1. JUDGMENT IFTIKHAR MUHAMMAD CHAUDHRY, J.-- By this judgment, we intend to dispose of Constitutional Petitions 401 & 412 of 1996, as well as 12, 23, 24 & 88 of 1997, as in all these matters, vires of section 18-B of the Customs Act, as well as Notification dated 22nd October, 1996, have been challenged.
2. Precisely, the history of impugned section 18-B of the Customs Act, is that on 22nd October, 1996, vide an Ordinance called "Tax Adjustments Ordinance, 1996 (hereinafter referred to as 'Ordinance of 1996') while amending Act IV of 1989, i.e. The Customs Act, after section 18, impugned section 18- B was inserted. It would be appropriate to reproduce herein-below its text in extension:- 18-B. Levy of service charge.-- The Federal Government may, by Notification in the official Gazette, levy a service charge equivalent to two percent ad valorem on all such goods specified in the First Schedule to this Act as are subject to pre-shipment inspection: Provided that for the purpose of Sales Tax Act, 1990, such service charge shall not constitute a part of the value of supply."
3. In pursuance of above amended provision, the Government of Pakistan, Ministry of Finance and Economic Affairs, Islamabad, issued a Notification of even date. For sake of convenience, its contents are also reproduced herein-below:- "S.R.O.-(l)/96.-In exercise of the powers conferred by section 18-B of the Customs Act, 1969) (IV of 1969), the Federal Government is pleased to levy a service charge equivalent to two percent ad valorem on all such goods as are specified in the First Schedule to the said Act and are subject to inspection under the Inspection, Valuation and Assessment of Imported Goods Rules, 1994."
4. In all the matters, petitioners are buyers of goods from outside Pakistan and while entering into Agreements with Sellers, clause pertaining to pre-shipment inspection/valuation to be carried out by Pre-shipment Inspection Company (PSI) was included. Said clause permits the Inspection Company before pre-shipment, to examine the quality, quantity, prices and origin of goods. A duty has been assigned to the Company to carry out pre-shipment inspection in respect of items and thereafter to return the original copy of the seller's final invoice duly attested by means of affixing security label with relevant import reference and date of each attestation and confirming that the goods described in the invoice has been inspected. The attested invoice bearing security label along with original documents are required to be presented to the bank for negotiation of documents. This clause in the agreement was incorporated by the Buyers in pursuance of Rule 4 of the Inspection, Valuation and Assessment of Imported Goods Rules, 1994, whereby Importers have been bound down to perform certain functions before Import and Clearance of Goods from the Custom Control. The functions of Importers have been enumerated in clauses (a) to (i) of sub- rule
(1) of Rule 4. Similarly in Rule 5 of these Rules, it is the responsibility of Licensing Authority, to whom an application has been submitted for issuance of Import Licence, to permit, order or import authorization in any form, to endorse on such import licence, permit, order or import authorization that import of goods shall be subject to pre-shipment inspection and valuation. The Authority competent to issue import document, was also required to return the additional copy to the importer for submission to PSI-Company to form part of the inspection order. To further ensure that pre-shipment is carried out, quality, quantity, price were etc. Of the goods carried out, quality, quantity, price were etc. Of the goods which are being imported into the country, under Rule 6, it is the responsibility of the Authorised Dealers that every letter of credit issued for the import of goods shall specify that the goods are subject to pre-shipment inspection by the PSI Company and the beneficiary's bank shall not make the payment to seller unless the original invoice issued by the seller is not attested by the PSI Company, confirming that such inspection and service has been completed satisfactorily. Rule 7 had also identified the responsibility of PSI Company, whereas in terms of rule 8, the Custom Department was not excluded from performance of its functions under the Customs Act and the Rules framed thereunder, in respect of all goods, specified in Annex. I to Inspection Rules. However, in respect of goods, for which, the PSI Company has issued a Clean Report of Findings (CRF), the Custom Department will adopt a simplified procedure in accepting the Bill of Entry in respect of goods, subject to pre-shipment inspection only, if it is accompanied with the original CRF issued by the PSI Company along with other requisite documents, for registration, under section 79 of the Act and after having been satisfied with the Bill of Entry is complete in all respect with the supporting documents and the Custom duty and other taxes have been worked out in accordance with the CRF issued by the PSI Company, the Bill of Entry shall be allocated the registration number with date and marked "Allowed Payment" and returned to designed authorized agent of the Importer under second appraisement system. In order to carry out the purposes of the Rules, areas of two Companies on geographical basis i.e specified. As for as the Company known by the name of Cotecna is concerned, its responsibility of inspection was in Europe, whereas another Company SGS had its sphere of function in As a. It appears that to remunerate both these Companies, it was felt necessary to recovery charges from Importers.
5. Therefore, the Federal Government decided to levy a tax on Importers, known by the name of levy of surcharge equivalent to two percent ad valorem on all such goods specified in the First Schedule to the Act, as are subject to pre-shipment inspection and as such, section 18-B was inserted in the Customs 1969 and consequently in pursuance thereof, impugned ' Merfication has It is very important to note that various provisions, discussed herein-above of the Inspection, Valuation and Assessm ent of Imported Goods Rules, 1994, have not been questioned in instant petitions and it is nobody's case that the Import Licences have been issued to them, without endorsement of the competent Authority, that the goods being imported shall not be subject to pre-shipment, as it has been provided in the scheme of Rules nor their bankers have issued letter of credit to them for import of goods, without specifying that goods are subject to pre-shipment inspection.
6. With the above back-ground; it is the grievance of petitioners that section 18-B inserted in Chapter IV of the Customs Act by means of Ordinance of 1996, deals with the levy of, exemption from and re-payment of custom duties, treating service charges as if it is customs duty. Whereas under Item 43 of the Fourth Schedule to the Constitution of Islamic Republic of Pakistan, it does not fall within the definition of 'Duties of Customs', Therefore, it was not within the legislative competence of the President of Pakistan to incorporate section 18-B in the Customs Act; because President, in absence of Parliament, under Article 89 of the Constitution, cannot legislate such laws, which are not within the jurisdiction of Parliament. Since the Parliament itself was not competent to recover Service Charges as Custom Duty, therefore, to this extent, the provisions of Ordinance of 1996, are ultra vires to the Constitution of Islamic Republic of Pakistan as well as the Customs Act. Consequently, Notification issued in pursuance of impugned section 18-B of the Customs Act is nullity in law and is of no legal effect. If section 18-B of the Customs Act as well as Notification, are declared constitutionally non-extent, the respondents shall have no authority to recover the service charges from petitioners.
7. On the other hand, the case of official respondents including the Federal Government, is that petitioners have got their offices at Karachi whereas the Head Office of PSI Company i.e. Cotecna is also not situated within Province of Baluchistan, therefore, this Court has no territorial jurisdiction to exercise jurisdiction under Article 199 of the Constitution. The Sellers and Buyers have entered into Agreements, subject to Inspection, Valuation and Assessment of Imported Goods Rules, 1994, therefore, admittedly pre- shipment has been carried out, as such, they are bound to pay service charges at the rate of two percent ad valorem, being the expenditure incurred on pre-shipment inspection of the goods. Thus petitioners-Importers being the beneficiaries are bound to pay these charges and merely for any technical reason, judicially no exemption can be granted to them from making payment of service charges. It is also their case that in fact two percent ad valorem service charges is a custom duty and merely on account of its name, as Service Charges, the provisions of section 18-B of the Customs Act, cannot be struck down, because it is intra vires the Constitution and have been enacted with legislative competence, by the President of Pakistan.
8. Mr. Shahenshah Hussain, Advocate appeared in support of Constitutional Petitions 401/96 & 88/97.
9. Messrs Zahid Alvi and Akhtar Ali Mehmood, Advocates, appeared on behalf of petitioners in Constitutional Petitions 412/96, 12/97, 23/97 & 24/97. Messrs M.S. Rukhshani, learned Deputy Attorney General and Raja Rab Nawaz, Advocate, represented to respondents in all the matters.
10. There is no cavil with the proposition that under Article 83 of the Constitution, the President is empowered to promulgate Ordinances, when the National Assembly is not in session. It is also an uncontroverted Constitutional postilion that the President can legislate such laws, which fall within the ambit of Federal Legislative List as well as Concurrent Legislative List, as per Fourth Schedule, attached to the Constitution. Thus the question for examination would be; whether section 18-B of the Customs Act has been enacted with legislative competence or not? It may be noted that this section has been added in Chapter V of the Customs Act, which deals with levy of, exemption from and re-payment of custom duties. Therefore, it can also be termed as Custom Duties charging Chapter. Thus, it is to be seen; whether levy of service charge can be considered as a Custom duty, or not? It is an admitted position that Item 43 of Federal Legislative List (Part-1) as well as the Custom Act, 1969, have not defined 'Duties of Customs', therefore, we have to fall back on its dictionary meaning. According to Ballentine's Law Dictionary, Third Edition, Page-301, expression 'Customs duties', has been defined as under: - "Customs duties. The tariff payable on imported merchandise; the levy of tax applied by the Government on the importation of commodities into the country 21 Am J2d Cust D 1. Not merely a duty on the act of importation, but a duty on the thing imported; not confined to a duty levied while the article is entering the country, but extending to a duty levied after it has entered the country.
11. Brown v. Maryland (US) 12 Wheat 419, L.E D. 678."
12. In Black's Law Dictionary, Fifth Edition page-348, the expression 'custom duties' has been defined as follows: - "Custom duties. Taxes on the importation and exportation of commodities. The Tariff or tax assessed upon merchandise imported from, or exported to a foreign country.
13. Tax levied by Federal Government on goods shipped into U.S. Though in other countries it may include export taxes as well. See also Customs."
14. Since in above definition, reference to 'Customs' has also been made therefore, it is decided proper to reproduce its meaning as well: "Customs. This term is usually applied to those taxes which are payable upon goods and merchandise imported or exported. Pollock u. Trust Co. 158 U.S. 601, 15 S.Ct. 912,
39. L.E.D. 1108. The duties, toll, tribute or tariff payable upon merchandise exported or imported. See also custom duties; Customs-house; Custom Service."
15. In Halsbury's Laws of England, Volume 12, Fourth Edition, Para 501, Para-65, "Duties of Customs" or Customs duties" mean: "Duties of customs, or customs ^duties, in the strict sense are pecuniary charges or tolls payable upon - goods exported from, or imported into the country, as contrasted with excise duties which are payable upon goods produced and consumed within the country."
16. In Corpus Juris Seccundum, Volume 25 page-140, "Customs duties" are taxes on merchandize imported from or exported to a foreign country.
17. Before proceeding ahead, we feel it necessary to observe that while interpreting a fiscal' Statute, Court is not required to see the form of law under examination, but its substance and will fix the status of such law on looking its real nature, in order to determine that in which category, it will fall.
18. At this stage, reference to the case of Sohail Jute, Mills Ltd. And others v. Federation of Pakistan through Secretary Ministry of Finance and others (PLD 1991 SC 329), would be very beneficial, to answer the proposition. It may be noted that in this judgment, question for determination before Hon'ble Supreme Court was; whether levy of Iqra Surcharge on imported goods at the rate of i.e percent of the value of said goods, as determined under Section 25 of the said Act, can be recovered. The Hon'ble Mr. Justice Shafiur Rehman's, as then he was, on having been satisfied with the definition of 'Duties of Customs' opined that levy under examination satisfies in name and substance the strictist legal definition of 'Custom duty'. Similarly in instant case levy of service charges also satisfied the test of definition of Custom Duty', because it is being charged as pre- shipment expenditures incurred by the Government on the goods, benefit of which, is being derived by the petitioners and before obtaining import documents as well as letter of credit, competent authorities have endorsed that the import of goods shall be subject to pre-shipment inspection.
19. The petitioners have accepted the condition so imposed upon them, that's why, while entering into Agreement to sell with the sellers outside the Country, they got incorporated the clause of pre- shipment inspection. The law givers actually had provided a legal sanction to the amount, which is to be recovered from petitioners by levying of service charges, equivalent to two percent ad valorem on all such goods, specified in First Schedule to this Act, as are subject to pre-shipment inspection. There is nothing in impugned section, which negates any provision of the Constitution.
20. Had the Parliament been in session on 22nd October, 1996, when impugned section 18-B was inserted in Customs Act, it was also competent to enact the law of same nature and consequence thereof, impugned Notification has been issued with lawful authority. Thus the impugned section is intra vires the Constitution of Islamic Republic of Pakistan and notification being legally issued cannot be struck down.
21. As for as the question of territorial jurisdiction of this Court is concerned, we are not persuaded with the agreement put-forth by learned counsel for respondents, because essentially, the goods have been brought in the territory of Baluchistan Province at Gadani Beach and service charges are also being demanded from them in the Province, therefore, this Court has the jurisdiction to adjudicate upon the matter.
22. For the forgoing reasons, we see no force in the petitions, which are accordingly dismissed, with costs.