' Yahya Afridi, J.--Collector Sales Tax and Federal Excise, Regional Tax Office, Peshawar, petitioner, has made this Reference to answer the following Questions of Law:- "(i) What limitation of time is applicable in this case under Rule 10 of the Central Excise Rules, 1944?
(ii) Whether in the facts and circumstances of the instant case the show-cause notices dated 24.11.1999 and 01.06.2002 were barred by time and the provisions of sub-rules (2) and (3) of Rule 10(1) of the Central Excise Rules, 1944 are not attracted ?
(iii) Whether sales tax which was not leviable on cement at the relevant time could be legally deducted by the respondent to determine the "value" for levy of excise duty?"
2. Brief and essential facts leading to the present Reference are that the respondent taxpayer was availing exemption under SRO 561(1)/94 dated 09.06.1994 (SRO No, 561), from the levy of sales tax for a period of five years i.e, from 1.7.1996 till 30.6.2001; that the respondent was regularly submitting "Nil" returns of sales tax in terms of Section 26 of the Sales Tax Act, 1990 ("Act"); that the respondent was also licensed under the Central Excise Act, 1944 ("Act"); that the Federal Government imposed Central Excise Duty ("CED") @ 35% of the retail price on ordinary portland cement vide Notification No, SRO 456(1)/96 dated 13.6.1996 (SRO 456); that the respondent regularly provided to the Revenue the breakup of 'retail prices' of cement for the purpose of levy of CED, which revealed that the element of Sales Tax, despite its exemption under SRO No, 561, had been excluded from the same, while calculating notional value of 'Retail Price' of cement to determine the CED; that , after detection, during audit, demand-cum-show-cause notice dated 24.11.1999, was issued to the respondent for recovery of CED an amount of Rs, 29,475,675/- ("First Notice"), the same reads as under:- "GOVERNMENT OF PAKISTAN OFFICE OF THE ASSITANT COLLECTOR CENTRAL EXCISE DIVISION, CUSTOM HOUSE, PESHAWAR C.No, 858 Dated 24/11/99.
To, M/s. Nizampur Cement Plant, Nizanipur Nowshera.
' Subject: DEMAND CUM SHOW-CAUSE NOTICE.
' Whereas it has been pointed out by the CRRA Lahore that according to sub-section (2) of Section 4 of the Central Excise Act, 1944, retail price fixed by the manufacturer is inclusive of all charges and taxes, other than sales tax levied and collected under Section 3 of the Sales Tax Act, 1990.
' M/S Nizampur Cement Plant,Nizampur a unit of the Army welfare Trust, having been registered vide CBR,S letter No, 1/58-Stt/94 dated 25.6.1994 availed exemption from payment of sales tax for 5 years period w.e.f, 1.7.1996 to 30.6.2000 vide SR0-561(I)/96 dated 9.6.94 and as such no sales tax was ever levied and collected from them. A perusal of the retail price declarations of the unit for the period 11/96 to 5/97, however, revealed that notional amount on account of sales tax was deducted from the retail price fixed per metric ton of cement to arrive at the asses sable price and the' clearance of cement was made at lower rate than the retail price fixed by the manufacturer during the period 25.11.96 to 6.97 this resulted into undervaluation of the excise able goods which caused short realization of central excise duty amounting to Rs, 29,475,675/- the default also attracts additional duty chargeable under Section 5.b of the Central Excise Act,1944.
' Now, therefore, you are hereby served with this notice under Rule 10 of CE Rule, 1944 to deposit the above mentioned amount or show-cause as to why the above said amount should not be recovered beside taken penal action against you for violation of the above mentioned to provision of law. You should produce documentary evidence in support of the above offence alongwith written explanation on the date and time specified below, failing which the case will be decided ex parte on the basis of facts available on record.
' You should also state in your written explanation whether you wish to be heard in person or through your duly authorized representative/counsel. If so, you or your duly authorized representative/counsel should appear before the undersigned at my office situated at Custom House Peshawar on 7.12.99 at 11.00 hrs.
Sd- ASSISTANT COLLECTOR C.E. Division, Peshawar."
' That the respondent submitted reply to the above First Notice, seeking clarification regarding the provision of the law being involved for the respondent to respond to the same; that another notice dated 1.6.2002 ("Second Notice"), was issued to the respondent, which reads as under: "GOVERNMENT OF PAKISTAN COLLECT ORATE OF CUSTOMS SALES TAX & EXCISE (ADJUDICATION) RAWALPINDI, REGIONAL OFFICE CUSTOMS HOUSE JAMRUD ROAD, PESH.
SHOW-CAUSE NOTICE ' Whereas it has been reported to the undersigned by the Superintendent Sales Tax & Central Excise, Nowshera that the federal government imposed central excise duty (i) 35% of the retail price on ordinary Portland Cement falling under heading No, 2523.000 vide SRO No, 456(1)/96 dated 13.06.96. The staff of the DRRA Lahore while auditing the central excise record of M/S Nizampur Cement Plant Kahi District Nowshera pointed out that according to sub-section (2) of Section 4 of the Central Excise Act, 1944 retail price fixed by the manufacturer is inclusive of all charges and taxes other than sales tax levied and collected under Section 3 of the Sales Tax Act, 1990. M/S Nizampur Cement Plant Kahi District Nowshera having been registered vide Central Board of Revenue letter C.No, 1/58/94 dated 25.06.94 availed exception from payment of sales tax for 5 years period w.e.f 1.07.1996 to 30.06.2001 vide SRO No, 561(1)/94 dated 09.06.94 and as such no sales tax was ever levied and collected from them. Perusal of the retail price declared by the Unit for the period November, 96 to June, 97 revealed that notional amount on account of sales tax was deducted from the retail price fixed per metric ton of cement to arrive at the assessable price and the clearance of cement was made at lower rate than the retail price fixed by the manufacturer during the period 25.11.96 to 6.1997. This resulted into under valuation of excisable goods which caused less payment of central excise duty amounting to Rs, 29,475,675.00. The default on the part of Unit also attracted additional duty chargeable under 3B of the Central Excise Act, 1944. It has been reported that the Unit had willfully violated Sections 3, 3B & 4(2) of Central Excise Act, 1944 and Rules 9,10, 52, 236 and 238 of the Central Excise Rules, 1944 read with SRO 456(1)/96 dated 13.06.96 punishable wider Rule 210 by depriving govt of its legitimate revenue to the tune of Rs, 29,475,675/-points.
' However, I am of the view that the said issues stand resolved in the light of the CBR clarification dated 9th April, 2002. Now, the remaining question is pertaining to the definition of retail price under the Central Excises Act. Under the Central Excises Act, retail price shall be fixed by the manufacturer which should be inclusive of all the charges and taxes other than sales tax levied and collected under Section 3 of the Sales Tax Act, 1990 at which any particular brand or variety of article should be sold to the general body of consumers. If more than one such price is so fixed for some brand or variety, the highest of such price. In the instant case M/S Army Welfare Trust Nizampur Cement Plant while fixing the retail price determined the notional element of sales tax and deducted the same from the so fixed retail price in spite of the fact that the said unit was enjoying exemption under Sales Tax Act, 1990 vide SRO 561(1)/1994 dated 09.06.1994. In the said scenario practically neither the sales tax was levied nor collected. I am of the considered view that value of retail price as per subsection (2) of Section 4 is to be so fixed by both the exempt and sales taxable units that the component of tax is neither added nor deducted, the component of this tax is just to be ignored. M/S AWT has committed a serious miscalculation causing a loss of CED to the tune of Rs, 294,756.75. Keeping the above facts in view, it is ordered that the evaded amount to taking Rs, 294,756.75 may be recovered in terms of Rule 10(2)(3) of the Central Excises Act, 1944 for violation of Section 3 and Central Excise Rules 9, 10, 52, 236 and 238 of Central Excise Rules, 1944 read with SRO 456(1)/96 dated 13.6.1996. A penalty equal to one time of the amount of duty (Principal amount) is also imposed under Rule 210 of Central Excise Rules, 1944. The same Unit is also directed to pay additional duty under Section 3(B) of the Central Excises Act, 1944."
(Emphasis provided)
' That feeling aggrieved, the respondent company filed an appeal before the learned Customs, Central Excise and Sales Tax Appellate Central Excise Act, 1944 ("Act") deals with the determination of 'value' for the purposes of payment of CED. The said provision reads:- "(2) Notwithstanding the provisions of sub-section (1), the Federal Government may, by notification in the official Gazette, declare that in respect of any goods or class of good the duty shall be charged on the retail price fixed by the manufacturer, inclusive of all charges and taxes, other than sales tax levied and collected under Section 3 of the Sales Tax Act, 1990, at which any particular brand or variety of such article should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest of such price.
' Provided that the retail price shall be legibly, prominently and indelibly printed or embossed on each article, packet, container, package, cover or label, as the case may be."
' In essence, the aforementioned provision provides for CED to be charged on retail price rued by the manufacturer, which is to include all charges and taxes, other than sale tax levied and collected under Section 3 of the Sales Tax Act, 1990. Thus, the intent of the legislature was to exclude from the notional value of retail price, for the purposes of calculating the CED of sales tax which was levied and collected from the manufactures. In the circumstances of the present case, it is noted that in the relevant period sales tax was levied but was exempted under SRO No, 561, hence not collected from the respondent company by the Revenue. Thus, during the crucial period involved in the present Reference, the sales tax being exempted under SRO No, 561 could not be excluded by the respondent company from the notional value of the Retail Price, for the purpose of determining the CED, as is the expressed mandate of Sub-section (2) of Section 4 of the Act.
5. Before parting with this issue it would be important to note that the worthy Tribunal has in the impugned decision relied upon the judgments in Lucky Cement's case prior to determine the value for the purposes of calculating the CED, as provided under Sub-section (2) of Section 4 of the Act.
This Court, on reviewing the said judgments found that the same relate to excise duty and not sale tax, and that too, which was exempt hence not applicable to the facts of the present case, which was not correctly relied upon by the worthy Tribunal.
6. Let us now move on to determine the issue of limitation, as sought to be answered by the Revenue in Questions of Law Nos. I and H of the present Reference. The relevant provision to determine the issue of limitation is Rule 10 of the Central Excise Rules, 1944 ("Rules"), which reads: "10. Recovery of duty short-levied or erroneously refunded etc.--(1) Where by reasons of any inadvertence, error or mis-construction, any duty or charge has nor been levied or has been short levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within one year of the relevant date by an officer not below the rank of Superintendent requiring him to show-cause why he should not pay the amount specified in the notice.
(2) Where by reason of any mis-declaration, false information or collusion, any duty or charge has not been levied or has been short levied or has been erroneously refunded, the person liable to pay any amount on the account shall be served with a notice within three years of the relevant date by the competent adjudicating authority, requiring him to show-cause why he should not pay the amount specified in the notice and be penalized under the law and rules.
(3) Where by reason of any false document, counterfeit seal or impression, fraud or other heinous offense any duty or charge has not been levied or has been short levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within ten years of the relevant date by the competent adjudicating authority, requiring him to show- cause why he should not pay the amount specified in the notice and be penalized under the rules.",
7. The bare reading of the aforementioned Rule provides three different periods of limitation, catering to three different circumstances, which may arise for the Revenue to demand the levy of CED payable by a licensed person under the enabling provisions of the Act. The said three situations can be summarized as follows: 'Situation No, 1 ' Sub-Rule(1) of Rule 10.
' The limitation is one year for any:
(i) Inadvertence,
(ii) Error, or
(iii) Misconstruction committed by a registered company. Situation No, II'
'Sub-Rule (2) of Rule 10.
' The limitation is three years for any:
(i) mis-declaration,
(ii) false information, or
(iii) collusion committed by a registered company. Situation No, III ' Sub-Rule(3) of Rule 10.
' The limitation is ten years for:
(i) any false document,
(ii) counterfeit seal or impression,
(iii) fraud, or
(iv) any other heinous offense committed by a registered company.
8. Now, when we review the admitted factual position in the present case, it is noted that the relevant crucial period for consideration commenced from November 1996 and ended in June 1997. It is also an admitted position that during the said period, the respondent company duly filed before the competent authority of the Revenue, its relevant declarations relating to the retail price and the assessed CED leviable thereon, vide letters dated 11.11.1996, 29.12.1996, 25.2.1997 and 21.5.1997. In addition thereto, the respondent company also regularly informed the concerned authority of the Revenue, the particulars of the retail price and the CED calculated thereon vide its letters dated 13.11.1996, 3.12.1996, 29.12.1996, 25.2.1997, 29.3.1997 and 21.5.1997. All the said letters of the respondent company clearly intimated in writing to the Revenue, the calculation being undertaken by the respondent company in fixing the retail price of the cement and the CED it was to pay or had paid during the relevant period. The aforementioned correspondence of the respondent company has been duly admitted by the Revenue, without any reservation.
9. In view of the above, this Court is to consider the action of the respondent-Company of communicating the information to the Revenue, and to adjudge under which sub-rule of Rule 10 ibid does the said action of the respondent-Company fall under.
10. As the terms relating to the conditions precedent expressed in Sub-Rules (I) and (II) of Rule 10 ibid, have not been defined, we would have to consider their ordinary dictionary meaning, which are as follows:- 'THE AUSTRALIAN OXFORD DICTIONARY Inadvertent/inadvertence ' Unintentional ' not properly attentive negligent ' Error ' a mistake ' the condition of being wrong in conduct or judgment(let into error) ' wrong opinion or judgment ' the amount by which something is incorrect or ' inaccurate in a calculation or measurement ' Misconstruction/Misconstrue ' Interpret (a word, action etc) ' mistake the meaning of (a person)
'THE AUSTRALIAN OXFORD DICTIONARY False information ' Not according with fact ' Spurious ' Illusory ' Deceptive ' Unfaithful ' fictitious ' Collusion ' a secret understanding, especially for a fraudulent purpose ' such an understanding between ostensible opponents in a lawsuit 'CHAMBERS 20' CENTURY DICTIONARY Inadvertent/inadvertence ' Inattentive unintentional ' Aegligence oversight ' Error Wandering, winding course, deviation from the right way mistaken opinion a blunder or mistake wrong doing 'Misconstruction ' wrong construction construing or interpretation faulty construction 'False information Wrong, Erroneous Deceptive Untruthful Not genuine Counterfeit 'Collusion The act of colluding A secret agreement to deceive One made between the opposing parties in a lawsuit 'CONCISE OXFORD ENGLISH DICTIONARY Inadvertent/inadvertence not resulting from or achieved through deliberated planning 'Error a mistake the state of being wrong in conduct or judgment technical, a measure of the estimated difference between the observed or calculated value of a quantity and its true value.
'Misconstruction/Misconstrue interpret wrongly 'False information Not according with truth or fact. Invalid or illegal Illusory Artificial 'Collusion Secret or illegal cooperation in order to cheat or deceive others. Derivative
11. On going through the aforementioned dictionary meanings of the terms expressed in Sub-Rule
(1) of Rule 10 ibid and comparing the same with that of those expressed in Sub-Rule (II), it would be fair to state that these terms relate to a 'condition of mind'; and the conditions stated in Sub-Rule
(1) refers to action, which are not based on any malice, malafide, illwill to gain any benefit. In essence, the said terms refer to situations, where there is no mense rea on the part of the actor to gain any benefit. While, the terms referred to in Sub-Rule C (II) ibid, have a definite mense rea on the part of the actor to gain illegal benefit from its such action.
12. The admitted conduct of the respondent company, whereby the particulars of the value of Retail Price calculated for the purpose of determining the CED were during the crucial period was regularly intimated to the competent authority of the Revenue, reflects that, there was no mense rea on the part of respondent company to evade any CED. What is also important to note is that.
There was no concealment on the part of the respondent company to keep the Revenue misinformed about the CED being paid on the manufactured cement. In similar circumstances, the Apex Court, while dealing with the relevant matter in Dewan Cement Ltd's case (2009 SCM R 1126), clearly explained the true purport of the provisions contained in Rule 10, in terms that: "A plain reading of Rule 10(1) would amply denote that it would be applicable in the cases where due to no fault either of the assessee or the Department any charge has not been levied or has been levied or has been short levied or erroneously refunded. The thrust of the Rules, therefore, is that there should have been some inadvertent error or misconstruction in the process of payment of duty due to no fault of either party which leads to the short levy refund etc. In our opinion the word error denotes one of fact as well as law.
8. On the other hand sub-rule(2) contemplates a conscious act on the part of the assessee i.e, an element of mense rea is involved since the words mis-declaration false information or collusion are in fact a state of mind in which the actor knows what he is doing and purposely does something i.e, either misdeclares a product in question or gives any false information in connection thereof or colludes with anyone in order to avoid payment of the duty or pays lesser duty than that mandated by the law and the rules."
(emphasis provided)
' Keeping in view the 'ratio decedendi' of the aforementioned judgment, and the admitted facts of the present case, it would be fair to observe that, there was no 'conscious act' on the part of the respondent company to make any misdeclaration, or file any false information or enter into any collusion with any officer of the Revenue, in order to avoid any payment of CED. At best, the action of the respondent company, even if taken to be against the letter of the law, was an error of law, which in the crucial period was common, as is evident from the number of cases, which arose from different jurisdictions requiring adjudication on the very definition of value for the purpose of calculating CED payable by a manufacturer, as provided under subsection (2) of Section 4 of the Act. One of the important case in point being Lucky Cement's case (2003 PTD 1002 and 2007 PTD 1656). What is also crucial to note is that the Revenue, despite being regularly informed about the calculation being carried out by the respondent company to determine the value and the CED payable or paid, remained unmoved for more than a year.
13. On reviewing the contents of both the Show-cause Notices, it is noted that, it did not expressly describe the disputed action of the respondent company to be based on misdeclaration or false information or collusion or a false document or a counterfeit seal or impression or a fraud or any other heinous offence. In fact, it is only in the Second Notice dated 1.2.2002, that the Revenue has, without giving any description of the action or inaction of the respondent Company, simply stated the same was being served under sub-rules (2) and (3) of Rule 10 ibid. However, by now the law has been settled that, merely stating the provision of the law, without any justification for the same in the body of the notice, would not qualify the said notice to be invoked under the stated provision of the law. The entire notice has to be read to determine under which provision of law, has the same been served by the Revenue. In fact, the Revenue had to expressly explain, why the said notice was being served at a belated stage, so as to bring the same within the purview of the relevant provisions of the Rules. In similar circumstances, the Apex Court in Khyber Electric Lamps' case (2001 SCM R 838), has clearly dilated upon the requirements of a valid legal show-cause notice to be precise and clear in its content to bring it within the legal provision under which it was being issued, in terms that: "It has not been alleged in the show-cause notices that the respondents knowingly or have reasons to believe that documents which were false in any material particular, were filed. It is necessary under sub-section (1)of Section 32 of the Act to show that the declarant had the knowledge or had the reason to believe that declaration or statement made by him was untrue/false and in absence of such allegation notice would be vague and would not be in accordance with law. Similarly, notice under sub-section (2) of Section 32 of the Act must contain the allegation of collusiveness and notice under subsection (3) of Section 32 of the Act should speak of inadvertence, error or misconstruction and without such allegations the notices would be defective and against law. It may be mentioned that the respondents after survey had been issued Final certificates certifying that they were manufacturers of Electric Bulbs and the quantities of raw material required for their products were worked out. In the Survey report the 'Base Cap' and 'Filaments' were shown as raw material and the duties thereon as such were paid on their import. From the Survey report and the Final Certificates, it appears that the Customs Staff itself either collusively or inadvertently short levied the duty for which specific notice under the relevant sub-section of Section 32 of the Act had to be served on the importer within the specified time but it failed to issue/serve any such show- cause notice in accordance with law in Appeals Nos.1358 and 1359 of 1997, therefore, in absence of statutory notice, demand notices dated 25.7.1995 and 26.7.1995 were without lawful authority and thus, of no legal effect. Similarly, show-cause notices dated 16.7.1997 and 23.8.1995 in Appeals Nos.1560 and 1361 of 1997 have been held to be vague and not in conformity with the law, therefore, the same have no legal effect.
5. It was urged by the appellants that the learned High Court after finding the notice's to be defective and not in accordance with law should have remanded the cases to the Customs Authorities for proceeding in accordance with law, but we do not find any substance in this contention as the period prescribed by law for service of notices has already expired and it would be a futile exercise in remanding the cases to the Customs Authorities. In case of Federation of Pakistan v. Messrs Ibrahim Textile Mills (1992 SCM R 1898), it has been ruled that in case of short levied duties on account of inadvertence, error or misconstruction, Section 32(3) of the Act provides that for recovery notice shall be served within six months, if that is not done, like a suit for recovery of money after lapse of time prescribed by law of limitation, the recovery becomes unenforceable."
(emphasis provided)
14. Another very important aspect of the prepent case is that, the worthy Commissioner (Appeals) had in his decision passed a finding that, the respondent company has committed a serious 'miscalculation', causing a loss to the Revenue. The worthy Appellate Tribunal has confirmed the said findings in terms:- "At best, the offence which can be alleged is either of inadvertence, error or misconstruction which entails a limitation period of one year under Rule 10(1). The Collector (Adjudication) has also concluded that "AWT has committed a serious miscalculation causing a loss" which hardly leaves any scintilla of doubt about the "error" committed by the Appellants. We are, therefore, of the view that under the fact and circumstances of this case the limitation period under Rule 10(1) is applicable. Such limitation period had expired in June, 1998. Thus, making the cause of action (Show-cause notice dated 01.06.2002) barred by limitation of time. Needless to mention, this observations is passed without prejudice to our earlier conclusion made by us while discussing the first issue in appeal."
' The appellate Tribunal, being the final forum provided under the Act, to adjudge all factual disputes, has determined the disputed action of the respondent company to be based upon a serious mis-calculation and thus falling within the purview of Sub-Rule (1) of Rule 10 ibid. This Court in its present jurisdiction is to only render legal opinion on questions of law, would not counter the same, when there is nothing absurd or unreasonable in the said finding, so as to warrant a different opinion.
'OPINION ' Questions (i) What limitation of time is applicable in this case under Rule 10 of the Central Excise Rules, 1944?
(ii) Whether in the facts and circumstances of the instant case the show-cause notices dated 24.11.1999 and 01.06.2002 were barred by time and the provisions of sub-rules (2) and (3) of Rule 10(1) of the Central Excise Rules, 1944 are not attracted ?
' Both the above Questions of Law are answered in Negative, in terms:- I. In the facts and circumstances of the instant case, the Show-cause Notices dated 24.1.1999 and 1.6.2002, are barred by time. The disputed action of the respondent Company could only be agitated by the Revenue within a period of one year and the same was to expire on 30th June, 1998, under Sub-Rule (1) of Rule 10 of Central Excise Rules, 1944.
II. The provisions of Sub-Rules (2) and (3) of Rule 10 of Central Excise Rules, 1944 are not applicable to the facts and circumstances of the present case.
' Question (iii) Whether sales tax which was not leviable on cement at the relevant time could be legally deducted by the respondent to determine the "value" for levy of excise duty?"
' The above Question of Law is answered in Positive, in terms: That, during the crucial period involved in the present Reference, the sales tax being exempted under SRO No, 561 could not be excluded by the respondent company from the notional value of the Retail Price, for the purpose of determining the CED, as is the expressed mandate of Subsection (2) of Section 4 of the Act.
15. In view of the above discussion, the decision of the Appellate Tribunal is maintained and this Tax Reference is answered in terms stated hereinabove.
' Office is directed to send a copy of this judgment under seal of the Court to the Appellate Tribunal Inland Revenue, Peshawar Bench, Peshawar.