P L D 1988 Lahore 533 (PLP)

This judgment will dispose of three Writ Petitions W.P.No.257, of 1988, W.P.No.2854 of 1988 and W.P.No.3032 of 1988 filed by Arshad Textile Mills Limited, Khurshid Spinning Mills Limited and Sapphire Textile Mills Limited, petitioners, calling in question the order of the Principal Appraiser (Customs), Dry Port, Lahore, directing them t pay 20% ad valorem duty on the goods, in addition to that not exempt by the Federal Government's Notification dated 14‑6‑1984.

2. The brief facts. with regard to the three petitions may be stated as follows:‑ Arshad Textile Mills Limited and Khurshid Spinning Mill Limited, petitioners, which companies are located at Jaranwala, District Faisalabad, imported ring spinning frames from Japan. On the date that the bills of entry for ex‑bonding were 'filed by both these petitioners for taking delivery of the goods from the Customs Dr Port at Lahore, the following customs duty was payable on the said machinery under Heading No.84.36 C 01(b) of the P.C.T. "Customs duty 50% ad valorem." Under the proviso appearing after conditions (1) to (5) of the Federal Government's Notification S.R.O.500(1)/84 dated 14‑6‑1984, the' said plant and machinery, if it was an import substitute of any plant and machinery as was manufactured locally, was exempt from so much of the customs duties leviable thereon as were in excess of the aggregate of the sum specified in column 3 of the table of the said Notification and 20% ad valorem. Under item 3. of the table to the said notification, the customs duty as was specified next to this item in column 3 was "one half of the leviable customs duties". Since ring spinning frame were manufactured locally by the Spinning Machinery Company Pakistan (PVT) ‑Ltd., Kot Lakhpat, Lahore, the Principal Appraise (Customs), Lahore, called upon the petitioners to pay 50% of the customs duties that were leviable (i.e. 50% ad valorem value of the goods) plus 20% ad valorem value of the goods, as required by the said Notification. It is the case of both the petitioners that they are only liable to pay 50,% of customs duties that were leviable, i.e. 50% ad valorem value of the goods, but not the further 20% ad valorem value of the goods.

3. Sapphire Textile Mills Limited, petitioner, which company is located in Chunian Tehsil, District Kasur, imported automatic cone winders from Japan. On the date that the bills of entry for ex‑bonding were filed by this company for taking delivery of the goods from the Customs Dry Port at Lahore, the following customs duty was payable on the said machinery under Heading No.84.36 C 02 of the P.C.T.: "Customs duty 50% ad valorem." Under the proviso appearing' after conditions (1) to (5) of the Federal Government's Notification S.R.O.500(1)184 dated 14‑6‑1984, the said plant and machinery, if it was an import substitute of any plant and machinery as was manufactured locally, was exempt from so much of the customs duties leviable thereon as were in excess of the aggregate of the sum specified in column 3 of the table to the said notification and 20% ad valorem. Under item 1 of the table to the said notification, the customs duty as was specified next to this item in column 3 was "nil". Since automatic cone winders were manufactured locally by the Spinning Machinery Company of Pakistan (Pvt.) Ltd., Kot Lakhpat, Lahore, the Principal Appraiser (Customs), Lahore, called upon the petitioner to pay 20% ad valorem value of the goods as customs duty, as required by the said notification. It is the case of the petitioner that it is not liable to pay this 20% ad valorem customs duty.

4. On behalf of the petitioners it is submitted that the proviso appearing after conditions (1) to (5) of the Federal Government's Notification dated 14‑6‑1984 can only make an exception to the general scheme of the exemption contained in the main body of the Notification, but it cannot add to the customs duty leviable. It is submitted that the customs duty can only be added by legislation and not through the tax of a proviso to an exemption notification issued under section 19 of the Customs Act, 1969. In this connection, the para. under the sub‑heading 'Applicant' at page 47 and that under the sub‑heading 'Proper Function' at page 50 of Bindra s Interpretation of Statutes and General Clauses Act, have been read. Learned counsel also refers to Messrs Hamdard Dawakhana v. Commissioner of Income‑tax, Karachi P L D 1980 S C 84 at pages 94 and 99 and New Jubilee Insurance Employees' Union Karachi v. Sind Labour Appellate Tribunal, Karachi and another P L D 1983 Kar. 210 at page

217. In short, it is the case of the petitioners that by adding the words 1120% ad valorem" to the proviso to the Federal Government's Notification dated 14‑6‑1984, the Government has actually levied additional customs duty, which was not within its power under section 19 of the Customs Act, 1969, under which the said notification was issued.

5. A departmental representative alone has appeared for the Customs Authority. Though this case was set down for today's date of hearing on 4‑6‑1988 and Mr. Qadeer Ahmad Siddiqui, Advocate for the Customs Authority, was present that day, no counsel has appeared for the respondents.

6. Before dealing with the case, it is necessary to set down the Federal Government's Notification dated 14‑6‑1984: S.R.O.500(l)/84.‑‑In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969), and subsections (1) and (2) of section 7 of the Sales Tax Act, (III of 1951), and in suppression of this Ministry's Notification No.S.R.O.700(1)/80, dated the 26th June, 1980, the Federal Government is pleased to direct that the plant and machinery which is not manufactured locally shall, if imported for initial installation or for balancing, modernization, replacement or extension of the projects approved by the Government for the areas specified in column (2) of the table below be exempt from so much of the customs duties leviable thereon under the First Schedule to the said Act as are in excess of the extent specified in the corresponding entries of column (3) of the table and the whole of sales tax subject the following conditions, namely:‑ (1)The plant and machinery shall be those as defined hereunder "Machinery" means‑‑ (i) Machinery, operated by power of any description, such as used in any industrial process, including the generation transmission and distribution of power, or used in process directly connected with the extraction of minerals and timber construction of buildings, roads, dams, bridges and similar structures and the manufacture of goods. (ii) Apparatus and appliances, including metering and test apparatus and appliances specially adapted for use in conjunct with machinery specified in item (i) above. (iii) Mechanical and electrical control and transmission gear adapt for use in item W above. (iv) Component parts of machinery as specified in items (i), (ii) and (iii), above identifiable as for use in or with such machinery. (2) The importer shall, at the time of importation, by document in his possession, satisfy the Collector of Customs that t plant and machinery have been imported for projects locate in the area specified in the table and shall furnish an Indemnity bond in the form set out below to the extent of custom ,duties and sales tax exempted under this Notification. T said ‑indemnity bond will be discharged subsequently production of a certificate from the Assistant Collector, Custom and Central Excise, the Secretary Kashmir Affairs Division or an officer authorised by him in this behalf of the Reside Commissioner for Northern Areas, as the case may be, to t effect that the plant and machinery as declared to the Custom have been imported for an approved project for initial installation or for balancing., modernization, replacement or extension the existing unit and have been duly installed in an specified in the Table and such other evidence as the Collect of Customs may require and after such enquiry as he deems fit, in order to establish such installation; (3) the importer shall at the time of importation of the plant a machinery, furnish a bond to the Collector of Customs abide by the conditions laid down in this Notification failing which he would pay the amount of customs duties and sale tax due and make payment of any penalties that may be imposed in this behalf; (4) the certificate of installation referred to in sub‑paragraph ( shall be submitted to the Collector of Customs not later the one year from the date of importation of such' plant at machinery; and (5) if the plant and machinery are removed to an area other than that for which they have been imported within a period of ten years from the date of in stallation, the amount of customs duties and sales tax exempted under this notification and any penalties that may be imposed in this behalf shall be recovered under section 202 of the Customs Act, 1969 (IV of 1969): Provided that import substitutes of the plant and machinery as are manufactured locally shall be exempt from so much of the customs duties leviable thereon as are in excess of the aggregate of the sum specified in column 3 of the table to this Notification and 20% ad valorem. TABLE Sr.No. Areas Extent of duties I . 2. 3. 1. . District of Dera Ghazi Khan and Rajanpur and all approved industrial estates in the districts of Mianwali and Bhakkar and Tehsil of Khushab in the Province of the Punjab; and the approved industrial estate in the Tehsil Chunian in Kasur District, as notified in the Punjab Government's Notification No.DRS/LAC/1225 dated 25‑3‑1987.

2. An approved industrial estates located One quarter in the areas other than those excluded (1/4) of the at Sr.No.3(a) below. Leviable customs duties. 3. (a) The whole of Pakistan excluding:

1. Islamabad Capital Territory;

2. Karachi Division;

3. Lahore District;

4. Tehsil of Ferozewala;

5. Tehsil of Gujranwala;

6. Tehsil of Sialkot;

7. Tehsil of Faisalabad;

8. Tehsil of Multan; One half (1/2) 9 Tehsil of Rahimyarkhan; of the leviable

10. Tehsil of Rawalpindi; customs duties.

11. Taluka of Kotri;

12. Taluka of Hyderabad; and

13. Such areas adjoining Karachi Division and Lahore District as may be specified by the Central Board of Revenue. All approved industrial estates One half (1/2) in the areas referred to above; of the leviable excluding Karachi Division. customs duties

7. When one reads the notification, it is apparent that the proviso is not one connected with condition (5), which immediately precedes it. Rather, it is the proviso to the main body of the notification, which appears above conditions (1) to (5). In short, in respect of plant and machinery covered by condition No.(1) of the said notification, which is not manufactured locally, if it is imported for purposes stated in the said notification, it will be exempt from so much of the customs duties leviable thereon under the First Schedule to the Customs Act as are in excess of the extent specified in the corresponding entries of column (3) of the table and also the whole of the sales tax; and in respect of plant and machinery covered by condition No. (1) of the said notification, which is manufactured locally, but in respect of which substitutes have been imported for the purposes stated in the said notification, it will be exempt from so much of the customs duties leviable thereon as are in excess of the aggregate of the sum specified in column 3 of the table to the said notification and 20% ad valorem. It is thus, clear that the proviso' is not an exception to all or any of the five conditions stated in the notification, but to the main body of the notification, which precedes the conditions. Since the main body of the notification covers the exemptions available on imported plant and machinery which are not manufactured locally, the proviso covers exemptions available on imported plant and machinery which are so manufactured locally, and the object is. to ensure that leaner exemptions are available where import substitutes are brought in, as compared to liberal exemptions, where plant and machinery not manufactured locally are imported.

8. The only question that remains for determination is whether the expression 20% ad valorem", as appearing in the proviso to the notification, is one which can be treated as imposing additional customs duty. Now let me take up a hypothecal case e.g. the case of one of the first two petitioners, whose case falls under item 3 of the table. Supposing the plant and machinery imported by this petitioner was not manufactured locally and was worth Rs.1,00,

000. The petitioner would be entitled to exemption from so much of the customs duties leviable as are in excess of the extent specified in the corresponding entry shown in column 3 of the table, which is "one‑half (1/2) of the leviable customs duties." Since the customs duty under Heading 84.36 C 01 (b) of P.C.T. is "50% ad valorem", the customs duty exempted would be what is in excess of one‑half of the leviable customs duty i.e. 50% of 50% ad valorem value of the goods. In short the exemption is Rs.25,

000. Supposing the plant and machinery was manufactured locally and was worth Rs.1,00,

000. The petitioner would be entitled to exemption from so much of the customs duties leviable thereon as are in excess of the aggregate of the sum specified in column 3 of the table to the said notification and 20% ad valorem. Since the customs duty under the aforesaid heading of the P.C.T. is 1150% ad valorem", the customs duty exempted would be what is in excess of the aggregate of the sum specified in column 3 of the table to the said notification and 20% ad valorem. Now what is the aggregate of the sum specified under column 3 of the table and 20% ad valorem. It is 50% of Rs.50,000 plus 20% of Rs. 1,00,000, which is Rs.45,

000. The exemption being what is in excess of these two amounts, works out to Rs.5,

000. In short, no excess payment is made by the importer over and above the duties leviable under the relevant P.C.T. heading. 1 Thus, the expression 1120% ad valorem" does not add any additional customs duty. The proviso only provides a formula of reducing the liberal exemption claim able under column 3 of the table. Since the proviso is intended to reduce the exemption in respect of plant and machinery which is manufactured locally, as opposed to that which is not, the wording of the proviso does not entail the payment of any additional or further ad valorem customs duty. The ad valorem duty already stands fixed by P.C.T. Heading 84.36 C 01(b). This in no case stands enhanced by the proviso.

9. Now let me take up the case of Sapphire Textile Mills Limited. Supposing the plant and‑ machinery imported by this petitioner was not manufactured locally and was worth Rs.1,00,

000. The petitioner would be entitled to exemption from so much of the customs duties leviable as are in excess of the extent specified in the corresponding entry shown in column 3 of the table, which is "nil". Since the customs duty under Heading 84.36 C 02 of P.C. T. is "50% ad valorem, the customs duty exempted would be what is in excess of nil. In short the petitioner is exempt to the whole of the customs duties leviable which is Rs.50,OQO. Supposing the plant and machinery was manufactured locally and was worth Rs.1,00,

000. The petitioner would be entitled to exemption from so much of the customs duties' leviable thereon as are in excess of the aggregate of the sum specified in column 3, of‑the table to the said notification and 20% ad valorem. Since the customs duty under the aforesaid Heading of the P.C.T. is 1150% ad valorem", customs duty exempt would be what is in excess of the aggregate of the sum specified in column 3 of the table to the said notification and 20% ad valorem. Now what is aggregate of the sum specified in column 3 of the table and 20% ad valorem. It is nil plus 20% of Rs.1,00,000, which is fts.20,

000. The exemption being what is in excess of these two amounts, works out to Rs.30,

000. In short, no excess payment is made by the importer over and above the duties leviable under the relevant P.C.T. heading. As stated in para. aforesaid, the proviso only lays down a formula for reducing the liberal exemption claim able in respect of imported plant and machinery, which is manufactured locally, as opposed to that which is not. The expression 20% ad valorem" does not add any additional customs duty.

10. On behalf of the petitioner it is further contended that ring spinning frames and automatic cone winders were not manufactured locally by anybody in Pakistan when the goods were indented in early 1987. However, the records of the Customs Authority show that Spinning Machinery Company of Pakistan (Pvt.,) Ltd., Kot Lakhpat, Lahore, has been manufacturing ring spinning frames from 1982 and the Textile Winding Machinery Co. Ltd., 32‑34 Sector 16, Korangi Industrial Area, Karachi, has been manufacturing automatic cone winders since 1983‑

84. It appears that in July. 1986 the Spinning Machinery Company of Pakistan (Pvt.) Ltd., Lahore, was in some financial difficulties, as the Government wanted to disinvest its shares, but the Government changed its mind and the Company continued to maintain its operations. It appears that' during this period where the company was in difficulties, some of the companies that had placed orders with it e.g. Mst. Nagina Textile Mills, Hyderabad/ Karachi, Lahore Textile and General Mills Ltd., Lahore and others Monnoo; Group of Companies, cancelled their orders and took their earnest money back. However, the fact remains that both these companies were in operation from 1982/1984 and manufactured ring spinning frames and automatic cone winders on the dates the petitioners placed orders for the import of their goods. Nothing, therefore, turns on this objection.

11. For the foregoing reasons, there being no merit in these three petitions, the same are dismissed with costs. M.B.A./380/A‑L Petition Dismissed.