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Petitioner: SAMI PHARMACEUTICALS (PVT.) LTD VS Respondent: FEDERATION OF PAKISTAN and others
Court Name: Supreme Court of Pakistan Judge(s): Mushir Alam, Faisal Arab, Munib Akhtar Title: SAMI PHARMACEUTICALS (PVT.) LTD vs FEDERATION OF PAKISTAN and others Case No.: Civil Petition No. 458-K of 2015 Date of Judgment:2019-02-07 Reported As: 2019 SCMR 574 Result: Petition dismissed
Judgment ORDER FAISAL ARAB, J.---The petitioner is engaged in the business of manufacture and supply of pharmaceuticals and for its newly established pharmaceutical facility the petitioner wanted to import 34 'Air Handling Units' from China for which it opened a letter of credit on 09.09.2019. The invoice described the goods as 'Air Handling Units' with VFDs and Plug Fans' classifiable under PCT Heading 8415.8300 and chargeable to customs duty at the rate of 35% ad valorem. When the first lot of 16 units arrived on 14.02.2011, the petitioner wrongly declared them as 'Air Desiccant Dehumidifier', which falls under PCT Heading 8479.8990 and chargeable to customs duty at the rate of 5%. This misdeclaration was inspite of the fact that the invoice, the bill of lading and the packing list clearly showed that the imported consignment was of 'Air Handling Units'. As a consequence thereof, the petitioner was served with a show cause notice in February, 2011 for wrongly describing the imported goods in the Goods Declaration and thus attempted to evade duties and taxes to the extent of Rs.9.47 million. The matter was adjudicated and an Order-in-Original was passed classifying the goods under correct PCT Heading 8415.8300. The petitioner should consider itself lucky as it escaped the penal consequences of misdeclaration and was not made to pay fine and penalty as it got the consignment of 16 units released only upon paying the usual customs duty and sales tax. 2. The present proceedings relate to the remaining consignment of 18 units which were shipped later that year and declared in Goods Declaration filed on 22.07.2011 under correct PCT Heading, however, concession on customs duty and exemption from sales tax was claimed under SRO 575(I) 2006 dated 05.06.2006 on the ground that the 'Air Handling Units' imported by the petitioner are of such specification that are not manufactured locally. We may state here that under SRO 575(I) 2006 plant, machinery, equipment and apparatus falling under the HS Codes specified in column (3) of its table
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were exempt from so much of the customs-duty as was in excess of the rates specified in column (4) of the table and the whole of the sales tax in case it met the basic condition, which is reproduced as under:- "(i) the imported goods as are not listed in the locally manufactured items, notified through a Customs General Order issued by the Federal Board of Revenue (FBR) from time to time or, as the case may be, certified as such by the Engineering Development Board 3. From the above, it is evident that exemption from customs duty and sales tax could not be claimed under SRO 575(I) 2006 in case the item is either listed in the locally manufactured items notified through a Customs General Order (CGO) issued by the Federal Board of Revenue or certified by the Engineering Development Board of Pakistan (EDB) that the item in question is locally manufactured. Hence in order to confirm whether exemption granted under SRO 575(I) 2006 on an item is available or not one can take recourse to CGOs issued from time to time or seek certification from the EDB. 4. In the present case, the petitioner vide its letter dated 14.03.2011 approached EDB to seek certification as to whether 'Air Handling Units' imported by the petitioner are being locally manufactured or not. This letter set in motion the process of determination which is evident from EDB's letter dated 15.03.2011 and the correspondence that followed. Finally, after engaging in an interactive process with the local manufacturers and the petitioner, the EDB on 01.04.2011 certified that the 'Air Handling Units' imported by the petitioner from abroad are also being manufactured by four local manufacturers. This did not satisfy the petitioner and further correspondence ensued between the petitioner and the EDB and finally a meeting was convened by the EDB on 12.05.2011 which was attended by B (i) three members of the EDB, (ii) representatives of four local manufactures and (iii) the CEO as well as the consultant of the petitioner. The nine participants of the meeting unanimously came to the conclusion that there is no difference in technical specifications of the 'Air Handling Units' imported by the petitioner and those manufactured locally. Thus EDB in the said meeting further gave its stamp of approval to its certificate issued earlier on 01.04.2011. 5. Apart from seeking recourse to CGO, the need to seek certification from EDB seems to have arisen as there is a strong possibility that a name of local manufacturer of a particular item may not have been updated in the CGO hence not reflecting the latest position of the local industry. So under SRO 575(I) 2006 EDB has been entrusted with the function to certify whether an item is also locally manufactured which is done by gathering information from the local industry. Any person including the Customs Authorities can seek such certification. EDB's certification only confirms a pre-existing position i.e. an item is or is not locally manufactured. In case EDB certifies that imported item is also locally 'manufactured, exemption under SRO 575(I) 2006 would be denied. After such certification the fact that a particular item may not have been listed in the CGO as a locally manufactured item would be of no legal consequence. 6. It is imperative to understand that the date on which certificate is issued cannot be taken as the date on which an item has become a locally manufactured item. In case grant of exemption is reckoned from the date on which certificate was issued then any importer, in order to take advantage of this position, would first open a letter of credit for import of an item which has so far not been listed in CGO nor has been certified by EDB and then seek a certificate from EDB. Obviously the date of certification would be later in point of time inspite of the fact that the item in question was already part of the locally manufactured items. This would mean that grant of certificate either way after the letter of credit was opened would entitle an importer to claim benefits granted under SRO 575(I) 2006. This would also mean that EDB's determination of status of an item after letter of credit for its import has been established would be meaningless. In this very case the petitioner sought certification from EDB on 14.03.2011 i.e. at the time when the consignment was in the process of being shipped to Pakistan, much after the letter of credit dated 09.09.2009 was opened. In our view where a letter of credit is
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opened for import of an item which is already being locally manufactured and this pre-existing factual position is later certified by the EDB, it is good enough to disentitle an importer to claim exemption under SRO 575(I) 2006. The timing of seeking certification from EDB would be immaterial. The only exception to this could be that the local manufacture of an item was so recent that it could not have been ordered from the local market when the letter of credit for its import was established. In that exceptional situation benefit granted under SRO 575(I) 2006 can be availed. In absence of such an exception, the effect of certification in the affirmative by EDB would be that it confirms that at the time when the importer opened the letter of credit in fovour of a foreign supplier it was already one of the locally manufactured items and thus not entitling an importer to claim concession under SRO 575(I), 2006. We may also make it clear that where an item is required to be custom-built e.g. an item with the same technical specifications is required to be supplied with different dimensions not readily available in the local market even then exemption on such item cannot be claimed where a local manufacturer was fully capable to supply it had an order been placed with him. 7. In our view SRO 575(I) 2006 is to be interpreted in the context that the concession on customs-duty and exemption from sales tax was granted purely to encourage sale of certain types of locally manufactured items. Yet choice is still left with the buyer either to go for the local product or import it on payment of usual rates of customs-duty and taxes. In the present case, the petitioner opted to import an item which could have also been supplied by a local manufacturer had an order been placed with him thus it was not entitled to claim the concession provided under SRO 575(I) 2006. In view of the legal position discussed above, the High Court of Sindh in the impugned judgment rightly denied the relief claimed by the petitioner. This petition is, therefore, liable to be dismissed. Sd/ Mushir Alam, J Sd/ Faisal Arab, J For the reasons set out in my judgment below, I respectfully dissent. Sd/ Munib Akhtar, J MUNIB AKHTAR, J.---I have had the advantage of reading in draft the judgment proposed to be delivered by my learned brother, Faisal Arab, J., with whom my learned brother Mushir Alam, J is in agreement. It is with regret that I find myself unable to take the view that finds favour with the majority. For the reasons herein after stated, I would allow this appeal. 2. The petitioner, a company in the pharmaceutical business, seeks leave to appeal against the judgment dated 08.09.2015 of a learned Division Bench of the High Court. The petitioner claimed entitlement to the benefit of SRO 575(1)/2006 dated 05.06.2006 ("SRO 575"), whereby a partial (though substantial) exemption from customs duty and a complete exemption from sales tax at import stage, had been granted on the goods listed in the table, and on fulfilling the conditions as specified. The petitioner had imported air handling units (PCT 8415.8300), which were listed in the table. The Department having rejected the petitioner's claim it approached the High Court in constitutional jurisdiction, where the petition was dismissed by means of the impugned judgment. 3. Before proceeding further, it will be convenient to set out the relevant provisions. Beginning with SRO 575, it provided in material part as follows (emphasis supplied): "S.R.O. 575(1)/2006.- In exercise of the powers conferred by section 19 of the Customs Act, 1969 ... and clause (a) of subsection (2) of section 13 of the Sales Tax Act, 1990 ... the Federal Government is pleased to exempt plant, machinery, equipment and apparatus, including capital goods, specified in column (2) of the Table below, falling under the HS Codes specified in column (3) of that Table, from so much of the customs-duty, specified in the First Schedule to the said Act, as is in excess of the rates
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specified in column (4) thereof, and the whole of Sales Tax leviable under the Sales Tax Act 1990 ... subject to the following conditions, besides the conditions specified in column (5) of the Table, namely:- (i) the imported goods as are not listed in the locally manufactured items, notified through a Customs General Order issued by the Federal Board of Revenue (FBR) from time to time or, as the case may be, certified as such by the Engineering Development Board....; ................. TABLE S. No Description PCT headingCustom Duty Conditions (1) (2) (3) (4) (5) 24 Air Handling Units 8415.8300 5% Of those specifications which are not manufactured locally ." Customs Genera Order 11 of 2007 dated 28.08.2007 ("CGO 11") had provided in material part as follows (emphasis supplied): "Subject: LIST OF LOCALLY MANUFACTURED GOODS/ITEMS FOR THE PURPOSES OF CONCESSIONARY NOTIFICATIONS ETC. The goods detailed in the appended list of this CGO are manufactured locally. This list is compiled and updated by the Engineering Development Board in consultation with stakeholders. Henceforth the appended list of locally manufactured goods is applicable for reference purposes to all the exemptions/concessionary notifications...." Entry No. 504 from the list is relevant for present purposes. It had provided as follows: "CGO Sr . No.PCT HS 2007 Products Specifications Physical PropertiesChemical PropertiesCompany 504 8415.8300 Air Handling Units1500 to 50,000 cfm - Horizontal draw through - Vertical draw through - Multi Zone blow through - Single Zone blow through - Double Skin-- -- Sabro Technologies (Pvt) Ltd. Habibullah Industries (Pvt.) Ltd. ("Habibullah")..." 4. Learned counsel for the petitioner submitted that it had drawn up plans sometime in 2009 for establishing a pharmaceutical manufacturing facility at Karachi to produce vaccines, biotech products and lifesaving drugs. The manufacturing facilities had to be of a very sensitive nature requiring, inter alia, precise control over the quality and quantity of the air circulating through the plant. This, in turn, required use of sophisticated, customized and state of the art air handling units. The consultants engaged by the petitioner advised that the local manufacturers did not manufacture units of the sort required by it, and therefore they would have to be imported. Referring to CGO 11, learned counsel submitted that neither of the two local manufacturers listed in entry No. 504 produced the air handling units with the specifications required by the petitioner. The latter therefore had no option but to import the same. 5. It was submitted that the (irrevocable) letter of credit was opened by the petitioner on or about 09.09.2010 and in all 34 air handling units were imported there under. The goods declaration for 16 units was filed on 14.02.2011, while that relating to the remaining 18 was filed on 22.07.2011. The
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present dispute is in relation only to the latter. It was stated that in fact all the units had been imported at, or around, the same time, but a certain classification dispute (which need not detain us) arose and that delayed the filing of the goods declaration for the 18 units now in contention. Learned counsel submitted that duty was paid in full on the other. 16 units and that is not now challenged, but was without prejudice and therefore does not affect the petitioner's claim under SRO 575 in respect of the 18 units. 6. As regards the units now in dispute, as noted above the Department took the position that they were manufactured locally. Referring to the two manufacturers listed in entry No. 504 of CGO 11, learned counsel submitted that one, Habibullah, took the categorical position that it did not manufacture air handling units having the specifications of those imported by the petitioner. Reference was made in this regard to Habibullah's letter dated 24.03.2011 to the Engineering Development Board ("EDB") where it was, inter alia, stated by them that although "we have been manufacturing Units since last several years ... but we advise that the Units with such additional technical requirements are not manufactured by us and in our opinion are only to be imported from Foreign Special Manufacturers specialized on such Units". Insofar as Sabro was concerned, learned counsel referred to its letter dated 18.03.2011 to the EDB. There Sabro, after referring to some earlier correspondence with EDB in 2009, stated as follows: "now we have develop the capability for manufacturing the (AHUs) as per specification mentioned in your letter being imported by [the petitioner]". Learned counsel submitted that it was clear from this correspondence that Habibullah did not manufacture the air handling units of the sort required whereas Sabro only claimed the capability to do so. That, however, was not enough. Mere capacity or capability was insufficient; the goods had actually to be manufactured locally at the time of import. That was patently not the situation and hence entry No. 504 of CGO 11 did not stand in the petitioner's way. In this regard strong reliance was placed on a passage (para 32 at pg. 343) from the well known judgment of this Court reported as Sohail Jute Mills Ltd. and others v. Federation of Pakistan and others PLD 1991 SC 329 ("Sohail Jute Mills"). 7. Continuing with his submissions, learned counsel referred to a certificate that was issued by EDB on 01.04.2011 ("EDB Certificate"). This is of importance and stated in material part as follows: "DETERMINATION OF LOCAL MANUFACTURING STATUS M/s Sam Pharmaceuticals (Pvt.) Ltd. On the basis of confirmation received from the local industry, it is informed that the "AIR Handling Units (AHUs)" being imported by you, are being manufactured locally by the following local manufacturers: Messrs Coolpoint (Pvt.) Ltd....... Messrs Sabro Technology (Pvt.) Ltd.... Messrs Petal Engineering (Pvt.) Ltd.... Messrs Ageco (Pvt.) Ltd. ..." Learned counsel submitted that after this certificate a meeting was convened by EDB on 12.05.2011, in which the petitioner's representative and representatives from three of the four companies listed in the certificate above participated, as did various EDB officials. Learned counsel relied on the following portion from the minutes of the meeting (circulated on 18.05.2011): "In response to the above, local manufacturers confirmed that they are quite capable to manufacture the AHUs as per the requirement of the customers and have supplied AHUs with Plug Fan and VFDs to various pharmaceuticals firms and AHUs with other requirements to very sensitive organization, like SUPARCO, NESCOM and Pakistan Navy etc. They informed that they have the capability to manufacture the AHUs of over and above the parameters which are required by Messrs Sami Pharmaceuticals. As regards manufacture of AHUs with Bio-Pharma grade material and specified-filters to control microbial counts, is concerned, they explained that they can meet the requirement of Messrs Sami Pharmaceuticals by importing the same, as ordinary raw materials and filters are in the import list.
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The local manufacturers also informed that recently they have developed and tested the AHU with Heat Recovery Wheel. They also agreed to provide performance guarantees of their AHUs in the shape of bank guarantees, which may be encashed by Messrs Sami Pharmaceuticals (Pvt.) Ltd. in case the AHUs to be supplied by them do not meet project requirement or are not up to the mark in terms of performance." It was submitted that the foregoing passage confirmed that at best the local industry had the capacity to manufacture air handling units of the sort imported by the petitioner but, crucially, no one actually did so. According to learned counsel, this distinction was imperative and conclusive. The petitioner could be denied the benefit of SRO 575 if, and only if, air handling units with the specifications as imported by it were being actually manufactured in the country and not otherwise. Thus, the certificate issued by EDB was contrary to the actual position and of no avail. The petitioner had been wrongly denied the exemption to which it was entitled. 8. During the course of submissions, certain queries were put to learned counsel (as also learned counsel for the respondents) with regard to what seemed to be certain differences in the language used in SRO 575 on the one hand and the notification in issue in Sohail Jute Mills on the other. Responding, learned counsel submitted that the petitioner's import did not come within the scope of entry No. 504 of CGO 11. As regards the EDB Certificate, it was issued long after the petitioner had taken steps (such as the opening of the letter of credit) that had resulted in the vesting of the right to the exemption in the petitioner. Reliance in this regard was placed on the principle enunciated by this Court in the seminal case of Al-Samrez Corporation v. Federation of Pakistan 1986 SCMR 1917 ("Al- Samrez"). When this submission led to a query as regards section 31A of the Customs Act, learned counsel submitted that that section had no application since the facts and circumstances of the case at hand did not come within the scope thereof. More particularly, the issuance of the EDB Certificate on 01.04.2011 (which was therefore in force on 22.07.2011 when the goods declaration in relation to the 18 units was filed) did not amount to any "withdrawal" of the exemption within the meaning of section 31A. Thus, according to learned counsel, on any view of the matter, the petitioner was entitled to the relief it was seeking, which had been erroneously denied by the learned High Court. It was prayed accordingly. 9. Learned counsel for the respondents (being respectively, the Federation, the EDB and the Department) strongly opposed the leave petition and prayed for its dismissal. Since their submissions were similar and to a certain extent overlapping I take them up together, without' intending any disrespect. It was submitted that the record established beyond any reasonable doubt that the air handling units of the sort imported were locally manufactured, and hence the petitioner was not entitled to any exemption under SRO 575. Learned counsel referred in particular to the correspondence exchanged between the petitioner and/or EDB and the local manufacturers (as placed on record) and to the following passages from the minutes of the aforementioned meeting convened by the EDB on 12.05.2011: "In the light of the discussions held in the meeting, it was concluded that Air Handling Unit (AHU) is a customized product and local manufacturers are technically capable to manufacture the AHUs which are being imported by Messrs Sami Pharmaceuticals (Pvt.) Ltd. As regards Bio-Pharma grade material or any other specialized component is concerned, same can be imported by the local manufacturers to meet the requirement of the client. It was unanimously agreed by the participants that there is no difference in technical specifications of AHUs being imported by Messrs Sami Pharmaceuticals (Pvt.) Ltd. and those manufactured locally. The technical specifications of any equipment have no nexus as to the project requirements or quality, 'which shall not be considered while granting exemptions to an importer at the cost of public exchequer." It was submitted that the record was clear and conclusive. The EDB Certificate had been rightly issued, and was in its terms categorical. The reliance sought to be placed on Sohail Jute Mills was
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misconceived. It was prayed that the leave petition be dismissed. 10. Learned counsel have been heard as above, and I have considered the record and case law cited. At first sight, the question seems simply to be this: were the air handling units, of the sort imported by the petitioner, locally manufactured at the relevant time? Certainly, the learned High Court considered this to be the point in issue. Relief was refused for two reasons. Firstly, it was held that it was essentially a question of fact, which had been determined by the EDB at its aforementioned meeting. Such a factual finding could not be challenged in constitutional jurisdiction. Secondly, it was held that the facts and circumstances at hand were materially different from those in Sohail Jute Mills and hence the ratio of that judgment did not apply. 11. I have carefully considered the matter. With respect, I am of the view that perhaps the learned High Court may not have been properly assisted. The reason is that it appears that the learned High Court was not invited to consider the actual language as used in SRO 575. Now, the language used in the concerned provision is, more often than not (though not always), determinative. This is perhaps all the more so in fiscal legislation, where even a minute turn of phrase can be decisive. A classic example is the judgment of this Court in Collector of Customs and others Ravi Spinning LTD. and others 1999 SCMR 412. The dispute was as to entitlement to exemption under notifications issued under section 19 of the Customs Act. As per the language used therein, some of the notifications exempted the duty specified in the First Schedule to the Act (which sets out the statutory rates of duties). Other notifications exempted the "customs duty" or "duties", without any specific reference to the First Schedule. The distinction may appear to be slight but it made all the difference. After the notifications had been issued regulatory duty was imposed under section 18(2). The question arose whether the exemption notifications extended to this imposition. It was held that those notifications, where the language referred specifically to the First Schedule, did not provide protection from the regulatory duty. However, those where exemption was granted from "customs duty" or "duties" did so extend. So, the actual language of SRO 575 is all-important and must be examined. 12. For analytical purposes, it will be convenient to compare and contrast the language used in SRO…
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