' NAIMUDDIN, J. - The petitioner is a limited liability company incorporated under the Companies Act, 1913, and is engaged in the business of manufacturing of yarn. By Notification dated 20th April, 1973 the company was brought within the purview of Production Capacity Duty leviable under section 3 (4) of the Central Excises and Salt Act, 1944 in lieu of excise duty on actual production under section 3 (1) of the Act.
2. The company being dissatisfied with the change in the mode of levy of the excise duty, challenged before this Court the action in Constitution Petition No, 681 of 1973. This Court by the order dated 20th January 1973 directed, by the consent of the parties, that as an interim measure 75% of the arrears of the excise duty upto 30th June, 1973 be paid by the petitioner within 10 days of the order and future payment be made according to actual production under provisions of section 3(1) of the Act. However, later on the petitioner company-applied for withdrawal of this interim order through an application which was granted by this Court on 7th November, 1973. As a result of the grant of petitioner's request excise duty was charged by the respondents on the basis of production capacity under the provisions of section 3 (4) of the Act.
3. According to the petitioners they were originally utilising their entire machinery for the production of cotton yarn but subsequently they started utilising a part of the capacity for the manufacture of staple i,e, synthetic yarn. Upon the petitioner manufacturing synthetic yarn the Central Excise Department demanded payment of excise duty in respect of synthetic yarn on actual production under the provisions of subsection (1) of section 3 of the Act. This additional levy was made without varying or withdrawing the Notification dated 20th April, 1973 by which petitioner's Mills was brought within the purview of levy of excise duty on the basis of production capacity. However, the Central Excise Department worked out formula for determining and providing relief in cases where part of the entire production capacity is utilised for manufacturing yarn from manmade fibre. This formula permitted reduction in the levy of duty prescribed on the basis of production capacity on cotton yarn, in the following manner : "Production capacity duty payable on cotton yarn for a month by 4 spindles against clearance of 100 lbs. Of staple yarn on payment of excise duty on actual production of staple yarn under item 33 of the 1st Schedule to the Act."
4. The petitioners have challenged the extra levy imposed upon them on the production of staple yarn and principal point urged by Mr. A. K. Brohi learned counsel for the petitioner turns on the interpretation of the entry 52 of 4th Schedule to the Constitution which may be reproduced below : "52. Taxes and duties on the production capacity of any plant, machinery, undertaking, establishment of installation in lieu of the taxes and duties specified in entries 44, 47, 48 and 49 or in lieu of any one or more of them."
5. It is submitted that entry 52 has introduced entirely new concept in the history of fiscal legislation of Pakistan in that it is in no sense an excise duty although it is being erroneously confused with the concept of excise duty so far as the present case is concerned. Mr. Brohi submitted that relevant entry is no doubt the entry 44 relating to duties of excise but the concept of excise duty is no longer to be read into Entry 52 which is a new type of duty leviable in lieu of excise duty. According to Mr. Brohi it would be fundamental error to assume in principle if Entry 52 is not treated as an independent entry.
6. It is further submitted that in line with Entry 52 of the Fourth Schedule to the Constitution subsection (4) was added to section 3 of the Central Excises and Salt Act, 1944 (hereinafter called the Act) by the Finance Ordinance, 1961, as subsequently substituted by the Finance Act, 1966 which provides that with the prior approval of the Central Government, the Central Board of Revenue may in lieu of levying and collecting under subsection (1) duties of excise on excisable goods by Notification in the official Gazette levy and collect duties on production capacity of the plant, machinery undertaking, establishment or installation producing or manufacturing such goods.
7. The learned Deputy Attorney-General submitted that the production capacity of the petitioners Mills was fixed in relation to cotton yarn and not in relation to synthetic yarn and therefore, the department was entitled to levy duties under subsection (1) of section 3 of the Act on the synthetic yarn actually produced on a part of the plant etc. He laid great emphasis on the provisions of rule 7
(3) of the Production Capacity Rules which states that nothing in the rules shall apply to any excisable goods other than the cotton yarn and that the rules shall not affect the liability of such excisable goods to excise duty under subsection (I) of section 3 of the Act.
8. He further submitted that in any case, the Department has given rebate according to the formula mentioned hereinabove in respect of the production capacity fixed under the notification dated 20th April, 1973 for the synthetic yarn produced by the petitioner on a part of the plant and machinery of the Mills.
9. Entry No, 52 of the Fourth Schedule to the Constitution as well as subsection (4) of section 3 of the Act specifically provides that taxes and duties on production capacity of any plant etc. May be imposed in lieu of, (but not in addition to), the duties of excise provided in Entry No, 44 of the Fourth Schedule to the Constitution and subsection (1) of section 3 of the Act. The phrase 'in lieu of ' means, 'in place of', 'instead of', 'in substitution of'. According to "No, Volfson v. Baltimore Bank of Kansas City (1) the phrase has been held to be synonymous with 'instead of.' Therefore, the duty could be levied either under subsection (1) of section 3 of the Act on the basis of the actual production at the rates specified in the First Schedule to the Act or on the basis of the production capacity of the plant, machinery etc. As determined and notified, and not on the basis of both, as has been done in this case since the plant on which the staple yarn was
(1) App. 157 S W 2d. 560 manufactured had already been subjected to levy of duty on its production capacity. In our opinion, it is not permissible to, subject the staple yarn which is produced on the plant and machinery which is already subjected to capacity duty, to excise duty under subsection (1) of section 3 of the Act without first reducing the production capacity of the plant by withdrawing the Notification of 20th April, 1973 by which the production capacity was imposed on the petitioners textile manufacturing plant.
10. The reliance on the provisions of rule 7(3) of the Production Capacity Rules, by the Deputy Attorney-General, in our view, is wholly misplaced for firstly, the rules are to be interpreted in such a manner that they do not become ultra vires the Act or the Constitution and secondly, if they cannot be so interpreted they have to be declared ultra vires. Accordingly, if a plant or machinery is already subjected to production capacity tax in relation to cotton yarn but on a part thereof synthetic yarn is produced then unless that part of the plant or machinery is excluded from the production capacity, the right to levy duty under subsection (1) of section 3 of the Act in respect of synthetic yarn produced on that part of the plant or machinery cannot be availed of as otherwise, it would amount to double taxation which would be against clear mandate of the Constitution contained in Entry 52 which provides levy of duty on production capacity basis only in lieu of taxes and duties specified in Entries Nos. 44, 47, 48 and 49. Further in the case of Commissioner, Sales Tax v. Dada Plastic Works (1) their Lordships of the Supreme Court, while construing the provisions of the Sales Tax Act, have stated at page 150 of the report that if the result of an interpretation placed on the Act would be to impose double taxation then a different construction might require to be applied in the interest of justice. We would therefore, not accept an interpretation which would lead to levying of double duty.
11. Further, it is a settled principle of law that the rules which are merely a species of subordinate legislation and the law under which they are framed both have to be in conformity with the constitutional provisions. The interpretation sought to be put by the learned Deputy Attorney- General on the rules, if accepted, would clearly make them ultra vires the Constitution and would also make them invalid on the ground of unreasonableness as the synthetic yarn on which duty sought to be levied is produced on the plant and machinery which has already been subjected to levy of production capacity duty. Support can be drawn for the proposition that a rule made in the exercise of delegated legislative powers is invalid if it is unreasonable, by the observations made by Lord Russel, C. J. In Kruse v. Johnson (2) which read as follows : "if, for instance, they (the bye-laws) will found to be partial and unequal in their operation as between different classes ; if they were manifestly unjust ; if they disclosed bad faith ; if they involved such oppressive or gratuitous interference with the rights of those subject to them as could find no justification in the minds of reasonable men, the Court might well say 'Parliament never intended to give authority to make such rules ; they are unreasonable and ultra vires."
12. More or less to same effect are the observations by Munir, C J. In Jibendra Kishore Accharyya Chowdury v. The Province of East Pakistan (3).
(1) PLD 1965 SC 146 (2) 1898 2 Q B 91
(3) PLD 1957 SC (Pak.) 9
13. Now, we would deal with the plea that the petitioners have been given rebate in duty according to the formula.
14. It is an admitted position that the so-called formula lacks any statutory sanction. It has been explicitly admitted in paragraph 8 of the counter-affidavit filed on behalf of the respondents on January 8, 1973 in the following words :- "It is not necessary that there should be statutory warrant for the formula stated above."
15. It may be noticed that paragraph 48 of the Central Excise General Order No, 8 of 1968 which contains the formula makes it quite clear that it was a provisional formula and was intended as an essentially ad hoc arrangement to take account of the fact that the Act and the Rules made no provision whatsoever, in relation to the possibility of double taxation which could arise in cases in which a textile mill which was being assessed to production capacity tax was also producing synthetic yarn. The following extract makes it clear that the decision was essentially an administrative one :- "Under sub-rule (3) of rule 7 of the Cotton Yarn Capacity Rules, yarn manufactured from staple fibres even in a factory subject to Cotton Yarn Capacity Rules, will still be lia )1e to duty under the said item 33. But in consideration of the fact that for the manufacture of yarn from staple fibres, some of the same spindles are used which have been taken into account for determination of the production capacity of cotton yarn of the factory, it has been decided that deductions from the monthly instalment of production capacity duty should be allowed corresponding to the amount of duty paid under said item 33 on clearance during the month, of yarn manufactured from staple fibres, on the basis of the following provisional formula : "FORMULA
16. We may mention it was submitted that the mere fact that it is conceded that the formula was intended to as only provisional is enough-to demonstrate its lack of legal foundation.
17. Moreover, the formula is fundamentally defective and unreasonable inasmuch as it ignores the fact that excise duty on cotton yarn is levied on countwise basis whereas excise duty on staple yarn is leviable on weight basis. Thus one would not expect the relief to be given under the E formula to be proportionate to the extent of double taxation and in fact the application of the formula leads to a considerable additional imposition of taxation on a textile mill quite irrespective of the fact as to whether due rate of excise duty on staple yarn is greater than on cotton yarn.
18. Under Article 77 of the Constitution, tax is to be levied by lamp, only. This formula it appears has been evolved by the Central Board of Revenue for its own guidance and it has, therefore, no legal force.
19. For all these reasons, we are of the following view :
(1) That whereas excise duty under subsection (1) of section 3 of the Central Excises and Salt Act, 1944 could be validly levied on manmade fibres and yarns manufactured by the petitioner- company on the plant or machinery subjected to duty on the basis of production capacity fixed under subsection (4) of section 3 of the Central Excises and Salt Act, 1944 for cotton yarns but no excise duty under subsection (1) of section 3 of the Central Excises and Salt Act, 1944 can be validly levied on the man-made fiber and yarn manufactured on the plant or machinery subjected to payment of duty on the basis of production capacity fixed in relation to cotton yarn without first excluding that part of plant or machinery on which such yarn is produced from the levy of duty under subsection (4) of section 3 of the Central Excises and Salt Act, 1944 by revising the production capacity of the plant or machinery and fixed under subsection (4) of section 3 of the Act in relation to cotton yarn.
(2) That the formula prescribed by the Central Board of Revenue under the Central Excise General Order No, 8 of 1968, dated 29-4-1968 for giving relief in respect of duty on manufacturing yarn from staple fibers on some of the same spindles which have already been taken into account for determination of production capacity of cotton yarn has no legal basis.
(3) In view of these findings, we are unable to uphold the levy and demand of extra duty from the petitioner and, therefore, declare the demand to be without lawful authority.
20. This petition succeeds accordingly and in the circumstances, however, we leave the petitioners to bear their own costs,