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Petitioner: COLLECTOR OF CUSTOMS (APPRAISEMENT), KARACHI and others VS Respondent: FAUJI JUDGMENT
Court Name: Supreme Court of Pakistan Judge(s): Nazim Hussain Siddiqui, Javaid Iqbal, Abdul Hameed Dogar Title:COLLECTOR OF CUSTOMS (APPRAISEMENT), KARACHI and others vs FAUJI
JUDGMENT
Reported As: 2005 PTD 2178 Result: Appeals dismissed Judgment JUDGMENT JAVED IQBAL, J.---The above captioned appeals with leave of the Court are directed against the judgments dated 18-10-1994 and 12-12-1994 whereby Constitutional petitions preferred on behalf of Fauji Fertilizer Company Limited and others (appellants in Civil Appeal No. 1093-K of 1996) and M/s. Angro Chemical Pakistan Limited and another (Appellants in Civil Appeal No.1876-K of 1996) have been accepted. We intend to dispose of both the above captioned appeals involving similar questions of law and facts by this common judgment. 2. The leave granting order in case of Fauji Fertilizer Company Limited is reproduced hereinbelow to appreciate the legal and factual aspects of the controversy: "The petitioners seek leave to appeal against the judgment of the learned Judges of the High Court whereby Constitutional petition filed by the respondent No.1 challenging notice under section 32(3) of the Customs Act, 1969 dated 14-2-1993 demanding Rs.13,57,57,394, which was subsequently corrected as Rs.17,93,17,627 was allowed. 2. This demand was made in respect of catalyst imported by the respondent No.1 claiming exemption on the ground that it formed an integral part of the plant machinery and was therefore, eligible for concession under Notification No.S.R.O.959(I)/89 dated 23-9-1989. It seems that the respondent imported plant and machinery in the year 1982 when such concession was allowed. However, when the respondent again imported only catalyst in February, 1992, the demand was made after the clearance on the ground that it did not form part of the machinery and therefore, it was not covered by the said notification. The respondent's Constitution petition was allowed and the following observation was made:-- "As has been pointed out earlier, the catalyst performs an
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essential role in the production of fertilizer. It is a part of the equipment which is used for production of ammonia which is further used for production of fertilizer. As has been pointed out earlier, during the reaction it does not lose its identity but retains its original form. But as has been observed in different dictionaries and encyclopaedias, it is so essential for production of ammonia and fertilizer on commercial level that in our opinion, the whole machinery would be incomplete without a catalyst. Consequently, although catalyst cannot be regarded as a component used in a machinery because, as pointed out by Mr.S. Tariq Ali, learned Standing Counsel, it is a chemical and has been so classified in the Pakistan Customs Tariff, however, being an essential part of the entire plant and machinery, in our view, it can be classified as a component part of such machinery identifiable for use with such machinery. It is pertinent to point out that the said notification does not only refer to such component parts of machinery which are identifiable as machinery or for use therein, but also such other parts which are identifiable as those used with such machinery. Catalyst being so essential for production of the nitrogen fertilizer cannot be regarded as separate from such plant or machinery, as in that case such machinery would be incomplete without a catalyst." 3. The learned counsel for the petitioner contended that the objection raised by the respondent which has been accepted by the learned Judges of the High Court requires interpretation of the aforesaid notification. It was further contended that reference will also have to be made to notification No.S.R.O. 393(1)/74 dated 21-3-1974 in which plant and machinery have been defined. The learned counsel referred to Chapters 84 and 85 of the Pakistan Customs Tariff and contended that the catalysts imported by respondent No.1 were independently and separately subject to classification under Chapter 38 other than Chapters 84 and 85 of the Pakistan Customs Tariff. Since catalysts are not covered under a definition and description of plant and machinery, the exemption of duty and taxes was not admissible under the S.R.O. Of 1989. 4. The learned counsel for respondent No.1 pointed out that the catalyst is a component part of the machinery, it is not a chemical and is not consumed during production. The contentions raised required interpretation of the notification, which may be of general importance involving duties and taxes. Leave is granted." 3. The leave granting order in case of M/s. Angro Chemical Pakistan Limited is also reproduced herein below for ready reference:-- "Mr. Farooq H. Naik, learned Dy. Attorney-General, pointed out that in a similar matter (C.P. 365- K/1994) leave to appeal has been granted against Sindh High Court's Judgment in C.P. No.D- 1188/1993 (Fauji Fertilizer Company Limited v. Government of Pakistan) which was relied upon, in the impugned judgment. Leave to appeal is, therefore, granted to determine the following points : 1. Whether, "Catalyst" is integral or component part of a Machinery/Plant? 2. Whether "Catalyst" is a Chemical and consumable? Learned Dy. Attorney-General requests that the appeal may be heard with the Civil Appeal arising out of Civil Petition No.365-K/.1994. Order accordingly." 4. The reproduction of facts would not be necessary as the same have been mentioned elaborately in both the judgments impugned and leave granting orders. 5. Mr. S.M. Zafar, learned Senior Advocate Supreme Court entered appearance on behalf of appellant and contended strenuously that the learned High Court has not appreciated the legal and factual aspects of the controversy which resulted in serious miscarriage of justice and has misconstrued and misinterpreted S.R.O.393(I)/74 dated 21-3-1974. It is contended that the learned High Court has erred in extending the benefit of S.R.O.393(I)/74 dated 21-3-1974 to the Catalysts imported by respondent No. 1. It is next contended that the learned High Court has not correctly appreciated the nature of Catalysts and erred in holding that it is an essential part of the entire
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plant and machinery and can be classified as a component part of such machinery, identifiable or use along with such machinery. It is pointed out that the definition of the term "component part" is laconic as made by the learned High Court. It is contended that it is a case of misreading and non- reading of evidence as the documents and the parawise comments furnished by the appellants were never examined by the learned High Court. It is argued that Catalysts which are undisputedly chemicals cannot be declared equipments as has been held by the learned High Court. It is also mentioned that the learned High Court has examined the importance of Catalysts in the light of its definition as given by various dictionaries but no judicial or legal interpretation could be made. Mr. S.M. Zafar, Senior Advocate Supreme Court has stressed with vehemence that the Catalysts are required for accelerating the process of manufacturing fertilizers by increasing the speed of chemical reaction involved therein whereas the benefit of exemption of customs duty and taxes admissible only on plant and machinery and the Catalysts do not fall in the definition of plant and machinery hence the question of benefit of exemption of duty and taxes in terms of S.R.O.959(I)/89 dated 22-9-1989 read with S.R.O. 515(1)/89 dated 3-7-1989 does not arise. It is mentioned that Catalysts may be one of the essential requirements for the manufacturing process but by no stretch of imagination it can be considered as machinery which has been defined under the customs laws i.e. 'machine' means any machine, machinery, plant, equipment, apparatus or appliance classifiable under PCT Chapters-84 and 85 while the Catalysts fall under PCT heading 38 i.e. Other than Chapters 84 and 85. It is urged with vehemence that mere approval by the Investment Promotion Bureau of CCI&E of list of items required to be imported for the expansion of the project does not entitle to the respondents for the exemption on goods which were not covered under the relevant items dealing with plant and machinery. It is mentioned that Investment Promotion Bureau has no jurisdiction to declare any item as 'machine' which otherwise is not machine under the customs laws and mere recommendations of the Investment Promotion Bureau does not entitle the respondents to claim the exemption. It is elaborated by Mr. S.M. Zafar, learned Senior Advocate Supreme Court on behalf of appellant that if nuts, bolts, pipes etc. Are imported along with the main plant they may be treated as part of the machinery for the purpose of installation of the plant but the Catalysts being not a part of the plant and machinery cannot be exempted from tax being chemicals which accelerates or retard chemical reaction during the course of production. It is also pointed out that provisional clearance of Catalysts was allowed to the respondents simply to facilitate them for completion of their expansion project pursuant to their undertaking that they would honour the decision of the Central Board of Revenue. It is argued that the Central Board of Revenue has not given any written confirmation that any commitment was made with the appellants regarding exemption on Catalysts which are not covered under the definition of 'plant' and `machinery'. It is explained that definition of 'machinery' has been given in the explanatory notes on the First Schedule to the Customs Act, 1969 and Catalysts do not qualify to fall in the definition of 'machine' prescribed therein. It is argued that a far-fetched interpretation of Catalysts equating it with that of machine has no footing and it is just a device to avoid payment of duty and taxes chargeable on Catalysts. On the earlier release of Catalysts without levying any tax or customs duty, it is pointed out that clarification and confirmation by the Central Board of Revenue was received subsequently and the Catalysts were released provisionally and therefore, the demand for payment of outstanding dues is legal and justified. It is contended that expansion of the project by the respondents for their on economic gains does not mean that they should be given benefit which are not admissible under the law and more so, when the expansion project was undertaken by the respondents at their. On and no assurance whatsoever was given that Catalysts will be exempted from tax/customs duty as no such exemption was allowed under the above mentioned SROs by the Customs Authorities to any importers of Catalysts and hence the question of any discrimination does not arise.
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6. Mr. Khalid Anwar, learned Senior Advocate Supreme Court appeared on behalf of respondents and vehemently controverted the view point as canvassed by Mr. S.M. Zafar, learned Senior Advocate Supreme Court by supporting the judgment impugned for the reasons enumerated therein with further submission that S.R.0.488(1)/88 is manifestly not applicable to the respondents being a general notification issued for all industries in the country. It is pointed out that at subsequent stage S. R.0.515(1)/89 dated 3-6-1989 and S. R.0.959(1)189 dated 23-9-1989 were issued which expressly include the fertilizer industry. It is argued that a specific, legal provision overrides the general provision and besides that the Central Board of Revenue has expressly endorsed the said point of view in their letter dated 5-3-1990 whereby the Collector Customs Karachi was directed not to consider the provisions as contained in S.R.0.488(1)/88. It is urged with vehemence that the said SRO was not pressed into service before the Hon'ble High Court and therefore, a different case cannot be argued before this Court on the base of said notification which was neither dilated upon nor decided by the learned High Court. It is next contended that the Customs Authorities appear to be confused and not sure that which of the S.R.O. Will be applicable because before the Sindh High Court the Customs Department had based its arguments on the applicability of S.R.O.393(I)/74 dated 21-3-1974 and the same notification was relied upon while arguing the petition for leave to appeal before this Court. It is mentioned that the respondents do not rely upon the said S.R.O. At all being irrelevant for their case. It is contended in an unambiguous manner that S.R.O. 515(1)/89 dated 3-6-1989 and S.R.0.959(I)/89 dated 23-9-1989 are applicable in the case of respondents being relevant notifications in the filed at the relevant time. It is also pointed out that the appellants in the past had accepted that S.R.O. 515(1)/89 dated 3-6-1989 and S.R.O.959(I)/89 dated 23-9-1989 were applicable in the case of respondents but subsequently based their case on S.R.O.488(I)/88 before this Court which aspect of the matter may be taken care of. It is also contended that in the above mentioned notification the Government of Pakistan was pleased to examine plant and machinery which were not manufactured locally and imported for the expansion of the existing units manufacturing fertilizers from the whole of the customs duties and sales tax chargeable thereon and due to that assurance the respondents embarked on an expansion of the plant at the cost of $ 119.3 millions. It is pointed out that pursuant to application of the respondents the import licences were issued for the entire 'plant' including Catalysts, Epoxy Grout, Speciality Paints and Start-up Chemicals which were imported prior to 30-6-1993 when admittedly the exemption was available. Mr. Khalid Anwar, learned Senior. Advocate Supreme Court on behalf of respondents also explained that Catalysts are used to bring about and control the chemical reactions without which none of the required actions would take place and urea could not be produced. According to him, the Catalysts are metal-based which do not consume in the manufacturing process and carry a long life of ten to fifteen years. Mr. Khalid Anwar, learned Senior Advocate Supreme Court has also explained that Start-up Chemicals are essential aids to the manufacturing process and do not become a part of the product being manufactured. It is also mentioned that Epoxy Grout is a speciality glue without which a plant or machinery could not be bound to its foundation and as a result the machines could soon be destroyed when they are operated because of vibrations. It is also explained that speciality paint is used to coat concrete surfaces that otherwise would erode the plant and machinery due to the corrosive nature of Urea to the point of it being rendered useless. Mr. Khalid Anwar, learned Senior Advocate Supreme Court has also highlighted the role of the Central Board of Revenue and pointed out that when the first consignment arrived in November, 1991 it was released by the Customs Authorities, however, when the respondents made a representation to the Central. Board of Revenue on 19th May, 1992 which was accepted by means of letter dated 27th May, 1992 whereby the Customs Authorities was asked to release the items imported by the respondents under S.R.O.515(I)/89 against indemnity bond subject to confirmation of installation as per the conditions enumerated in S.R.O.515(I)/89 and also
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asked the Customs Authorities whether definition of 'plant and machinery' should be incorporated in the relevant S.R.O. So as to prevent further harassment to the Fertilizer Companies which aspect of the matter remained unresponded. It is pointed out that subsequently the Central Board of Revenue has changed its earlier stance without any rhyme, reason or logic and communicated to respondents vide letter dated 4-1-1993 that due to change in the definition of 'machinery; the Catalysts did not fall within the said definition and thus the respondents were not entitled to any exemption for duty. It is next contended that S.R.O.959(I)/89 cannot be confined to machinery alone and in fact expressly extends to plant and machinery. According to Mr. Khalid Anwar, learned Senior Advocate Supreme Court it is mind boggling as to why the Customs Authorities could not apply its mind to the expressly stated terms used against and again in every single S.R.O. i.e. Plant and machinery and instead of its on volition arbitrarily eliminate the word 'plant' from plant and machinery. It is argued that the appellants have failed to understand the nature of the exemption and also failed to consider the true scope and extent of the exemption clearly stated in the said notifications which was not confined to machinery but also extended to plant as a whole. In view of Mr. Khalid Anwar, learned Senior Advocate Supreme Court, the entire case of the appellants has proceeded on the wholly erroneous assumption that the exemption notification is confined to 'machinery' and does not include the 'plant' as a whole which speaks a volume about the mala fides of the appellants. It is contended that Catalysts, Epoxy Grout and Speciality Paints are an integral part of plant without which the plant would neither be completed nor could enter into production. According to Mr. Khalid Anwar, learned Senior Advocate Supreme Court a plant is only a plant if it is capable for functioning and operating which cannot be done without the items as mentioned above. It is argued with vehemence while rebutting the arguments of Mr. S.M. Zafar, learned Senior Advocate Supreme Court that Catalysts and the said items cannot be considered as exempted from'tax and customs duty being not contained in Chapters 84 and 85 of the Pakistan Customs Tariff (PCT) and are in fact mentioned in separate chapters in the said publication and pointed out that Chapters 84 and 85 apply to 'machinery' and not to 'plant and machinery' and accordingly the outcome of the contention as raised by Mr. S.M. Zafar, learned Sr. Advocate Supreme Court would not be conclusive for the facts of this case. Mr. Khalid Anwar, learned Senior Advocate Supreme Court while concluding his arguments pointed out that a bare perusal of import licence clearly reveals that all kind of items like pipes, tubes and numerous other items not mentioned in Chapters 84 and 85 of the PCT or in S.R.O.488(I)/88 have been duly cleared by the Customs Authorities. It is pointed out that Epoxy Grout has in the case of Fauji Fertilizer been approved for exemption whereas M/s. Angro Chemical Pakistan Limited was asked to pay duties on it which is highly discriminatory. It is also mentioned that entries of the PCT and the Import Policy Order are in complete harmony so that approval by one is equated to that of for other. 7. We have carefully examined the respective contentions of the parties, scanned the entire record and perused the judgments impugned carefully. The pivotal question which needs determination would be as to whether the Catalysts imported by the respondents is an integral part of the rest of the plant or a component part of the machinery identifiable as for use with such plant/machinery. 'Catalysts' can very precisely be defined as a chemical action accelerator (Carbide and Carbon Chemicals C Corp. v. Coe, 102 F.2d 236, 240, 69, App. DC 372). Catalysts was also defined as "a substance,used to stimulate chemical reaction, otherwise sluggish, between other substances by bringing reaction substances into contact with the catalyst substance, which, merely by its presence and without being used up, removes chemical resistance to reaction, just as a lubricant, by its presence, removes friction from the moving parts of a mechanical device." (General Chemical Co v. Standard Wholesale Phosphate & Acid Works, 22 F. Supp. 332 at 340. DC Md.). It is an admitted. Fact that major raw material for urea production is synttetic ammonia which is
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produced from natural gas, steam and air in several gas-phase catalytic reactions and Catalysts being metallic compounds are used for following purposes:-- Natural gas Desulphurization. Steam Reforming. Autothermal Reforming. 1st stage Carbon monoxide Shift Reaction. 2nd stage Carbon monoxide Shift Reaction. Methanation Reaction. Ammonia Synthesis Reaction. The following certificates testify the above conclusions:-- (i) Certificate from M/s. Foster Wheeler, UK- the consultants. (ii) Certificate from M/s Haldor Topsoe, Denmark- the manufacturer and supplier of catalysts and ammonia technology. (i.e) Affidavit from a Chemical Engineer of Pakistan. (iv) World Customs Organizations and Central Board of Revenue vide their CGO-13/2002 dated July 4, 2002 have allowed/ clarified classification of imported plant and machinery for projects by way of partial shipments. 8. We have also consulted different dictionaries detail whereof is ' mentioned hereinbelow for ready referente to understand the meaning and nature of `catalysts':-- Cambridge Advanced learner's Dictionary: "catalyst noun (c) Specialized something that makes a chemical reaction happen more quickly without itself being changed." Merriam-Webster Dictionary: "Main Entry: Cat-a-lyst (noun) a substance (as an enzyme) that enables a chemical reaction to proceed at a usually faster rate or under different conditions (as at a lower temperature) than otherwise possible. an agent that provokes or speeds significant change or action.- American Heritage Dictionary 4th Ed. 2000: "catalyst" (noun) A substance, usually used in small amounts relative to the reactants, that modifies and increases the rate of a reaction without being consumed in the process. 2. One that precipitates a process or event, especially without being involved in or changed by the consequences." Encyclopaedia Britannica catalyst: Section: Types and Importance of Catalysts Enzymes: Natural Catalysts Enzymes are the commonest and most efficient of the catalysts found in nature. Most of the chemical reactions that occur in the human body and in other living things are high-energy reactions that would occur slowly, if at all, without the catalysis provided by enzymes. For example,, in the absence of catalysis, it takes several weeks for, starch to hydrolyze to glucose; a trace of the eniyrne ptyalin, found in human saliva, accelerates the reaction so that starches can be digested. Some enzymes increase reaction rates by a factor of orie billion or more. Enzymes are generally specific catalysts; that is, they catalyze only one reaction of one particular reactant (called its substrate). Usually the enzyme and its substrate have complementary structures and can bond together to form a complex that is more reactive due to the presence of functional groups in the enzyme, which stabilize the transition state of the reaction or lower the activation energy. The toxicity of certain substances (e.g., carbon monoxide and the nerve gases) is due to their inhibition of life-sustaining catalytic reactions in the body. Laboratory and Industrial Catalysts: Catalysis is also important in chemical laboratories and in industry. Some reactions occur faster in the presence of a small amount of an acid or base and are said to be acid catalyzed or base 'catalyzed. For example, the hydrolysis of esters is catalyzed by the presence of a small amount of base. In this reaction, it is the hydroxide ion OH, that reacts with
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the ester, and the concentration of the hydroxide ion is greatly increased over that of pure water by the presence of the base.. Although some of the hydroxide ions provided by the base are used up in the first part of the reaction, they are regenerated in a later step from water molecules; the net amount of hydroxide ion present is the same at the beginning and end of the reaction, so the base is thought of as a catalyst and not as a reactant. Finely divided metals are often used as catalysts; they adsorb the reactants onto their surfaces (see adsorption), where the reaction can occur more readily. For example, hydrogen and oxygen gases can be mixed without reacting to form water, but if a small amount of powdered platinum is added to the gas mixture, the gases react rapidly. Hydrogenation reactions e.g., the formation of hard cooking fats from vegetable oils, are catalyzed by finely divided metals or metal oxides. The commercial preparation of sulfuric acid and nitric acid also depends on such surface catalysis. Other commonly used surface catalysts, in addition to platinum, are copper, iron, nickel, palladium, rhodium, ruthenium, silica gel (silicon dioxide), and vanadium Oxide." "In chemistry, any substance that increases the rate of a reaction without itself being consumed is called Catalyst. Enzymes are naturally occurring catalysts responsible for many essential biochemical reactions. Most solid catalysts are metals or the oxides, sulfides, and halides of metallic elements and of the semimetallic elements boron,…
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