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Petitioner: ZAIBTUN TEXTILE MILLS LTD. VS Respondent: CENTRAL BOARD OF REVENUE AND OTHERS
Court Name: Supreme Court of Pakistan Judge(s): Nasim Hasan Shah, Muhammad Haleem, Zaffar Hussain Mirza Title: ZAIBTUN TEXTILE MILLS LTD. vs CENTRAL BOARD OF REVENUE AND OTHERS Case No.:Civil Appeals Nos. K-48, 1, 49, 50, 53, 56, 59, 61 and 62 of 1972Writ Petitions
JUDGMENT
Reported As: PLD 1983 Supreme Court 358 Result: Appeal dismissed Judgment JUDGMENT ' ZAFFAR HUSSAIN MIRZA, J.-This judgment will dispose of Civil Appeals Nos. K-I, K-48, K-49, K-50, K- 53, K-56, K-61 and K-62 of 1972, in which common questions of law and facts are involved. ' The appellants are the owners of Textile Mills and are aggrieved by the levy and demand of duty on the production capacity of the plants and machinery of their factories by the Central Board of Revenue under section 3(4) of the Central Excises and Salt Act of 1944 (hereinafter to be referred to as the Act). The appellants having failed in their effort to challenge the levy of the tax before the erstwhile Sind and Baluchistan High Court in it' Constitutional jurisdiction, sought leave to appeal from this Court. Le was granted on 17-8-1972 by a Bench of this Court to examine the follow question raised on behalf of the appellants :- (i) In absence of any guiding principles in the Act it was unconstitutional on the part of the Legislature to delegate its legislative function to the Central Board of Revenue and to empower the Board to determine the production capacity of a Textile Mill. (ii) Even assuming the validity of the impugned provisions of section 3(4), of the Act, the question was whether the requirements of law as prescribed therein were fulfilled and in particular, whether the rules were not notified by the Central Board of Revenue as required thereunder, which according to the appellants were not in fact notified by the Central Government. (iii) The law contemplated that the guiding principles upon the basis of which the production capacity was required to be fixed should have come into existence prior to the actual fixation of the production capacity and not simultaneously as was done in the present case.
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(iv) The Awan Committee was unauthorisedly constituted as an ad hoc body and it would not, therefore, be legally charged with the duty of. Examining and determining the production capacity of Cotton Textile Mills. 2. The facts material for the purpose of this appeal may be briefly stated. Section 3 of the Act, before it was amended, provided for levy and collection of Excise Duties on Excisable goods in such manner as may be prescribed and at the rates set forth in the First Schedule to the Act. These rates were from time to time altered under the Finance Acts and Ordinances according to the exigencies of the Central Government. In 1966, the Constitution (VI) Amendment Act of 1965 was passed which amended Entry No, 43 of the third Schedule to the Constitution of 1962, by addition of Item (i) thereto, by which the Central Legislature was given power to make laws providing for imposition of taxes and duties on the production capacity of any plant, machinery, undertaking, establishment or installation, in lieu of the duties specified in items (b), (e) and ( f ) of Entry No, 43. Pursuant to this Constitutional amendment the Central Legislature, by Finance Act, 1966 amended subsection (4) of section 3 and added new subsections to this section. The amendments may be reproduced as under ; "(4) With the prior approval of the Central Government, the Central Board of Revenue may, in lieu of levying and collecting under subsection (1) duties of excise on excisable goods, by notification in the official Gasette, levy and collect duties on the production capacity of plaints, machinery, undertakings, establishments or installations producing or manufacturing such goods ; and such notification shall specify- (a) the guiding principles for the determination of production capacity ; (b) the production capacity, as determined in accordance with such guiding principles, of the plants, machinery, undertakings, establishments or installations affected by it ; (c) the duty or the rate of duty on production capacity ; and (d) the manner of collection of such duty. (5) The production capacity of any plant or machinery or part thereof specified in a notification under subsection (4) shall, upon an application made to the Central Government within thirty days of the notification by any aggrieved person, be reviewed by a Review Board constituted under subsection (6) to which the application shall be referred ; and the decision of the Review Board shall be final. (6) The Central Government shall, for the purpose of subsection (5), constitute a Review Board consisting of the following ; (a) the Secretary to the Government of Pakistan, Ministry of Finance, who shall be the Chairman ; (b) the Secretary to the Government of Pakistan, Ministry of Commerce ; and (c) the Secretary to the Government of Pakistan, Ministry of Industries. (7) The Central Board of Revenue may, by notification in the official Gasette, at any time, cancel a notification under subsection (4) ; and where a notification is so cancelled or, for any reason whatsoever, cannot be given effect to, the duty under subsection (1), in lieu whereof the duty under subsection (4) was levied by such notification, shall be levied and, with necessary adjustment, collected for the financial year during which such notification is cancelled or for the period for which it cannot be given effect to." 3. On the coming in force of these amendments, the Central Government, on the recommendation of or in consultation with Central Board of Revenue appointed a Committee which came to be known as the Awan Committee, with Mr. S. B. Awan, Joint Secretary of the Government of Pakistan as its Chairman and representatives of various departments concerned with levy of Production Capacity Tax as members. This Committee was appointed by means of notification published in the Gazette of Pakistan. This notification further provided that duty on the production capacity of a Cotton Textile Factory as determined by the Awan Committee will be levied under section 3(4) of
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the Act, but that notified capacity of each individual factory shall be subject to review on application by the manufacturer, by the Review Board constituted under subsection (6) of section 3 of the Act. In this notification the guiding principles to be followed by the Committee for the determination of the production capacity were laid down as under ; "(4) The guiding principles, to be notified under subsection (4) of section 3 of the Act on the basis of which the Committee should determine the production capacity of individual cotton textile factories ; are as follows- (i) The national average annual production of each statutory category of cotton fabric/cotton yarn on a per loom/spindle basis taking production of the past three years into account. (ii)Categorywise annual production of the individual units for the past three years or such lesser period as may be available. (iii) Categorywise annual production of comparable units for the same period. (iv) Production capacity of an individual unit calculated on the basis of the technically possible maximum production potential of the plant and machinery installed in the unit, if it were to aim, a maximising its profits before tax. (v) Growth factor, keeping in view the past rate of improvement in production and likely increase in efficiency relating to improvement in technical, managerial, labour and financial factors of individual mills. (5) The annual production capacity of individual factories shall be expressed for each statutory category of cotton fabrics in terms of square yards, and for each category of cotton yarn in terms of pounds. (6) For the purpose of determining the liability to duty of a factory, the production capacity of the factory for each excise category of fabrics/yarn, determined on the basis of the above principles, will be multiplied by the statutory rate of excise duty for that category. (7) The Committee should determine the number of working days/ shifts on the basis of which the annual production capacity of cotton textile factories should be determined. The Committee will also recommend the basis on which abatement in the annual production capacity may be allowed on account of the closure of the factory for reasons beyond its control within the number of working days/shifts reckoned for fixing the annual production capacity of individul factories. (8) The Committee should also recommend the procedure for the grant of refund in respect of various categories of cotton fabrics and cotton yarn which are exported. (9) The Committee shall submit its recommendations to the Central Board of Revenue of Ministry of Finance by a date not later than the 15th November, 1967." ' The Committee seems to have worked out the production capacity on the basis of the data collected by it and submitted its report to the Central Board of Revenue, which then scrutinised the case of each factory in the light of the guiding principles and the data furnished by the Awan Committee and then made orders determining the production capacities of all the Mills which were then incorporated in the Excise Duty on Production Capacity (Cotton Fabric) Rules, and the Excise Duty on Production Capacity (Cotton Yarn) Rules of 1968, published in the Gazette of Pakistan, Extraordinary dated 22-4-1968. These rules were to come into force on 1-5-1968. The appellants in these cases, being aggrieved by the determination of the product titan capacities of their Mills, filed Review applications before the Review Board under section 3(5) of the Act. The case of the Government before the High Court was that each petitioner was duly heard with the assistance of its counsel, and in fact in some cases the Board reviewed the production capacity on the basis of the material placed before it by the affected parties. After the disposal of the review petitions filed by the appellants and other textile manufacturers, notices for payment of the production capacity tax as determined by the Central Board of Revenue, and confirmed or reviewed ,by the Review Board were issued. The appellants in this case and in the connected
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appeals, then filed Constitutional petitions under Article 98 of the Constitution of 1962 before the High Court, seeking to challenge the validity of the amendments in the Act effected by means of the Finance Act, 1966, and the orders of the Central Government and the Central Board of Revenue with regard to the imposition of the production capacity tax. The High Court appears to have taken up the petition filed by the present appellants and the Ismail Textile Mills, in order to dispose of the common questions of law as to the Constitutionality of the impugned amendments in the first place for disposal and also heard the petitioners in other cases on the questions of law common to all the cases. 4. The learned Judges of the Division Bench who heard these cases came to take conflicting views on the Constitutional and legal questions raised in the petitions before them and wrote dissenting opinions separately. In view of this difference of opinion between the learned Judges, the case was placed before Mr. Justice Noorul Arfin (as he then was), who in his judgment, which is impugned in this appeal, summarised the points upon which the two learned Judges differed as under (1) Whether the Central Legislature by enacting the aforesaid amendments, in section 3 of the Act, by Finance Act, 190, effaced itself or abdicated from its legislative functions or whether this legislation suffers from the defect of impermissible and excessive delegation of legislative powers? (2) Whether this legislation conferred uncontrolled discretion on the Central Board of Revenue, so that the legislation should not be treated as law on any of the subjects within the legislative sphere of the Central Legislature? (3) Whether the provisions for levy of excise duties according to production capacity by the Central Board. Of Revenue suffer from uncontrolled power given to the Board that the legislation in question should be held to be void as containing no safeguards for persons affected by such tax? (4) Whether the functions entrusted to the Central Board of Revenue under the said legislation were not discharged by the Board, but instead were performed by the aforesaid Awan Committee or by the Central Government, thereby resulting in violation of the amended provisions of section 3 of the Act? (5) 'Whether there was violation of the rules of natural justice in the Central Board of Revenue notifying the guiding principles and the determination of production capacities of each cotton textile fadory and the duty payable by it simultaneously and at one and the same time, without hearing the parties affected thereby, and whether it was necessary for Central Board of Revenue to give such hearing before taking any such action and, whether the parties affected by the Central Board's notification were not given any hearing at all? ' The learned third Judge after examining the contentions and arguments of the counsel for the parties appearing before him, in an elaborate judgment dated 31-12-1970, agreeing with one of the learned Judges who had first heard the petitions, held against the appellants and reached the conclusion that their petition was liable to be dismissed. As already mentioned this decision was taken in two cases (viz. Writ Petition No, 538/1969, out of which the present appeal arises and Writ Petition No, 660/1969). The remaining petitions were referred back to a Division Bench of the High Court for final disposal in accordance with law laid down in the decision relating to the aforesaid two petitions. Accordingly separate orders were passed by a Division Bench, of the High Court dismissing each petition in view of the aforesaid decision. 5. Mr. A. K. Brohi, learned counsel for the appellants, in support of this appeal raised the following contentions : (i) All the amendments brought in section 3 by means of the Finance Act, 1966, whereby the existing subsection (4) was amended and new subsections (5), (6) and (7) were added, are invalid and colourable exercise of legislative power.' (ii) In the circumstances of this case, it was incumbant as an essential pre-condition for the Central Board of Revenue to give an opportunity of hearing to the appellants before determining
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the actual production capacity of their mills. The hearings before the Review Board or the Standing Tribunal did not cure this legal defect. (iii) The guiding principles contained in clauses (i), (ii) and (v) of rule 3(1) of the Excise Duty on Production Capacity Rules, 1968 are invalid on the ground of unreasonableness. (iv) Even the mandate contained in the amended legislation, assuming its validity, was not implemented by the Central Board of Revenue but by the Central Government which was not competent authority therein for the purpose. (v) The guiding principles having been notified simultaneously alongwith the capacity tax levied on the appellants mill, the tax cannot be said have been levied on the basis of the production capacity determined in accordance with these guiding principles. 6. Before examining the contentions advanced before us in support of this appeal, it will be of advantage to state a brief analysis of the questions raised before the High Court and the conclusions arrived at by the learned judge in the impugned judgment. In the High Court, as before us, the learned counsel for the appellants, had sought to make a distinction between the duty imposed under the unamended provisions of the Act and the duty proposed to imposed under the amendments introduced in the Act by the Finance Act, 1966. The argument was, that whereas under the unamended Act, excise duty was chargeable on the actual production, under the impugned amendments the duty was to be levied on the capacity for production of the plant and machinery. There was therefore, according to the submission, a fundamental alteration in the nature of the tax. The impugned legislation was challenged on the ground that Legislature, had abdicated from its essential legislative function in that ; (i) the amendments in section 3 of the Act conferred unfettered discretion on the Central Board of Revenue to introduce new mode of charging duty or a new duty altogether, on manufacturers, (ii) the Finance Act, 1966, by which section 3 of the Act was amended, did not contain any standard or guiding principles for imposition of the new duty, but this matter was also left to be determined by the Central Board of Revenue, and (iii) these amendments empowered the Central Board of Revenue to formulate the standard and guiding principles and impose production capacity tax without giving any hearing to the affected party. ' The amendments were therefore, challenged as invalid on the ground of impermissible delegation. 7. Since the primary attack on the impugned legislation was founded on the rule against delegation of legislative power, the learned Judge undertook what appears from the judgment to be a laborious and extensive examination of the case law relating to delegated legislation in various jurisdictions, namely, under the British Constitutional System, the United States Constitution, the Australian and Indian Constitutions and also the position that obtained in or country as laid down by the Federal Court of Pakistan and the Supreme Court of Pakistan on this subject. The learned Judge stated his conclusions on the law relating to excessive delegation in the following words : "It has thus been seen that wherever Constitutions have followed the British pattern, such as in the British Dominions and Colonies, and the Constitutions, in the Indo-Pak. Sub-continent, the Legislature has never been treated as delegate, or acting under mandate of any superior Legislature or Parliament. The powers of these Legislatures have always been considered to be sovereign powers within the assigned subjects, and to be as plenary and ample as the powers of the British Parliament itself. But this statement of law is subject to one qualification which, as I have noted above, has been recognized in several decisions, that is, that the Legislature should not efface itself and should not abdicate from its essential legislative powers altogether." ' The learned Judge took the view that :
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(i) So long as the Legislature retains its powers intact and could, whenever it pleases, destroy the agency on whom it has conferred power to make regulations in the nature of legislation, and to take the matter back into its own hands, it cannot be said that the Legislature has either effaced itself or has abdicated from its legislative powers. (ii) Whether discretion has been conferred on an external agency to prescribe and determine as to what the law shall be, or such external agency has been entrusted the authority only for execution of the law enacted by the Legislatures. This could be ascertained, according to the learned Judge, by applying the test whether any legislative policy or principle, or standards are discernible from the impugned legislation. 8. In the light of these principles the learned Judge then proceeded to examine the provisions of the impugned enactment and came to the conclusion that the legislation in question was not ultra vires and was validly made. He held that by using the expression "duties on the production capacity", the Legislature declared the primary legislative standard as well as the legislative principles for the guidance of the functionaries who were entrusted with the execution of the legislative policy. In view of the complicated nature of the work involved in determining the production capacity of an industrial unit, the complex nature of which is reflected from the report of the Awan Committee, the learned Judge came to the conclusion that this function could be performed satisfactorily only by persons technically conversant with the textile industry, who could sit constantly in session and devote their time exclusively to the ascertainment of the conditions and factors on the basis of which the production capacity of each cotton textile industrial unit could be determined. On these considerations the learned Judge repelled the contention that the Legislature has effaced itself or abdicated from its essential legislative function in conferring, by the impugned amendments, the power on the Central Board of Revenue to determine the production capacity of the industrial units in accordance with the rules formulated by it 9. The other ground of attack on the impugned enactment advanced before the learned Judge was that, even if the impugned enactment be assumed to be valid, the duty in question was not levied in accordance with the amended provisions of section 3 of the Act. The submission was that it was the Government which published the resolution laying down the guiding principles which were subsequently adopted by the Central Board of Revenue and as such in point of fact it was not the Board but the Government who had framed the guiding principles, which was, however, not the competent authority for this purpose in terms of section 3. This contention was found to be without substance on a factual basis, as the official record showed that the Central Board of Revenue had prepared the draft of the guiding principles and forwarded it to the Ministry of Finance,' Government of Pakistan, for Central Government's approval with the suggestion that a Committee be appointed to carry out the necessary investigation for "determination of the production capacity of the individual cotton textile factories". Pursuant to this recommendation the Central Government had passed the resolution and appointed the Awan Committee. This resolution was published under the signature of the member of the Central Board of Revenue alongwith that of a Joint Secretary of Government of Pakistan in the Ministry of Finance. In these circumstances and in view of the provisions requiring prior approval of the Central Government, for issue of notification regarding the formulation of guiding principles for the determination of duty on production capacity, the learned Judge concluded that the Central Government was competent to cause investigation of facts and conditions to be made by appointing a Committee for this purpose. The objection that instead of the Central Board of Revenue, the Awan Committee itself determined the production capacity was also found to be without substance as there was nothing in the official file to support this objection. In any case the Central Board of Revenue had demonstrably made alterations and modifications in the production capacity suggested by the Awan Committee. The objection that the guiding principles and the production capacities of individual cotton factories
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already determined were simultaneously notified and published, instead of the one coming before the other, was also rejected. It was held that this objection cannot be pressed on the principles of natural justice, since this was within the realm of subordinate legislation to which the rules of natural justice are not attracted. Also there was material on record showing that the managements of cotton textile factories including the appellants were in fact heard and consulted by the Avian Committee before the Central Board of Revenue notified the guiding principles, the production capacity of each individual factory and the rates of duty leviable on such factory. But even if they had in fact not been heard, the aggrieved manufacturers had sufficient protection and guarantee of full representation of their point of view by the constitution of a Review Board under subsections (5) & (6) of section 3 of the Act. On the aforesaid findings and conclusions, the learned third Judge dismissed the petition of the appellants, as already stated, which was then followed by individual dismissal orders in the connected petitions filed by others textile manufacturers. 10. In view of the exhaustive and detailed review of the case law from the foreign as well as domestic jurisdictions, on this question by Noorul Arfin, J. It would indeed be an unnecessary and wasteful exercise on my part to cover the same field. I however, feel that it will be useful to refer to some cases from the English and Australian jurisdictions, as well as the cases from or own jurisdiction in which the Courts had the opportunity of dealing with the objection against delegation of law-making powers by parliament to outside authorities. 11. The two theories of Government which formed the basis for the rule that the Congress of the United States cannot delegate legislative power were originally identified with Montesquieu and Locke. The theory of…
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