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Petitioner: ITTEFAQ FOUNDRY VS Respondent: FEDERATION OF PAKISTAN
Court Name: Lahore High Court Judge(s): Khalil-Ur-Rehman Khan Title: ITTEFAQ FOUNDRY vs FEDERATION OF PAKISTAN Case No.: Writ Petition No,4607 of 1989 Date of Judgment:1990-01-27 Reported As: PLD 1990 Lahore 121 Result: Petition accepted
JUDGMENT
JUDGMENT This is a petition under Article 199 of the Constitution of Islamic Republic of Pakistan, seeking declaration to the effect, that the Notification, dated 10th of July, 1989 (under section 7, Sales Tax Act, 1951); the letter of C.E. & S.T. Circle II, Lahore, dated 5th of July, 1989 (intimating revised rates of Central Excise duty and Sales Tax on Billets/Ingots), and the oral order on which the abovesaid letter is based as well as the relevant provisions of Finance Act, 1989, are without lawful authority and hence of no legal effect. It is further prayed that the petitioner be permitted to sell the products already produced before the introduction of impugned tax without additional burden of the new impost and the current production on such terms as the Court may deem fit to impose. Any other relief deemed fit and available together with costs has also been prayed in the petition. 2. The petitioner, a private limited Company, is producing semi-finished products for steel industries in Pakistan. According to petitioner, its foundry primarily produces, what is commonly known as Bilt', an Urdu slang of the English word 'Billet' which in the market is also applied to 'ingots' as both 'Billet' and 'Ingot' are produced and made available in the market for further production of goods by re-rolling, forging and other methods. It was explained that distinction in the usage of 'Ingot' and 'Billet' came about only since 1923 when a new way of making steel by continuous casting became common to the industries. The old method of Ingot production is through old blast furnace/open hearth furnace system wherein after heating, the liquid steel is tapped into a refractory-lined open-topped vessel called a steel ladel which is moved by an overhead crane to a pouring platform where the steel is then poured into a series of moulds of the desired dimension. The steel solidifies in each of the moulds to form a casting called an 'Ingot'. Internationally Ingots are now produced for further working by the new method of melting by using electric furnace. It
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was stated that the foundries producing Ingots in Pakistan are using electric furnaces due to its efficiency and economy and that so far as the end-products are concerned, `Billets' and 'Ingots' are used for entirely identical purposes and products, though R the plants using continuous casting system have greater option in providing required shape of the Ingots and are capable of larger production. 3. The continuous casting system is based on heavy capital cost unlike Ingot moulden system. It is a process wherein liquid steel is poured directly into semifinished shapes (such as slabs, blooms, blanks or billets). This process is growing in use, is modern and efficient as it eliminates the need for heavy rolling-mill equipment. In this process, liquid steel is poured via a tundish into a water- cooled copper mould and as casting commences, the bottom of the mould is sealed with a dummy bar into which the steel solidifies. The solidified cast product is removed continuously by way of a direct spray-cooling withdrawal roll and cut-off system, maintaining a desired molten metal level with copper mould. Once cut off, the cast product is discharged on to a cooling hank. It was also explained that since the early 1940 s, continued research and development have resulted in the perfection of methods for continuous casting of molten steel directly into the form of slabs and billets, by by-passing the ingot stage and the necessity for hot-rolling operations formerly required to produce such products. In sum, the advantage of use of continuous casting is that it does away with several complicated steps of steel making--pouring steel into Ingot moulds, heating the Ingots in soaking pits and passing them through a rolling mill to make blooms, slabs and billets. "By this arrangement the cost of blast furnaces, coke ovens, soaking pits and large rolling mills is avoided." (The New Book of Knowledge, Vol. 19 page 406). 4. The petitioner produces the Billets entirely through continuous casting. It is its plea that both Ingots and Billets were taxed or exempted from tax in absolutely identical terms year after year, since the time that blooms, billets and slabs appeared in Pakistan Custom Tariff, and that the petitioner, on the assumption that the tax burden on goods produced by it would be the same, has produced large quantities of goods, which it cannot possibly sell after adding the newly-imposed tax burden of the Excise Duty and the Sales Tax. The petitioner came to know of this additional tax burden on receipt of Memo. Dated 5th July, 1989 to the effect that the Central Excise duty and Sales Tax will be charged as under:-- Name Of ProductRate of central Excise Duty Rate of Sales Tax Billet Rs.600 M.Ton 12/1-2% Ingot Nil Rs. 375 M. Ton Rerolling productNil Rs. 175 M.TON Scrap-imported Nil Rs. 175 M.TON 5. The plea of the petitioner is that this change of policy was calculated to cripple the petitioner who uses the modern method of production of an item i.e, billet and whose end use is exactly the same as that of the traditional ingot and that the actual effect of the new tax discloses the mala fides of the whole exercise as under:-- Name Of ProductRate of Import Duty Rate of central Excise Duty Rate of Sales Tax Billet Rs.600 M.Ton 12/1-2% Ingot Nil Rs. 375 M. Ton Rerolling product Nil Rs. 175 M.TON Scrap-imported Rs. 1,500 M.Ton Nil Rs. 175 M.TON It was pleaded that different treatment of both the items is not only discriminatory but also unwarranted as; (a) Both Billet/Ingot are cast from re-meltable steel scrap;
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(b)Both Billet/Ingot are processed through Bessemer Thomas, SiemensMartin, Armco or Electric processes. (c)Both Bille'/Ingot can be square or rectangular. (d)Both billet/Ingot are Semi-Finisbed products. (e) Both Billet/Ingot are used for re-rolling into bars, rods, angles, shapes and sections or for the manufacture of forgings and other finished products. 6. The case of the petitioner is that traditionally duties and taxes on Ingots/Billets were akin in order to maintain parity of cost as both are meant to roll similar finished products and hence the cost of production of these items has to be equivalent. It was added that the levy of additional tax burden on Billet places unreasonable burden on the producers of Billet specially the petitioner which is the major producer of Billet in the private sector and as such this action is violative of Article 18 of the Constitution. It was submitted that the respondent-Government has not disclosed any basis or reason for giving different treatment to the two products which were being taxed earlier for years at the same rate. It was asserted that the relevant factors were not at all considered and the delegated legislative power was abused acting in mala fide manner, and that additional burden was placed on billet to cause unbearable financial loss to the petitioner with the view to put it out of market. It was argued that aforenoted assertions stand established as the concerned quarters i.e, Ministry of Finance have not controverted the same by filing any written statement. 7. The aforesaid plea was specifically advanced as a written statement under the signature of Assistant Collector, respondent No,3 was filed by the learned Standing Counsel, on behalf of all the respondents (Federation and the Superintendent Central Excise Circle II, Lahore) and that too without any supporting affidavit. The stand taken in the written statement is that Ingot is a primary product while Billet is a semi-finished product, both are produced through different processes, and that what is obtained through continuous casting process is commercially, technically and legally called 'Billet' while the product which is obtained by pouring molten steel into moulds, heating and soaking in pits is known as 'Ingot' and that 'Billet' can be produced from 'Ingot' but Ingot cannot be produced from Billet. So both are factually and legally two distinct products and are also separately classified under Pakistan Custom Trariff. (Items 73.06 and 73.07. P.C.T.). It was also asserted that cost of production of Billet is much less than the cost of production of Ingot; that quality and quantity of production of billet is incomparable with the quality and quantity of production of ingot and that the difference in prices of billet and the end-products of Billet from the prices of Ingot and end-products of Ingot ranges from Rs,1,000 to Rs,25,000 per M.Ton. 8. The pleas of granting advantage to one product and discriminating the other arbitrarily and thus being priced out of market, were denied by asserting that economic decisions like production, marketing and pricing are not based on assumptions and it is incorrect to say that because of exemption given to Ingot, the petitioner will not be able to sell its product, as sales tax and excise duty are payable by all the producers of 'Billet' which include Messrs Punjab Steel Mills Shandara, the only other private sector producer of billet and Pakistan Steel Mills, a State Enterprise who are the largest producers of billet, without any distinction and that in any case this Court in constitutional jurisdiction cannot enquire into questions of trading, market conditions, cost of production, and pricing. It was argued that though Billet and Ingot were subjected to identical rates of Excise Duty and Sales Tax or were being allowed exemption from tax or duty on 'identical terms' but from that it cannot he inferred and that would not make both the products classifiable under one item. The plea of mala fide exercise of delegated legislative power was also refuted by saying that no new tax or additional burden has been levied and that akinness of duties and taxes on both the products cannot be a determining factor. It was also contended that exemption of one item or the other item from payment of already levied tax is a matter of grace and not a right and exists only by grant; that the Courts cannot go into, or question, the right of the Government to exempt
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one or the other item and nobody can claim, as a matter of right, exemption from tax on any basis or that any other item has been exempted. It was further added that in any case grant of exemption from tax is a matter of grace and exemption is granted by the Government taking into consideration various factors which are not subject to enquiry, investigation or jurisdiction of this Court. 9. The assertions as to the effect of the impugned Notification, rates of Excise duty, sales tax and exemptions, advanced by the petitioner were replied to in general terms. In reply to the assertion that the petitioner imports about 70% of the total imported scrap, it was stated that the figures quoted are not supported by any authentic source and so the same require verification. It was, however, added that it is just, fair and in conformity with the principles of free competition that an item which fetches higher price should bear higher tax incident while another item which fetches lower price should have a lower tax incident as it is in line with the principles of progressive taxation and ensures free competition, hence, neither Article 18 nor Article 25 of the Constitution has any application to the case. It was further pleaded that the letter containing administrative direction cannot be assailed in writ jurisdiction as the petitioner can neither be aggrieved of these administrative directions nor of the Notification, dated 10-7-1989 granting exemption as in case this notification is rendered ineffective, the result would be that both Ingot and Billet would be subject to Sales Tax 12-1/2% of the value. The plea as to availability of remedies under the Central Excise Law and Sales Tax Act was however, not pressed during arguments. Learned standing counsel, during arguments finally stressed that Finance Act, 1989 does not deal with the impugned levy or exemption and that notification of exemption having not been challenged, no relief can be granted to the petitioner. 10. The petitioner, as is apparent from above paras., feels aggrieved as in the matter of allowing exemption from payment of Excise Duty and Sales Tax, the Federal Government in exercise of delegated power has given to its product 'Billet' a treatment different from that extended to the producers of Ingot as eventually the producers of Billet have been made to pay excise duty and sales tax at higher rates. In order to appreciate the grievance made, the position of the Excise Duty and the Sales Tax imposed in the past as well as the provisions of the relevant law may appropriately be noted:-- (A) EXCISE DUTY (i) Section 3 of the Central Excises and Salt Act, 1944, provides that there shall be levied and collected in such manner as may be prescribed duties of excise on all exciseable goods and services produced, provided or rendered in Pakistan as and at the rates set forth in the First Schedule. as under :-- The relevant item of the First Schedule as it read before amendment was Item No.Description of goods Rate of duty 09.04.Steel Ingots "Steel INGOTS' means the product obtained by processing iron ore, pig iron, or iron scrap or any other ferrous raw material, whether cast into a mould in any shape or form or whether used in molten or semi-- finished state for the manufacture of rolled or forged or formed steel products.Rupees of forty-nine and fifty paisas per tonee (ii) Section 12-A empowers the Federal Government to exempt by notification, from time to time, any goods, class of goods or any services or class of services subject to such conditions if any as may be specified, from the whole or any part of the duty leviable under the Act. The Federal
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Government vide Notification S.R.O.555(1)/79, dated Nth June, 1979 exempted Steel Ingots (Item No. M.04) from the whole Excise duty and thus Duty payable was Nil. This position prevailed till 14th July 1988 as through Ordinance No. III of 1988 (Central Excises and Salt Act (Amendment) Ordinance, 198,S) entry pertaining to Item No. 09.04 Steel Ingots of the First Schedule was substituted as under :-- Item No.Description of goods Rate of duty 09.04 INGOTS, Billets, slabs and sheet barsRs.2,000 per M.Ton. On the same date i.e 14 July, 1988 Federal Government issued Notification S.R.O.614(1)/88 whereby payment of duty in excess of Rs.600 was exempted by amending aforequoted Notification SRO- 555(1)/79, dated Nth June. 1979. The relevant extract of the Notification substituting the entries reads:-- Item No.Description of goods Rate of duty 09.04 (a) Iron and Steel INGOT Billets, Slabs and sheet bars. (b) Others.Rs.2,000 per M.Ton. Nil (iii) The Ordinance III of 1988 was repealed by Ordinance 23 of 1988 which was promulgated on 5th November, 1988 but was enforced with effect from 26 October, 1988 (See PLD 1989 Central Statutes 25). Thereafter, Finance Act, 1988 (Act VI of 1988) enforced with effect from 20th December, 1988 again substituted amongst others the entries of First Schedule to the Central Excises and Salt Act, 1944 pertaining to item No. 09.04 precisely in the same way as was done by Ordinance No. III of 1988. Then S.R.O. 555(1)/89 was issued on 3rd June, 1989 by the Government whereby the word 'INGOT' was omitted from entry against Item No. 09.04 appearing in Notification S.R.O. 614(1)/88, dated 14th July, 1988. (iv) The position of Excise duty, at one glance would be as under. Time Relevant law Entries of first 1 2 3 4 5 Prior to July,S.3, Central Excises and Salt Act read with First Schedule.Item Description of goods.Rate of duty Extent Exemption Notification 09.04---Steel INGOTS--- (as defined)Rs.49.50 per ton.I-SRO.555(1)/79 dated 28-6- 1979-NIL 14-7-88 Ord.III (PLD 1988 C S 137)09.04 INGOTS Billets, slabs & sheet bars.Rs. 2,000 SOR-614(1)/88 dated 14-7- 1988 (1) Iron & Steel INGOTS Billets, slabs & sheet bars Rs.600 (2) others-Nil
5-11-88 Ord. 23 of 1988 enforced w.e.f. 26-10- 88. Repealed Ord.III of 1988. 26-12-88 Act VI ---09.04--- of 1988.INGOTS Billets slabs & sheet bars.Rs. 2,000 per ton.III-SRO-555(1)/89 dated 3-6- 1989 word ---INGOT--- omitted from abovesaid Notificationth th
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(B) SALES TAX. (i) The position of levy of Sales Tax may now be summarized. Section 3(2) of the Sales Tax Act, 1951 provides that tax shall be at the rate of twelve and half per cent on the value of goods. Section 7 empowers the Federal Government to exempt any goods from the tax payable under the Act. (2) The exemption Notifications issued from time to time and relevant to the questions raised may now be noted. (I)SRO-606 (1)/81 dated 25th June, 1981. Serial No, Description of goods. Extent of exemption. 57 Iron and Steel failing within the headings 73.01 to 73.09, 73.15, 73.18 and 20.01.......Whole (II)S.R.O. 523 (1)/88, dated 26(h June, 1988 amended the abovesaid Notification. The amended column pertaining to description of goods reads:-- "Iron and steel (except ingots, billets, and mild steel products, all sorts of re-rolling mills including bars, rods, coils, wires, joints, girders, angles, channels, tees, flats, beams, Zeds, trough, piling and all other rolled, forged, formed, or extruded shapes and Sections)" falling within the headings 73.01 to 73.09, 73.15, 73.18 and 26.01. (III)SRO-566 (1)/89, dated 3rd of June, 1989 superseded the notification SRO--666(1)/81, dated 25th June, 1981 and in this notification Item No.57 as appearing in the aforenoted two notifications was not included. As Items No. 73.06 INGOT & 73.07 Billet of P.C.T. were not included in the notification of exemption, the Sales Tax as provided under Section 3(2) @ 12-1/2 per cent on the value was payable in this period. (IV) SRO-734(1)/89, dated 10th July' 1989. Exempting Sales Tax as is in excess of the amount specified in column No.4 of the table below. S.No,Description of goods. P.C.T. heading No,Rate 1 2 3 4 1. INGOTs 73.06. Rs, 375 per Metric Ton. 2. Bars, rods (including wire rods) angles, shapes and Sections of iron or steel.73.10 and 73.11Rs, 175 per Metric Ton Note:-- This notification was to remain in force until the 30th September, 1989. The Notification was kept in force till 30th November, vide SRO-993 (1)/89, dated 30th September, 1989 and life of this Notification has been extended till 30th January, 1990 under another Notification dated 30th November, 1989. (ii) The legal position which emerges as regards Excise Duty, is that till the 14th July, 1988 no Excise duty was payable on 'INGOT' as well as on 'Billet'. Both these products fell within the definition of the term 'Steel INGOT' as defined under Item 09.04 of the First Schedule to the Central Excises and Salt Act, 1944. Even under Ordinance No. III of 1988 while granting exemption vide Notification dated 14th July, 1988 both 'INGOT and 'Billet' were treated alike as excise duty on both was payable @ Rs.600 per metric tonne and that it was only since 3rd June, 1989 that 'INGOTS' were. treated differently from Billets as Excise duty on INGOT was totally exempted. As regards Sales Tax, it is pertinent to note that in the Notification of Exemption issued under Section 7 of the Sales Tax Act 1951 though INGOT and Billet were described in terms of classification given in Pakistan Custom Tariff, wherein INGOT and Billet were classified under separate headings 73.06 and 73.07 respectively yet both the products were given the same treatment in the matter of grant of exemption till 10th July, 1989. The whole of Sales Tax on both products was exempted under
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Notification dated 25th June, 1981 which was then' amended vide Notification dated 26th June, 1988 to exclude INGOTS and Billets alongwith other items from the purview of exemption notification. Again in the exemption notification dated 3rd June, 1989 both these products were not included and on both INGOT and Billet Sales Tax @ 12-1/2 per cent per Tonne was payable. It was only since 10th July, 1989 that Sales Tax on INGOT was made payable @ Rs.375 per Metric Tonne while on bars, rods, angles, shapes and Sections of Iron and Steel which are re-rolled end- products, Sales Tax was chargeable at the rate of Rs. 175 per Metric Tonne but on 'billet' which is at best a semi-finished product, sales tax is payable at the rate of 12-1/2 per cent per Tonne. So if the price of Billet is Rs.8,500 per metric tonne, the sales tax @ 12--1/2 % would be Rs.1,062.50 per tonne. 12. The different treatment came to be accorded since June and July 1989 by the Federal Government in exercise of the delegated power vesting under Section 12-A of the Central Excises and Salt Act, 1944 and Section 7 of the Sales Tax Act, 1951. In this context the plea that scientifically and technically and as per Pakistan Custom Tariff which follows Brussels Nomenclature and Harmonized Commodity Description and Coding System both these products have been classified under separate heading and as separate items, is not relevant. Again though INGOT may be a primary product produced by old blast furnace system' and 'billet' is a semi-finished product produced by modern continuous casting process but both the products are undisputedly used for re-rolling into bars, rods, angles, shapes and Sections or for the manufacture of forging and other finished products. 13. The other important feature to be noted is that steel industry in the country is in its infancy. There are only four Mills; (1) Pakistan Steel Mills, Karachi (2) P.E.C.O. Lahore, the public companies and two private sector companies, namely, the petitioner and Punjab Steel Mills, Shabdara, which are producing Billet in Pakistan. The plea that the petitioner imports about 70% of the entire quantity of scrap imported in the country for production of billet was not specifically controverted. . 14. Moreover, nothing was brought on record to show the total production of billet by the four producers or either of the four producers, the total production of Ingot and as to how many are the Ingot producers and as to what were the circumstances which necessitated according of different treatment to the two products. In fact the Finance Ministry not only failed to file a written statement but also no record or rile was produced to show the exercise if any undertaken by it and to establish that pertinent and relevant causes, reasons or factors were considered by the relevant quarters for coming to the conclusion that INGOT and Billet merit not to be given the same treatment as was being done in the past. The Assistant Collector, respondent No.3, who has filed the written statement, neither claimed access to any such record of the Ministry nor disclosed any material, cause, reason or circumstances justifying the change in the policy of the Federal Government except for advancing the assertion that principles of progressive taxation and free competition are being followed. It was further alleged without any supporting affidavit or material that prices of billet and its end-products are higher to the extent of Rs.1,000 to Rs. 1,500.00 per M.Ton than the prices of INGOT and its end-products. It is pertinent to note that according to the petitioner the additional burden levied, in the prevailing circumstances would be Rs.2,425.00 per metric ton. 15. With the aforenoted . factors in view, I proceed to examine the contentions of the parties. The contention of the learned counsel for the petitioner noted in para. 5 above to the effect that the delegated legislative power has been abused, may now be considered. The levy of excise duty as well as sales tax on two products at different rates was assailed as discriminatory, unreasonable, irrational and prejudicial to the public interest. It was asserted that legislative power was used to victimize the petitioner in a manner inconsistent with the fundamental right granted under Article 18 of the Constitution which ensures free competition. It was added that the respondent- Government without keeping in view the relevant factors and the purposes for which the power
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vests in it, has exercised the power in most mala fide manner and that the discriminatory treatment given through the notifications amounts to denial of equality. 15-A. Learned counsel in support of the aforenoted submission, relied on; (a) Articles 4, 18 and 25 of the Constitution of Islamic Republic of Pakistan; (b) the principle that the exercise of delegated legislative power like any other administrative or executive power can be subjected to judicial review on the ground of Wednesbury reasonableness. The plea that discretion vesting in the…
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