' TANZILUR REHMAN, J.-- The petitioners are a private limited company. They have been carrying on, amongst other business, the business of restaurant under the name and style of "Village Restaurant" (hereinafter referred to as the said 'Restaurant'). The petitioners commenced their business of restaurant with effect from 1-7-1969, the first financial year being 1969-70 and the assessm ent year 1970-71.
2. The staff of the Directorate of Intelligence and Investigation (Customs & Excise), Karachi visited the restaurant on 3-7-1976 on receiving an information that the said restaurant was being run without holding any central excise licence and without paying any central excise duty as required under Rule 96-W of Central Excise Rules, 1944. A show-cause notice dated 27-7-1976 was accordingly issued by respondent No.4 to the petitioners who were ordered to pay the central excise duty for the year 1972-73 to 1975-76 in the sum of Rs.4,94,886.90, as the petitioners had. exceeded the exemption limit during the aforesaid years. Respondent No.4 also ordered the petitioners to pay additional duty by his order despatched to the petitioners on 18-2-1977, amounting to Rs.2,47,443.45 under sub-rule (3) of Rule 96-W. Penalties of Rs.1,00,000 for deliberate evasion of the payment of duty under Rule 210 for contravention of rules 96-W and 226 and Rs.2,000 for contraven tion of rule 174 of Central Excise Rules, 1944 were also imposed.
3. The petitioners being aggrieved by the said order filed an appeal before respondent No.3 which was allowed by his order dated 31-7-1977 to the extent only that only a part of additional duty under sub-rule (3) of Rule 96-W of Central Excise Rules, 1944 was ordered to be recovered from the petitioners for the period subsequent to the issue of notification. The order of respondent No. 4 levying excise duty and imposing penalties was, however maintained.
4. Mr.Mansoor Ahmed Khan, learned counsel for the petitioners contended that the petitioners stood exempted from the payment of excise duty for the services provided by the petitioners restaurant until the annual turn over of the restaurant was determined by the Income-tax Officer in any Income-tax assessm ent year subsequent to 1966-67, to be not less than Rs.4 lacs. Such determination was made by the Income-tax Officer on 30-6-1976. So, according to him, the levy of duty prior to 1-7-1976 was unlawful. He next contended that since there was no breach of any rule made under the Act, the Order imposing penalties is without jurisdiction.
5. To examine the above contentions of the learned counsel for the petitioners, it is first deemed necessary to refer to the relevant provisions of the Central Excise & Salt Act, .1944 and Central Excise Rules, 1944 and the notification (relevant to the present petition) issued thereunder.
6. For the first time by section 3 of the Finance Ordinance, 1970 (Ordinance XI of 1970) excisable services were defined and made subject to duty of excise by an amendment brought in subsection
(1) of section 3 of the Act. The said subsection as amended by the Finance Ordinance, 1970 reads as under:- "There shall be levied and collected, in such manner as may be prescribed duties of excise on all excisable goods produced and manufactured and all excisable services provided or rendered, in Pakistan, as and at the rates setforth in the first schedule."
' The rate of duty was provided as 10% of the charges under item 1 of Part II of the First Schedule to the Act which is as follows:- "(2) All services, facilities and utilities, including 10 percent of supplied and merchandise, the charges." provided or rendered by a restaurant.
7. Section 3(1) of the Act, as aforesaid, provided for the said duty to be levied and collected in such a manner as may be prescribed. Pursuant to the said intent and purpose, Rule 96-W was added to the Central Excise Rules, 1944 which reads as under:- "96-W. Special procedure regading Hotels and Restaurants.--(1) The owner or manager of an hotel or restaurant shall maintain a daily account in such form as the Collector may direct, of all excisable services provided or rendered, wherein the following particulars shall be entered, namely:-
(a) the name and address of the person to whom any such services have been provided or rendered;
(b) the paticulars of the services provided or rendered;
(c) the charge for such services.
(2). For each transaction covered by sub-rule (1), there shall be issued, in such form as the Collector may direct, a bill of charges. One copy of the bill shall be given to the person to whom the services have been provided or rendered and one copy shall be retained by the owner or manager of the hotel or restaurant.
(3) The owner or manager of the hotel or restaurant shall pay the duty due from him at the end of each week.
(4) Hotels and restaurants the services provided by which are for the time being liable to excise duty shall display a notice to that effect at some conspicous place in their premises.
(5) The owner or manager of an hotel or restaurant who intends to povide or render excisable services for the first time shall give notice in writing to the Collector at least fifteen days before such owner or manager begins to provide or render such services.
(6) The owner or manager of an hotel or restaurant shall submit to the proper officer the plan of the premises and fittings intended to be used for providing or rendering excisable services and the plan may be modified, altered or added to after giving to the proper officer fourteen days previous notice specifying the manner in which the plan is intended to be modified, altered or added to.
(7) Within seven days after the close of each month, every owner or manager of an hotel or restaurant rendering excisable services shall submit to the property officer a monthly return in the proper Form showing the number of bills and the amounts charged for the each kind of service rendered, rate of duty levied, amount of duty due and amount paid and such other particulars as the Central Board of Revenue or the Collector may by general or special order, require".
8. The respondent No.1 in exercise of the powers conferred under subsection (1) of section 12-A of the Act issued from time to time notifications which included exemptions in relation to the excisable services provided or rendered by hotels and restaurants. The last such notification bearing No. SRO-557(I)/72, dated 3-8-1972 (relevant to the present petition) was issued by respondent No.
1. By the said notification the services, rendered by a restaurant turn over of which as determined by the Income Tax Officer, in any income tax assessment year subsequent to the assessment year 1966-67, was not less than--
(1) 4 lacs rupees in the case of Karachi and Lahore ; and
(2) 2 lacs rupees in other cases, were charged with the excise duties.
9. Learned counsel for the petitioners has urged before us that while interpreting a fiscal statute words are only to be given effect to, however unjust they may appear. So, the words appearing in the notification "as determined by the Income-tax Officer" are to be given a literal interpretation, so as to create a liability for the payment of excise duty only after the annual turn over of the petitioners restaurant is determined by the Income-tax Officer. In support of his arguments he referred to a number of decisions namely, (1) The Commissioner of Agricultural Income-tax, East Bengal v. B.W.M. Abdur Rehman 1973 SCM R 445, Collector of Customs (Appraisement), Karachi and others v. Messrs Abdul Majeed Khan and others 1977 SCM R 371 and Muhammad Younus v. Central Board of Revenue, Government of Pakistan and others PLD 1964 SC 113. He invited our attention to the observations made in the aforesaid cases to the effect that-- "In determining whether or not a particular matter comes within a taxing statute, it is only the letter of the law which must be looked into". 1973 SCM R 445; "In interpreting a penal or a taxing statute the Courts must look to the words of the statute and interpret them in the light of what is clearly expressed. It cannot imply anything which is expressed, it cannot import provisions in the state so as to support assumed deficiency,................................ " 1977 SCM R 371 and lastly; "It is patent that before a person can be made liable to the payment of a tax or a levy, he must be shown clearly to fall within category so made liable under the letter of the law." PLD 1964 SC 113.
10. With respect, there cannot be any two opinions about the observa tions, referred to above, made by the Supreme Court which lay down the recognised principles of construing or interpreting a fiscal or a tax statute.
11. Having examined the first contention of the learned counsel for the petitioners, in the light of the above provisions of the Act and Rules and the notification No. S.R.0-557(I)/72, dated 3-8-1972, referred to above, and keeping in view the principles of construing the provision in a tax statute as laid down by the Supreme Court in the above cases, it seems clear to us that the liability accrues as soon as the limit of turnover of Rs.4 lees is reached but if there is any dispute between the assessee and the Department about the quantum of the actual turnover, the determination by the Income-tax Officer will be taken to be decisive. The words "as determined by the Income-tax Officer" will be read for the purpose of actual turn over, in case of dispute, to quantify the annual turnover and not qualify the time of the accrual of the liability itself, which is evident by the word "as" and not "after" as used in the said notification. We, therefore, holdB that the liability to pay the excise duty for the services rendered by the petitioners' restaurant accrued as soon as their annual turnover crossed the exemption limit, which they fully knew at the time of taking annual accounts or at best filing their Income-tax Return for the year, 1972-73. Admittedly the turnover for the said year as declared by the petitioners themselves, was Rs.5,55,000 i.e. Rs.1,55,000 in excess of the limit prescribed by the aforesaid notification.
12. Now, we take up the question of imposition of penalties against the petitioners. By the order impugned before us, a penalty of Rs.one lac has been imposed under Rule 210 for. contravention of rules 96-W and 226 for deliberate evasion of the payment of the duty. A penalty of Rs.2,000 for contravention of Rule 174 has also been imposed. Rule 210 under which the penalty of Rs.one lac has been imposed reads as follows:- "210. General penalty.--A breach of these Rules shall, where no other penalty is provided herein, be punishable with a penalty which may extend to two thousand rupees or ten times the amount of duty involved, whichever is greater and with confiscation of the goods in respect of which the offence is committed".
' And rule 174 for the breach of which a penalty of Rs.2000 has been imposed reads as follows:- "174. Persons requiring a licence.--(1) Every manufacturer, trader, dealer or person hereinafter mentioned shall be required to take out a licence and shall not conduct his business in regard to such goods or services, otherwise than by the authority, and subject to the terms and conditions of licence granted by a duly authorised officer in the proper Form:- (a)
(b)
(c)
(d) Excisable services".
13. The maximum penalty provided under rule 210 may extend to Rs. 2,000 or ten times the amount of duty involved, whichever is greater. This rule applies to those breaches of the rules where no other penalty has been provided in the Rules. Rule 96-W relates to a number of things to be performed by the person rendering excisable services, in the hotel or restaurant, whereas rule 174 relates only to the obtaining of licence by a person rendering excisable services.
14. Although the contention of the learned counsel for the petitioners is that since they did not commit any breach of the provisions laid down in rule 96-W as such no penalty can be imposed on them, he, however, contended in the alternative that the penalty must follow the guilty mind inasmuch as that avoidance of basic liability must accompany a mens rea. In support of his contention, he relied on Pakistan & others v. Hardcastle Waud (Pakistan) Ltd. Karachi PLD 1967 SC 1, Muhammad Muslim v. Commissioner of Income Tax, Karachi 1980 PTD 227, Muhammad Ali v.
State Bank of Pakistan 1973 SCMR 140 and M/s Jabees Ltd., Karachi v. Government of West Pakistan 1979 CLC Kar.
784.
15. In the first case cited above our attention was invited to the following observations of Hamoodur Rahman, J. who delivered the separate opinion in the above case:- "Even in the case of a statutory offence the presumption is that mens rea is an essential ingredient unless the statute creating the offence by express terms or by necessary implication rules it out.
The mere omission of the word "knowingly" or "inten tionally", is not sufficient to rebut this presumption for all that such words do is to say expressly what is normally implied. Thus where the words used in the statute are not clear or unambiguous an examination of the general scheme and object of the statute becomes necessary to determine whether the general rule of liability has been departed from. In some cases even the quantum of the punishment has been taken into account for determining this question, though this by itself, cannot, in my view, be conclusive".
15. In the second case it was observed that-- "To sum up, our conclusions are that the provisions of section 28(2-B) are of a penal nature almost corresponding to provisions contained in criminal statutes. Penalty can be imposed only when the revenue establishes a case indicating dishonest motive of an assessee in making the return under section 18-A" of the Act. The mere discrepancy between a return under subsection (2) of section 18- A and a final return under section 22 of the Act or the final assessment under section 23 of the Act would not by itself be sufficient to find a case for imposition of penalty under section 28(2-B) of the Act. The mere falsity of the explanation of the assessee is also not relevant consideration for the imposition of penalty. .The wrong mode of accounting by treating taxable income as non-taxable, unless the same be in flagrant violation of all norms of business honesty would also not be sufficient to attract the provisions of penalty. We have further formed the opinion that there should be evidence apart from discrepancy or falsity of explanation to base the case for penalty. In addition, in cases for imposition of penalty it is also to be considered whether the individual assess has maintained accounts or merely relied on information supplied to him by other partners or his servants".
16. The third case cited by the learned counsel for the petitioners lays down a general principle that the provisions of a penal statute must be intepreted strictly. This authority is beside the point urged before us by the learned counsel for the petitioners. The last authority is also not relevant in so far as the imposition of a penalty is coicerned.
17. However the principle laid down in the authority, first cited, by the Supreme Court PLD 1967 SC 1 gets support from an earlier decision of the Supreme Court reported as M/s Eastern Rice Syndicate v. Central Board of Revenue PLD 1959 SC (Pak.) 364. In that case it was observed that-- "In the application of law which may culminate in the imposition of these enormous penalties, the authorities in question should act with complete fairness and the utmost circumspection if their actions are not to have effects detrimental to the maintenance and development of trade and to the wider interests of the public and the country".
18. Looking to the facts and circumstances of the case we are of the view that it does not appear to be a case of willful evasion of the payment of excise duty. Had there been any intention or attempt to evade the same, the petitioners would not have filed their Income-tax Return showing the amount of Rs.5,55,000 as turnover for the assessment year 1972-73, and with increased amount of turnovers every year; the last Return showing a turnover of Rs.16 lacs for the assessment year 1976- 77 ending 30th June, 1976. All these turnovers were practically accepted by the Income-tax Officer with a little bit of increase. There fore it can be said to be a case of non-payment of excise duty on the due date. The learned counsel for the petitioners stated before us that it was only after the receipt of the assessm ent order passed by the Income-tax Officer under the Income-tax Act, 1922 that the petitioners started charging excise duty from their customers i.e. as op and from D 1st July 1976. The possibility, therefore, of believing bona fide that the petitioners would be liable to pay the excise duty only after their annual turnover is determined by Income-tax Officer cannot, in the circumstances, be ruled out altogether. As such the non-observance of rule 96-W and rule 226 cannot be attributed to any mens rea on the part of the petitioners.
19. The upshot of the above discussion is that the levy of excise duty for the assessment years 1972- 73 to 1975-76 by respondents 3 and 4 is legal. Since no exception to the levy of additional duty was taken E before us, the order of respondent No. 3 regarding the levy of additional duty payable with effect from the date of Notification vide S.R.O.16(8)/75 dated 24-1-1975, goes unassailed. However, the imposition of penalty of Rs. one lac is, not proper, for the reason stated above.
20. In view of the above, we accept the petition partly, declaring the order of imposition of penalty in the sum of Rs. one lac for they, breach of rules 96-W and 226 of the Central Excise Rules, 1944, as without lawful authority and of no legal effect. The order for levying excise duty in the sum of Rs.4,94,886.90 for the assessm ent years 1972-73 to 1975-76 and imposition of penalty of Rs.2,000 for committing breach of rule 174 of the aforesaid rules is legal and proper.
21. There shall be no order as to costs in the circumstances of the case.