P L D 2001 Lahore 518 (PLP)

This judgment shall dispose of Writ Petitions Nos. 3720/88, 4382/88, 10582/91 and 5972/92, all of which arise in similar circumstances and involve same questions of law.

2. As a matter of background it may be stated that "Pay‑As‑You‑Earn Scheme" was originally introduced in 1962 in order to enable entrepreneurs to import machinery for the establishment of industrial 'units or enterprises on credit and to pay for the cost of machinery and equipment in foreign exchange out of the export earnings of the industrial units or enterprises. However, in 1973 Pay‑As‑You‑Earn Scheme Act, 1973 was promulgated under which a Scheme was framed which was known as Pay‑As‑You‑Earn Scheme. That Scheme also allowed the import of machinery etc. out of the export earnings of such units and enterprises. It was further provided in the Scheme that in case of failure to repatriate the foreign exchange within the prescribed period the Unit shall be liable to pay penalty equal to 27 per cent. of the value in Pakistani Rupees of the amount of such foreign exchange and 9 per cent.

3. The petitioners are running textile units and have been availing the facilities. It, however, appears that the respondents failed to repatriate the foreign exchange and were as such levied the penalty at the rate of 27 % alongwith 9 % interest as contemplated in section 4 of the Pay‑As‑You‑Earn Scheme Act, 1973.

4. Learned counsel for the petitioners further contended that if the foreign exchange is not repatriated without any fault on the part of the petitioner but due to the certain acts beyond its control, no penalty or interest is payable by it. According to him, section 4 of the aforesaid Act is enabling in nature and vests in the State Bank of Pakistan discretion to levy or not to levy only penalty and, if so, at what rate. It is also contended that it is not necessary that the foreign exchange must have been physically repatriated to Pakistan before any payment and if a book entry is made, it would meet the requirements of law.

5. Khawaja Saeed‑uz‑Zafar, learned Deputy Attorney‑General for Pakistan, has vehemently contested this petition by arguing that the wording of section 4 of "Pay‑As‑You‑Earn Scheme" Act, 1973 are emphatic and in case of failure of repatriate foreign exchange the penalty is necessary consequence. He emphasized that reading of various provisions of the Act and the Scheme as a whole, show that the foreign exchange must have been received in Pakistan.

6. It is convenient to dispose of the second contention first inasmuch as I find the arguments of the learned counsel for the petitioner that repatriation can be said to have made even if the foreign exchange has not been actually received in Pakistan and only a book entry has been made. A reading of the various provisions of the Act, particularly section 3 read with rule 3 of the "Pay‑As‑You‑Earn Scheme" Act, 1973 makes it abundantly clear that the amount in foreign exchange has been repatriated in the same financial year. It cannot be said that even though the foreign exchange has not been repatriated it should be considered to have been received in Pakistan account of an entry in the books.

7. In order to appreciate the first contention raise by the learned counsel for the petitioner it appears to be convenient to reproduce section 4 of the Pay‑As‑You‑Earn Scheme Act, 1973 which reads as under:‑‑

4. Power to make rules.‑‑(1) The Federal Government may, by Notification in the official Gazette, make rules for the administrative of the Scheme. (2) Any Rules made under subsection (1) may pre a that an industrial unit or enterprise shall‑‑ (a) if it fails to repatriate to Pakistan any foreign exchange which it is required by the Scheme to repatriate; or (b) if the prescribed percentage of its exp n earnings is not sufficient to meet the cost of the machinery and equipment and the other prescribed charges to foreign exchange, be fable to pay to the State Bank of Pakistan by way of penalty a sum not exceeding twenty‑seven per cent, of the value in Pakistani rupees of the amount of foreign exchange it fail:4 to repatriate or, as the case may be, of the amount by which its export earnings falls short of the aggregate of the cost and charges referred to in clause (b)." As is obvious from the above Act by itself does not levy any penalty on a fixed rate but empowers the State Bank of Pakistan to levy penalty and charge interest on the foreign exchange which has not been repatriated up to certain limit.

8. Two expressions which appear in this section have significance; first of which is "penalty" and the other is "shall be liable to pay". As is well‑ known penalty can only be levied on account of some fault on the part of other party if it can be shown to the satisfaction of the State Bank of Pakistan " that the foreign exchange was not repatriated without there being any fault on the part of the petitioner the penalty cannot be levied inasmuch as there must be some fault on the part of the person concerned before the levy of the penalty. The use of the expression "shall be liable to pay" interest, lends support to the preposition that levy of penalty is discretionary and is not a necessary corollary of the failure to repatriate the exchange. This Court had the opportunity to interpret similar provision in the Sales Tax Act, 1990 in the case of Messrs Murree Brewery v. Naseem 1995 PTD 91 and held that' levy of penalty was not automatic and specific order has to be passed in this behalf after hearing the person and examining the utility of the circumstances. The judgment of the Sindh High Court relied upon by the learned counsel for the petitioner, viz. Messrs Neelam Textile Mills Ltd. v. State Bank of Pakistan and 2 others PLD 1999 Karachi 433 lends support to this view. As a result of what has been stated above, these petitions are disposed of in the terms that it is held that .the penalty cannot be levied by the Federal Government or the State Bank of Pakistan automatically but the concerned authority should grant hearing to the person and pass any order I under section 4(2) of the Act after applying its mind to the facts of each case. There shall be no order as to costs. M.B.A./C‑109/L Order accordingly.