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Petitioner: Messrs SHADMAN COTTON MILLS LIMITED, RAWALPINDI VS Respondent: FEDERATION OF JUDGMENT
Court Name: Lahore High Court Judge(s): Muhammad Nawaz Abbasi Title:Messrs SHADMAN COTTON MILLS LIMITED, RAWALPINDI vs FEDERATION OF
JUDGMENT
Reported As: 2001 CLC 385 Result: Order accordingly Judgment JUDGMENT Through this common judgment, I propose to dispose of Writ Petitions Nos. 982 of 1995, 983 of 1995, 1008 of 1995, 1197 of 1995, 1725 of 1995, 70 of 1996, 1223 of 1996, 1731 of 1996, 94 of 1997, 505 of 1997, 506 of 1997, 509 of 1997, 510 of 1997, 511 of 1997, 946 of 1997 and 2305 of 1997. 2. The petitioners through the above writ petitions having questioned the legality of levy of customs duty, sales tax, regulatory duty and the service charges on the import of Power Generation Plants in pursuance of the Power Policy (PP) framed by the Government of Pakistan, in 1994, have sought declaration that exemption of customs duty, sales tax and such other taxes on the import of Power Generation Plants given under Notification No.S.R.O. 279(1)/94, dated 2-4-1994 was still available and that the subsequent Notification bearing S.R.O. No. 584(1)/95, dated 1-7-1995, S.R.O. No. 585 (1)/95, dated 1-7-1995, S.R.O. No. 426 (1)/96, dated 13-6-1996, S.R.O. No.478(1)/96, dated 13-6-1996, S.R.O. No.560(1)/96, dated 1-7-1996 and S.R.O. No.1198(1)/96, dated 22-10-1996 relating to the 2 % . Service charges under 'section 18-B of the Customs Act, 1969, through which the concessions in the payment of such duties and taxes were withdrawn or reduced be declared to be ineffective qua the Power Generation Plants imported under the above said SRO, dated 2-4-1994. 3. The Government from time to time issued separate notifications under the Customs Act, 1969 and under Sales Tax Act, 1990 for whole or partial exemption of the customs duty and sale tax on the import of Power Generation Plants and parts to be used in such Plants which are not locally manufactured. The Government initially issued Notification S.R.O. No.279(I)/94, dated 2-4-1994
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through which the total customs duty and regulatory duty leviable under sections 18(1) and 18(2) of the Customs Act, 1969, and sales tax under section 13(1) of the Sales Tax Act, 1990, on the import of machinery and the equipment for the use of Power Generation Projects were exempted. Later, through Notification S.R.O. No.584(1)/95, dated 1-7-1995, the Projects which have not signed the power purchase agreement with WAPDA and K.E.S.C. Were excluded from the purview of above notifications and through S.R.O. No.585(1)/95, dated 1-7-1995, the exemption on the customs duty available under S.R.O. No.279(I)/94, dated 2-4-1994 to the Projects which did not sign such agreement was reduced only in excess of 10% leviable under the First Schedule to the Customs Act, 1969. Through S.R.O. No.773(1)/95, dated 1-8-1995, the agreement with WAPDA and K.E.S.C. Was substituted with implementation agreement with the Government. The exemption on the sales tax given through S.R.O., dated 2-4-1994 was omitted through . S.R.O. No. 42.6 (1)/96,. Dated 13-6-1996. The Government in exercise of powers under section 13 (2)(a) of Sales Tax Act, 1990, read with Item No.39 to the 6th Schedule of the said Act through S.R.O: No.230(1)/97, ' dated 29-3-1997 and S.R.O. No.582(1)/98, dated 12-6-1998 notified the description of Power Generating Machinery. And Plant for the purpose of sales tax. Under S.R.O. No.279(I)/94, dated 2-4-1994, exemption of customs duty and sales tax was allowed on the import of machinery till 30-6-1995 if not manufactured locally and under S. R. O. No.978(1)/95, dated 4-10-1995 beyond 25% of the customs duty and other taxes were exempted on the goods which were imported under S.R.O. No. 484(1)/92, dated 14-5-1992. These writ petitions involving the question relating to the exemption of customs duty and sales tax and withdrawal or reduction in the percentage -in such exemptions were admitted to consider the following questions:-- (a) Whether the general exemptions initially given by the Government on the Power Plant Projects in the payment of customs duties and sales tax could be withdrawn retrospectively through subsequent notifications? (b) Whether the pre-shipment 2% service charges under section 18-B of the Customs Act, 1969 were not ultra vires to law and were chargeable? (c) Whether the exemption on customs duty would ipso facto be applicable to the regulatory duty? 4. The customs duty is leviable under section 18(1) of the Customs Act, 1969, and regulatory duty is imposed under section 18(2) of the said Act whereas sales tax is imposed under section 13 of the Sales Tax Act, 1990. The date of filing Bill of Entry and the establishment of Letter of Credit respectively are the dates of chargeability of customs duty and sales tax. The preshipment service charges at the rate of 2% were imposed under section 18-B of the Customs Act, 1969. 5. The Government of Pakistan having introduced a policy of establishment of private Power Generation Projects with the incentive of grant of exemption from certain taxes and duties initially allowed on the import of Plants' machinery and equipment, which were not being manufactured in Pakistan for setting up such Power Projects free of customs duties and sales tax under Notification S.R.O. No.279(I)/94, dated 2nd April 1994. Later, it was decided that such exemption on customs duty would only be available to the Projects which signed power purchase agreement with WAPDA and KESC and consequently. Notification S.R.O. No.584(I)/95, dated 1-7-1995; was accordingly issued and thus, in this way, Power Plants were classified into two categories i.e. (a) the Projects which signed the agreement with WAPDA and KESC; and (b) the Power Projects, which were established without entering into such agreements. The Power Plants could be further identified with the following description:-- (i) The Power Plants of the capacity of generating the power for sale; and (ii) The Power Generation Projects for self-consumption in an Industrial Unit. Under the original scheme, all Power Projects without any distinction could avail the benefit of Notification S.R.O. No.279(I)/94, dated 2-4-1994. However, later through Notification S.R.O. No.585(I)/95 issued on 1st
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July, 1995, the Power Projects of category (ii) (supra) were allowed to avail such exemption only in excess of 10% of customs duty. 6. The learned counsel for the petitioners in this background raised the following contentions in support of this petition:-- (a) That notwithstanding the condition of execution of power purchase agreement with WAPDA and KESC, the Power Plants established under, the Power Generation Policy of Government were equally entitled to the benefit of exemption in the customs duties and sales tax, without any distinction and the discriminatory treatment being meted out by the respondents with Power Plants which have not signed the power purchase agreement with WAPDA and KESC was violative of Article '25 of the Constitution of Islamic Republic of Pakistan, 1973. (b) That the withdrawal of exemption of the Power Plants which have not signed the power purchase agreement and grant of exemption on payment of sale tax and customs duty on the import of machinery and equipment for the Projects which have signed such agreement was unfair. (c) That notwithstanding the withdrawal of concession in the payment of sales tax on the machinery and the equipment through a subsequent Notification S.R.O. No.426(I)/96, dated 13-6- 1996, in case of opening the Letter of Credit within the target date, the exemption in the sales tax given under S.R.O. No.279(I)/94, dated 2-4-1994 would be available. (d) That the respondents while extending incentives of concession in the payment of customs duties and sales tax introduced Power Policy and through a legitimate, expectation of continuation of such concessions motivated the (private) sectors for setting up Power Generation Projects, therefore, the subsequent notification through which the exemption made available under S.R.O. No.279(I)/94, dated 2'-4-1994 were withdrawn being violative of principle of promissory estoppel were ineffective to the rights of the petitioners. (e) That the financial commitments made by the Government were not supposed to be altered to the disadvantage of the beneficiaries under the protection of Economic Reforms Act, 1992, and that the Power Policy falling within the ambit of said Act, the commitments made thereunder were to be given effect without any change. (f) That the classification of the Power Projects made by the respondent for, the purpose of grant of exemption being unreasonable was violative of Article 25 of the Constitution of Islamic Republic of Pakistan, 1973. (g) That the exemption made available to the Investors for the establishment of Power Plants under S.R.O. No. 279(1)/94, dated 2-4-1994 could not be subsequently taken away retrospectively. (h) That the imposition of regulatory duty under section 18(2) of the Customs Act, 1969, was not legal and retrospective operation of section 31-A of the Customs Act, 1969 which was made part of the Act through a subsequent amendment was unconstitutional. (i) That the service charges under section 18-B of the Customs Act, 1969, are not, legal. 7. Learned counsel appearing on behalf of the respondents contended that the exemption in the payment of customs duties and taxes is always granted in exercise of discretion by the Government under the special circumstances and that neither such exemptions can be claimed as of right nor the withdrawal of the same can be resisted under the law, therefore, the subsequent notifications through which the exemptions allowed under S.R.O. No.279(I)/94, dated 2-4-1994 were withdrawn were not questionable. The learned counsel, however, have frankly conceded that the pre-shipment service charges having declared ultra vires by the apex Court in Collector of Customs and others v. Ravi Spinning Ltd. And others 1999 SCM R 412 were not chargeable but still the judgment having no retrospective effect, the payment of such charges levied under section 19 of the Customs Act, 1969 was not refundable.
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8. I have heard the learned counsel for the parties and considered their arguments in support of their respective contentions. The imposition o service charges under section 19 of the Customs Act, 1969 has been declared illegal by the apex Court in the above-referred judgment and the question relating to the refund of service charges is not subject-matter of the present petitions, therefore, only the issue relating to the withdrawal of exemption of sales tax, customs duty and the regulatory duty is required to be examined. Since the provisions of section 31-A of the Customs Act, 1969, have been declared by the apex Court as a valid piece of legislation prospectively in M/s. M.Y. Electronic Industries Ltd. Through Manager and another v. Government of Pakistan through Secretary Finance and others 1998 SCM R 1404 and Molasses Trading and Export (Pvt.) Limited. v. Federation of Pakistan and others 1993 SCM R 1905, therefore, the same needs no debate. S.R.O. No.279(I)/94, dated 2-4-1994 under which the exemption of sales tax and customs duty leviable under First Schedule to the Customs Act, 1969, on the import of machinery and equipment for setting up or for balancing, modernization and extension of power generation was allowed would be read as under:--- Notification No S R O 279(1)/94 dated 2nd April, 1994.---In exercise of the powers conferred by section 19 of the Customs Act, 1969(IV of 1969), subsection (1) of section 13 of the Sales Tax Act, 1990, and subsection (2) of section 5 of the Finance Act, 1985, the Federal Government is pleased to direct that the machinery and equipment, including coal mining equipment as listed in S.R.O. 525(1)/89, dated 3rd June, 1989, not manufactured locally, shall be exempt from the whole of the customs duty leviable under the First Schedule to the Customs Act, 1969, regulatory duties leviable under subsection (2) of section 18 of the Customs Act, 1969, sales tax and Iqra surcharge chargeable thereon, if imported for setting up or for balancing, modernization and extension of power generation i.e., oil, gas, hydel, coal, wind and wave energy projects, including, under- construction projects subject to the conditions set out below, namely:-- (1) The importer shall, at the time of import submit a detailed packing list of machinery and equipment specified below in Explanations (i), (ii), (iii), (iv) and (b) and shall also make a written declaration on the bill of entry to the effect that the machinery and equipment and spares have been imported for the aforesaid projects. (2) The importer shall furnish an indemnity bond in the form set out hereinbelow to the extent of customs duty, regulatory duties, sales tax, Iqra surcharge exempted under this Notification. The said bond shall not be discharged till the expiry of one year after the commissioning of the project indicated in the sanction or approval letter of the concerned Ministry, and after due verification by the Assistant Collector of Customs and Central Excise in whose jurisdiction the project is located. Such certificate of verification would clearly state that machinery and equipment imported for the purposes specified in the bills of entry have been duly installed or the machinery and equipment imported temporarily have been duly re-exported. (3) In the event of non-production of such certificate by the importer to the Collector of Customs shall enforce the indemnity bond and proceed to recover Government dues under section 202 of the Customs Act, 1969, and the rules made thereunder. (4) Spares and maintenance parts not locally manufactured required for the project after its commissioning would be subject to customs duty at the rate of twenty per cent ad valorem. Explanation.----For the purpose of this notification, "machinery and equipment" shall mean:-- (i) machinery and equipment operated by power of any description, such as is used in the generation of power; (ii) apparatus and appliances, including metering and testing apparatus and appliances specially adapted for use in conjunction with machinery and equipment specified in item(i) above; (iii) mechanical and electrical controls and transmission gear adopted for use in or with item (i) above;
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(iv) all machinery and equipment imported temporarily for the construction, erection, installation and end-completion of- the project including specified equipment for hydle and thermal power and specialized vehicles (4 x 4 non-luxury), but excluding passenger vehicles; and (v) component parts of machinery and equipment as specified in items (i), (ii), (iii) and (iv) above, identifiable as for use in or with such machinery imported for the project and equipment, including spares for purposes of the project." 9. Under the above notification, the importers in addition to a declaration that the machinery and the equipment mentioned in the Bill of Entry were being imported for the Power Projects were also required to furnish an indemnity bond and a certificate as mentioned therein. The spare parts required for maintenance of such Projects, which were not being manufactured in the country, could also be imported subject to the payment of customs duty at the rate of twenty per cent ad valorem. Thus, the only condition to avail the benefit under this notification was that the machinery and equipment being imported would be used for Power Projects without any requirement of execution of power purchase agreement with WAPDA and KESC or the Government, as the case may be. The benefit given under the above notification remained available without any distinction till its amendment through a subsequent Notification S.R.O. 585(1)/95, dated 1st of July 1995, which was asunder:-- Notification SRO No 585 (I)/95 dated lst July, 1995.---In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969), the Federal Government is pleased to direct that the machinery and equipment, including coal mining equipment, nor manufactured locally, shall be exempt from customs duty in excess of 10--6 leviable under the First Schedule to the same Act, if imported for setting up or for balancing modernization, and extension of power generation through oil, gas, coal, wind and wave energy projects, including under-construction projects, subject to the following conditions, namely:-- (1) The importer shall, at the time of import submit a detailed packing list of machinery and equipment specified below in Explanations (i), (ii), (iii), (iv) and (v) and shall also make a written declaration on the bill of entry to the effect that the machinery and equipment and spares have been imported for the aforesaid projects: . (2) The importer shall furnish an indemnity bond in the form set out hereinbelow to the extent of customs duty exempted under this Notification. The said bond shall not be discharged till the production of installation certificate from the Assistant Collector which shall be produced within one year from the date of importation of plant and machinery and after due verification by the Assistant Collector of Customs and Central Excise in whose jurisdiction the project is located. Such certificate of. Verification would clearly state that the machinery and equipment imported for the purposes specified in .The bill of entry have. Been duly installed or the machinery and equipment imported temporarily have been duly re-exported; (3) In the event of non-production of such certificate by the importer the Collector of Customs shall enforce the indemnity bond and proceed to recover Government dues under section 202 of the Customs Act, 1969, and the rules made thereunder; and (4) Spares and maintenance parts not locally manufactured required for the project after its commissioning would be subject to customs duty at the rate of twenty per cent ad valorem. Explanation.---For the purpose of the Notification 'machinery and equipment' shall mean--- (i) machinery and equipment operated by power of any description, such as is used in the generation of power; (ii) apparatus and appliances, including metering and testing apparatus and appliances specially adapted for use in conjunction with machinery and equipment specified in Explanation (i) above; (iii) machinery and electrical controls and transmission gear adapted for use in or with Explanation (i) above;
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(iv) all machinery and equipment imported temporarily, for the construction, creation, installation and end-completion of he project including specific equipments for thermal power and specialized vehicles (4 x 4 non-luxury), but excluding passenger vehicles; and (v) component parts of machinery and equipment as specified in Explanations (i), (ii) (iii) and (iv) above, identifiable as for use in or with such machinery imported for the project and equipment, including spares for purposes of the project." 10. Under the above notification, the total exemption of customs duty on the import of machinery and equipment for setting up or use in the power generation leviable under the First Schedule to the Customs Act, 1969, made available to Power Projects was withdrawn to the extent of Power Projects which have not fulfilled the condition of execution of power purchase agreement imposed through Notification S.R.O. No. 584(1)/95, dated 1-7-1995 and such Projects were allowed exemption only in excess of 10% of the total duty leviable. The Federal Government further through another Notification S.R.O. No.773(I)/95, dated 1st August 1995, substituted condition of signing power purchase agreement with implementation agreement with the Government. Notifications S.R.O. No.584(I)/95, dated 1-7-1995 and S.R.O. No.773(I)/95, dated 1-8-1995 are as under:-- Notification S.R.O. No 584(1)/95.---In exercise of the powers conferred by section 19 of the Customs Act, 1969, (IV of 1969), and subsection (1) of section 13 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that the following further amendments shall be made in this Ministry's Notification No.S.R.O. No.279(I)/94, dated the 2nd April, 1994, namely:- Notification S.R.O No 773(1)/95 dated 1st August 1995.--In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969), and subsection (1) of section 13 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that the following further amendments shall be made. In this Ministry's Notification No.S.R.O. 279(1)/94, dated the 2nd April, 1994, namely:- The Government also decided to withdraw the exemption on sales tax and, therefore, Notification S.R.O. No.279(I)/94, dated 2-4-1994 was further amended through. a Notification S.R.O. No.426(I)/96, dated 13th June, 1996, which is re-produced as under:-- Notification S R O 426 (1)/96.---In exercise of the powers conferred by section 19 of the Customs Act, 1969, (IV of 1969), and subsection (1) of section 13 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that the following further amendments shall be made in this Ministry's Notification S.R.O. No.279(I)/94, dated the 2nd.Apri1, 1994, namely:--- _ (1) in the preamble,-- (i) The words, brackets, figures and comma 'and subsection (1) ofsection 13 of the Sales Tax Act, 1990,' shall be omitted: (ii) the words 'and sales tax' shall be omitted: (2) in condition (2), the words 'and sales tax' shall be omitted; and (3) in the Form of Indemnity Bond,-- (i) in the second paragraph, the words 'and sales tax' shall be omitted and (ii) in the forth paragraph, the words 'and sales tax', occurring ---twice shall be omitted. " 11. The contention raised by the learned counsel for the Customs Department that the Government under its legislative authority while enjoying plenary power of taxation is also empowered to grant exemption in its discretion through a reasonable classification and the Court has only to judge the reasonableness in the light of the conditions for such classification and the essential qualification required under law is not disputed but the exercise of power of discretion and classification must not offend the principle of equality as embodied in Article 25 of the Constitution of Islamic Republic of Pakistan, 1973. The exercise of discretion by the Government in such matters in favour of a particular class or group of person is always subject to the fulfillment of essential condition and the requirements of the general principle of equality before law. The, basic rule for the exercise of such discretion and reasonable classification is that all persons placed in similar circumstances must
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be treated alike and the reasonable classification must be based on reasonable grounds in a particular set of circumstances, but the same in any case must not offend the spirit of Article 25 of the Constitution of Islamic Republic of Pakistan, 1973. Following the rule of equal protection of law, person equally placed must be treated alike in the matter of privileges and liabilities. Reference may be made to the case of Army Welfare Sugar Mills Ltd. And others v. Federation of Pakistan and others 1992 SCM R 1652 and Messrs Gadoon Textile Mills and others v. WAPDA and others 1997 SCM R 641. The apex Court in Government of Baluchistan through Additional Chief Secretary v. Aziz-ullah Memon and others PLD 1993 Supreme Court 341 has laid down the following principle of equality clause under Article 25 of the Constitution of Islamic Republic of Pakistan 1973:-- (i) that equal protection of law does not envisage that every citizen is to be treated alike in all circumstances, but it contemplates that persons similarly situated or similarly placed are to be treated alike; (ii) that reasonable classification is permissible but it must be founded on reasonable distinction or reasonable basis; (iii) that different laws can be validly enacted for different sexes, persons in different age group, persons having different financial standing, and persons accused of heinous crimes; (iv) that no standard of universal application to test reasonableness of a classification can be laid down as what may be reasonable classification in a particular set of circumstances, may be unreasonable in the other set of circumstances; (v) that a law applying to one person or one class of persons may be constitutionally valid if there is sufficient basis or reason for it, but a classification which is arbitrary and is not founded on any rational basis is no classification as to warrant its exclusion from the mischief of Article 25; (vi) that equal protection of law means that all persons equally placed be treated alike both in privilege conferred and liabilities imposed; (vii) that in order to make a classification reasonable it should be based--- (a) on an intelligible differentia which distinguished persons or things that are…
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