This judgment will dispose of the under noted six writ petitions.
(1)Writ Petition No. 4449 of 1987 M/s. Nishat Mills Ltd. v. Government of Pakistan etc. (2)Writ Petition No.4503 of 1987--M/s. Kohinoor Textile Mills Ltd. v.
Government of Pakistan etc. (3)Writ Petition No.4504 of 1987 M/s Chakwal Textile Mills Ltd. v.
Government of Pakistan.
(4)Writ Petition No.4505 of 1987.--M/s Kohinoor Spinning Mills Ltd. v.
Government of Pakistan etc. (5)Writ Petition No.4754 of 1987.--M/s. Ishaq Textile Mills Ltd.
(6)Writ Petition No.4790 of 1987--M/s Khawaja Textile Mills Ltd. v.
Government of Pakistan etc. to restrain the Customs Authorities at Lahore and Karachi from demanding export duty under Notification S.R.O. 486(1)/1987, dated 12th June, 1987 and Notification S.R.0.768(I)/1987, dated 22nd September, 1987 on various shipments of cotton yarn being exported by them and to restrain the Customs Authorities from levying or charging any export duty in relation to the contracts and the letters of credit referred to in the said petitions.
2. The brief facts of the case are that in 1980, under item No.14 in the Second Schedule to the Customs Act, 1969, (Export Tariff), export duty at the under noted rate was leviable on cotton yarn exported from Pakistan.
14.Cotton Yarn.Duty (A)of counts 21 to 2488 paisa per Kilogram Plus 40 per cent ad valorem subject to a maximum of Rs.12 per kilogram (b)Other40 per cent ad valorem subject to a maximum of Rs.Ll per Kilogram."
3.On 26th June, 1980, the Federal Government vide its Notification S.R.O. 674(1)/80 issued under section 19 of the Customs Act, 1969, fully exempted cotton ; am appearing in item No.l4 of the Second Schedule of the Customs Act from payment of all export duties by substituting the entry "Free" in column 3.
4. On 12th June, 1987, the Federal Government vide its Notification S.R.O. 486(1)/87 issued under section 19 of the Customs Act, 1969, amended the notification, dated 26th June, 1980 by substituting for the entry "Free" in column No.3 against Item No.14 in column No.l, the entry "Rs.5 per Kilogram".
The effect of the notification was to make cotton yarn leviable to export duty at Rs.5 per Kilogram which previously was totally exempt.
5. On 13th June, 1987, the Federal Government vide its Notification S.R.O. 489(1)/87 issued under section 19 of the Customs Act, 1969, amended the notification, dated 26th June, 1980 by adding the under noted proviso thereto.
"Provided that `Cotton Yarn' appearing in column 2 against item No.14 in column No.l of the table, in respect of which irrevocable letters of credit for export were establised prior to 12th June, 1987, shall be exempted from the whole of the Customs duties chargeable thereon."
On Ist July, 1987, the Federal Government vide its Notification S.R.O. 546(1)/87, omitted the proviso which was added on 13th June, 1987.
6. On 22nd September, 1987, the Federal Government vide its Notification S.R.0.768(I)/87 issued under section 19 of the Customs Act, 1969, amended notification, dated 26th June, 1980 by substituting the entry "Rs'10 per Kilogram" in column No.3 for the entry "Rs.5 per Kilogram" in column 3, against item 14 in column 1 of the Second Schedule of the Customs Act.
7. On 17th November, 1987, the Federal Government vide its Notification S.R.0.900(1)/87 issued under section 19 of the Customs Act, 1969, amended the notification, dated 26th June, 1980 by adding the following proviso thereto:- "Provided that cotton yarn in respect of which irrevocable letters of credit for export were established and which have not been amended or extended, shall be exempted:- (i)from the whole of the Customs duties chargeable thereon, if such letters of credit were established before the 4th June, 1987, and such cotton yarn was shipped from 1st July, 1987, to 30th September, 1987; and (ii)from so much of the Customs duties chargeable thereon as are in excess of Rs.5 per Kilogram, if such letters of credit were established on or after the 4th of June, 1987, but before the 22nd September, 1987, and such cotton yarn has been or is exported from 22nd September, 1987 to 21st December, 1987."
8.On 19th November, 1987, the Federal Government vide Notification Customs S.R.0.905(I)/87 issued under section 19 of the Customs Act, 1969, amended the notification, dated 26th June, 1980 by substituting the earlier proviso with the following:-- "Provided that cotton yarn in respect of which irrevocable letters of credit for export were established from the country to which it was to be exported and which have not been amended in respect of quantity and opening date, shall be exempted:- (i)from the whole of the customs duties chargeable thereon, if such letters of credit were established before the 12th June, 1987, and such cotton yarn was shipped before 30th September, 1987; and (ii)from so much of the customs-duties chargeable thereon as are in excess of Rs.5 per kg., if such letters of credit were established before the 22nd September, 1987, and such cotton yarn has been or is, exported before 31st December, 1987."
9.On 22nd December, 1987, the Federal Government by its Notification S.R.O. 942(1)/87 issued under section 19 of the Customs Act, 1969, amended the notification, dated 26th June, 1980 by substituting the earlier proviso with the following namely:- "Provided that cotton yarn in respect of which irrevocable letters of credit for export were established and which have not been amended in respect of quantity and opening date, shall be exempted:-
(i) from the whole of the customs duties chargeable thereon, if such letters of credit were established before the 12th June, 1987, and such cotton yarn was shipped before 30th September, 1987, and (ii)from so much of the customs duties chargeable thereon as are in excess of Rs.5 per kg., if such letters of credit were established before the 22nd September, 1987, and such cotton yarn has been or is, exported before 31st December, 1987."
10. On 6th January, 1988, the Federal Government vide its Notification S.R.0.8(1)/88 issued under section 19 of the Customs Act, 1969, amended the notification, dated 26th June, 1980 as follows:- "(1)Against item No.14 in column 1, in column 3, for the Entry "Rs.10 per kg. The Entry Seventeen and half per cent ad valoram subject to maximum of Rs.10 per kg. Shall be substituted, and (II)at the end of the table, the proviso shall be omitted.
This notification shall take effect on the 1st January, 1988."
11. The case of the petitioners is that in respect of cotton yarn exported by them which were covered by contracts entered into by them prior to 12th June, 1987 or in respect of which irrevocable letters of credit were opened by the foreign importers before 12th June, 1987, they were not liable to pay any export duties, even though shipments were effected after 12th June, 1987 and in respect of cotton yarn exported by them which were covered by contracts entered into by them after 12th June, 1987 but prior to 22nd September, 1987 or in respect of which irrecovable letters of credit were opened by the foreign importers during that period, they were not liable to pay export duties over and above Rs.5 per Kg., even though shipments were effected after 22nd September, 1987.
12. With regard to the first category of cases it is submitted that contracts entered into by the petitioners with foreign importers prior to 12th June, 1987 were made on the faith of the representation made by the Federal Government under its notification, dated 26th June, 1980 that cotton yarn would not be liable to any export duty and that the petitioners having acted upon that representation under the belief that the Federal Government would stand by it, they cannot now be penalised by the imposition of notification, dated 12th June, 1987 as the Government are bound by the principle of promissory estoppel. Likewise, in the same manner it is pleaded with regard to the second category of cases that the Government is bound by the promissory estoppel and the imposition of the notification dated 22nd September, 1987 does not affect the contracts entered into by them before that date. It is also submitted that in respect of contracts entered into prior to 12th June, 1987 and in respect of which irrevocable letters of credit were opened prior to that date, the petitioners were entitled to the exemption arising nut of Government's notification, dated 26th June, 1980 and a vested right having accrued in their favour out of the said notification, the same could not be taken away by notification, dated 12th June; 1987 merely because shipments were effected later. Likewise it is submitted that in respect of the contracts entered into after 12th June, 1987 but before 22nd September, 1987 and in respect of which irrevocable letters of credit were opened during this period, the petitioners were entitled to the payment of the lower export duty of Rs.5 per Kilogram arising out of Government's notification, dated 12th June, 1987 and a vested right having accrued in their favour out of the said notification, the same could not be taken away by notification, dated 22nd September, 1987, merely because shipments were effected later. In this connection, Mardan Industri, Ltd. Sakhakot Malakand Agency and another v. Government of Pakistan and others PLD 1965 Pcsh. 47, Collector of Central Excise and Land Customs and three others v. Azizuddin Industries Ltd., Chittagong PLD 1970 SC 439, Messrs M. Afzal and others v. Federal Government of Pakistan, Islamabad PLD 1978 Lah. 468, Federation of Pakistan v. Ch. Muhammad Aslam 1986 SCMR 916 and Al-Samrez Enterprises v. The Federation of Pakistan 1986 SCMR 1917 have been cited.
13. On behalf of the Customs Authorities, it is submitted that export duties are payable under section 31 of the Customs Act when the bills of export covering goods to be exported are presented to the Customs Authorities before loading the goods for exportation and that where such bills of export relating to yarn shipped by the petitioners have been presented on or after 12th June, 1987, export duty of Rs.5 per Kilogram is payable and where such bills of export have been presented on or after 22nd September, 1987, export duty at the rate of Rs.10 per Kilogram is payable, subject to the contents of the other notifications issued from time to time which may be applicable to the bills of export on the dates of their presentation.
14. In view of the law already declared on the subject by the Supreme Court of Pakistan and by this High Court, I directed the learned counsel for the Customs Department on 27th January, 1988 to discuss all these cases with the Customs Authorities and to bring to their notice the law declared on the subject, so that they could process the same accordingly. On the said date I also ordered that the learned counsel for the Customs Department should telephonically get in touch with the respondents and request them to depute their representative to discuss the case of all the consignments which were mentioned in the five petitions with him. I also orally intimated to the counsel that I would impose heavy compensatory costs on the Customs Department, if I found later that it was flouting the law declared by the Supreme Court and unnecessarily harassing the petitioners. However, notwithstanding the said assurance given by the learned counsel and my order, the learned counsel for the Customs Department was not able to secure any co-operation' from the Customs Department. Accordingly, I had to fix the cases for arguments.
15. 1 have heard the arguments of the warned counsel for the petitioners and the Customs Authorities and have also perused the documents filed by the parties. The law on the subject already has been laid down by the Supreme Court of Pakistan and the Lahore and the Peshawar High Courts. Since the matter involved was only legal, on the last two hearings I had directed counsel for both the parties to address formal arguments in the case, so that all these cases could be disposed of as notice cases. Arguments were addressed accordingly. Whilst, admitting all these cases, I would dispose them of as notice cases.
16. In Mardan Industries Ltd. v. Government of Pakistan PLD 1965 Pesh. 47, the Central Government in 1961, exempted for a period of four years with effect from 1st July, 1961, all excisable goods produced or manufactured in the Special and Excluded areas mentioned in the Schedule from the whole of the excise duty leviable thereon. On the strength of the said notification, the Mardan Cigarettes Industries set up a plant for the manufacture of cigrettes. The company went into production in 1964. When the cigarettes were exported to the settled areas they were seized for payment of excise duty. The company ficd a writ petition, which was admitted to hearing. Meanwhile on 17th May, 1963, the Central Government issued a notification in super session of the first notification, making inroads into the first notification. On 19th May, 1964, the Central Government issued another notification adding a proviso to the notification of 17th May, 1963. The Peshawar High Court held that the Government could not rescind the exemption where a decisive step had been taken and the exemption had been given effect to and acted upon. It further held that the powers derived under section 21 of he Central Clauses Act to amend, vary or rescind a notification could not have retrospective effect, so as to affect vested rights. It held that the impugned notification was passed when the industrial undertaking had gone into operation and as such exemption given under the said notification had become effective and it was too late for the Government to retrace its steps and rescind the exemption.
17. In Collector of Central Excise and Land Customs and others v. Azizuddin Industries Ltd., Chittagong PLD 1970 SC 439, the Central Government in 1961 exempted for a period of four years with effect from 1st July, 1901, all excisable goods produced and manufactured in the Special and Excluded areas mentioned in the Schedule, from the whole of the excise duty leviable thereon. The respondent-company thus set up a factory in the Special and Excluded area of the Chittagong Hill Tracts. On 26th December, 1961 the Central Board of Revenue restricted the exemption granted to the extent that it would not extend to unmanufactured products removed from the exempted areas to any other area in Pakistan. On 17th May, 1963, the Central Board of Revenue issued a fresh notification substantially in the same terms as the earlier notification of 30th June, 1961, with the exception that in confirmity with the 1962 Constitution, which had in the meantime come into force, the words "Special and Excluded areas" in the Schedule to the earlier notification were substituted by the words "Tribal Areas" as defined in Article 242. With the coming into force of the Constitution (First Amendment) Act, 1964, which excluded the Chittagong Hill Tracts from the definition of Tribal Areas, the Central Board of Revenue vide its letter, dated 28th February, 1964 intimated to the respondent factory that it will be subject to excise duty. On the same date i.e. 28th February, 1964, the Central Board of Revenue issued a notification withdrawing the exemption in respect of excisable goods manufactured in the tribal areas, which bore brand or trade names or trade marks under which similar goods manufactured in any area of Pakistan other than the said tribal area were also marketed, if such goods were removed from the tribal area to any other area in Pakistan. On 19th May, 1964, the Central Board of Revenue issued another notification amending the earlier notification of 17th May, 1963 in the same terms as the notification of 28th February, 1964. The Supreme Court held that the respondent-company had acquired a vested right of exemption from the levy of the excise duty on all the goods produced or manufactured by it for a period of four years under the 1961 notification, which vested right could not be taken away by the notification of 28th February, 1964. It held that the Chittagong Hill Tracts continued to be included in the Schedule to the notification of 17th May, 1963 granting exemption from payment of excise duty leviable on the :goods produced and manufactured by the respondent company. However, since the notification of 19th May, 1964 amended the notification of 17th May, 1963, it held that excise duty was exempt upto 19th May, 1964, but for the period thereafter the respondent-company was liable to pay excise duty on cigarettes which bore brand names under which similar cigarettes manufactured outside the tribal area were marked in respect of such cigarettes which were transported from the tribal area to any other area in Pakistan.
18. In Messrs Muhammad Afzal & Sons v. Government of Pakistan PLD 1978 Lah. 468 the petitioners had placed orders to import white wood free writing paper from different countries on various duties ranging between 7th June, 1975 and 16th September, 1975 in pursuance of notification, dated 7th June, 1975, which exempted the said paper from payment of import duties. The imports had been effected against letters of credit which had been opened prior to 16th September, 1975, when another notification had issued re-calling the earlier notification granting exemption. The Court held that the exemption notification created a vested right in favour of the petitioners, which could not be taken away by the subsequent notification, which being subordinate legislation could not be applied retrospectively. The Court accordingly held that the petitioners were not entitled to pay any import duties.
19. In Federation of Pakistan v. Ch. Muhammad Aslam 1986 SCMR 916, the question before the Supreme Court was whether the respondents, who had acted on the Gift Scheme as in force before 20th March, 1983 and the Press Note, dated 16th July, 1978 and had earned a right to get the import licence for importing truck chassis, could be denied that right by the Federal Government by retrospectively applying the revised definition of "New" as contained in the Press Note dated 20th March, 1983. By invoking the principle of promissory estoppel. The Supreme Court held that the respondents had acquired vested rights which could not be overridden by the Federal Government by a disposition given in the I form of a declaration, without expressly legislating in the matter.
20. In AI-Samrez Enterprises v. The Federation of Pakistan 1986 SCMR 1917, the question before the Supreme Court was whether certain items of machinery or articles for use with machinery or as component parts or spare parts of machinery, which were partially exempt from customs duties under notification, dated 8th June, 1972, were liable to higher import duty by virtue of the amendment notification, dated 11th June, 1977, if the bill of entry relating to the said goods was filed with the customs later than 11th June, 1977. The Supreme Court held that as a binding contract had been concluded between the appellant and the foreign exporter before the amendment notification came out on 11th, June, 1977 and steps were taken by the appellant creating a vested right to the notification dated, 8th June, 1972 granting exemption, the same could not be taken away and destroyed by the subsequent notification. It was held that a vested right which was created in favour of the appellant could not be taken away by the subsequent withdrawal of exemption, by giving retrospective operation to an executive act to destroy that right.
21. In view of the law declared, as stated above, it is clear that the contracts entered into by the petitioners with foreign importers prior to 12th June, 1987 were made on the faith of the representation made by the Federal Government under its notification, dated 20th June, 1980 that the cotton yarn exported by them would not be liable to any export duty and that the petitioners having acted upon the faith of that representation, the Federal Government is bound by the principle of promissory estoppel and cannot retrospectively destroy vested rights by imposing its notification, dated 12th June, 1987. Likewise, in the same manner contracts entered into by the petitioners with foreign importers on or after 12th June, 1987 but before 22nd September, 1987 cannot also be defeated by the " notification dated 22nd September, 1987. The action of the respondents in I demanding export duties in both the cases is illegal.
22. In all the six petitions before me, relying upon the dates of the irrevocable letters of credit opened by the foreign importers in their favour as the crucial dates for the purposes of the application of the law declared, instead of the dates of their contracts concluded with their foreign importers, the petitioners have claimed reliefs on the basis of the said letters of credit. In accordance with their pleadings, I would deal with the cases treating the dates of irrevocable letters of credit, as material to their cases.
23. I would, therefore, hold, notwithstanding any benefit that may accrue to the petitioners out of the notifications, dated 17th November, 1987, 19th November, 1987 and 2nd December, 1987, that in respect of contracts entered into by the petitioners with foreign buyers which were duly registered with the Export Promotion Bureau and in respect of which irrevocable letters of credit were opened by the foreign buyers in favour of the petitioners in respect of cotton yarn prior to 12th, June, 1987, the petitioners are not liable to pay export duties, even though bills of export were presented to the Customs after 12th June, 1987, provided that such letters of credit were not amended to alter the opening date or to increase the quantity. Likewise, in respect of contracts entered into by the petitioners with their foreign buyers which were duly registered with the Export Promotion Bureau and in respect of which irrevocable letters of credit were opened by the foreign buyers in favour of the petitioners in respect of cotton yarn on or after 12th June, 1937 but prior to 22nd September, 1987, the petitioners are not liable to pay export duties over and above Rs.5 per Kilogram, even though bills of export were presented to the Customs after 22nd September, 1987, provided that such letters of credit were not amended to alter the opening date or to increase the quantity.
24. The only question that arises is as to what will be the position if the letters of credit arc extended. In respect of such large consignments of cotton yarn that have to be shipped by the present petitioners, as arc mentioned in these petitions, need for extension of credit may arise if the petitioners are not able to secure shipping space or arc not able to honour their promise; for any other good cause. In such cases the; petitioners may request for extension of credit, which may be granted by the foreign buyers. The Central Board of Revenue, by notification dated 17th November, ;1987, allowed late shipments provided the irrevocable letters of credit were not amended or extended, but later by notifications, dated 19th November, 1987 and 21st Decembcr, 1987 permitted extensions, provided the irrevocable letters of credit were not amended in respect of quantity and opening date. The Government has thus recognized that extensions of letters of credit are a normal feature of export business. Letters of credit usually provide separate dates, for shipment and negotiation. The first date is the date normally referred to for the purpose of extension of the letter of credit i.e. The last date by which the shipment is to be made, so as to bind the foreign buyer to the terms of his letter of credit, including that relating to payment. The notifications dated 19th November, 1987 and 21st December, 1987 provide that no export duty shall be levied, within the terms of the said two notifications provided that the opening dates of the letters of credit remain the same i.e. The letters of credit are not renewed after expiry and no amendments are made in respect of the quantity of yarn to be exported. I would, therefore, hold that where irrevocable letters of credit have not been renewed after their expiry or amended to increase the quantity of goods, the respondents shall not charge export duty as stated in para. 23 above, notwithstanding that letters of credit may have been amended to extend the dates of shipment.
25. All the petitioners shall be entitled to their costs, including counsel's fee at Rupees Five Thousand per case.
26. Before concluding, I would like to mention that the manner in which the Central Board of Revenue has flouted the law declared by the Supreme Court, leaves much to be desired. Under Article 5(2) of the Pakistan Constitution, 1973, obedience to the Constitution and the law is the inviolable obligation of every citizen and of every other person resident in Pakistan. I am not aware that the departments of the Slate are exempt from such obligation. Since under Article 189 of the Constitution, the law declared by the Supreme Court of Pakistan is binding on all Courts in Pakistan and under Article 190 of the Constitution, all executive and judicial authorities throughout Pakistan are bound to act in aid of the Supreme Court, one would assume that all organs of the State are duty bound to act in aid of the law declared by the Supreme Court and not flout it. One would expect that the Central Board of Revenue, with its full fledged legal cell, is aware of all laws declared by the superior Courts of Pakistan relating to the subjects within their jurisdiction and does not ignore these declarations when framing or amending the law, rules and notifications on the subject. It appears that the Central Board of Revenue was aware of the rulings of the Supreme Court, Peshawar High Court and the Lahore High Court. This is apparent from the Federal Government's Notification S.R.O. 489(1)/87, dated 13th June, 1987 which exempted cotton yarn from export duties if letters of credit had been opened before 12th June, 1987. However, in contumacious disregard of the law declared, the said notification was withdrawn within less than three weeks, vide Notification S.R.O. 546(1)87, dated 1st July, 1987, leaving the petitioners with the unpleasant duty of having to knock at the doors of this Court. When on 27th January, 1988, the learned counsel for the respondents was directed to discuss all these cases with the Customs Authorities and to bring to their notice the law declared on the subject, so that they could process these cases by the next date of hearing, in accordance with the law declared, the learned counsel was not able to receive any co-operation from the Customs Authorities and I had to fix these cases for arguments.
My oral warning that I would impose compensatory costs on the respondents, if I found later that they were deliberately not applying the law declared, fell on the deaf ears. Contumacious disrespect by the respondents of the law declared by the highest Court of the land deserves to be taken note of seriously. The Customs Authorities, therefore, deserve to be penalized with heavy costs to compensate for the demurrage suffered by the petitioners by the action of the respondents and the heavy financial losses suffered by them in locking up their capital in order to furnish bank guarantees to get their shipments released for export. Unlike the respondents, who are none too lenient with their transgressors, I would, without being hard, impose nominal compensatory costs on the respondents at the rate of rupees one thousand (Rs.1,000) for each shipment in respect of which the petitioners were compelled to furnish bank guarantees to secure release of their goods, pursuant to interim orders issued by this Court; such compensatory costs to be payable by the respondents to the petitioners in all the sic cases on all the consignments in respect of which bank guarantees were filed by them.
27. Subject to scrutiny, the bank guarantees furnished by the petitioners shall stand discharged.
The Collectors of Customs and Appraisement concerned shall take immediate steps to discharge the bonds furnished by all the petitioners within a fortnight.
28. The petitioners shall file their statements of costs and compensatory costs within a fortnight, to enable the Taxing Officer of this Court to draw up the decree of costs payable to the petitioners.
Such costs and compensatory costs shall be deposited by the respondents in Court within a month, to enable the petitioners to draw the same thereafter.