EXPORT TARGETS SPECIFIED IN S.R.O. 554(1)98 VIS-A-VIS TO THOSE SPECIFIED IN S.R.O. 27(I)/98 AND S.R.O. 439(I)/2001

EXPORT TARGETS SPECIFIED IN S <!--[if gte mso 10]> EXPORT TARGETS SPECIFIED IN S.R.O. 554(1)98 VIS-A-VIS TO THOSE SPECIFIED IN S.R.O. 27(I)/98 AND S.R.O. 439(I)/2001 By By Mr. Akhtar Javed, Advocate, Lahore Under S. R. O. 554(I)/98 dated 12-6-1998, the Federal Government has granted exemption of customs duty and sales tax on machinery, as is not manufactured locally, if imported for setting up a manufacturing unit or for expansion, balancing, modernization and replacement of existing units in bond subject to certain conditions inter alia including that the unit achieves export targets specified in the Table given below the said notification for a period of 5 years. 2. In terms of the aforesaid provisions, the unit availing exemption on import of machinery for setting up a new textile unit in bond is required to export 50% of the value of actual production in first two years and 60% of the value of actual production in next three years. 3. The Collectorate of Customs, Faisalabad, made out a case against Messrs Nawab Exports, Punj Puli, Sargodha Road, Faisalabad for not achieving the export targets specified in the aforesaid S.R.O. The Collectorate was of the view that the unit was required to export 50% of the value of actual production in each of the first two years and 60% of the value of actual production in each of the next three years. The unit was of the view that in terms of the export targets specified in the Table of the said notification, they were required to achieve cumulative export target of 50% during the first two years and 60% during the next three years. 4. The matter was referred to C.B.R. Vide is Letter C. No. 5(65)EP/2003 dated 15-12-2003, C.B.R. has been pleased to observe that the said notification clearly requires achievement of cumulative target of 50% of the production during the first two years and 60% during the next three years. It has been further observed that the plain reading of the S.R.O. suggests that there is no provision of achievement of annual export target. It has been further observed that Collectorate of Customs, Faisalabad was not justified in demanding the exporters to meet annual export target and the contravention case framed by Collectorate of Faisalabad is without legal effect. 5. C.B.R.'s aforesaid clarification is in contradiction with its earlier ruling issued in respect of S.R.O. 27(I)/98 dated 17-1-1998. Under the said S.R.O. the Federal Government had granted exemption on import of machinery subject to certain conditions inter alia including export industry which annual exports minimum average 50% of its production in first 10 years. A case was framed against Messrs Reshmatex Ltd. wherein the Directorate of Customs Intelligence had alleged that the unit was required to export 50% of its production in each of first 10 years. C.B.R. vide its Letter C.No. 1(4)Mach./98/PT-I dated 7-3-2000 confirmed this view point in the following words: "An export unit is required to annually export minimum 50% of its production in first ten years which means that a unit must annually export 50% of whatever it produces in a given year". 6. As S.R.O. 27(I)/98 was issued in pursuance of Investment Policy 1997 framed by Board of Investment in order to attract foreign investment in Pakistan, Messrs Reshmatex Ltd. referred the issue to BoI with a request to confirm that in cases where the units had availed exemption of S.R.O. 27(I)/98 under the category of export industries, these units were required to export average of 50% of their total production of first 10 years and this average was to be calculated at the end of first 10 years. 7. BoI vide its letter, Letter No. 8(1)/98-PP (II) dated 10th February, 2003 communicated its view to C.B.R. in the following words: "the export industries have to annually export minimum average 50% of its production in first 10 years and for expansion of existing unit, they should export 50% of additional capacity created under expansion under S.R.O. 439(1)/2001. This does not mean that such units have to export 50% of production of each of first ten years-rather the average of 10 years export should meet the criteria of 50% export of annual production. However, the export performance has to be monitored by the concerned customs authorities." 8. On receipt of BoI letter dated 10-2-2003, C.B.R. vide its Letter 1(27)Mach./99 dated 24-4-2003 requested BoI to re-examine the issue and give its considered opinion. 9. In response to C.B.R's. letter dated 24.02.2003, BoI vide its letter dated 7-4-2003, has reiterated its earlier view and has given its considered opinion in the following words:--‑ "3. In this regard, BOI is of the opinion that the units are required to export average 50% of their production on yearly basis for first ten years. In case they fail to accomplish this in any given year, they may do so in the next year or later but within a period of 10 years. The C.B.R. is required to monitor the exports for 10 years in either case i.e. whether this is 50% export each year or this is on the basis of 50% average for 10 years. 4. In case C.B.R. have a different point of view, a meeting with APTMA/FPCC&I may be convened to resolve the issue. BoI, however, still feel that a lenient view may be taken favouring the private sector and extending them total support to help achieve their export targets." 10. In spite of categorical clarification of BoI and without giving any plausible reason and justification, C.B.R. vide its letter C.No. 1/27/Mach/99 dated 19-4-2003 informed Messrs Reshmatex Ltd. that it reiterates its stance as had been communicated vide its letter dated 7-3-2003 which implies that a unit was required to export minimum 50% of its production in each of the first ten years. 11. While issuing its letter dated 19-4-2003, C.B.R. has miserably failed to appreciate the fact that the four notifications inter alia including S.R.O. 27(I)/98 dated 17-1-1998 were issued in pursuance of Investment Policy-1997 framed by Board of Investment and it is only BoI which knows the rationale and spirit behind these notifications. It has been a practice and policy of C.B.R. that every ruling and clarification pertaining to these notifications had been issued only after seeking advice of BoI. C.B.R's. letter dated 7-3-2000 was issued without seeking an advice from BoI. However, C.B.R. is still adamant and has reiterated its earlier view without taking into account the considered view of BoI and without giving any argument as to why it does not agree with BoI. C.B.R. has not explained as to how it interprets the word "average" available in the notifications. The language of the S.R.Os. is as follows:--‑ S.R.O. 27(I)/98.---The unit annually exports minimum average 50% of its production in first 10 years. S.R.O. 369(I)/2000.---The export industry annually exports minimum average 50% of its production in first 10 years. S.R.O. 439(I)/2001.---The export industry annually exports minimum average 50% of its production in first 10 years. 12. The word average negates the view point of C.B.R. The word average as has been defined at page 94 in Webster's New World Dictionary, 3rd College Edition as the numerical result obtained by dividing the sum of two or more quantities by the number of quantifies; an arithmetic mean; at page 70 in Oxford Advanced Learner Dictionary, as calculated by adding several amounts together, finding a total, and dividing the total by the number of amounts; at page 135 of Black's Law Dictionary, 6th Edition as a mean proportion, medial sum or quantity, made out of unequal sums or quantities; 13. A perusal of the definitions from various dictionaries given in above paragraph clearly reveal that the Legislature required the units importing machinery under concessionary Notification S.R.O. 27(I)/98 to export a mean proportion of unequal quantities of its production during the first 10 years starting from the import of machinery. 14. In the light of above submissions, Messrs Reshmatex Ltd. has requested Chairman BoI to intervene and advise C.B.R. not to stick to its unlawful interpretation and take a pragmatic view in order to encourage the investors who had made investment in view of Investment Policy framed by Government of Pakistan. However, instead of a pragmatic view, C.B.R. has made a reference to Law Division for an opinion which is pending since last more than six months. 15. Now C.B.R. has issued a clarification in respect of export targets specified in S.R.O. 554(I)/98 dated 12-6-1998 wherein it has been ruled that the unit importing 'machinery under the said S.R.O. is required to achieve cumulative 50% of value of its production in first two years. It is to note that S.R.O. 27(I)/98 specified export targets of minimum average 50% of production in first 10 years whereas the word "average" is not available in S.R.O. 554(I)/98. These two contradictory interpretations/ rulings of C.B.R. speaks of maladministration of C.B.R. officials and is a classical example of bureaucratic inefficiency which has shaken the confidence of those investors who had invested millions of rupees on the promise of Federal Government.