1999 PLP 301 (YLR)

KAMAL MANSUR ALAM, C.J.-- This petition challenges the demand of Rs.47,70,842, by way of mark-up, made by the respondent No.3, allegedly in pursuance of the amendment in the Drawback (Same State Goods) Rules, 1971. The facts relevant for purposes of this petition are that the petitioner, a foreign engineering contracting company, incorporated under the laws of Guernesy, has been executing several projects for the Government of Pakistan and for purposes of execution of the work assigned to the petitioner, it was allowed by the Government the import of co ruction machineries and equipments in 1992, under different communications containing identical terms and conditions which were in accord with the provisions of the Drawback (Same State Goods) Rules, 1971 then in force, notified under SRO 2(1)/72. One such memorandum, dated 11-5-1992 may be reproduced as follows: "GOVERNM&NT OF PAKISTAN MINISTRY OF FINANCE AND ECONOMIC AFFAIRS (REVENUE DIVISION) C.No.10(18) Islamabad, the 11th Cus.Exh/88 May, 1992 OFFICE MEMORANDUM SUBJECT: ACCEPTANCE OF BANK GUARAN- TEE AGAINST PAYMENT OF IMPORT DUTIES FOR THE TEMPO RARY IMPORT OF CONSTRUCTION PLANT/MACHINERY FOR CONST RUCTION RAWALPINDI GUJRAN WALA HIGHWAY N-5 The undersigned is directed to refer to Ministry of Communications' O.M. No.5(3)/88 Roads (Vo1.II), dated 10-12-1991 on the subject noted above and to say that the Central Board of Revenue is pleased to allow M/s. J&P (Overseas) Ltd., to import construction plant/machinery as per two enclosed attest lists for construction of the above project against Bank Guarantee under claim for drawback as envisaged under SRO 2(1)/72. (a) The identifiable machinery and equipment shall be released against bank guarantee equal to the amount of duties and taxes leviable. (b) This concession will not be available to import on spare parts on which duties and taxes will be paid. (c) National Highway Authority will undertake to arrange for payment of duties and taxes on items sold locally. (d) Full duties and taxes will be charged on machinery equipment destroyed or rendered useless and not re- exported. (e) Duties and taxes as leviable at the time of import shall be paid on machinery/equipment disposed of locally or not-re-exported. (Muhammad Nazim Saleem) Second Secretary (Cu.Ex) Ph.813599 Ministry of Communications (Communication Division), (Mr. Muhammad Riaz Khan, S.O.) Islamabad. " In respect of the six consignments of machineries, and equipments imported by the petitioner in 1992 it furnished the under mentioned bank guarantees for amounts equal to the duties and taxes leviable on each consignment, in terms of the aforesaid letters/Rules. The bank guarantees were initially valid for three years but were later extended upto the end of November, 1997

Bank Guarantee No. Date Amount (Rs)Valid upto G/1417/92/0678 26-5-1992 2,013,392 30-11-1997 LG/1417/92/0955 5-8-1992 2,609,721 30-II-1997 LG/1417/92/0958 5-8-1992 593,750 30-11-1997 LG/1417/92/1060 25-8-1992 689,109 30-11-1997 LG/1417/92/1064 25-8-1992 294,516 30-11-1997 LG/1417/92/1091 1-9-1992 615,000 30-11-1997 These bank guarantees were accepted by the respondents without any objection and the goods were released. Before the expiry of the bank guarantees, the petitioner submitted to respondent No.3 a pay order, dated 21-6-1997 for the sum of Rs.68,15,488 being the aggregate of the amount of the aforesaid bank guarantees and requested for the release of the said bank guarantees. In response to the requests of the petitioner, the respondent No. 3, however, by his letter, dated 27-9-1997 declined to release the bank guarantees unless the petitioner paid the additional amount of Rs.47,70,842 by way of mark-up, failing which, he threatened to encash the bank guarantees. The demanded sum is said to represent mark-up at the rate of 14% per annum on the aggregate of the amounts secured under the bank guarantees, such allegedly having become payable in pursuance of Rule 2-A incorporated in the Drawback (Same State Goods) Rules, through S.R.O. 1087(1) of 1993, dated 8-11-1993, from the date of the amendment till payment of the secured amount. The said Rule 2-A reads as follows: "2-A. Where the importer so elects temporary import of construction machinery, .imported for approved projects in Pakistan, may be allowed subject to the conditions that-- (a) the importer shall pay, 1 /5th of the duty, taxes and surcharges involved at the time of clearance, and shall also furnish a bank guarantee, valid for not less than 5 years, for an amount equivalent to 4/5th of the amount of customs duty, sales tax surcharges involved, and additional surcharge at the rate of fourteen per cent. per annum on the amount of guarantee, and the bank shall guarantee payment of full or part of the said amount and additional surcharge as and when demanded by the Collector of Customs at any time. (b) In case the construction machinery is required to be retained for further period, the importer shall, before the completion of each one year from the date of importation, pay in cash further 1/5th of the duty, sales tax, surcharge and the additional surcharge on that amount from the date of guarantee and may get his guarantee reduced accordingly; (c) on completion of five years from the date of importation or on exportation of the machinery to the satisfaction of the Collector, the guarantee shall be discharged if no amount or additional surcharge remains payable by the party; and (d) if the goods are not exported to the satisfaction of the Collector, this shall constitute an offence in terms of clauses (10-A) and (11) of the Table given below subsection (i) of section 156 of the Customs Act, 1969 (IV of 1969)." The controversy here pertains to the application of Rule 2-A to the present case, the learned counsel for the petitioner contending that Rule 2-A could not be given retrospective effect so as to be made applicable to the imports made by the petitioner in 1992 which had already been cleared under the rule then existing, while the learned Standing Counsel submitting that the petitioner having still not paid the duty and taxes on the consignments when Rule 2-A was incorporated the petitioner became liable to pay mark-up under the new rule from the date its was added. A comparison of the provision of the rule as it stood when the petitioner's consignments were imported as contained in the said memorandum, dated 11-5-1992, reproduced above, with that of Rule 2-A added subsequently would show the marked distinction between the two, the former providing for release of the articles against bank guarantee equal to the amount of duties and taxes as at the time of import and payment of such duties and taxes if the articles were not re-exported, while the latter envisaging payment of 1 /5th of the amount of the duties, taxes and surcharges forthwith at the time of the release of the consignment and the furnishing of bank guarantee in the sum equal to the amount of 4/5th unpaid duties, taxes, etc. together with additional surcharge at the rate of 14 % on the amount of guarantee and in the event of the machineries being retained beyond one year then for each such year, for the next four years, further payments equal to 1 /5th of the duty, taxes etc. together with 14 % additional surcharge and making retention of articles after five years an offence under section 156 of the Customs Act, 1969. It is pertinent that neither under the original rule not under the said memorandum, dated 11-5-1992 was there any provision for the payment of 14% mark-up on the amount of bank guarantee and such provision was for the first time introduced under the said Rule 2-A. Thus, it is obvious that the terms of the earlier rule were much more favourable for the importers than the amended rule. Under the terms of the said memorandum and the rule then applicable, the petitioner was not only entitled to the release of the machineries on furnishing the requisite bank guarantee but also to retain the same in Pakistan on payment of only the duties and taxes as leviable at the time of import. The petitioner having acted upon the representation made in the said memorandum and the then applicable rules, acquired a valuable right to derive benefit thereunder and it cannot be deprived of such benefit by unilateral amendment in the rules through an executive act during the validity of the bank guarantees and subsistence of petitioner's rights. Admittedly petitioner's various consignments were released on different dates in 1992 in terms of the aforementioned memorandum whereas Rule 2-A was incorporated in the Drawback (Same State Goods) Rules by the respondent No. l through notification, dated 8-11-1993, and therefore, its application to the petitioner would amount to giving it retrospective effect, which is not permissible. Following pertinent observation has been made by the Hon'ble Supreme Court in the case of Messrs Army Welfare Sugar Mills Ltd. v. Federation of Pakistan and others, (1992 SCMR 1652): "It seems to be well-settled proposition of law that a notification which purports to impair an existing or vested right or imposes a new liability or obligation, cannot operate retrospectively in the absence of legal sanction, but, the converse i.e., a notification which confers benefit cannot operate retrospectively, does not seem to be correct proposition of law." Petitioner's case having been dealt with under the said memorandum and the original Drawback rule, was a matter past and closed in so far as the new Rule 2-A was concerned, but still if the respondents considered that Rule 2-A applied to the case it was incumbent upon them to have informed the petitioner about the change immediately after the amendment was notified and to call. upon it to comply therewith, for, as mentioned earlier the procedure provided by the new rule was quite distinct from that under the earlier. This would also have afforded the petitioner an opportunity to pay up the leviable duties and taxes forthwith so as to avoid the burden of additional payment of 14 % mark up for the first time introduced by Rule 2-A. No such step was, however, taken by the respondents and what is more when in 1996 the petitioner submitted to the respondents, on their direction, the extension letters from the bank extending the validity of the six bank guarantees upto 30-11-1997, these were accepted without any reservation thereby clearly implying that petitioner's case would continue to be governed by the terms of the said memorandum and the original rule under which the consignments were released. For the reasons discussed above we are of the view that Rule 2-A added to the Drawback (Same State Goods) Rules by notification, dated 8-11-1993 would have no application to petitioner's said consignments, being the subject-matter of the petition, and that the rights and liabilities of the parties in respect thereto would be governed by the terms and conditions as set out under the said memorandum, dated 11-5-1992 and the provisions of the Drawback (Same State Goods) rules as obtaining at the time of release of the said consignments Consequently, we hold that the demand made by the respondents from the petitioner for the payment of Rs.47,70,842 by way of mark up is unwarranted and without lawful authority. Admittedly, the petitioner has already paid to the respondents the sum of Rs.68,15,488 being the full amount of duties and taxes in respect of the said consignments as secured under the six bank guarantees, referred to above, as such we direct the respondents to return to the petitioner all the said bank guarantees duly released. The petition is allowed with cost in the above terms. Q.M.H./M.A.K./J-37/K Petition allowed.