1992 PLP 710 (SCMR)

SHAFIUR RAHMAN, J.‑‑‑Leave to appeal was` granted to examine, inter alias the following questions of law arising in all the above appeals:‑

"(i) Whether Central Excise duty is liable on ship plates etc. which are recovered from ships anti vessels through a process of manufacture by dismantling a ship or vessel. Intermediate products for re-rolling mills is obtained. These are identifiable finished products and as such are covered by the definition of "manufacture". (ii) By dismantling or breaking of a ship, a new product is obtained losing its original character having no relation with the "raw material" and goods of higher value are obtained. (iii) Central Excise duty is not levied on the ship or vessel, it is levied instead or ship plates etc. obtained through a process of "manufacture. (iv) What is the meaning and import of the Word Manufacture'.

2. The writ petitioners were all engaged in the industrial activity of ship‑breaking. For the aforesaid purpose, they purchased, imported and brought to Gaddani ships which were due for breaking. They paid the duties that were due at the stage of import. The dispute in these appeals is confined to a duty which was imposed by Ordinance No.III of 1988 (Central Excises and Salt Act (Amendment) Ordinance, 1988) promulgated on 14‑7‑1988, whereby a new entry bearing No.09.07 was added to the first Schedule in Part I, Section IX of the Central Excises and Salt Act, 1944 (I of 1944

‑‑ hereinafter referred to as the Act) in the following words:‑

"09.07 IRON AND STEEL PLATES. Iror, and steel plates, all sorts, Two thousand rupees per, including ship plates, sheets, slabs tonne." and flat bars of all sizes and shapes as are recovered through any . press of dismantling or breaking of ships and vessels. 'This entry was also given effect to by the Finance (Revised) Ordinance, 1988 (Ordinance XXD of 1988) promulgated on 26‑10‑1988. Ordinance No.III of 1988 was, however, repealed by the Tax Laws (Repeal) Ordinance, 1988 (Ordinance XXIII of 1988), leaving Ordinance XXII in the field, which ultimately came to be incorporated in Act. VI of 1988.

3. The day on which the Ordinance No.III was promulgated, i.e. 14‑7‑1988, the Government of Pakistan issued a notification in exercise of the powers conferred by subsection (1) of section 12‑A of the Act directing certain amendments to be made in its earlier exemption notification, the result of which was that the duty on iron and steel plates recovered through any process. of dismantling or breaking of ships and vessels from that portion of excise duty which exceeded Rs.600 per tonne was exempted. In this manner, the excise duty, which was fixed by the Ordinance at Rs.2,000 per tonne was by this process of exemption reduced to Rs.600 per tonne. When the recovery of this duty was undertaken, a ‑,dispute was raised on two grounds. In the first places it was contended by some of the "Writ petitioners that as they had already completed the ship breaking and recovered the excisable articles before the enforcement of Ordinance on 14th of July, 1988 process of manufacture even if it be taken to be a manufacture was complete and was not dependent on its removal. Hence, no duty was leviable as the process of manufacture was over before coming into force of the Ordinance. The other ground and a more pervasive one was that the word "manufacture" as defined in the Act did not include within its purview `ship breaking'. Excise duty, according to this contention, was leviable on `manufacture', and `ship breaking' being not a part of the `manufacture' in Pakistan, none of the provisions of the Act were applicable for levying a duty on the articles recovered as a result of ship breaking including the iron plates. According to this view, the articles recovered were already manufactured abroad and not in Pakistan. Hence, they could not be made the subject‑matter of levy of excise duty.

4. In contesting the Constitution Petitions the Federation of Pakistan and its functionaries had taken up the position that a manufacture did include the activity of dismantling or breaking of a ship because as a result thereof, a new product was obtained which was distinct and different from the original and was of higher value. As regards the stage of levy of the excise duty, reliance was placed on section 3‑C of the Act which prescribed as hereunder:‑

"3‑C. Determination of tariff value and rate of duty; ‑The tariff value of, and the rate of duty applicable to, any goods or services shall be the tariff value and the rate of duty in force:‑-- (a) in the case of goods, of the date on which the goods are cleared for export or for home consumption; and (b) in the case of services, on the date on which the services are provided or rendered." S. By the impugned judgments, the High Court came, to the conclusion that ship breaking was not `manufacture' as defined in the Act and as excise duty was confined to manufacturing of goods, it could not be levied on the products recovered as a result‑of ship‑breaking. Secondly, it was held that the goods recovered by ship breaking are all manufactured goods of foreign origin and having not been manufactured in Pakistan, they were not liable to duty. The principle in interpreting fiscal statutes namely of the imposition coming within the letter of law and not its spirit was adopted, the rule of strict in law was enforced and on that view the goods were held to be not manufactured in Pakistan. Section 3‑C was held to be analogous to section 3(301 of the Customs Act and it was held that it was not a charging provision but a provision relating to assessment of the dues of which the liability arose with manufacture. However, as the process of manufacture was not at all involved, this plea was considered to be of not much significance. On these grounds, the Constitution Petitions were allowed, and it was held that "the ship plates and other materials recovered from breaking of vessels are not liable to excise duty. The action of the respondents was without lawful authority and of no legal effect".

6. There are three matters which require mention before undertaking an examination of the impugned decision of the High Court on merits. The first concerns the statutes on the subject; the second, the rule applicable to the interpretation of such a statute; and the third relates to the qualified and not absolute definition of `manufacture' provided in the Act.

7. The entry introduced by Ordinance No.III of 1988 promulgated on the 14th of July, 1988 was substituted by the Ordinance XXII of 1988 which happened to be the Finance‑ (Revised) Ordinance, 1988. It by section 2, subsection (3) provided as hereunder:‑‑- "(3) in the First Schedule, in Part I,.‑‑

(a)

(b) in section IX, (i)

(ii) after item No.09.06 in column 1 and the entries relating thereto in columns 2 and 3, the following new item and the entries relating thereto in columns 2 acid 3 shall be added, namely:‑ "09.07 IRON AND STEEL PLATES.‑ -- Iron and steel plates, all sorts, Two thousand rupees per including ship plates, sheets, slabs tonne." and flat bars of all sizes and shapes as are recovered through any process of dismantling or breaking of ships and vessels.

8. Ordinance No.III of 1988 was thereafter repealed by Ordinance No.XXIII of 1988 enforced on 5th of November, 1988. The Finance (Revised) Ordinance (Ordinance No.XXIII of 1988) was made into Finance Act, 198,8 (Act VI of 1988) on 26th December, 1988 which maintained the relevant entry in the Schedule to the Act which was‑ introduced by Ordinance No.III of 1988' and thereafter by Ordinance No.XXII of 1988. The relevant provision for the purposes of being made the law of the land had been attended to on three occasions, twice in the form of Ordinance and once in the form of Act.

9. All the three statutory provisions referred to are in the form of amending Act or Ordinances to Schedule. The rule of interpretation with regard to an amended provision has been summarised in N.S. Bindra's the Interpretation of Statutes (Seventh Edition 1984) at page 692 as hereunder on the basis of various decisions of the Courts:‑- "It is permissible in construing the scope of an amended provision of an Act to examine what the law was before it was' amended. Ordinarily, the Court is not at liberty to construe a statute with reference to the motive which influenced the Legislature in passing the enactment. Yet, when the history of a provision of law tells the Court what the object of the Legislature was in effecting a change in the law, the Court has to see whether the terms of the section are such as would fairly carry out the object and to read the section with a view to finding out what it means and not with a view to extending it to something which was expressly intended not to apply. The golden rule to follow in such a case is first to find out what was the provision before the amendment; secondly, what was the defect in the previous law; thirdly, what remedy the Legislature has adopted to cure the defect; and lastly, to find out the true reason of the remedy now adopted. This appears to be the only way to avoid all difficulties in suppressing the mischief under the old provision and in advancing the remedy." In Earl T. Crawford's `The Construction of Statutes' at pages 618 and 619 it is discussed as hereunder:‑‑-- "Indeed, the mere fact that the legislature enacts an amendment is of itself an indication of an intention, as a general rule, to alter the pre existing law ... .... ... .. .. ... ... ... ... ... ... Moreover, in construing the amended statute, the Court should consider the change sought to be effected by the legislature. The amendatory act should be construed in relation to the condition created by the amended Act as well as the objects and purposes of the Act itself as therein defined. In short, regard must be had for the law as it was before being amended, and the amendatory act should be construed to repress the evils under the old law and to advance the remedy provided by the amendment."

10. The definition of the word `manufacture' contained in the Act is not an absolute one but a qualified one.. The qualifications or limitations of the definition are stated at two places, the first in the very opening wore underlined as hereunder:‑‑

(f) "manufacture" includes any process incidental or ancillary to the completion of a manufactured product and any process of re-manufacture, remaking, reconditioning or repair and the processes of packing or repacking such product." The second limitation is found in the opening words of definition also underlined. Both these leave ample scope for enlarging the scope of the C definition.

11. There is no inviolable rule of law, nor any constitutional command, I that the excise duty is leviable only on the process of manufacture and on no other activity, legislative dispensation and intent being irrelevant or subordinate. It is only by reference to legislative provision (Preamble of the Act and section 3) that such a restriction has been inferred by the High Court. But then that legislative intent is manifestly overridden, departed from and not followed, ignoring a specific law in the form of Ordinance. No.III of 1988 bringing within the net of excise tax the ship‑breaking activity and on the recovery of iron plates etc. thereby. Not one law on this specific subject was, framed but three in quick succession that is‑‑

(i) Ordinance No.III of 1988; (ii) Ordinance No.XXII of 1988; and (iii) Ordinance No.V1 of 1988. It is not the contention and never was that these laws were ultra vires for any reason. Even if the Schedule of the Act is given a subordinate position as was done in Premier Mills Ltd. v. Commissioner of Income‑tax (1985)152 ITR 457, the legislative intent and the object of this specific legislation remains beyond doubt. Such intent and purpose must be given effect to and not thwarted on any vague and nebulous theoretical concept.

12. As regards the contention that the ship‑breaking had already taken place and the plates were recovered before Ordinance No.III of 1988 came into the field, on the plain language of the added provision it is untenable. What, has been made liable to tax is not the ship‑breaking activity itself but certain items recovered as a result of ship‑breaking and not all items. With regard to the stage, section 3‑C of the Act (reproduced in paragraph 4) makes the liability as "on the date on which the goods are cleared for export car for home consumption". This statutory provision (section 3‑C) was earlier a part of Rule 9‑A of the Central Excise Rules. It came up for interpretation before Indian Supreme Court in Orient Paper Mills Ltd. v Union of India (AIR 1967 SC 1564) and it was interpreted as hereunder:‑‑ "It will thus be seen that in the case of manufactured goods the payment of duty and the clearance of goods may be, synchronous or the payment may be postponed although the goods may be removed (provisos to R.9). This immediately sets up two kinds of cases in respect of manufactured goods. The critical time thus becomes the removal from the factory or warehouse but if the payment of duty is made before the removal then the critical time is the payment of duty, In the present case the payment of duty was synchronous with the clearance of the goods because the gate pass can only be issued when the goods have actually been cleared for removal. The above construction of the Rules agrees with the construction placed by the: Board of Revenue in the ruling of 1957 where the effect of the sealing of the wagons by the Railway after loading and the issuance of railway receipts was considered, The Board ruled that such goods would not be considered as lying in the stock in the factory premises."

13. Hence, as substantively excise duty was leviable ova the specified product obtained lay ship‑breaking and that the levy had to take place at the stage of clearance as provided under section 3‑C of the Act, these appeals are allowed. The judgments of the High Court are set aside and the Constitution Petitions filed challenging the levy are dismissed. A.A./F‑225/S Appeals accepted.