RUSTAM S. SIDHWA, J.--1. This is a constitutional petition filed by 7-UP Bottling (Pvt) Limited and thirteen other beverage companies, petitioners, challenging the vires of clause (iii) of sub-rule (4) of rule 52-A of the Central Excise Rules, 1944.
2. The brief facts of the case are that the petitioners are manufacturers and bottlers of beverages that sell under various foreign and local brand names, such as 7-Up, Pepsi-Cola, Mirinda, Teem, RC Cola, Hiltop, Solo, Coca-Cola, Fanta, Sprite, Spin-Cola, Naranka, Leemon, Hi-Cola and Hi-Orange etc. The petitioners maintain main storage points called main sales deposits, godowns, or stores, adjacent to their factories. The beverages are transferred from the factories to these main storage points, from where they are later transported by trucks to their other storage points or godowns of their whole-sale stockists/dealers or. For direct sale to their retail stockists/dealers. Removal of beverages from their licenced factory premises, where they are manufactured and bottled, is subject to central excise duty. No sooner the beverages leave the factory, dirty is paid. Thereafter, they are transported to and stocked in the main storage points maintained by the petitioners adjacent to their factories. On 30th June, 1985, the Federal Government, vide Notification No. 665(I)/85, recast rule 52-A of the Central Excise Rules, 1944, by substituting a new rule 52-A instead of the old rule 52-A; the new rule taking effect from It October, 1986. Under clause (iii) of sub-rule
(4) of the new rule 52-A, the goods removed from a factory on payment of duty could not be stored for commercial purposes in any godown, depot or place of storage within a distance of three kilometers from the factory or warehouse, provided that where the manufacturer, warehouse keeper, his dealer, agent, distributor or any other agent already maintained a duty paid godown, depot or place of storage within the said distance of three kilometers on 30th June, 1986, this provision stood relaxed for the period ending on 31st December, 1987. The petitioners, who had duty paid main storage points within the said distance of three kilometers, made representations to the Central Board of Revenue for the amendment of clause (iii) of sub-rule (4) of rule 52-A. The same, however, were rejected by the Central Board of Revenue. However, on further representation made by the petitioners, the implementation of the provision of the said clause(iii) was deferred from It October, 1986 to 30th June, 1988 and the distance of three kilometers contained in the said clause was reduced to one kilometer. Being aggrieved by the provisions of the said clause, the petitioners filed a writ petition in the High Court, which is now before me for disposal.
3. On behalf of the petitioners a number of submissions have been made. First, that rule 52-A(4)(iii) of the Central Excise Rules 1944 is beyond the scope of section 37(2)(v) of the Central Excises and Salt Act, 1944. In this connection it is submitted that section 37(2)(v) of the Act relates to regulation of storage in so far as such regulation is essential for the proper levy and collection of the central excise duties, but this provision does not include the power to prohibit storage. It is submitted that the definition of the word "regulate", as given in the Chambers Twentieth Century Dictionary, Stroud's Judicial Dictionary and the Oxford Dictionary, does not include the prohibition, shutting OF or closing down of a facility. It is further submitted that once the goods have entered the main storage points, duty has been paid and no rule can be made by the Government with regard to the levy or collection of the same, much less regulate matters which do not concern the levy any further. It is further contended that the Government could have prescribed the maintenance of registers, the issue of gate passes, or the posting of constables at the main storage points, for the purposes of checking the evasion of central excise duty, but it could not prohibit the storage of goods under the garb of protecting the evasion of excise duty. Second, that rule 52-A (4)(iii) of the Central Excise Rules is being applied indiscriminately and it must, therefore, be struck down as violating Article 25 of the Constitution. In this connection it is submitted that though the language of the rule applies even to whole-sale stockists/dealers and retailers, but the retailers are not being prohibited. It is further submitted that though a manufacturer, who wanted to maintain a main storage point for his goods, would have to set it up one kilometer away from his factory premises, a competitor of his could open up a main storage point within a kilometer's radius of his factory, which is discriminatory and would affect his business. Third, that each of the petitioners, who have main storage points adjacent to their factories, have investments between Rupees Thirty Lacs to Rupees Seventy Lacs locked up in these premises, as sites of the main storage points comprise lands measuring between two to three kanals valuing many lacs and constructions thereon also comprise investments valuing many lacs, and since the petitioners have vested rights to use these main storage points without objection, in accordance with law, clause (iii) of sub- rule (4) of rule 52-A violates Article 24 of the Constitution. Fourth, that clause (iii) of sub-rule (4) of rule 52-A being also violative of Article 18 of the Constitution, deserves to be struck down.
4. On behalf of the Central Excise Authorities it is submitted that rule 52-A (4)(iii) of the Central Excise Rules is not ultra vires of any provision of the Central Excises and Salt Act, 1944. In view of section 37(2)(iv) & (v) of the Act, it is submitted that rule 52-A(4)(iii) is intra vires of the Act. In this connection it is submitted that the Central Excise Authorities are not prohibiting the petitioners from storing their beverages, but only regulating their storage for the purposes of proper levy and collection of duties. It is further submitted that the All Pakistan Beverages Association made a representation to the Central Board of Revenue against rule 52-A(4)(iii) of the Central Excise Rules and during discussion pressed for the extension of time for implementation of this rule and for the reduction of the distance of their main storage points from their factories from three kilometers to one kilometer, whereupon time was extended up to 30th June, 1988 and the distance of their storage points from their factories was also reduced from three kilometers to one kilometer, vide Federal Government's Notification No. SRO 420(I)/87 dated 4th July, 1987. In view of the demands of the petitioners having been met to their satisfaction, the petitioners cannot be permitted to raise pleas which they gave up before the Central Board of Revenue in their discussions and, therefore, this Court should not exercise its discretion to either admit or accept this petition. As regards the remaining submissions of the learned counsel for the petitioners, the same are traversed on the ground that the rule is neither unreasonable, nor being applied indiscriminately, nor is in violation of Articles 18, 24 or 25 of the Constitution.
5. After a number of hearings in motion, during which period para wise comments were filed on behalf of the collector of Central Excise, it was felt that pre-admission notices should issue to all the respondents for the^ext date of hearing, so that they could be prepared to argue the main case, in case the same was admitted that day. On the next day no written statements of the respondents were filed, but an adjournment was taken for arguments. On 17th December, 1988 arguments were heard at length. In ccordance with the request of the learned counsel for the partres, this case is being admitted and' shall be disposed of as a notice case.
6. I have heard the arguments of the learned counsel for the petitioners and the Central Exsec and have pemsed the writ i.e. Before dealing with the arguments, it-is necessary to reproduce certain relevant portions of section 37 of the Central Excises and Salt Act, 1944, and Rule 52-A of the Central Excise Rules:- "Section 37-Power of Central Board of Revenue to make rules:-(l) The Central Board of Revenue, may make rules to cany into effect the purposes of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may~ regulate the removal of excisable goods from the place where produced stored or manufactured or subjected to any process of production or manufacture and their transport to or from the premises of a licenced person, or a bonded warehouse, or to a market.
(iv) regulate the production or manufacture, or any process of the production or manufacture, the possession, storage and sale of salt, and so far as such regulation is essential for the proper levy and collection of the duties imposed by this Act, of any other excisable goods, or of any component parts or ingredients or containers thereof'.
"Rule 52-A--Issue of Gate Passes.--(l) All goods removed either on payment of duty or otherwise from the store-room or other place of storage approved by the Collector under rules 9, 47 or 237 or from a warehouse working under Chapter VII of these rules shall be covered by a Gate Pass in the proper form, or in such other form as the Collector may in any particular case allow.
(2) The manufacturer or the warehouse keeper shall have the Gate Passes printed and so bound that no page can be removed without being tom. All Gate Passes shall be numbered in print in serial order and before any bound book of Gate Passes is brought into use the manufacturer or the warehouse- keeper shall get a certificate recorded on its first page by the proper officer regarding the number of pages contained in it.
(3) A Separate Gate Pass shall be issued in respect of each vehicle or other means of conveyance used for removal of goods from the store-room or other place of storage mentioned in sub-rule (1).
In case of more than one consignment removed at a time by the same vehicle or other means of conveyance, the name of the last consignee or his agent or self, as the case may be shall be entered in the Gate Pass.
(4) The Gate Pass shall be prepared in triplicate which shall be presented to the Central Excise Officer if posted at the factory or the warehouse who will allow the loading and removal of goods under his signatures and
(i) the original copy of the Gate Pass shall accompany the consignment(s) from the said store- room or other place of storage to the factory or warehouse gate, where it shall be collected by the Central Excise staff if posted at the factory or warehouse otherwise by the staff of the factory or warehouse. The gate Pass so collected at the factory or warehouse gate shall be kept there for twenty-four hours for inspection by any Central Excise Officer at any time and shall thereafter be sent to the factory or warehouse office for record;
(ii) the duplicate copy of the .Gate Pass shall accompany the consignment up to the premises of the distributor of the goods or the consignee (s) mentioned in the Gate Pass. This copy of the Gate Pass shall be retained by the last consignee or his agent or self, as the case may be, for a period of fifteen days from the date of issue of the Gate Pass.
(iii) the goods removed under sub-rule (1) on payment of duty, notified by the Central Board of Revenue in this behalf, shall not be stored for commercial purposes in any godown, depot or place of storage situated within a distance of one kilometer from the manufacturing premises or the warehouse; Provided that, where the manufacturer, warehouse keeper, his. Dealer, agent, distributor or any other agent already maintained a duty-paid godown, depot or place of storage within the said distance of one kilometer on the 30th June, 1986, these provisions shall stand relaxed for the period ending on the 30th June, 1988.
(iv) the triplicate copy of the Gate Pass, which shall form the bound part of a book of Gate Passes, shall be retained by the manufacturer or ware housekeeper for his record in the bound book.
(5) The original and triplicate; copies of the Gate Passes shall be preserved by the manufacturers or warehouse-keeper for a period of three years after the dose of the financial year to which they relate and shall be made available for inspection by any Central Excise Officer at any time.
(6) If any goods are removed or are being loaded for removal from the store-room or warehouse or other place of storage specified in sub-rule (1) before a Gate Pass in respect of such goods has been prepared and completed in all respects in the prescribed manner, the manufacturer or ware housekeeper shall be liable to a penalty which may extend to two thousand rupees or ten times the amount of duty chargeable on such goods whichever is greater, and the goods in respect of which an offence has been committed shall be liable to confiscation."
7. The first question that arises is whether clause (iii) of sub-rule (4) of rule 52-A is ultra vires section 37 of the Act. The Central Excises and Salt Act inter alia deals with the levy and collection of excise and regulatory duty on excisable goods and services, the determination of tariff value and rate of duty on such goods and services, the restriction on possession of excisable goods, the punishments and penalties for offences, the recovery of sums due to the Government and the application of the provisions of the Customs Act, 1969, to excise, as the Federal Government may consider necessary. Amongst the offences for which penalties are provided under section 9 of the Act, evasion of payment of duties under the Act, removal of excisable goods in contravention of any of the provisions of the Act or any rule made thereunder, acquirement of possession or storage of excisable goods, which are liable to confiscation, acquirement of possession or storage of excisable goods manufactured, without payment of duty, may be cited. If, therefore, a manufacturer of beverage at some opportune moment, say at midnight, were to remove a few crates of beverage from the factory to the adjacent main storage point i.e. Main sales depot, without making any entries in the factory registers regarding clearance from the factory, he would be liable for a number of offences under section 9. Subsection (1) of section 37 of the Act grants wide powers to the Central Board of Revenue to make rules to carry into effect the purposes of the Act. This sub-section is so vast, as would protect any rule made to carry into effect any of the provisions of the Act, such as sections 3, 3-A and 4 which relate to the levy of duties and section 9 which relates to penalties for the offences committed, some of which have already been given above. In this view of the matter, clause (iii) of sub-rule (4) of rule 52-A, which attempts to plug evasion of duty, is intra vires section 37(1) of the Act.
8. Notwithstanding the above, sub-section (2) of section 37 provides, in particular and without prejudice to the generality of the power contained under sub-section (1), some further matters on which rules can be framed. Clause (v) of subsection (2) of section 37 permits a rule to be framed to regulate storage of excisable goods, in so far as it may be essential for the proper levy and collection of the duties imposed by the Act. Clause (iii) of sub-rule (4) of rule 52-A, which provides for storage of goods on which excise duty has been paid in godowns or depot situate beyond a distance of one kilometer from the factory premises, does not prohibit the storage of goods, but regulates the place where goods can be stored, to facilitate the proper levy and collection of the duty. It is the case of the Department that main storage points being situated adjacent to factory premises, much of the duty is avoided, because goods are surreptitiously transferred from the factory premises into the main storage points, without payment of excise duty, in collusion with the members of the Excise staff, who are posted there. It is contended that if the main storage points are far away from the factory premises, all goods leaving the factories can be checked any time on the roads, at some distance from the factories, and where they do not possess gate passes evidencing payment of duty, which can be checked .With the entries in the factory premises, evasion of duty can be detected. The contention of the Department is not without substance. Since clause (iii) of sub-rule (4) of rule 52-A is essentially framed for the proper levy and collection of excise duties, it is intra vires clause (v) of sub-section (2) of section 37 of the Act. The submission that clause (iii) seeks to or prohibits storage of goods, is not correct.
9. The contention of the learned counsel for the petitioners that no rule can be framed to control the movement, storage or possession of excisable goods, no sooner they leave the factory premises, once duty has been paid, cannot be accepted. It may be stated at this stage that clauses (iii), (iv), (v), (xi) and (xiv) of sub-section (2) of section 37 of the Act expressly provide for a number of matters ex-factory, which can be controlled by the rules, whilst clauses (v), (ii), (vi), (viii) and (xiii) of the same sub-section can permit rules to be made to cover such matters.
10. The contention that rule 52-A (4)(iii) of the Central Excise Rules is being applied indiscriminately, in that it is being applied to whole-sale stockists/dealers, but not to retailers, though all are covered, must be rejected. The object of this provision is to control the levy and collection of excise duty. Since the liability is basically that of the manufacturer or producer and duty has to be paid before the goods leave the factory premises and since the main storage points set up adjacent to factories belong to or are controlled by the manufacturers or their accredited warehouse keepers, dealers or distributors, the said provision cannot be applied to the petty retailers. However, if it is found at any stage that manufacturers or producers, in order to avoid excise duty, have set up retailers to run depots adjacent to their factories, the rule can be applied to them as well. Nothing, therefore, turns on this objection.
11. The argument that if one manufacturer, such as the 7- UP Bottling Plant, would have to set up its main storage point a kilometer away from its factory, whereas another manufacturer, such as Riaz Bottlers, could open up its main storage point within a kilometer of the factory of the 7-UP Bottling Plant, which action is discriminatory and would affect its business, is merely illusory and has no substance. Persons who want the beverages of the 7-UP Bottling Plant would obviously go to the main storage point of this factory, wherever it is located, and would not pick up some other beverage of another manufacturer. The rule applies equally to all beverage manufacturers and no discrimination can be spelt out from it.
12. The objection that the removal of the main storage points to distant places violates Article 24 of the Constitution, as the petitioners would lose their investment and their vested rights to use the premises, has no substance. The premises constituting the main storage points are not being requisitioned or acquired without compensation. The premises can be used for other purposes by the petitioners, without prejudice to their investments.
13. The assertion that the rule affects the rights of the petitioners to trade and thus violates Article 18 of the Constitution, is ill-founded. The right to carry on business is not affected. The regulation of places where goods can be stored, cannot be said to violate the right of a person to conduct his business.
14. The upshot of the above discussion is that there is no merit in this petition.
15. This petition is dismissed with costs. Rupees Two Thousand (Rs. 2,000/-) is fixed as counsel fee, which shall be paid to the respondents.