1994 PLP 1251 (CLC)

7. The power of the Central Board of Revenue to levy a fixed amount of duty on the production capacity of a Manufacturing Unit with the permission of the Federal Government can neither be doubted nor has the same been challenged. It is, however, to be noticed that the duty on production capacity can be levied "in lieu of and not "in addition to" the duty under section 3(1) which contemplates the payment of duty on actual production. The expression "in lieu of is understood to have been used as meaning "instead of or "in. substitution of". According to Black's Law Dictionary, Fifth Edition at page 708 "in lieu of means "instead of; in place of; in substitution of". Similar definition appears in Words and Pharases, Permanent Edition, Vol. 21‑A at page 187 wherein it has been stated that these words are synonymous with "instead of; in place of; or in substitution of'.

8. The import of this expression was considered by the Sindh High Court in M/s. Dewan Textile Mills Limited, Karachi v. Pakistan through Ministry of Finance and 3 others (1984 CLC 1740) and it was observed that these words have been used as meaning "in substitution of'. This judgment was upheld by the Supreme Court of Pakistan which dismissed the appeal filed by the Government (Civil Appeal No. ' K‑86 of 1978 decided on 26th September, 1991).

9. It emerges from the above that under section 3(1) the Central Board of Revenue can either levy excise duty on the actual production of the excisable goods or instead thereof, a duty known as duty on production capacity can be imposed under .subsection (4) of section

3. This duty strictly speaking is not excise duty levied under section 3(1) but is the duty which has been imposed in substitution of the excise duty. This distinction further becomes clear when the provision of 4th Schedule of the Constitution of Islamic Republic of Pakistan, 1973 are kept in mind, while Excise duty levied under section 3(1) has reference to item No. 44 of the Schedule which deals with the duties of excises while the duty as contemplated by section 3(4) is relatable to item No. 52 of the Schedule which provides for levy of tax and duty of the production capacity of any plant in lieu of tax and duty specified inter alia in entry No. 44.

10. The judgment of the Sindh High Court in M/s. Dewan Textile Mills Ltd., Karachi v. Pakistan through Ministry of Finance and 3 others (1984 CLC 1740) which was approved by the Supreme Court in Civil Appeal No. K‑86 of 1978 is also to the same effect.

11. Examined in this context, it would be seen that proviso to rule 7 has the effect of combining the two kinds of duties namely, the excise duty leviable under section 3(1) with the duty on production capacity under subsection (4) of section 3 of the Central Excises and Salt Act, 1944. Rule 6 of the Excise Duty on Production Capacity (Aerated Waters) Rules, 1990 itself provides that the tax liability of each factory shall be determined on the basis of annual production capacity worked out on the number of filling valves or spouts in a particular Unit. Rule 7 requires that the number of filling valves or spouts which shall be taken into consideration would be those installed in the filling machines in the factory whether or not the same were in working condition.

12. There cannot be any doubt that these two rules clearly provide for payment of duty contemplated by section 3(4). The proviso, however, is in no manner relatable to the production capacity of the plant. On the other hand, it refers to the excise duty which the manufacturer had paid for the previous year when the duty was worked out on the basis of actual production. The proviso thus clearly travels beyond the scope of section 3(4) and is not sustainable.

13. There is also considerable merit in the other contention raised by the learned counsel for the petitioner that the proviso is discriminatory and creates classification which has no nexus with the object for which the Excise Duty on Production Capacity (Aerated Waters) Rules, 1990, were enforced. Rules 6 and 7 of these Rules ‑require the payment of duty at the fixed rate of Rs.6,50,000 per filling valve or spout installed‑in the factory in respect of those, manufacturers who were producing aerated waters under franchise from Foreign Companies. Consequently, once a fixed amount of duty based upon production capacity has been levied on all manufacturers of foreign brand who are working under similar circumstances namely under franchise from foreign companies, the petitioner cannot be; asked to pay duty in excess of what is being charged from its competitors merely for the reason that in the earlier year when the system of excise duty on production capacity was not in vogue he had paid a higher amount of duty. The petitioner is manufacturing aerated water under the brand name of 7‑Up in Lahore. There are other plants of 7‑Up throughout Pakistan. All these plants are manufacturing the same product. The petitioner has placed on record a table which shows that while the plants of manufacturing/producing 7‑Up at other places are paying duty at the rate of Rs.6,50,000 per spout the petitioner is being asked to pay duty at the rate of Rs.10,38,400 per spout which has the effect of placing additional financial burden on the petitioner as compared to its other competitors.

14. It is correct and cannot be disputed that the equality clause in the Constitution namely Article 25 does not forbid reasonable classification but it is trite law that the classification must not only be reasonable and rational but it should also be based upon intelligent differentia and must have nexus to the purpose for which the law was enacted. It is axiomatic that all persons who are similarly placed in similar circumstances must be treated equally. The statement of law on the subject has, if I may venture to say so with great respect and humility, been summarised with great clarity by the Supreme Court of Pakistan in IA. Sharwani and others v. Government of Pakistan through Secretary, Finance Division, Islamabad and others (1991 SCMR 1041), the following principles laid down in the aforesaid authority may be restated with advantage‑‑ (i) that equal protection of law does not envisage that every citizen is to be treated alike in all circumstances, but it contemplates that persons similarly situated or similarly placed are to be treated alike; (ii) that reasonable classification is permissible but it must be founded on reasonable distinction or reasonable basis; (iii) that different laws can validly be enacted for different sexes, persons in different age groups, persons having different financial standings, and person accused of heinous crimes; (iv) that no standard of universal application to test reasonableness of a classification can be laid down as what may be reasonable classification in a particular set of circumstances may be unreasonable in the other set of circumstances; (v) that a law applying to one person or one class of persons may be Constitutionally valid if there is sufficient basis or reason for it, but a classification which is arbitrary and is not founded on any rational basis is no classification as to warrant its exclusion from the mischief of Article 25; (vi) that equal protection of law means that all persons equally placed be treated alike both in privileges conferred and liabilities imposed; (vii) that in order to make a classification reasonable, it should be based‑ (a) on an intelligible differentia which di4tinguishes persons or things that are grouped together from those who have been left out; (b) that the differentia must have rational nexus to the object sought to be achieved by such classification.

15. Reference may also be made to the decisions of the Supreme Court . Shrin Munir and others v. Government of Punjab through Secretary, Health, Lahore and another (PLD 1990 SC 295) and Inamur Rehman v. Federation of Pakistan and others (1992 SCMR 563) which are instructive. It may be noted that in IA. Sharwani's case (supra), it was held that though it was open to the Government to create two classes of civil servants namely those still in service and the others who have retired but there was no justification for treating some retired Government servants differently from others only on the basis of date of retirement. Similarly, in Inam‑ur‑Rehman v. Federation of Pakistan and others (1992 SCMR 563) the provisions of Foreign Exchange (Prevention of Payments) Act, 1972 were struck down as being discriminatory as it was found that there was no reasonable classification nor was it based upon intelligible differentia.

16. In the present case, it is also to be seen that the object of framing rule 7, as already observed, is to levy tax on the production capacity of the plant which has to be worked out on the basis of a formula evolved by the respondents themselves. In these circumstances, to classify the petitioner separately from other manufacturers merely for the reason of payment of higher amount of excise duty at a time when the duty was not on production capacity but on actual production cannot be countenanced.

17. Before parting with this aspect, reference may be made to certain decisions of the American Supreme Court. In the case of Sunday Lake Iron Co. v. Wakefield Twp. 247 U.S. 350, while dealing with the equal protection clause of 14th Amendment to the Constitution, it was observed:‑ "The purpose of the equal protection clause of the 14th Amendment is to secure every person within the State jurisdiction against intentional and arbitrary discrimination, whether occasioned by express terms of a Statute or by its improper execution through duly constituted agents. And it must be regarded as settled that intentional, systamic under valuation by State officials of other taxable property in the same class contravenes the Constitutional right of one taxed upon the full value of his property." To the same effect is the judgment of Raymond v. Chicago Union Traction Co. 207 U.S.

20. In Sioux City Bridge Company v. Dakota County, Nebraska (67 L.Ed. 340 (U.S. Supreme Court), it was observed that a bridge Company is denied the equal protection of the laws in violation of 14th Amendment to the Federal Constitution by assessment of its property at full value while other property in the county is assessed at only fifty‑five one‑hundredths of its value.

18. The other reason for which the proviso is not sustainable is that it is on the face of it unreasonable. The only ground for taxing the petitioner at a higher rate is that he had in an earlier year as compared to persons having similar plants and were placed in similar circumstances paid a higher amount of duty. There is no further requirement in the Rules that there should be a determination as to whether the tax paid by a particular concern was in accordance with its actual liability or has the Manufacturing Unit not been guilty of evasion of duty. In the absence of any such provision I agree with the learned counsel that to require the petitioner to pay a higher amount of duty under a different system would tantamount to punishing it for its honesty.

19. As regards the arguments of the learned Deputy Attorney‑General that the petitioner was a party to a formula which was worked out with its consent, nothing has been placed on record to support this plea. The only reliance of the learned Deputy Attorney‑General was upon correspondence between the respondents and the Beverage Manufacturers Association of which the petitioner is a Member. Even if the Association had consented to the levy of duty in question, as there was no specific consent by the petitioner itself, it cannot be non‑suited on this ground. It has also been pointed out by the learned counsel for the petitioner that the petitioner had been agitating against this system of taxation stating that the majority of the members of the association was trying to take undue benefit of their position. The petitioner has placed on record letter dated 9‑4‑1991 (Annexure `E') and the telex message in this behalf which support this contention. In view of above, this petition is allowed and the impugned action of the respondents is declared to have been passed without any lawful authority and of no legal effect. No order as to costs. Rules struck down as ultra vires. H.B.T./S‑442/1 Petition allowed,