1. MR. S. M. KAZIMI, MEMBER (TECHNICAL).-(I). This judgment disposes of the appeal filed by M/s. Amin Hotel, G. T. Road, Peshawar, against the Collector (Appeals), Northern Zone, Rawalpindi's Order-in-Appeal No. CE/ST-40/99, dated 25.03.1999 (dispatched under C. No. IV-A/9/P/98/77, dated 08.04.1999 and relating to the appellant's first Appeal No. P-185/98 filed before the said Collector (Appeals) on 08.08.1998).
2. 2.Briefly, the facts of the case are that on receipt of an information, the Central Excise Officers of the Collectorate of Customs and Central Excise, Peshawar, audited the record of M/s. Amin Hotel for the period from 07/90 to 06/95 and found that while the said Hotel had received an amount of Rs.
3. 6,534,763/- from the PIAC as the charges on account of provision of services to the PIAC's passengers lodged in the Hotel, they (M/s. Amin Hotel) did not issue any bill of charges for such services and also did not deposit any central excise duty in the treasury on account of such services. The said Central Excise Officers, therefore, submitted a Contravention report No. 02/98 (issued under C. No. IV-CE/Audit/98/670, dated 14.05.1998) for adjudication proceedings for recovery of central excise duty of Rs. 653,476/30, the penalty of Rs. 309,766/15 for the period from 07/90 to 06/94 in terms of the then rule 96-w (6) of the Central Excise Rules, 1944, in addition to the additional duty payable from 07/1994 in terms of section 3-B of the Central Excises Act, 1944, besides imposition of penalties under rule 210 of the Central Excise Rules, 1944, for the breach of sections 3, 3-B and 9 of the Central Excises Act, 1944 and rules 96-w and 226 of the Central Excise Rules, 1944. The Additional Collector of Central Excise, Peshawar, issued a notice C. No. CE (Adj.)
4. Addl: C-I/125/98/307, dated 20.06.1998 requiring M/s. Amin Hotel to show cause why central excise duty amounting to Rs. 653,476/30, the additional duty (payable in terms of section 3-B of the said Act) should not be recovered from them and also why penal action under rule 96-w (6) and rule 210 of the Central Excise Rules, 1944, should not be taken against them. During the course of adjudication and the appellate proceedings, Mr. M. Khurshid Khan, G. M. Of M/s. Amin Hotel and Mr. Qazi Waheeduddin Advocate, had appeared before the Additional Collector and Collector (Appeals) and had taken the plea that the charges (for the services provided to PLA passengers) were exempt from central excise duty in terms of section 24 of the Customs Act, 1969, read with C.B.R's Letter C. No. l(ll)CEB/87, dated 11.10.1992. They had stated as reproduced in paragraph 3 of the Additional Collector's Order-in-Original No. 73/98 and paragraph 4 of the impugned Order-in- Appeal No. C. E./ST-40/99, that M/s. Amin Hotel had provided these services to only such PIA passengers as were bound for journey to foreign destinations and, therefore, exempt from all duties and taxes including the central excise duty. However, the leamed Additional Collector did not accept the arguments of the counsel of M/s. Amin Hotel to be valid and he passed the Order- in-Original No. 73/98, dated 13.07.1998 holding that the charges leveled in the show cause notice were fully established and he directed M/s. Amin Hotel to (i) deposit the central excise duty of Rs.
5. 653,476/30 into the govt, treasury; (ii) deposit additional duty at 2% per month from 01.07.1994 and onwards in terms of section 3-B of the Act; and (iii) deposit the penalty equivalent to 50% of the amount of duty as fixed penalty involved under the rule 96-w(6) of the Central Excise Rules, 1944, for the period upto 06/94. M/s. Amin Hotel's first appeal has also been dismissed by the leamed Collector (Appeals), Northern Zone, Rawalpindi, vide his impugned Order-in-Appeal No. CE/ST- 40/99, dated 25.03.1999. Hence this second appeal before us.
6. 3.During the course of hearing before us, the leamed counsel for the appellant argued that the demand is time-barred in terms of the provisions of rule 10 of the Central Excise Rules, 1944. He further argued that despite the fact that the appellant did not take this plea of time-bar at the original adjudication stage before the Additional Collector and also at the first appellate stage before the Collector (Appeals), nothing stops them from seeking justice under the argument of time-bar by raising this plea at this second appellate stage before the Appellate Tribunal. Without prejudice to his claim of the time-bar of demand, he reiterated the plea of exemption from central excise duty under section 24 of the Customs Act, 1969, and stated that goods and services provided or rendered to passengers of international flights are exempt, irrespective of the fact whether such provisions is made to them on ground or in the air. He stated that they did not charge excise duty accordingly on the strength of C.B.R's clarification C. No. l(ll)CEB/87, dated 10.11.1992 in this regard. He cited the Honourable Supreme Court of Pakistan's judgment dated 19.03.1991 in Civil Appeal No. 29-K of 1985 (PTCL 1992 CL. 23) and pleaded that imposition of penalty for the breach of rules 96-w and 226 was not lawful if there was no willful evasion of duty. He prayed for setting aside the impugned Order-in-Appeal No. CE/ST-40/99 and the related Order-in- Original No. 73/98 both on merits and on ground of time-bar.
7. 4.The leamed representatives from the Collectorate opposed the appeal on the ground that the issue of time-bar was never raised by the appellant whether during the original stage of adjudication before the Additional Collector or during the first appellate stage before the Collector (Appeals). They also argued that the act of charging of central excise duty and not depositing in the treasury is not a simple act of non-payment/short-payment and rather constitutes a willful evasion and a willful fraud for which the limitation period is 10 years under sub-rule (3) of rule 10 of the Central Excise Rules, 1944. They argued that the demand of the evaded duty, from M/s. Amin Hotel was neither unlawful nor time- barred. As regards section 24 of the Customs Act, 1969, they argued that this exempts excise duty on goods produced or manufactured in Pakistan required as provisions and stores on any conveyance proceeding to any foreign port, airport or station. They pleaded that section 24 does not provide for exemption on goods and services provided to international passengers on ground in Pakistan. They also contested the appellant's claim that they could be guided/misguided in such non-payment since 07/90 on the basis of C.B.R's Letter issued only on 11.10.1992, besides the fact that the clarification contained in the said letter dated 11.10.1992 does not expressly or impliedly grant any exemption to the appellant or its competing Hotels. They also claimed that there was no such non-payment of central excise duty by other competing hotels anywhere in Pakistan on the similar services provided by them on ground to the PIAC passengers booked on international flights and lodged in the hotel. During the course of hearing on 18.09.2002, the leamed D.R. Was asked by the Tribunal to produce copy of the Agreement between PIA and the Hotel. In compliance thereof, they produced copy of the Finance Manager, PIAC, Peshawar's Letter No. PEW/FIN/DISB/TAXES/02/1585 dated 23.11.2002 enclosing a copy of PIA's Agreement dated 01.09.1998 with M/s. Amin Hotel, Peshawar fixing a charge of Rs.
8. 450/- (including all taxes, complimentary breakfast, one-time meal and emergency medical facility) per layover passenger and additional charge of Rs. 35/- (including all government taxes) per additional refreshment and of Rs. 120/- (including all government taxes) per additional meal of each such layover passenger during the period from 01.09.1998 to 31.12.1999. They also informed that since PIA maintains record for only last 3 years at the station, old records are not available.
9. Again during the course of hearing on 07.01.2003, the representatives also produced another Letter No. PEW/FIN/DISB/TAXES/02/1651, dated 16.12.2002 reiterating that the old record for the period under consideration (1990-95) are not available and that: "However it is confirmed that the agreed price for accommodation and meals is inclusive of all taxes including Central Excise Duty and the said Hotel/Restaurant is responsible for paying those taxes/taxes to the Government of Pakistan".
10. Copies of the said letters were given to the counsel for the appellants who stated that the copy of the Agreement relates to 1998-99 and cannot be relied upon for this demand restricted to the period from 1990-95. During subsequent hearing on 30.04.2003, the leamed representatives from the Collectorate presented copy of another letter No. PEW/DISB/TAXES/03/412, dated 28.04.2003 from PIAC, Peshawar, inter alia, stating, that "We have checked thoroughly all available record at Peshawar and Head Office Karachi. We have been able to find copies of two more agreements with M/s. Amin Hotel. One pertains to year 1990 and the other to year 1997. A copy of agreement for the year 1998 has already been provided vide our letter PEW/FIN/DISB/TAXES/02/1585, dated November 23, 2002. It is clearly mentioned in all the three agreements that rates are inclusive of all government taxes. There was no change in policy during the period from 1990 to 1997. Copies of the Agreements for years 1990 and 1997 are enclosed for your record/perusal................... It is regretted that despite our hectic effort and devotion of time we were able to retrieve copies of only three agreements and are unable to provide any more record in this regard. However we are hopeful that documents provided by us will suffice and serve the purpose. It is reiterated that payments made to M/s. Amin Hotel since 1990 included Government Taxes and duties and the said Hotel is responsible for N depositing these taxes in the treasury. This issues with the approval of our Head Office in Karachi". The copies of the Agreements (one dated 20.01.1990 for the period from 20.01.1990 to 19.01.1991 and the other dated 01.09.1997 for the period from 01.09.1997 to 31.08.1998) between PIAC and Amin Hotel shows various rates of charges (inclusive of all Government taxes) for various services of hotel accommodation and meals. Copies of this letter and the attached Agreements were also given to the appellant's counsel on 30.04.2003 who sought time to study these and during the next hearing on 05.05.2003 he denied that the appellants ever billed any amount to PIA which included the element of central excise duty during the period 1990 to 1995. He was asked to submit an affidavit from the appellant on a non-judicial stamp paper, duly countersigned by the counsel and duly attested by the Oath Commissioner that the appellant has never billed PIAC for the element of central excise duty (or for any charges inclusive of the element of central excise duty) on such services to international passengers accommodated on layover basis in the Hotel nor received from PIAC any payment for the amount of the element of central excise duty on account of such services during the period involved in the show cause notice dated 20.06.1998.
11. Despite the fact that the leamed counsel agreed to submit such an affidavit, he did not submit the same during the final hearing on 15.10.2003. The leamed counsel reiterated the grounds of time- bar, the provisions of exemption under section 24 of the Customs Act, 1969, and the plea that they did not bill or collect any amount from PIAC on account of the element of central excise duty in the charges billed to PIAC. The leamed D.R. Reiterated that the evasion by the appellant amounts to fraud and the demand is not barred by the limitation of rule 10(3) of the Central Excise Rules, 1944 and that the services provided in this case are not covered by the exemption provisions of section 24 of the Customs Act, 1969. They also reiterated that the Agreements between PIAC and the appellant for 1990-91, 1997-98 and 1998-99 all show the same terms and conditions (i.e. Charges are inclusive of all Government Taxes) and PIAC confirms that the Agreements for the intervening period were on the same terms and conditions except for the changes in the amount of charges which were still inclusive of all Government taxes (including central excise duty). The leamed D.R.
12. Prayed for dismissal of appeal.
13. 5.Having heard the parties and on perusal of record of the case, we find that the provisions of the then section 24 of the Customs Act, 1969, and the C.B.R.'s Letter C. No. l(ll)CEB/87, dated 10.11.1992 read as hereunder:-- THE THEN SECTION 24 OF THE CUSTOMS ACT, 1969 "24. Provisions and stores may be exported free of duty.-Goods purchased or manufactured in Pakistan and required as provisions and stores on any conveyance proceeding to any foreign port, airport or section may be exported free of customs duty, excise duty and sales tax in such quantities as the appropriate officer may determine having regard to the size of the conveyance, the number of passengers and crew and the length of the voyage or journey on which conveyance is about to depart." C.B.R's LETTER C. NO. 1(11) CEB/87, DATED 11.10.1992 Subject:- PAYMENT OF CENTRAL EXCISE DUTY ON MEALS SERVED ON INTERNATIONAL FLIGHTS.
14. I am directed to refer to your Letter No. IV.CE(Hotels) 91/926, dated 30th January, 1992, on the subject noted above.
15. This an issue has been examined in the Board. The meals served on international flights are exempt from central excise duty under section 24 of Customs Act, 1969. Therefore, the definition of goods as given in section 2(1) of the Customs Act applies in this case and it should not be confused with the definition of goods or services as given in the Central Excises and Salt Act, 1944. Definition of "goods" under the Customs Act, 1969, includes stores i.e., the articles provided for the subsistence and accommodation of ships crew and passengers. Lt is thus, clear that foods or meals served on international flights falls under the definition of goods and the same are exempt from central excise duty under section 24 of the Customs Act, 1969." However, the meals served on domestic flights remain chargeable to central excise duty. Please ensure that the duty on meals served on domestic flights is charged to central excise duty.
16. Instructions contained in Board's Letter C. No. 4/8-CX(B&L)/70, dated 27th July, 1971 stand withdrawn."
17. 6.The aforesaid provisions of the then section 24 of the Customs Act, 1969, show that the exemption from Customs Duty, Central Excise Duty and Sales Tax was available on such Pak- origin goods as are required as provisions and stores on any conveyance proceeding to any foreign port, airport or section. The quantum of goods to be so exempted depends on the size of conveyance, number of persons on board and length of voyage. A plain reading of the said section 24 will show that the scope of exemption does not extend to provisions and stores other than these to be loaded on or supplied to the conveyance which is about to depart to a foreign destination. The layover of international passengers (whether departing or in transit or in transfer) in hotels and supply of meals in such hotels or its restaurants on ground are not covered by the term "provision or stores on conveyance about to depart". The provisions of section 24 of the Customs Act, 1969, are restricted to the provision and supply of goods {e.g. P.O.L., spares, Food, Beverages, Cigarettes, Duty-free sale items, gifts/give-away items, emergency medicines, newspapers, magazines, crockery, cutlery, torches, etc., etc.) on the conveyance (i.e., ships, aircrafts and road/rail- carriages) about to depart for a foreign destination. Accommodation and Food/refreshment for international passengers in hotels or even in airport lounges are not covered by the scope of exemption of the said section 24 of the Customs Act, 1969. Board's Letter dated 11.10.1992 restricts the words "subsistence and accommodation" to "ships' crew and passengers" where the length of voyage requires accommodation of crew and passengers on the decks or cabins, as the case may be, of the ships. The said letter dearly states that "foods or meals served on international flights fall under the definition of goods and the same are exempt from central excise duty under section 24 of the Customs Act, 1969." It does not speak of any exemption on accommodation and foods to international passengers laid over in city hotels. There is no ambiguity or vagueness in this letter of 11.10.1992 which could misguide the appellants not to charge and/or not to pay central excise duty from July, 1990, or even after the date of the said letter. We are satisfied that the provisions of section 24 of the Customs Act, 1969, or the Board's aforesaid letter dated 11.10.1992 do not extend any benefit of exemption in the appellant's case.
18. 7.As regards the liability to pay, the central excise duty on the services provided or rendered by Hotels and Restaurants are chargeable under section 3(1) of the Central Excises Act, 1944, read with the First Schedule thereof. The time and manner of payment of such duty is provided under rule 96-w of the Central Excise Rules, 1944, which makes it obligatory on the Hotel/Restaurant to charge excise duty on such services to issue bill of charges, as prescribed, and to deposit the duty in the treasury by the specified date of a month. For delay/default in depositing excise duty by the prescribed due date, the rule 96-w provided that the defaulting hotel/restaurant shall pay additional duty/fixed penalty at 50% of the duty involved upto June, 1994, and at 2% per month from July, 1994, onwards under section 3-B of the Act. This additional duty/fixed penalty represents the opportunity cost of money not received by the treasury by the prescribed due date and is covered by the term duty as defined under section 2(17) of the Central Excises Act, 1944. For the breach of other provisions of rule 96-w (e.g. Non-maintenance of prescribed accounts, non- issuance of the prescribed bill of charges, etc.), penalty under rule 210 can be imposed at the discretion of the Adjudicating Officer. Accordingly, this was the duty of the appellant to issue the prescribed bill of charges for such services as are involved in this case and to deposit the amount of central excise duty involved in the treasury by the prescribed due dates. The appellant has failed to do so and has avoided payment of central excise duty on the ground that he did not bill the same to PI A and did not collect the same. Notwithstanding the fact whether the appellant actually billed it to PI A or not and/or received its payment or not from PIA, the liability to pay the duty remains that of the appellant. Without prejudice to the above said legal position, we find that PIAC clearly state that they paid all bills in terms of the Agreement (with the appellant) that the charges billed were inclusive of all Government taxes. We have no doubt that Government taxes include central excise duty in terms of the definition of the "taxation" as in Article 260 of the Constitution of Islamic Republic of Pakistan. Moreover, there is no discrimination' against the appellant as they have not been able to show that other hotels in Pakistan, having similar Agreements with PIA, did not pay central excise duty on the services provided to such laid over international passengers. It is pertinent to say that while PIAC could not produce copies of Agreements for the periods 1991-92 to 06/95 on the ground that they could not locate these old record, yet they have sent copies of the available Agreements dated 20.01.1990 (for the period from 20.01.1990 to 19.01.1991) and dated 01.09.1997 (for the period from 01.09.1997 to 31.08.1998) besides the Agreement dated 07.09.1998 (for the period from 01.09.1998 to 31.12.1999) stating that the terms and conditions of Agreement (to the extent that the agreed charges are inclusive of all Government taxes) remained unaltered during the intervening period i.e., covering the period involved from 07/1990 to 06/1995, as in this case. On the other hand, the appellant has consistently avoided to produce copies of the Agreements to show that the charges, agreed to between these parties, did not include government taxes (including central excise duty) or that they did not bill the same i.e., such duty-inclusive charges to PIAC. The non-issuance of the prescribed bill of charges shows the mala fide on the part of the appellant and the non-deposit of central excise duty, so received in the tax/duty inclusive charges from PIAC, amounts to fraud on the part of the appellant. The show cause notice dated 20.06.1998 for the duty evaded by the appellant during the period from 07/90 to 06/95 is not barred by the limitation of the provisions of rule 10(3) of the Central Excise Rules, 1944, and, therefore, we do not accept the plea of time-bar. As regards the justification for penalty on the appellant in terms of cited judgment (PTCL 1992 CL. 23), the appellants have not read the judgment carefully. The case involved in the said judgment related to central excise duty on services, additional duty under rule 96-w(6) of the Central Excise Rules, 1944, and penalties imposed for the breach of rules 96-w and 226 and also for breach of rule 174. The judgment holds only the penalty of Rs. 1 lac for the breach of rules 196-w and 226 to be illegal as there was no willful evasion in that case. However, it did not disturb the determination of duty, additional duty and penalty for the breach of rule 174. We have full respect and regard for the said judgment, but we do not find that any penalty was imposed in this case, under appeal before us, for the breach of rules 96-w and 226 and that the mandatory additional duty (fixed penalty) of rule 96-w(6) upto June, 1994 or the additional duty under section 3-B of the Act from July, 1994, cannot be equated with the discretionary penalty of Rs. 1 lac imposed in the case of the cited judgment. Besides this, while the cited judgment relates to a case of evasion/non-payment which was not willful, this case, under appeal before us, relates to a situation where the non-payment was not only willful but was fraudulent too as the duty (included in the duty-paid charges) was pocketed by the appellant. For the reasons given in paragraphs 5 to 7 of this judgment, we confirm the impugned order with the slight amendment that duty involved shall be calculated on work-back method as the charges were inclusive of taxes and duty. For example, instead of the duty being levied as 10% of the amount of charges billed, it should be (I0O ll)th or about 9.091% of the amount of duty-paid charges billed. The liability of duty and additional duty may be revised accordingly as per the said formula. Except for the modification in the impugned order as above, the appeal against the impugned order fails and is disposed of accordingly as dismissed.
8. Inform all concerned.
9. Announced.