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Petitioner: Messrs PAK OCEAN and others VS Respondent: GOVERNMENT OF PAKISTAN through JUDGMENT
Court Name: Sindh High Court Judge(s): Ata-ur-Rehman, Muhammad Mujeebullah Siddiqui Title:Messrs PAK OCEAN and others vs GOVERNMENT OF PAKISTAN through
JUDGMENT
Reported As: 2002 PTD 2850 Result: Petitions allowed Judgment JUDGMENT MUHAMMAD MUJEEBULLAH SIDDIQUI, J.---A common question of law has been raised in all the above petitions, therefore, all the above petitions have been heard together and are disposed of by this single judgment. C.P. No. 970 of 1991 is treated as the leading petition and for the sake of convenience the facts are taken from the said petition. Following relief has been sought in C.P. No. 970 of 1991:---"This Hon'ble Court may be pleased to--- (1) declare the imposition of regulatory duty on remeltable iron and scrap in loose form and the grant of exemption to importers of bundled and shredded scrap through Notifications No. S.R.O. 91, dated 27-6-1991, in exercise of power under sections 18(2) and section 19 are unlawful, mala fide, arbitrary, unreasonable, and in violation of Articles 4, 18, 24, 25, 77 read with Article 2A of the Constitution; (2) declare that the exercise of discretionary power under sections 18(2) and 19 of the Customs Act can only be exercised in such manner and subject to such limitations as prescribed by law; (3) direct the respondent No.3 to stop charging the petitioner the regulatory duty; (4) direct the respondent No.3 to refund the customs duty charged and paid, if any, in excess of the just and proper rate; (5) declare that section 31-A of the Customs Act is violative of the Constitution; (6) direct the respondents to protect the L/Cs opened prior to 27-6-1991" 2. In all other petitions similar relief has been sought, although grounds have been couched in different language.
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3. The relevant facts are that the petitioners are importers of remeltable iron and steel scrap in loose form, from various countries. The said scrap is classified under PCT heading No.72.04 (7204.4900). The said remeltable iron and steel scrap loose form, as well as bundled and shredded scrap are primarily used in the manufacturing of billets. All of them are classified as remeltable iron and steel scrap. The steel scrap in loose form is generally imported by small businessmen, while shredded scrap and bundled scrap is primarily imported by large businessmen who order huge consignments. A. Prior to 27-6-1991 the customs duty on all forms of scrap was Rs.1,500 per metric ton and the sales tax was 12.5%. There was no difference in the duty structure of iron ad steel remeltrable scrap imported in Pakistan in loose, bundled or shredded form. 5. The petitioners entered into binding contract with sellers in foreign countries prior to 27-6-1991 for the import of remeltable iron and steel scrap. They opened irrevocable letter of credit as well. The consignment arrived after 27-6-1991. On arrival of consignment, the landed cost increased tremendously because of change in the duty structure and imposition of regulatory duty. Prior to 27-6-1991, there was no regulatory duty on import of scrap on any form. Vide Notification No.Ni1/91, dated 27-6-1991, the respondent No.1, Government of Pakistan through Ministry of Finance, in exercise of powers under section 18(2) of the Customs Act, 1969 amended the Notification No.S.R.O. 702(1)/90, dated 1-7-1990 and imposed regulatory duty of Rs.1,500 per M.T. On all forms of remeltable iron scrap excluding bundled and shredded scrap of iron and steel, PCT heading No.7204.4100. On the same day another Notification No.Ni1/91, was issued by the respondent No. 1, in exercise of powers under section 19 of the Customs Act, 1969, thereby reducing the rate of duty on shredded and bundled iron and steel, from Rs.1,500 per M.T. To R.s.500 per M.T. 7. It is contended by the petitioners that the imposition of regulatory duty on remeltable iron scrap, excluding bundled and shredded scrap and the reduction in the rate of duty on bundled and shredded scrap is unlawful, arbitrary, unreasonable and ultra vires the Articles 4, 18, 24 and 25 of the. Constitution. It is further averred that the said imposition of regulatory duty is without reference to international ruling prices, proper analysis and investigation. According to petitioners, the grant of exemption to the importers of bundled and shredded scrap is unreasonable and arbitrary as both types are used for exactly the same purpose. The result of discrimination is that the iron and steel scrap imported in loose form by the petitioners has become very expensive as compared to the imports by big businessm en in the form of bundled and shredded scrap. The petitioners have further expressed grievance that the Customs Authorities have further increased the ITP value of the consignment imported by the petitioners at U.S. Dollars 160 per metric ton, while they have reduced the ITP value of shredded scrap to U.S. Dollars 140 per M.T. According to petitioners this action is calculated to solely benefit the owners of the furnaces who are large imported of shredded scrap. The petitioners have alleged that the action per se is mala fide. 8. The petitioners have further submitted that while presenting the budget, the Hon'ble Finance Minister had assured the business community that no duty will be imposed de hors the budget. The petitioners on the said assurances had entered into binding contract with the sellers to import scrap. Similar , assurances were given to the importers of sugar and the exporters of yarn and in pursuance of the said assurances benefit was extended to the importers/exporters of sugar, yarn and their letters of credit opened up to a particular specified date were protected. It has been urged that the failure to protect letters of credit opened by. Petitioners, vis-a-vis, as done in the caseof sugar and yarn, is unreasonable and discriminatory. It is stated by the petitioners that the effect of the Notifications, dated 27-6-199.1, is the net increase in the duty to Rs.4,669 per M.T. In respect of the import of scrap in loose form while in the case of import of shredded scrap, the duty has been reduced to Rs.1,648 and on bundled scrap to Rs.1,608 per M.T. The said discrepancy in the rate of duty will have a crippling effect on the business of the petitioners who are small importers of
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remeltable iron and steel scrap and cannot afford to purchase bundled or shredded scrap. The very survival of the petitioner is at stake as the landed cost of the petitioners has increased to Rs.9,200. P.M.T. While the price of the remeltable iron and scrap in loose form is approximately Rs.6,200 P.M.T. The landed cost of the shredded and bundled scrap is considerably lower than its selling price of Rs.6,500. The petitioners in order to remain in the business have to sell at a loss of Rs.3,000 per metric ton. According to the petitioners, the schedule of duty payable after 27-6-1991 on remeltable iron and steel scrap in shredded, bundled and loose form is as under:--- Name of ProductRate of Duty R. D. Total Duty Per Metric Ton. Shredded scrap Rs.500 Rs.1648 Binded scrap Rs.500 Rs.160,8 Loose Form Rs.1500 Rs.1500 Rs.4669 9. Prior to the imposition of regulatory duty, the total duty on import of scrap on loose form was Rs.2,883 with the imposition of regulatory duty, there is an increase of Rs. 1,836 P.M.T. Prior to 27-6- 1991, the importers of bundled scrap were also required to pay same amount as payable by importers of scrap in loose form but after 26-7-1991, they have to pay Rs.1,648 and Rs.1,608 per metric ton, only thus enabling the large importers and owners of furnaces to make windfall profits as their landed cost has fallen while that of the petitioners has increased. The grievance of the petitioners is that they have been arbitrarily and unreasonably discriminated against, vis-a-vis, the importers of shreded and bundled iron and steel scrap through the medium of imposition of regulatory duty and simultaneous exemption to the bundled and shredded scrap and the increase in the ITP value. They have pleaded that the power to impose regulatory duty and simultaneously to grant reduction to sub-class cannot be done in a manner to cause loss to the petitioners. It is further contended that the power to impose regulatory duty has been exercised to cause irreparable loss to the petitioners for the reasons other than to protect any local industry or trade or balance anything whatsoever. 10. According to petitioners the exercise of powers under section 18(2) and section 19 of the Customs Act, is an exercise of discretion under a legislative framework. The power under section 18(2) is exercisable conditionally after properly ascertaining the co. Rect price level and after proper investigation. The respondent No.1, has no original power of taxation and the delegated authority has been exercised in an oppressive and unjust manner. All the three forms of scrap imported in Pakistan were classified under the same PTC heading 72.04. There was no difference in the duties on all the three items of iron and steel scrap. Through the arbitrary exercise irrational classification based on no objective criteria has been made. A discriminatory treatment has been given to the importers of iron and scrap in loose form, vis-a-vis, the importers of iron and scrap in bundled and shredded form. According to the petitioners this distinction and discrimination is unlawful and violative of Article 25 of the Constitution read with Article 2A of the Constitution. The petitioners have assailed the imposition of regulatory duty on import of iron and steel scrap in loose form simultaneously granting exemption of iron and steel in bundled and shredded form and other reduction of custom duty on importers of bundled and shredded scrap as unlawful exercise of discretion and liable to be struck down because of the apparent mala fide as the purpose is to benefit the importers of shredded and bundled scrap and the owners of the furnaces who buy shredded scrap in bulk. It is alleged that it is ultra vires the fundamental rights and Article 18 and 24 of the Constitution and is consequently void. 11. The respondent No.3, in its para-wise comments has taken plea that the decrease on the duty of shredded and bundled scrap and the imposition of regulatory duty on remeltable scrap is in accordance with the provisions of Customs Act, 1969. Regarding the fixation of ITP, in respect of
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shredded scrap and the loose scrap at U.S. Dollars 140 per metric ton, and U.S. Dollars 160 per M.T. It has been stated that the value has been fixed considering the prices of shredded scrap in the international market. It has been alleged that the value of loose scrap is higher in the international market as compared to shredded scrap. According to respondent No.3, the loose remeltable scrap generally consists of large portion of rerollable and serviceable items/auto parts and for that reason the value of loose scrap has been fixed higher than the shredded scrap. 12. The comments of respondents No.2, has also been placed on record which are contained in the letter, dated 17th May, 1993, addressed to the Collector of Customs (Appraisement), Custom House, Karachi, which contains the rationale for reducing the rate of duty on shredded and bundled scrap and levying regulatory duty on scrap other than bundled and shredded scrap. It is stated in the above letter that the exercise to revise duty structure on iron and steel scrap was undertaken in early 1991 because Pakistan. Steel, Re-melters as well as ship-breakers had shown reservations about the duty structure on scrap and the end products thereof and had persistently been agitating for its review. Under the directive of the Finance Minister, a meeting was held on 21-2-1991 with the representatives of the three groups under the Chairmanship of Deputy Chairman, Planning Commission, to understand their problems regarding tax structure on the steel industry. During the meeting, all the groups strongly agitated against lower rate of duty on the import of re-rollable scrap and proposed that a uniform high rate of duty be fixed on all scrap other than shredded and bundled scrap, as was the case prior to 1987. Till 1987 all scrap other than shredded and bundled scrap was being assessed as one category at a uniform rate of duty which had not only eliminated the misdeclaration and the classification disputes in the import of scrap but also protected the interest of local industry adequately. To further analyse the price structure of iron and steel products a meeting was again held with the representatives of Pakistan Ship-Breakers Association and Pakistan Steel Re-Melters Association on 28-5-1991, under the Chairmanship of Deputy Chairman, Planning Commission. The representatives of Pakistan Steel Re-Melters Association pointed out that the local manufacturers of ingots and billets were facing adverse competition from the importers of re-rollable scrap and the low price of Pakistan Steel billets was affecting marketability of their products. The representatives of Ship-Breakers Association stated that ship- breaking industry had been on the decline since past few years due to high prices of ships meant for breaking. They expressed apprehension that any revision in the duty structure to the detriment of ship breaking industry will result in the total closure of this industry. It was pointed out to ship- breakers that in the previous meeting they had accepted a duty differential of Rs.500 between re- meltable scrap and ships for breaking and the position had not materially altered since then. They reluctantly accepted this position. After listening to the view points of the representatives of Pakistan Ship-Breakers Association and Pakistan Steel Melters Association, the following recommendations were formulated in the meeting under the Chairmanship of Deputy Chairman, Planning Commission: --- (i) Customs duty on shredded and bundled scrap falling .Under heading 72.04.4000 may be reduced from Rs.1,500 P.M.T. To Rs.500 P.M.T. (ii) Customs duty on all other items under heading 72.04 may be fixed at Rs.3000 P.M.T. (iii) Customs duty on ships for breaking may be reduced from Rs1,500 P.M.T. To Rs.1,000 P.M.T. These proposals were later on submitted to the ECC who approved this duty structure and accordingly the same was notified. It was the policy decision of the Government and the C.B.R. Was bound to notify the same. 13. The above explanation and rationale was given by the C.B.R. In reply to the letter written by Collector of Customs (Appraisement) with reference to the plea taken on behalf of petitioners in this Court in C.P. No. 970 of 1991 and C.P. No. 1541 of 1991. The C.B.R. Was informed that the advocates
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for the petitioners have agitated a question of discrimination between re-meltable scrap other than bundled and shredded scrap and re-meltable scrap in bundled and shredded form stating that both the categories of scrap are usable for one and same purpose i.e. Remelting and as such rationale of discrimination of levying customs duty of lesser rate of shredded and bundled scrap, vis-a-vis, remeltable scrap other than bundled/shredded need to be explained by the Government. The Collector of Customs, had further informed the C.B.R. That the High Court has directed the Collector to explain policy rationale of this decision. The Collector had requested that the rationale for policy decision to charge the two categories of scrap to different rates of customs duty and the basis for increasing customs duty on one type of scrap and reducing on the other should be explained by the Federal Government. In reply to the above query the explanation was furnished as above. A comparative chart was also placed on record showing duty structure of waste and scrap of iron and steel from the year 1985 to the year 1992, which reads as follows:--- DUTY STRUCTURE OF WASTE AND SCRAP OF IRON OR STEEL 1985 1986 PCT Heading No.Description Customs DutySales Tax Customs DutySales Tax 73.03 (Old) 72.04 (H.S)Shredded & bundled30%Ad. Vol.FreeRs.418/m. ton Free 73.03 (Old) Other than sharedded and bundled70%Ad. Vol.FreeRs.418/m. ton Rs.650/m. ton Net effect should be Rs.1070/m. ton12.5% 1988 to 1991 Custom Duct Sales taxCustoms Duty Sales Tax Rs. 1000/m. ton Statuary rate was @ Rs.1500/m. tonFree Rs.500/m. ton +10% Ad. Vol.12.5% Rs.1070/m. ton 12.5 % Rs.1500/m. ton +10%Ad. Vol. + R. D @ Rs.1500/m. ton12.5 % 14. Heard Mr. Khalid Anwar, learned counsel for the petitioners and Syed Tariq Ali, learned Standing Counsel for the respondents. 15. Mr. Khalid Anwar, learned counsel for the petitioners submitted that all the three kinds of scrap namely loose form, bundled form and shredded form, are used for re-melting and manufacturing of iron ingots and billets. He has further submitted that the import of bundled and shredded forms require in large investment as well as possession of furnace for manufacturing of end product and therefore, the big businessm en having large capacity can afford to import the iron scrap in bundled and shredded form. The small investors and businessmen can afford to import the scrap in loose form only. It is imported by small traders as well. He has submitted that the parawise comments and the explanation of C.B.R, placed on record, containing so-called rationale, for increasing the duty on the import of scrap in loose form and reducing the duty on bundled and shredded form, does not contain any denial of the assertion that all the three kinds of scrap are used or manufacturing the same end product. He has further contended that a comparative charge placed on record shows that before imposition of regulatory duty on re-meltable scrap other than bundled and shredded scrap, the landed costs of loose re-meltable scrap was Rs.7,148 while that of shredded scrap was Rs.7,314. The market sale price of loose re-meltable scrap was between .Rs.7,200 to Rs. 7,400, with profit of Rs,52 to Rs.252 per ton. In the case of shredded scrap
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the market sale price was 7,500 to 7,600 per ton, with profit of Rs.186 to Rs.264 per ton. The market price of the billets manufactured from loose re-meltable scrap as well shredded scrap was from Rs.10,300 to Rs.10,500 per ton. After the imposition of customs duty, the structure of landed cost of loose re-meltable strap from middle East has increased to Rs.9,075 while from the same sources the landed cost of shredded scrap has decreased to Rs.5,874. The market sale price of loose re- meltable scrap is Rs..6,000 to 6,200 per ton, with the result that such importers have to suffer loss of Rs.3,000 per ton on, sale of the scrap while the importers of shredded scrap earn the profit of Rs.600 per ton. The market sale price of billets manufactured from both kinds of scrap was between Rs.10,300 to Rs.10,400. He has submitted that the respondents could not deny the end product of all the three kinds of scrap is same. He has further submitted that from 1966 to 1982 there was no difference of duty on the import of loose scrap and shredded scrap. He further submitted that according to the chart prepared by respondents themselves, the rate of customs duty was same on all the three kinds of imported scrap prior to the change in duty structure. In support of his contention he has produced relevant extract from the Pakistan Customs Tariff, published the Customs House Karachi, Bird, IVth and Vth Addition. He has further submitted that in the explanation containing so-called rationale no representation was given to the commercial importers, small traders and the small manufacturers. He has vehemently argued that the entire exercise was mala fide as in the rationale furnished on behalf of the respondents it is not shown that any protection was given to any local industry with the imposition of regulatory duty and change in the structure of customs duty whereby on the import of loose re-meltable scrap custody duty of Rs.1,500 P.M.T. Was retained while on import of shredded and bundled form it was reduced from Rs.1,500 to Rs. 500 P.M.T. It is manifestly against the principles of equality, equal protection for carrying on business, as well as the principles of justice firmly enshrined in Holy 'Qur'an' and Sunnah. He has contended that the entire exercise was mala fide and for the purpose of giving undue favour and advantage to big importers and investors thereby crippling and totally destroying the business carried on by the small traders and importers. According to him the impugned notifications are therefore, violative of Articles 2-A, 4, 18 and 25 of the Constitution and such are liable to be struck down being violative of the fundamental rights granted in the Constitution. Mr. Khalid Anwar has placed reliance on the following judgments:--- (1) Ittefaq Foundry v. Federation of Pakistan PLD 1990 Lah. 121; (2) Collector of Customs, Excise and Sales Tax, Peshawar v. Messrs Flying Kraft Paper Mills (Pvt. ) Ltd. 1999 SCMR 709; (3) Messrs Central Iniurance Co. v. The Central Board of Revenue, Islamabad 1993 PTD 766; (4) M.A. Rahman v. Federation of Pakistan 1988 SCMR 691 and (5) Iqbal Akhtar v. Ch. Muhammad Mushtaq PLD 1977 Lah. 1318. He has further submitted that the tax imposed by the impugned notifications on the import of scrap in loose form being arbitrary militates against the principles contained in Article 77 of the Constitution as well. 16. On the other hand Mr. Tariq Ali, learned Standing. Counsel for the Federation has supported impugned notifications. He has reiterated the version contained in the parawise comments filed on behalf of respondent No.3 and in the letter, dated 17-5-1993, by the C.B.R.. Addressed to the Collector of Customs (Appraisement). He has contended that the petitioners can import the scrap in bundled and shredded form instead of insisting for import of scrap in loose form. He has further stated that the relief can be given to the petitioners to the extent of import already made but no relief can be allowed in respect of the subsequent import. 17. Marshalling of facts, in the narrative part of judgment has sufficiently depicted the factual aspects. Now we will take up the judgments cited by Mr. Khalid Anwar in support of his contention
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that the impugned notifications militate against the principles of equality before the law and equal protection under the law, enshrined in the Constitution. 18. With all due deference to the learned counsel for the petitioners, we are of the opinion that the ratio in the cases of Iqbal Akhtar v. Ch. Mushtaq PLD 1977 Lah. 1318, M.A. Rehman v. Federation of Pakistan 1988 SCMR 691 and Messrs. Central Insurance Co. v. The Central Board of Revenue. Islamabad 1993 PTD 766, are not relevant to the issue under consideration. 19. In the case of Ittefaq Foundry y. Federation of Pakistan (supra), the relevant facts were that the petitioner was producer of semi-finished products for steel industry in Pakistan. It was primarily producing billets. It was contended that other producers were producing similar products with the nomenclature of ingot. According to petitioners, the billets and ingots were used for entirely identical purposes and products, and the only difference was of implying different casting system and process for giving the shape. It was further stated that both ingots and billets were taxed or exempted from tax in absolutely identical terms year after year and the petitioner on the assumption that the tax burden on goods produced by them would be the same, produced large quantities of goods. However, additional burden of Excise Duty and Sales Tax was imposed on the billets by the notification impugned in the cited petition which rendered the sale of billets produced by the petitioner unsaleable. It was pleaded that the change in the policy was calculated to cripple the petitioner who was engaged in producing the billets whose use was exactly the same as that of ingots. 20. The case of the petitioner in the cited case was that traditionally duties and taxes were akin in order to maintain parity of cost as both were meant to roll similar finished products and hence the cost of production of both the items had to be equivalent. It was pleaded that the levy of additional tax on billets places unreasonable burden on the producers of Billets specially the petitioner who is the major producer of billet in the private sector and as such this action was violative of Article .18 of the Constitution. It was urged that the Government had not disclosed any basis or reason for giving different treatment to the two products which were being taxed in the earlier years at the same rate. It was asserted that the delegated legislative authority was abused and was exercised in mala fide manner, which was directed to put the petitioner out of market. 21. In the written statement filed by Assistant C011ector, Central Excise, a plea was…
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