1. NASIR ASLAM ZAHID, J.---By judgment dated 16-8-1984 of a Division Bench of the Sindh High Court, Constitutional Petition, filed by the appellant, was dismissed. Leave to appeal was granted by this Court to the appellant by order dated 17-1-1985. We have heard Mr. Mansoor Ahmad Khan, Senior Advocate Supreme Court, for the appellant and Mr. Shahudul Haq, Advocate Supreme Court, for the respondents, Pakistan and others (Customs authorities).
2. 2.The appellants have been running a restaurant since 1-7-1969 under the name and style of 'Village Restaurant' near Palace Cinema Building, Merewether Road, Karachi. For the first time, by section 3 of the Finance Ordinance, 1970, "Excisable Services" were defined and made subject to central excise duty by making an amendment in subsection (1) of section 3 of the Central Excises and Salt Act, 1944 (for convenience referred to as "the Act" in this judgment). Section 3(1) of the Act, as amended, reads follows:-- Duties specified in the first Schedule to be levied.3.(1) There shall be levied and collected in such manner as maybe prescribed duties of excise on all excisable goods, produced or manufactured, and, on all excisable services provided or rendered, in Pakistan, as, and at the rates, set forth in the First Schedule."
3. By the aforesaid amendment in section 3(1) of the Act, all restaurants and hotels carrying on excisable services were brought under excise duty. However, exercising powers under section 12-A of the Act, the Federal Government issued Notification No, SRO. 557(1)/72 dated 3-8-1972 granting general exemption to the excisable services of hotels and restaurants but with an exception amongst others in respect of those hotels and restaurants the annual turnover of which in any Income Tax assessm ent year, subsequent to the assessment year 1966-67, was not less than Rs,4 lacs in the case of Karachi and Lahore and Rs, 2 lacs in other cases. The relevant portion of the exemption notification dated 3-5-1972 is reproduced here:-- CENTRAL EXCISES AND SALT ACT, 1944 MINISTRY OF FINANCE S.R.O.557 (1)/72, dated 3-8-1972.---In exercise of the powers conferred by sub-section (1) of section 12-A of the Central Excises and Salt Act 1944 (1 of 1944) and in supersession of the Ministry of Finance Notification No, S.R.O. 136 (1)/70, dated the 29th June, 1970, S.R.Os. 166 (1)/70, 170 (1)/70, 172 (1)/70, 173(1)/70 and 174(1)/70, dated 29th July , 1970 S.R.O., 176(1)/70, dated 31st July, 1970, S.R.O.
4. 198(1)/70, dated 11th August, 1970, S.R.O. 546(1)/71, dated 26th November, 1971, S.R.O.226(1)/71, dated 26th June, 1971, S.R.O. 48(1)/72, dated 1st January, 1972, S.R.O. 57(1), dated 11th January, 1972, S.R.O. 56 (1)/72, dated 12th January, 1972, S.R.O. 1(1)/72, dated 29th April, 1972 and S.R.O. 466(1)/72, dated 6th July, 1972, the Federal Government is pleased to exempt goods and services specified in column (2) of the Tables I and II below respectively from so much of the duties of excise leviable under the respective items of Part I or Part II of the First Schedule to the said Act specified in the corresponding entries in column (3) of the Tables as are in excess of the rates of duty specified in the corresponding entries -in column (4) of the Tables, subject to the conditions specified to the corresponding entries in column (2) of the Tables:-- Sl. No , Description of services and conditionsItem No. in Part 1 1 of the First Schedule to the Central Excises and Salt Act, 1944Rate of Duty
1. Services rendered by Hotels and Restaurants--.--- (1)Services provided or rendered by hotels and restaurants other than those which fall under any of the following categories:---
(a) An hotel---
(1) the daily rent of any room or apartment of which with or without service charges and charges on account of breakfast or air-- conditioning, exceeds twenty-five rupees on any day during the year , or1 Nil
(II) it provides cabaret or any other floor show on any day during the year , or
(III) it provides alcoholic drinks.
(b) A restaurant the annual turnover of which, as determined by the Income Tax Of ficer, in any income-tax assessment year , subsequent to the assessment year 1966-67 was not less than---
(I) four lac rupees in the case of Karachi and Lahore; and (II)two lac rupees in any other case.
(c) A restaurant or night-- club which provides cabaret or other floor show on any day during the year.
(d) A restaurant which provides alcoholic drinks.
(2) The meals provided by an hotel or restaurant to its staff free of charge.
(3) Services provided in canteens run by industrial or commercial concerns for their workers.
(4) Services provided by messes, hotels, guest- houses and clubs, other than night clubs, the membership of which is restricted to any particular class of people or which are run on the basis of mutuality: Provided that the exemption granted shall be subject to the condition that it shall not be available in respect of services provided or rendered by any hotel or restaurant which, on any day during the year , charges any amount on account of excise duty from any customer .
5. Advertisements."
6. Pursuant to the aforesaid amendment in section 3 of the Act, the Federal Government also framed an additional Rule being Rule 96-W in the Central Excise Rules , 1944 which is also reproduced here:-- "96-W. Special procedure regarding hotels and restaurants. --(1) The owner or manager of every hotel or restaurant shall in the duly authenticated proper Form, maintain a daily account of all excisable services provided or rendered by such hotel or restaurant: Provided that in the case of international hotels which have their branches in Pakistan and are operating on their own inter-national accounting system, the Collector may permit such modifications in the said Form as he may deem fit.
(2) Every hotel or restaurant shall maintain a serially numbered bill of charges book in the duly authenticated proper Form and for each transaction covered by sub-rule (1) there shall be issued a bill of charges. Out of such bill of charges book one copy of shall be given to the person to whom such services have been provided or rendered and one copy shall be retained by the owner or manager of the hotel or restaurant.
(3) Not more than one bill of charges book shall be used at any one time by an hotel or a restaurant bill of charges book where he considers it indispensable for the working of such hotel or restaurant.
(4) The owner or manager of an hotel or a restaurant shall in the proper Form, maintain an account of bill of charges books used in the hotel or restaurant and shall submit to the proper officer a monthly return of such books, in the proper Form, before the tenth day of the month following the month to which it relates.
7. The owner or manager of the hotel or restaurant shall pay the duty due from him by the tenth day of the month following the month to which it relates.
8. Where the duty is not paid by the due date the owner or manager shall pay an additional duty of half of the amount of duty due.
9. The owner or manager of every hotel or restaurant shall at some conspicuous place in his premises, display a notice of the excisable services provided or rendered by him.
10. The owner or manager of an hotel or restaurant who intends to provide or render excisable services for the first time shall give notice in writing to the Collector at least seven days before such owner or manager begins to provide or render the services alongwith the list and rates of such services.
(9) The owner or manager of every hotel or restaurant shall inform the proper officer in writing of any change in the rates of excisable services provided or rendered by such hotel or restaurant seven days before such change.
11. (10)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 seven days' previous notice specifying the manner in which the plan is intended to be modified, altered or added to.
12. (11)Within fifteen days after the close of each month, .Every owner or manager of an hotel or a restaurant rendering or providing excisable services shall submit to the proper officer a monthly return in the proper Form showing the number of bills and the amounts charged for 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 Collector may, by general or special order, require.
13. (12)The owner or manager of an hotel or a restaurant who fails to issue a bill of charges for any excisable services provided or rendered or maintains a duplicate or unauthenticated bill of charges book or issues a bill of charges therefrom shall be liable to a penalty which may extend to two thousand rupees or ten times the amount of duty leviable whichever is greater.
(13) The proper Forms referred to in this rule shall be printed, serially numbered, bound and certified by a proper officer on the front page of every bound volume in respect of number of pages contained therein.
14. Explanation. --For the purpose of this rule, "duly authenticated" means authentication of each page of the proper Form by a proper officer by putting his initials and affixing his official Seal thereon."
15. The aforesaid Rule inter alia provides for taking out an excise licence and then charging excise duty on cash memos and bills, maintaining of prescribed forms, registers and accounts in the manner laid down by the Rules.
16. 3.The staff of the Directorate of Intelligence and Investigation (Customs & Excise), Karachi, visited the restaurant of the appellants on 3-7-1976 on receiving information that the restaurant was being run without obtaining the excise licence and without paying any central excise duty.
17. Thereafter a show-cause notice was issued by the Deputy Collector (Hotels & Restaurants Circle), Central Excise and Land Customs), Karachi (respondent No,4) to the petitioner who were ordered to pay central excise duty for the years 1972-73 to 1975-76 amounting to Rs,4,94,886.90 as, according to respondent No, 4, the turnover of the restaurant had exceeded the exemption limit of Rs,4 lacs.
18. Certain additional duty and penalties were also imposed. The appellants filed an appeal before the Collector Central Excise and Land Customs Karachi (respondent No,3) which was partly allowed by order dated 31-7-1977 to the extent that only a part of the additional duty under sub-rule (3) of Rule 96-W of the Central Excise Rules, 1944, was ordered to be recovered from the appellants for the period subsequent to the issuance of the notification. The order of respondent No,4 levying excise duty and imposing penalties was, however, maintained. The appellants challenged the orders in a Constitutional Petition before the Sindh High Court. The contention on behalf of the appellants before the High Court was that the appellants stood exempted from the payment of excise duty for the services provided by their restaurant until the annual turnover of the restaurant was determined by the Income Tax Officer in any income-tax assessment year (subsequent to 1966- 67) to be not less than Rs,4 lacs and as such determination was made by the Income Tax Officer on 28-6-1976, no levy could be made for the period prior to 1-7-1976. The levy of duty for the period prior to 1-7-1976 was challenged as unlawful. This plea was not accepted by the High Court and the reasoning of the High Court in this regard is given in Para. 11 of their judgment which is reproduced here:-- 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.O. 557(1)172 dated 3-8-1972, referred to above, and keeping in view the principles of construing the provisions 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 lacs 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 turnover, 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, hold 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. WRONG 1973-74 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."
19. The Constitutional Petition was accordingly dismissed. Leave was granted by this Court to examine the same contention which was raised on behalf of the appellants before the High Court.
20. 4.It is an admitted position that till assessment year 1972-73 (financial year ended 30-6-1972), the annual turnover of the appellant's restaurant as per their accounts as well as according to the assessm ent order was less than Rs,4 lacs. For the assessment year 1973-74 (financial year ending 30-6-1973), the turnover according to the appellants was Rs, 5,55,000 which was also the same according to the Income Tax assessm ent order for that year made on 28-6-1976. According to Mr. Mansoor Ahmed Khan, as the assessment order which determined the turnover of the appellant's restaurant to be over Rs, 4 lacs in one year was made on 28-6-1976, excise duty became payable by the appellants from the next financial year starting from 1-7-1976 although the assessment order dated 28-6-1976 related to the assessment years 1973-74 (financial year ending 30-6-1973).
21. Learned counsel also referred to various judgments wherein rules of interpretation of fiscal statutes have been laid down. However, the present case relates to the interpretation of an exemption notification and in a recent judgment of this Court in the case of Bisval Spinners Ltd. v.
22. Superintendent Central Excise and Land Custom PLD 1988 SC 370, it was observed as follows:-- The charge has been imposed by the legislature but the power of granting exemption has been left to the Federal Government. The second rule of interpretation attracted concerns the exemptions allowable in fiscal statutes. Sutherland in his Statutory Construction (Vol. 3, Edition 3 at page 296) elaborates the rule in the following words:-- "As a general rule grants of tax exemptions are given a rigid interpretation against the assertion of the tax-payer and in favour of the taxing power. The basis for the rule here is the same as that supporting a rule of a strict construction of positive revenue laws--that the burden of taxation should be distributed equally and fairly among the members of the society. However, exemptions claimed by the State or its sub-divisions are usually liberally construed and the same rule has frequently been applied to exemptions made in favour of charitable organizations."
23. In Bank of Commerce v. Tennesse (161 US 134) this principle was further explained in the following words:-- "Taxes being the sole means by which sovereignties can maintain their existence, any claim on the part of anyone to be exempt from the full payment of his share of taxes on any portion of his property must on that account be clearly defined and founded on plain language. There must be no doubt or ambiguity in the language used upon which the claim to the exemption is founded. It has been said that a well-founded doubt is fatal to the claim; no implication will be indulged in for the. -purpose of construing the language used as giving the claim for the exemption, where such claim is not founded upon the plain and clearly expressed intention of the taxing power".
24. 5.From the notification dated 3-8-1972 the intention of the Federal Government, to whom the power had been delegated for granting exemption under section 12-A of the Central Excises and Salt Act, 1944, is evident and that is that exemption to the restaurants and hotels from excise duty would remain available till their turnover exceeds Rs,4 lacs in Karachi or Lahore and Rs, 2 lacs elsewhere in any year subsequent to assessm ent year 1966-67. The intention obviously is to grant exemption to smaller restaurants and hotels whose annual turnover was less than Rs,4 lacs or Rs, 2 lacs depending on the location of the hotel or restaurant in Karachi and Lahore or elsewhere.
6. According to Mr. Mansoor Ahmed Khan, learned counsel for the appellants, the exemption notification dated 3-8-1972 notified the base limit of annual turnover for exemption as Rs, 4 lacs (for restaurants and hotels in Karachi and Lahore) as determined by the Income Tax Officer. It was emphasized that until the turnover is so determined to be over the base limit, there is no levy and exemption is lost only after such condition precedent is fulfilled. But determination by the Income- tax Officer of the annual turnover being over the base limit would be for a particular income-tax assessm ent year-- in this case being 1973-74. From the relevant portion of the notification, it is apparent, as observed earlier, that exemption stands withdrawn after the assessment year in which the annual turnover for the first time exceeds the base limit. Relevant is the assessment year and not the date on which the order of assessment is passed by the Income Tax Officer.
25. It may be added that the interpretation sought to be placed on the relevant part of the notification on behalf of the appellants is not only contrary to the notification and the intention of the Federal Government which issued it as expressed by the notification's text but would also lead to unjust and unreasonable consequences. For example, turnover of a restaurant or hotel may have crossed the base limit in a particular year but the assessment by Income-tax Authorities may be delayed for several years for valid or mala fide reasons which would benefit the assessee as, under such interpretation, his liability for payment of excise duty on the turnover would only start after the date of the assessm ent order. The more the assessment is delayed, the more would it be to the benefit of the assessee. An assessee whose assessment is made earlier will be subject to levy of excise duty earlier than an assessee whose assessment is delayed though their positions may be similar.
26. For instance, two different restaurants may cross the turnover base limit of Rs, 4 lacs in the same year but, according to the appellants' interpretation, the owners of such restaurants will only lose exemption after the date of the assessment orders and which in one case, may be very early and, in the other, delayed by several years. Similarly placed assessees will, in such a situation, become subject to levy and payment of excise duty from different dates-- a result not intended by the framer of the notification. The contention that liability for payment of excise duty by the appellants commenced with effect from 1-7-1976 and not from 1-7-1974, therefore, cannot be accepted.
27. 7.The High Court held the levy of Rs, 4,94,886.90 to be valid. Penalty of Rs, one lac for the breach of Rules 96-W and 226 of the Central Excise Rules, 1944, was held to be illegal as the High Court was of the view that there was no wilful evasion of duty. But penalty of Rs,2,000 for breach of Rule 174 was held to be legal. For the same reason, this penalty of Rs,2,000 was liable to be declared illegal. We order as so. Subject to this, the appeal is dismissed but with no order as to costs.