' MUHAMMAD HUSSAIN ADIL KHATRI, J.---The Federal Government of Pakistan in exercise of the powers conferred by section 19 of the Customs Act, 1969 (VI of 1969) and subsections (1) and (2) of section 7 of the Sales Tax Act, 1951 (III of 1951) issued S.R.O. 498(1)/84, dated 14-6-1984 providing that such raw material and components as are not manufactured in the country, if imported by recognized industrial units for the manufacture of cycle parts, shall be exempted from so much of the custom duty as are in excess of 50% ad valorem and the whole of the sales tax subject to the conditions specified in the said Notification. For proper appreciation of the case, the said conditions are reproduced herein below in extenso:-- "(i) the manufacturer has suitable in-house facilities to undertake basic manufacture of cycle parts;
(ii) the manufacturer shall furnish to the Chief, Survey and Rebate, Central Board of Revenue, or any other office authorised by it in this behalf, in the prescribed form the list of cycle parts that he is manufacturing or intends to manufacture alongwith details of the raw materials and components required and the Chief or such authorised officer, in consultation with the Collector of Customs or the concerned Government Department, will certify the annual capacity of the unit for the manufacture of various cycle parts and the total annual requirements of various types of raw materials alongwith the quantity required for the manufacture of such cycle parts;
(iii) at the time of import of raw materials the manufacturer shall make a written declaration on the bill of entry to the effect that the raw materials have been imported in accordance with his entitlement in terms of condition (ii);
(iv) the manufacturer shall furnish to the Collector of Customs a bank guarantee or insurance guarantee equivalent to the customs duties and sales tax leviable on each consignment in excess of 50% ad valorem or a standing hank guarantee or insurance guarantee for covering multiple consignments subject to the satisfaction of the the Collector of Customs and undertake to abide by the conditions laid down in this notification failing which he would pay the amount of customs duties and sales tax exempted under this notification and make payment of any penalties that may be imposed by the Collector of Customs in this behalf;
(v) the manufacturer shall maintain record of the raw materials and cycle parts manufactured out of them in such form as may be prescribed by the Central Board of Revenue; and
(vi) the manufacturer shall, within one year of the date of the importation of the raw materials, apply to the Collector of Customs for discharging the hank guarantee or insurance guarantee, the application being supported by a certificate in the form set out below issued by the Assistant Collector, Central Excise and Land Customs, within whose jurisdiction the manufacturing unit is located."
2. The Petitioner which is an industrial organization involved in the manufacture, inter alia, of iron and steel tubes of various types including steel tubes for cycles, submitted an application in the prescribed form "S" as required by above Condition No,2, wherein it was specifically mentioned that the Petitioner would manufacture Bicycles steel tubes in round shape. The Petitioner also specified outer dia-meter, the wall thickness and the length of the Bicycles steel tubes and Bicycles steel tubing in swa gged shape which the petitioner intended to manufacture. The usual packing was of 10 tubes, each of approximate 6 metres length i.e, approximately 60 metres in each unit. The quantity of steel sheets in coils to be imported was specified with clarification that the petitioner would claim the concessional rate of duty on the said imported steel sheets used for the manufacture of tubes to be supplied to approved Bicycle Manufacturers.
3. In response to the said application the Central Board of Revenue issued provisional certificate dated 27th September, 1984, to enable the Petitioner to import the raw material. In the said certificate, Condition No,3, was inserted which stated that the Bank guarantee would be released only after confirmation that the item manufactured has been utilised in the manufacture of Bicycles. This certificate was supposed to be issued only after a survey to be conducted and since it was not done the certificate was termed as provisional. However, subsequently survey was conducted and certificate dated 29-9-85 was issued wherein it was certified that the Petitioners are manufacturers of steel tubes for Bi-cycles. It may be pointed out that before issuance of the above certificate, Condition No,3 specified in certificate dated 27-9-1984 was deleted at the request of the petitioner, by letter dated 18-12-1984.
3. By letter dated 27-9-1984, the Central Board of Revenue permitted the Petitioner to clear the components and raw materials.
4. The Petitioner after import of the raw material manufactured the Bi-cycles steel tubes of the sizes as stated in Form 'S'. The aforesaid fact was verified in the consumption certificates issued by the Assistant Collector of Central Excise and Land Customs, Landhi Division, Karachi, where the industry of the petitioner is situated who issued three certificates, two dated 12-1-1986 and one dated 14-4-1986. On the basis of the said certificates, the petitioner applied for release of the bank guarantees furnished by it.
5. The hank guarantees were not released and instead the petitioner was served with a show- cause notice dated 3-7-1986 stating that the physical examination the goods manufactured in the unit of the petitioner and the perusal of the documents pertaining to the sale of those products, had revealed that the goods manufactured from the raw materials were tubes of various length, dia-metres and thickness and had multiple uses and were not exclusively meant for use in cycles and, therefore, the same could not be treated as cycle parts because of the fact that these are not cut to shape and size and had yet to undergo further processes like bending, machining, painting etc., before they assume the shape of finished cycle part. The Petitioner was alleged to have claimed the benefit of the aforesaid Notification dated 14-6-1984 by misdeclaring the facts at the time of importation and since the documents delivered and statements made were false in material particulars, the Petitioner had contravened the provisions of section 32(1) of the Customs Act, 1969 punishable under clause 14 of section 156(1) of the said Act.
6. The petitioner submitted the detailed reply but however, the adjudication officer passed the Order on 11-2-87 holding that the tubes manufactured by the petitioner were not identifiable as cycle parts. He referred to a letter of the Central Board of Revenue dated 22-10-1986 which according to the order, clearly spelt out that tubes in length ranging between 4 to 6.30 metres could not be treated as cycle parts and as such the benefit of S.R.O. Dated 14-6-1984 could not be extended to such goods. According to the said order the clarification in the aforesaid order resolved the controversy in the matter. He accordingly, held that the contravention of section 32 of the Customs Act, 1969, stood established.
7. The petitioner was called upon to pay Rs,23,31,953 forthwith on account of custom duty & sales tax. Personal penalty in the sum of Rs,3,00,000 was also imposed under clause 14 of section 156(1) of the said Act.
8. The petitioner filed appeal against the aforesaid order before the Central Board of Revenue which was decided by the order dated 6-7-1987 by the Judicial Member of the Board, who agreed with the findings of the Collector of Customs to the extent that the steel tubes manufactured by the petitioner in running lengths of 4 to 6 metres could not be treated as cycle parts in their existing form within the meaning of S.R.O. Dated 14-6-1984. He however, did not agree that there was misdeclaration under section 32 of the Customs Act, 1969 with the observation that the Petitioner in Form "S" had declared the sizes of the steel tubes to be manufactured by him and accordingly the penalty imposed on that count was remitted.
9. The Petitioner has challenged the aforesaid orders and proceedings in this petition and has prayed that the same be declared as without lawful authority and of no legal effect and that demand of the custom duty and sales tax is also without lawful authority and for restraining the Respondents from taking any steps for implementing the impugned orders.
10. We have heard Mr. Khalid M. Ishaque, the learned counsel for the Petitioner and Syed Tariq Ali, Advocate for the Respondents.
11. The learned counsel for the Petitioner has contended that the letter of the Central Board of Revenue dated 22-10-1986 is without jurisdiction and was never disclosed to the Petitioner which is unaware of its contents even today. It was next contended that the Central Board of Revenue had no jurisdiction whatsoever to supersede the statutory Notification dated 14-6-1984. It was urged that the Petitioner having been made to import the raw material, manufacture the products as stated in the Form on the faith of the Notification, for availing the exemption, cannot, be deprived of the same and the vested rights having been created cannot be thus taken away. He has relied on PLD 1988 Karachi 99 (Indus Automobile (Pvt.) Ltd. v. Central Board of Revenue), (2) 1986 SCMR 1917 (Al Samrez Enterprise v. Federation of Pakistan), (3) AIR 1978 SC 621 (Maneka Gandhi v. Union of India), (4) AIR 1980 SC 768 (Bhim Singh and others v. State of Haryana and others), and (5) 1973 PTD 312 (Messers Husein Industries Ltd., Karachi v. Central Board of Revenue, Government of Pakistan and another).
12. The learned counsel appearing for the Respondents contended that the burden to prove entitlement to exemption is on the Petitioner and that burden could have been discharged only by establishing that the products manufactured by it from the imported raw material fell within the definition of cycle parts and since the product had yet to undergo some processes to become a cycle part, it could not be treated as such and, therefore, the benefit of S.R.O. Dated 14-6-1984, has been rightly denied to the Petitioner. He relied on (1) PLD 1966 SC 828 (Muhammadi Steamship Company Ltd. v. The Commissioner Income Tax) and (2) 1974 SCMR 127 (M/s. Rehmatullah & Sons v.
The Commissioner of Sales Tax).
13. It is not disputed that the Petitioner in its application in Form "S" had specifically mentioned the sizes of the Bicycle steel tubes that were to be manufactured by it, including the length in which they were to be manufctured. It has been further noted that the petitioner in reply to Item 13 of the said Form had stated that the said tubes would be supplied to approved Bicycle Manufacturers.
The Note for Manufacturers' guidance given at page 5 of the said Form provides that the samples of the articles or their authenticated photographs/brochures were to be submitted to the respective Collector, Central Excise & Land Customs, alongwith application for survey, including the specifications, if any. In the Certificate dated 27-9-1984, the Central Board of Revenue had included a condition that the bank guarantee could be released only after confirmation that the product of the petitioner had been utilized in the manufacture of Bicycles. Since the petitioner was not manufacturing Bicycles, it requested for deletion of the said condition and it was deleted by the Board of Revenue by its letter dated 18-12-1984, addressed to the Collector, Central Excise and Land Customs, Karachi. It was after deletion of the said condition that Central Board of Revenue issued certificate dated 29-9-1985 certifying that the petitioners are manufacturers of steel tubes and superseded the certificate dated 27-9-1984. Fi om the above, it is clear that the petitioners did not make any misdeclaration and it has been so stated in the order dated 6-7-1987. The petitioner manufacutred only such goods as he had promised to manufacture in Form "S". The respondents accepted the products described by the Petitioner in Form "S" as cycle parts and allowed the petitioner to import the raw material for their manufacture. The raw material was accordingly utilized in the manufacture of the Bicycle steel, tubes. This fact was certified by the Central Excise and Land Customs authorities in the Certificates dated 12-1-1986 and 14-4-1986. Thus it is clear that the petitioner had complied with all the requirements which entitled it to claim the benefit of exemption under the Notification dated 14-6-1984.
14. From what has been stated above, it is evident that there is no nexus between the show-cause notice and the order dated 11-2-1987. In the show-cause notice which forms the genesis of the dispute raised, the allegation was to the effect that the product of the petitioner was not exclusively meant for use in Bicycle and, therefore, the petitioner was held out to be guilty of contravention viz. Misdeclaration under section 32(1) of the Customs Act, 1969. This establishes an admission that the product is a Bicycle part. The said Notification even otherwise neither defines the phrase Bicycle Parts nor states that only such are to be manufactured which can be used exclusively and only as Bicycle Parts. The Collector of Customs while passing the order did not apply his mind, has avoided to give any finding of his own and merely relied on the ipse dixit of the Board, therefore, this order is liable to be struck off, as it does not deal with the charge as levelled in the show-cause notice. The Board in its order dated 6-7-1987 gave the finding that the Petitioner was not guilty of misdeclaration under section 32(1) read with clause 14 of section 156(1) of the Customs Act, 1969.
Once the Board found that the Petitioner was not guilty of misdeclaration, the only logical consequence was/is to set at naught the very show-cause notice. The learned Member Judicial of the Board after having reached the said conclusion had no jurisdiction to refuse to return the Bank- Guarantees of the petitioner. The said order is, therefore, absolutely illegal on the face of it. The charge of misdeclaration levelled against the petitioner having been found without substance and unwarranted, the petitioner stood exonerated of the charge.
15. The petitioner having been led to believe that its offer to manufacture the steel tubes, was in consonance with the requirement of S.R.O. Dated 14-6-1984, and on that basis the Respondents having allowed him to import the raw material, are estoppcd from receding from the commitment made therein. In our view (a) Board had acted without jurisdiction in issuing the aforesaid letter dated 22-10-1986 behind the back of the petitioner long after the utilisation of the imported raw material and supply of the product to the Bicycle manufacturers and submission of applications dated 13-1-1986 and 16-4-1986 for release of Bank guarantees, (b) Respondent No,1, the Collector of Customs also acted without jurisdiction firstly on relying on the aforesaid letter of the Board without disclosing the same to the petitioner and secondly depending solely on the said letter for his decision, instead of applying his own mind to the facts and circumstances of the case to reach the conclusion whether the petitioner's products were cycle parts, (c) Board was estopped by the doctrine of promissory estoppel to resile from the commitment made in the Notification dated 14- 6-1984, after having permitted the petitioner to manufacture the Bicycle steel tubes of the particular sizes and accepting the same as Bicycle parts.
16. The Notification dated 14-6-1984 was issued by the Federal Government in exercise of its powers conferred by the Customs Act, 1969 and Sales Tax Act, 1951. Under the said S.R.O. The forms were to be submitted to the Chief, Survey and Rebate, Board of Revenue. When the application was submitted by the petitioner, the Board put an interpretation on 'Bicycle Part' as is suggested from the acceptance of the Petitioner's application, accepting the steel tubes of the approximate length of 6 meters, as Bicycle parts. From the letter of the Board of Revenue relied upon by the respondent No,1, it appears that at a later stage the Board reversed its interpretation of this phrase. This was done by the Board behind the back of the petitioner and at a stage when all that was required to be done, was in fact done by the petitioner and the respondents were required to release the Bank guarantee. The respondents by their conduct having given a clear and unequivocal assurance to the petitioner that its goods were cycle parts, and having created an impression that the legal consequence as envisaged in the S.R.O. Would follow, by accepting the application of the petitioner and issuing the certificate to enable the petitioner to import the raw material, were bound by the same and are not entitled to go back upon it as it would be inequitable to allow the respondents to do so having regard to the circumstances of this case.
17. The above proposition is fully covered by the observations in the case of M/s. Al-Samrez Enterprise v. The Federation of Pakistan, reported in 1986 SCMR 1917, which arc to the following effect:-- "Indeed it is well-settled that tax exemptions are founded on public policy such as the encouragement of manufacturing and other industries or trades. They are granted on the theory that they will benefit the public generally or are awarded as compensation for services rendered in the performance of some function deemed socially desirable. Therefore, the exemption notification is basically addressed to public-at-large or in any case to prospective importers. It will be inequitable and unjust to deprive a person who acts upon such assurance of the right to exemption and expose him to unforeseen loss in the business transaction by suddenly withdrawing the exemption after he has made legal commitments. It is in this perspective that a right is created in his favour and a subsequent withdrawal of exemption cannot be given retrospective operation by an executive act to destroy this right."
' In the present case, it is not the act of legislative authority, but merely an interpretation placed on the phrase 'Bicycle Part' by the same Board, which allowed the Petitioner to import the raw material under S.R.O. Dated 14-6-1984, thereby assured the Petitioner that the parts intended to be manufactured by it, were the cycle parts as required under the Notification.
' The case of Federation of Pakistan and others v. Ch. Muhammad Aslam and others 1986 SCMR 916 covers the entire ambit of the present case. At page 929 of the report, Their Lordships have observed as under:- "If these contracts had been bona fide and legally entered into and had given rise to right and liabilities enforcible at law then certainly vested rights had come into existence, which could not be overridden even in the matter of import and export, except on express words of an authority competent to legislate retrospectively, competent to override or impair such vested rights. An agency or authority not empowered to override or impair voted rights cannot achieve that end simply by giving its dispensation in the form of a declaration."
' Such a vested right was protected and preserved in the case of Union of India and others v. Anglo- Afghan Agencies (AIR 1968 SC 726) by invoking in aid the principle of promissory estoppel in the words that follow:- "We hold that the claim of the respondents is appropriately founded upon the equity which arises in their favour as a result of the representation made on behalf of the Union of India in the Export Promotion Scheme, and the action taken by the respondents acting upon that representation under the belief that the Government would carry out the representation made by it. On the facts proved in this case, no ground has been suggested before the Court for exempting the Government from the equity arising out of the acts done by the exporters to their prejudice relying upon the representation. This principle has been recognized by the Courts in India and by the Judicial Committee of the Privy Council in several cases."
' In the case of M/s. Motilal Padampat Sugar Mills Co. Ltd. v. The State of Uttar Pradesh and others AIR 1979 SC 621, the following law was laid down at Page 631:- "The true principle of promissory estoppel, therefore, seems to be that where one party has by his words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations or affect a legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so having regard to the dealings which have taken place between the parties and this would be so irrespective whether there is any pre-existing relationship between the parties or not."
18. The learned counsel of the Respondents has relied on (1) PLD 1966 SC 828 Muhammadi Steamship Company Ltd. v. Commissioner of Income Tax; and (2) 1974 SCMR 127 (M/s. Rehmatullah & Sons v. The Commissioner of Sales Tax on the proposition that the burden to prove that the petitioner is entitled to exemption is on the shoulders of the petitioner and unless the petitioner satisfies this Court that his product is a Bicycle Part, he is not entitled to the grant of exemption from customs duties and sales tax. So far the legal proposition is concerned, there cannot be any cavil about the same. We have already dealt with the subject, in detail, and it has been found that none else but the respondents had accepted the Bicycle Steel Tubes proposed to be manufactured by the petitioner, as cycle parts and it was on such acceptance that the petitioner was permitted to import the raw material on concessional rate of custom duties and without payment of sales tax. The Bank guarantees were to be released after manufacture of the product stated in the Form. It is an admitted position that the E Petitioner did not produce any product other than the one proposed by him and the Board did find, as a matter of fact, that the Petitioner made no misdeclaration under section 32 of the Customs Act, 1969. Under these circumstances, it cannot he said that the Petitioner has not established his right to exemption.
' The Petition is, therefore, allowed and the Respondents are directed to release the Bank Guarantees within seventy five days from the date of this judgment.