1989 PLP 1299 (PTD)

This is a constitutional petition filed by M/s. Fauji Foundation Trust, petitioner, calling in question the orders of various officers of the Central Excise and Sales Tax.

2. The brief facts of the case are that the Deputy Collector, Central Excise and Land Customs, received an information that the Fauji Sugar Mills, Sangla Hill, District Sheikhupura, which is a mill run by the Fauji Foundation Trust, petitioner, was manufacturing baggage and press mud falling under PCT heading 23.03, Which were liable to sales tax at 12-1/2% which they were not paying. The Intelligence and Investigation Cell of the Customs and Excise visited the Fauji Sugar Mills on 21st February, 1983 and checked its records, where they found that- the mills had produced and partly consumed internally and partly sold externally 76246.73 metric tons of baggage and 18,744 metric tons and 325 trellis of press mud, without payment of sales tax and observance of Central Excise Rules. The Deputy Collector of Central Excise and Land Customs, Lahore, thereupon issued a notice to the Fauji Sugar Mills on 16th March, 1985 to show cause why penal action under the law should not be taken against it for violating the law and why sales tax amounting to Rs. 24,47,432 should not be recovered from it. The petitioner replied to the said show-cause notice on 21st March, 1985 controvert the allegations. The Deputy Collector of Central Excise and Land Customs, Lahore, then adjudicated the case and ordered the Fauji Sugar Mills, Sangla Hill, to pay Rs.18,678.25 as sales tax and a penalty of Rs.5,

000. With regard to the petitioner's claim for exemption under S R l) 7 (1)/83, dated 5th January, 1983, the Officer held that inquiry had been conducted which revealed that other mills during the period from 25th April, 1981 onwards had been paying sales tax on baggage as well as press mud and, therefore, the exemption was not available to the petitioner. Being aggrieved by the said order, the petitioner preferred an appeal before the Collector of Central Excise and Land Customs (Appeals), which was dismissed on 11th June, 1986. The appellate Officer also confirmed the finding of the Deputy Collector with regard to the petitioner's claim for exemption under SRO 7 (I)/83, dated 5th January, 1983. Whilst confirming the finding, he held that the petitioner had failed to establish it, claim for exemption. The petitioner's revision against the said order met with no success, the same being dismissed on 13th July, 1988. As regards the petitioner's claim for exemption; the Additional Secretary held that as M/s. Gojra Samundari Sugar Mills, Gojra, and Crescent Sugar Mills. Faisalabad, had been making payments of sales tax on baggage and press mud, the pe1itioncr was not entitled to the exemption. Being aggrieved by the said orders of the Officers of the Central Excise and Land Customs, the petitioner preferred a writ petition in the High Court, which is now before me for disposal. .

3. Since this case had been argued at length by the learned counsel for the petitioner and the Central Excise Authorities, this writ petition is being admitted and will be disposed of, as a notice case.

4. The counsel for the parties do not dispute that baggage which was manufactured from 25th April, 1981 to 31st December, 1982 was partly sold and partly used as fuel during the, said period and the press mud which was 'manufactured in the said period was freely distributed to growers as fertilizer. It is not disputed between the contesting parties that the clam of the respondents relates to baggage partly sold during the period 25th April, 1981 to 31st December, 1982 and press mud freely distributed to growers as fertilizer during the said period, as baggage partly used by the petitioner as fuel was exempted by Notification S R O 1030 (1)/83, dated 8th November, 1983.

5. The only dispute between the parties is with regard to the petitioner's claim for exemption under Notification S R O 7 (1)/83, dated 5th January, 1983, which reads as follows:- "In exercise of the powers conferred by subsections (1) and (2) of Section 7 of the Sales Tax Act, 1951 (111 of 1951), the Federal Government is pleased to exempt goods manufactured or produced on or after 1st July, 1980 from whole of sales tax livable thereon subject to the following conditions: (i) the manufacturer or producer did not recover sales tax chargeable on the goods prior to the date on which the goods are held to be liable to sales tax; (ii) no action to recover sales tax on the goods had been initiated against the manufacturer or producer to collect sales tax up to the said date; (iii) no other manufacturer of the same goods was paying sales tax up to the said date; and (iv) the manufacturer or producer has been discharging his tax liability regularly as from the said date. It is the petitioner's case that up to 31st December, 1982 it neither charged nor collected sales tax on baggage and press mud nor paid the same to the gales-tax Department as the status baggage and press mud vis-a-vis liability to sales tax was, never determined by the Sales-tax Authorities up to the said date. The petitioners have all along contended- (i) that they did not recover sales-tax chargeable on the baggage and press mud prior to the date on which the same were held to be liable to sales tax; (ii) that no action to recover sales tax on the goods had been initiated against it to collect sales tax up to the said date; (iii) that no other manufacturer of the same goods was paying sales tax up to the said date; and (iv) that it hail been discharging its tax liability regularly as from the said date.

6. The officers of the Central Excise dealing with the case of the petitioners have been taking the plea that the petitioners have not been able to prove all the said four conditions. It appears that conditions (i) and (iv) alone have to be proved by the petitioners, whereas the onus of proof of conditions (ii) and, (iii) basically falls on the Sales-tax Department, as they arc matters within its personal knowledge. Mr. Ali Salman Abbasi, Assistant Collector, Central Excise (Legal Cell), who is present, has frankly admitted that all the conditions (i) to (iv) appear to be satisfied in the instant case. The Additional Secretary, Ministry of Finance, who held that Gojra Samundari Sugar Mills, Gojra, and Crescent Sugar Mills, Faisalabad, had been paying sales tax during the period 25th April, 1981 to 31st December, 1982 appears to have made the said statement under mistake. The Crescent Sugar Mills by its letter dated 15th November, 1988 addressed to the petitioner company, which has been filed as Annexure `K' to the petition, has submitted that it did not pay sales tax on baggage till 26th October, 1984. Likewise, the Gojra Santundari Sugar Mills Limited by its letter dated 13th November, 1988 addressed to the petitioner company, which has been filed as Annexure `M' to the petition, has submitted that it did not pay sales tax on baggage till 1987-88. Mr. Salman Abbasi, Assistant Collector, Central Excise (Legal Cell), confirms this position. The learned counsel for the petitioner has also submitted that in the Shakar Ganj Sugar Mills' case, the Central Excise collected general data to find out which mills had been paying sales tax on baggage and press mud and from what date and the report was that Bhawani Sugar Mills had collected sales tax for the first time on 26th August, 1983 in respect of arrears. In short, it is, therefore, clear that during the period 25th April, 1981 to 31st December, 1982, no other manufacturer of baggage and press mud was paying sales tax up to the said date. Condition (iii) of the notification also stands satisfied. In these circumstances, it is apparent that the petitioners are not liable for recovery of sales tax on baggage and press mud manufactured by them during the period 25th Aril, 1981 to 31st December, 1982. The orders of' the Officers of the Central Excise and Land Customs passed in the instant case appear to be not only illegal, but passed in reckless disregard of the requirements of the exemption notification. These orders, therefore, deserve to be set aside.

7. For the foregoing reasons, this petition is accepted with costs and the order of the Deputy Collector of Central Excise and Land Customs, Lahore, dated 15th February, 1986, that of the Collector of Central Excise and Land Customs (Appeals), Lahore, dated 11th June, 1986 and that of the Additional Secretary, Ministry of Finance, dated 12th July, 1988 are hereby' declared to have been passed without lawful authority and are set aside. The recoveries of sales tax, if any made, shall be refunded to the petitioner within a month. Rupee, Two Thousand (Rs.2,000) is fixed as counsel's fee, which shall be paid to the petitioner. M.B.A/F-156/L Petition accepted.