RUSTAM S. SIDHWA, J.-1. This judgment will dispose of four writ petitions W.P. No. 2635 of 1975, W.P.
No. 1720 of 1977, W.P. No. 2554 of 1978 and W.P. No. 2066 of 1986 filed by Kohinoor Industries Ltd., Ayesha Textile Mills Ltd., Colony (Thai) Textile Mills Ltd. And Sargodha Textile Mills Ltd., petitioners, challenging the orders of the Central Excise authorities imposing double duty in respect of certain goods.
2. The brief facts of the case in respect of writ petition W.P. No. 2635 of 1985 filed by the Kohinoor Industries Ltd., are that the petitioner manufactures cotton fabrics. During the period 1968 to 1977, the petitioner produced cotton fabrics and was chargeable to duty on the basis of production capacity in accordance with the Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968.
According to item 51 of the First Schedule to the said Rules, the production capacity of the petitioner was fixed on the basis of 2339 power looms and was charged to excise duty on the said basis under section 3(4) of the Central Excises and Salt Act, 1944. It is the case of the petitioner that during the period 1968-77, some synthetic fabrics (also called man made fabrics) were produced on some of the looms which manufactured cotton fabrics, on which separate central excise duty was charged by the Central Excise Authorities under section 3(4) of the Act. The claims of the petitioner for abatement in respect of looms utilized by the petitioner during this period for the manufacture of man made (synthetic) fabrics having been rejected by the Central Excise Authorities, the petitioner filed writ petition W.P. No. 2635 of 1985 in the High Court, which is now before me for disposal.
3. The brief facts of the case in respect of writ petition W.P. No. 1720 of 1985 filed by the Ayesha Textile Mills Ltd., are that the petitioner manufactures cotton yarn. During the period 1976-77, the petitioner produced cotton yarn and was chargeable to the central excise duty on the basis of production capacity, in accordance with the Excise Duty on Production Capacity (Cotton Yarn)
Rules, 1975. According to item 10 of the Schedule to the said Rules, the production capacity of the petitioner was fixed on the basis of 13572 spindles and was charged to excise duty on the said basis under section 3(4) of the Central Excises and Salt Act, 1944. It is the case of the petitioner that during the period 1976-77, some appreciable man made (synthetic) yarn was produced on some of the spindles which manufactured cotton yarn, on which separate excise duty was charged by the Central Excise Authorities under section 3(1). The claims of the petitioner for abatement in respect of spindles utilized by the petitioner during this period for the manufacture of man made synthetic yarn having remained unattended by the Central Excise Authorities, the petitioner filed writ petition W.P. No. 1720 of 1985, which is now before me for disposal.
4. The brief facts of the case in respect of writ petition W.P. No. 2554 of 1978 filed by the Colony
(Thai) Textile Mills Ltd. Are that the petitioner manufactures cotton yarn. During the period 1977-78, the petitioner produced cotton yarn and was chargeable to duty on the basis of Excise Duty on Production Capacity (Cotton Yarn) Rules, 1975. According to item 30 of the Schedule to the said Rules, the production capacity of the petitioner was fixed on the basis of 30144 spindles and was charged to excise duty on the said basis under section 3(4) of the Central Excises and Salt Act, 1944. It is the case of the petitioner that during the period 1977-78 some man made (synthetic) yarn was produced on some of the spindles which manufactured cotton yarn, on which separate central excise duty was charged by the Central Excise Authorities under section 3(1) of the Act. The claims of the petitioner for abatement in respect of spindles utilized by the petitioner during that period for the manufacture of man made (synthetic) yarn, having remained unattended by the Central Excise Authorities, the petitioner filed writ petition W.P. No. 2554 of 1978 in the High Court, which is now before me for disposal.
5. The brief facts of the case in respect of writ petition W.P. No. 2066 of 1986 filed by Sargodha Textile Mills Ltd., are that the petitioner manufactures cotton yarn and cotton fabrics. During the period 1976-77, the petitioner produced cotton yarn and cotton fabrics and was chargeable to duty on the basis of production capacity in accordance with the Excise Duty on Production Capacity (Cotton Yam) Rules, 1975, and the Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968.
According to item 128 of the Schedule to the Excise Duty on Production Capacity (Cotton Yam)
Rules, 1975, the production capacity of the petitioner was fixed on the basis of 24784 spindles and was charged to excise duty on the said basis under section 3(4) of the Central Excises and Salt Act, 1944. According to item 80 of the Schedule to the Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968, the production capacity of the petitioner regarding the cotton fabrics was fixed on the basis of 500 looms and was charged to excise duty on the said basis under section 3(4) of the said Act. It is the case of the petitioner that during the period 1976-77, some man made (synthetic) yam and man made (synthetic) fabrics were produced on some of the same spindles and looms which manufactured cotton yarn and cotton fabrics, on which separate excise duty were charged by the Central Excise Authorities under section 3(1) of the Act. The claims of the petitioner for abatement in respect of the spindles and looms utilized by the petitioner during this period for the manufacture of man made (synthetic) yam and man made (synthetic) fabrics, having been rejected by the Central Excise Authorities, the petitioner filed writ petition W.P. No 2066 of 1986 in the High Court, which is now before me for disposal.
6. The case has been argued at length by Mr. S.M. Zafar, Advocate on behalf of Kohinoor Industries Ltd., and by Messrs Abdul Khaliq Mian, Ayyaz Hassan and Najib Ahmad Chaudhry, Advocates, on behalf of the Ayesha Textile Mills Ltd., the Colony (Thai) Textile Mills Ltd., and the Sargodha Textile Mills Ltd., respectively. Syed Niaz Ali Shah, Standing Counsel for the Federal Government has appeared for the Central Excise Authorities.
7. On behalf of the petitioners it is submitted that the man made (synthetic) yam and /or fabrics produced by them was on some of the same looms and spindles utilized by them for the production of cotton yarn and fabrics mentioned in the Schedule to the Rules framed for levying excise duty on production capacity, under section 3(4) of the Central Excises and Salt Act, 1944, and since full excise duties were levied on production capacity and excise duties were also levied separately under section 3(1) of the Act on such of the man made (synthetic) yam and fabrics produced by them, the petitioners were entitled to abatement of excise duty in respect of the looms and spindles utilized by them for the manufacture of man made (synthetic) yarn and fabrics. In this connection it is submitted that section 3(4) of the Central Excises and Salt Act, 1944, which is the charging section in respect of the excise duties leviable on production capacity, the said provision itself mentions that it is in lieu of the duties leviable under section 3(1) of the said Act, which are chargeable on direct production. It is also submitted that entry No. 52 of the Fourth Schedule to the Constitution also provides that taxes and duties on production capacity of any plant etc. May be imposed in lieu of the taxes and duties specified in certain stated entries, such as entry No. 44, which relates to excise duties on direct production. It is further contended that the levy of the central excise duty both on cotton yarn and fabrics and on man made (synthetic) yarn and fabrics in respect of the same looms and spindles utilized for the production of both, amounts to double taxation, which also is not permissible.
8, On behalf of the Central Excise Authorities, it is submitted that by virtue of rule 7(3) of the Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968, and rule 7(3) of the Excise Duty on Production Capacity (Cotton Yam) Rules, 1975, liability of such excisable goods to excise duty under section 3(1) of the Central Excises and Salt Act, 1944, is not affected and the Central Excise Authorities can recover both the duties under section 3(1) and 3(4) of the said Rules in respect of man made (synthetic) yarn and fabrics and cotton yam and fabrics produced by the mills, irrespective of the fact that the same looms or spindles on which production capacity was fixed, were used in the production of man made (synthetic) yarn and fabrics. It is further submitted that under para 48 of the Central Excise General Order No. 8 of 1968, some concession is allowed to the manufacturers in respect of man made (synthetic) yarn manufactured by them on the same spindles on which cotton yarn may have been produced, but no such concession is allowed under para 32 in respect of man made (synthetic) fabric.
9. I have heard the arguments of the learned counsel for the petitioners and the Central Excise Authorities and have gone through the record. It is clear from section 3(4) of the Central Excises and Salt Act, 1944, itself that the Central Board of Revenue may "in lieu of levying and collecting under sub-section (1) duties of excise on excisable goods, by notification in the official Gazette, levy and collect excise duties on the production capacity of plants, machinery, etc., producing or manufacturing such goods. This provision is in contra distinction to section 3(1), under which the Central Excise can levy and collect duties of excise on all excisable goods produced or manufactured in Pakistan and on all excisable services provided or rendered in Pakistan, as and at the rates, set forth in the First Schedule. Item 44 of Part I of the Fourth Schedule to the Pakistan Constitution refers to duties of excise, including duties on salt, but not including duties on alcoholic liquors, opium and other narcotics, whereas item 52 refers to taxes and duties on the basis of production capacity of any plant, machinery, undertaking establishment or installation in lieu of the taxes and duties in entries 44, 47, 48 and 49 or in lieu of any one or more of them. Reading these provisions together, it is obvious that the imposition of excise duty on production capacity under section 3(4) of the Central Excises and Salt Act, 1944, can only be in lieu of the excise duties specified under section 3(1) of the said Act. Thus, where man made (synthetic) yarn and fabrics are manufactured on the same spindles and looms utilized by a company for the production of its cotton yarn and fabrics, on which it has paid the excise duty on the basis of production capacity, the excise duty under section 3(1) of the Act can not be charged, without granting abatement of duty on that part of the plant and machinery on which such yarn or fabrics have been produced and duties have been levied under section 3(4). This would involve the provision of the production capacity of the plant or machinery in respect of the period when man made (synthetic) yarn or fabrics were manufactured. If any authority is required for this view, Messrs Dewan Textile Mills Limited, Karachi, vs. Pakistan, through Ministry of Finance, PTCL 1983 CL. 412 may be referred. Even otherwise, double taxation is not permissible, as it would negate the mandate contained in entry No. 52 in part I of the Fourth Schedule to the Constitution.
10. The stand of the Central Excise Authorities is based on paras 32 and 48 of the Central Excise General Order No. 8 of 1968 and Rule 7(3) of the Excise Duty on Production Capacity (Cotton Yarn)
Rules, 1968 and 1975, and rule 7(3) of the Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968. As regards para 32, the same offends the principle of double taxation, if its intention is to tax man made (synthetic) fabrics manufactured in a factory subject to the Fabrics Capacity Rules, on which excise duty on production capacity has also been levied on the production of cotton fabrics.
As regards the concessionary formula stated in para 48, the same has already been struck down in Dewan Textile Mills case (supra), on the ground that it was a provisional formula intended essentially as an 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 and being fundamentally defective and unreasonable, the same could not be applied, as its imposition could only lead to tax which would violate the principle that debarred double taxation. As regards rules 7(3) of the Excise Duty on Production Capacity (Cotton Yarn) Rules, 1968 and 1975, the same affect the principle of double taxation, if their intention is to tax man made (synthetic) yarn manufactured in a factory, subject to the Production Capacity Rules on which the excise duty on production capacity has also been levied on the production of cotton yarn. They cannot be interpreted to permit double taxation, for that would be ultra vires the Constitution and this would also be invalid on the ground of unreasonableness. If any authority is required for this view, Dewan Textile Mills's case (supra) may be cited. The same view would prevail regarding rule 7(3) of the Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968. In view of the above, it is apparent that the attempt on the part of the Central Excise Authorities to levy duties under section 3(1) of the Act, without granting proper abatements to the petitioners, to remove the defect of double taxation, is without lawful authority.
11. At this stage it may be stated that the excise duties on cotton yarn and fabrics under the rules governing production capacity are minor, compared to those chargeable on manmade (synthetic) yarn and fabrics under section 3(1) of the Act. The rebates which the petitioners, therefore, would be receiving would be on the basis of the lower rate.
12. For the foregoing reasons, all the four writ petitions W.P. No. 2635 of 1975, W.P. No. 1720 of 1977, W.P.
2554 of 1978 and W.P. No. 2066 of 1986 are accepted and it is hereby declared:
(1) that the levy and demand of central excise duty by the Central Excise Authorities from the petitioners, without correspondingly granting the benefit stated in para 2 below, are without lawful authority.
(2) that the petitioners are entitled to the abatement of excise duties paid by them under section 3(4) of the Central Excises and Salt Act, 1944, on the cotton yarn and/or fabrics manufactured by them on the same plant and machinery already assessed and utilized for the manufacture of man-made (synthetic) yarn and/or fabrics and that such part of the excise duties as have been received in excess shall be refunded to the petitioners.
(3) that the formula prescribed by the Central Board of Revenue under the Central Excise General Order No. 8 of 1968 dated 29th April, 1968 for giving relief in respect of the duty is unreasonable and is struck down.
(4) that the Central Excise Authorities shall now work out the abatement of duties that are available to the petitioners and refund the same to the petitioners within a month from the date of this judgment.
All the writ petitions are accepted with costs. Rupees Two Thousand (Rs. 2000/-) is fixed as counsel i.e in each of these cases, which shall be paid to the petitioners.