, a preferential rate of duty is specified in the First Schedule, or is admissible by virtue of a notification under subsection (1), the duty to be levied and collected shall be at the standard rate unless the owner of the article claims at the time of importation that it is chargeable with a preferential rate of duty, being the produce or manufacture of such preferential or free trade area, as is notified under subsection (3) and the article is determined, in accordance with the rules made under subsection (1) to be such produce or manufacture. (3)For the purposes of this section and the First Schedule, "preferential area or free trade area" means any country or territory which the Federal Government may, by notification in the official Gazette, declare to be such area. (4)Notwithstanding anything contained in subsections (1) and (2), where the Federal Government is satisfied that, in the interests of trade including promotion of exports, it is necessary to take immediate action for discontinuing the preferential rate or increasing the preferential rate to a rate not exceeding the standard rate, or decreasing the preferential rate, in respect of an article specified in the First Schedule, the Federal Government may, by notification in the official Gazette, direct discontinuation of, or increase or decrease, as the case may be, the preferential rate." (emphasis supplied) Language of subsections (3) and (4) of Section 18C shows that Free Trade and Preferential Trade Agreements are not self-executory upon being signed between Government of Pakistan and Government of foreign country or territory. "Preferential Area or Free Trade Area" is defined, as an area so declared through notification by the Federal Government under subsection (3). Despite notifying the preferential rates under the Trade Agreements, Federal Government can direct its discontinuation; increase or decrease, through notification, in the interest of the 'Trade and Promotion of Export' of Pakistan. The legal position, that agreements and treaties with foreign countries are required to be enforced through consequent legislation, was examined and endorsed in…

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