1. ' WAJIHUDDIN AHMED, J---We have heard these petitions together because common questions pertaining to the same production unit namely, the petitioner here, were involved. While the petitions still remain to be admitted for regular hearing, the controversy being short and the petitioner being under an embargo, the same, by consent, were heard in totality with such outcome as may arise.
2. ' In so far as the facts are concerned, Constitutional Petitions Nos.D-703 of 1996 and 704 of 1996 involve a purported contravention of Rules 13,185 and 240 of the Central Excise Rules, 1944. The contravention of the Rules is based on pleas from the department that goods were cleared from the petitioner mills on the pretext of being exported, exemption of excise duty was availed of but the goods, in the ultimate analysis, were not exported at all. The petitioner mills claim to have pleaded that they had sold such goods to third parties, who did not do the needful and that accounted for default on the petitioner's part. As things emerged, the Deputy Collector passed orders of recovery of excise duty, correspondingly imposing a penalty of ten times in each case.
3. Thus, in Constitutional Petition No,D-703 of 1996 the recoverable duty was Rs,3,89,460.90 and penalty amount was Rs,38,94,609 whereas in Constitutional Petition No,D-704 of 1996 the duty involved was Rs,27,89,458.56 and penalty imposed was Rs,2,78,94,585.60.
4. ' In the third Constitutional Petition, which is the last in the chronological order, as also in terms of time, viz., Constitutional Petition 845 of 1996 the question involved is somewhat different namely, clandestine removal of some of the inventorised products of the petitioner, the discrepancy having been discovered upon inspection and comparison with the records maintained. The relevant order operated to ensure recovery of excise duty on the missing stocks together with a penalty of five times, the actual figure being Rs,11,71,447.
5. ' In the face of the above Central Excise Orders-in-Original, passed by the Deputy Collector, the petitioner appealed but the appeals were dismissed by the Collector and Revisions taken, in turn, also failed.
6. ' During the course of hearing, we have noted with concern some of the aspects of this case. In the first place, it has been pointed out by the learned counsel for the petitioner, something which is not disputed by the department, that in spite of there having been insurance guarantees in relation to the clearance of goods by the petitioner, such guarantees were not resorted to by the department at any stage whatsoever. Secondly, huge penalties were imposed, which, at least in one case, resulted in the dismissal of the petitioner's appeal solely on the ground of not having deposited the relevant duty together with the penalty. Lastly, when the petitioner had failed up to the level of the Government, unqualified embargo was imposed on its taking out the manufactured goods, with the result that the petitioner claims to be out of production since December, 1993, something which, at the very least, can be construed to be a national loss.
7. ' The sole question in these petitions, which requires close recruting has a nexus with the Interpretation of Rules, 13, 185, 210 and 240 of the Central Excise Rules, 1944. These rules, with relevant portions marked, are reproduced hereinbelow:--- "13. Export under bond of goods on which duty has not been paid.--(1) Excisable goods, except those notified by the Central Board of Revenue under proviso to the sub-rule (1) of rule 12, may be exported without payment of duty from a licensed factory of warehouse in accordance with the procedure set out in the relevant provisions of Chapter IX of these Rules: ' Provided that the owner enters into a general bond in the proper Form with such surety, security, bank guarantee or insurance guarantee in a sum equal at least to _the amount of duty chargeable on all such goods under export at a time, and under such conditions as the Collector approves, for the removal of such goods for export from time to time and due arrival thereof at the place of export and their export therefrom within a period of three months from the date of application under rule 185 or rule 240 or such extended period as the Collector may, in any particular case, allow.
(2) The Collector may, on an application made to him in writing before the expiry of the period allowed for export under sub-rule (1), permit the goods to be consumed within Pakistan after the duty thereon has been duly paid at the rate which is in force on the date on which the duty is paid with the Collector's permission: ' Provided that if the rate of duty on such date is lower than the rate which was in force on the date on which the goods were removed from the licensed factory or warehouse under sub-rule (1), duty shall be payable at the higher rate which was in force on the earlier date.
(3) Except as provided in sub-rule (2), if the entire quantity of the goods is not exported in due time, or if at any time subsequent to their removal from the licensed factory or warehouse under sub- rule (1) the whole or part of the goods is consumed or otherwise disposed of within Pakistan, or if the Central Excise Seals on the Packages placed under rule 185 or the relative Central Excise documents are found to have been tampered with, duty due on-the entire quantity of the goods removed under sub-rule (1), subject to the proviso to sub-rule (2), shall be paid forthwith on demand, and the person to whom permission was granted under sub-rule 1 to remove the oods from the licensed facto or the warehouse shall be liable to a penalty which may extend to twenty thousand rupees or ten times the amount of the duty involved, and the whole or any part of the goods which is recovered shall be liable to confiscation.
(4) If a manufacturer renders himself liable to any action under sub-rule 3 the Collector ma disallow removal of holds from the licensed factory or the warehouse pending payment of the total amount of duty demanded: ' Provided that if the manufacturer has an account-current with the Collector and sufficient balance at his credit is available in the account-current, the amount of duty demanded may be recovered by the Collector by adjustment in that account-current.
(5) Action under sub-rules (3) and (4) may be taken without prejudice to any other action under other provisions of the Act or the rules.
(6) The manufacturer shall maintain an export register in the proper Form showing therein removal of excisable goods from the factory without payment of duty in bond for export.
185. Examination of goods prior to despatch.---(1) When goods other than salt are to be exported under claim for rebate of duty as provided in rule 12, or without claim of rebate as provided in proviso to the sub-rule (1) of rule 12, or under bond for their due export, as provided in rule 13, or as provided in any notification under subsection (4) of section 3 of the Act, the cases or packages in which such goods are packed shall be legibly marked in ink or oil colour (or in such other durable manner as the Collector may in any particular case allow), with a progressive number commencing with No,1 for each year and with the owner's name and special mark, if any, and shall be presented to the proper officer at least twenty-four hours before the intended removal of the goods, together with an application in the proper Form, in triplicate.
(2) A separate application shall be submitted in respect of each consignment.
(3) When both indigenous and foreign motor spirit or kerosene are simultaneously held in stock at the depot from which export is to be made, each class of motor spirit or kerosene shall be stored in a separate tank and the transfer to containers shall be done under the proper officer's supervision.
(4) After verifying the particulars entered in the application, and in the case of duty-paid goods, after satisfying himself that the goods are identifiable as the goods in respect of which the payment of duty cited in the application was made, the proper officer shall. Seal each package with the Central Excises Seal, where practicable, and, after endorsing all copies of the application, shall return the duplicate to the owner, who, after despatching the goods, shall enter the number and date of the railway receipt in the duplicate and shall communicate these particulars to the officer for entry in the other copies.
(5) Further procedure in respect of goods exported by parcel post.---After goods intended for export by post have been sealed, the exporter shall affix to the duplicate application sufficient postage stamps to cover a fee at the rate of six paisa per package and shall present the document, together with the package or packages to which it refers to the postmaster at the office of booking.
(6) Goods removed from a factory for export under the provisions of any notification under subsection (4) section 3 of the Act shall be exported within a period of three months from the date of such removal or within such longer period as the Collector may, if a written request is received by him within fifteen days of the expiry of the specified period of three months and he is satisfied that the special circumstances of the case so justify, directs: ' Provided that, where the goods are not exported within six months from the date of such removal, the manufacturer shall, without prejudice to any other action that may be taken under the Act or any notification under the said subsection and notwithstanding the fact that the Collector has extended, or has the power to extend, the said period of three months, be liable to a penalty not exceeding ten times the amount of duty leviable on such goods.
210. General Penalty.---A breach of these Rules shall, where no other penalty is provided herein, be punishable with a penalty which may extend to twenty thousand rupees or ten times the amount of duty involved, whichever is greater and with confiscation of the goods in respect of which the offence is committed.
240. Special provision for clearance without payment of duty under bond for export.---(1) The manufacturer may remove excisable goods from the factory, without payment of duty, in bond, for export after preparing a clearance application in the proper Form and after making the necessary entries in the prescribed register.
(2) The clearance application shall be prepared in triplicate, in type or ink, using double-faced carbon, The original and the triplicate shall be delivered by the manufacturer to the proper officer the same day or, at the latest, the day following the day of removal of goods, either by messenger or by registered post. The duplicate shall within the manner prescribed in rules 187, 188 and 189.
(3) If any exercisable goods are removed or loaded fqr removal for the purpose of export otherwise than in the manner prescribed in this rule or rule 185, the manufacturer shall be liable to a penalty which may extend to twenty thousand rupees or five times, the duty leviable on such goods.
8. Whichever is the greater, and the goods in respect of which the offence has been committed shall be liable to confiscation."
9. ' Contention of Mr. Munir A. Malik, for the petitioner, is that Rule 210 is not applicable at all because the specific rules invoked themselves envisage the relevant penalties. He may be right. Further, what rules apply and whether Rules 240, imposing a maximum penalty of five time does, are questions that would require a more explicit examination by the department in terms that follow.
10. What is involved in these petitions is a much larger question. Such relates to the quantum of penalties to be imposed under the Rules aforequoted. It is obvious that in each case of contravention the department, besides the recovery of excise duty defaulted in a given case, has to determine the extent of penalty to be imposed. That, plainly, is a discretionary power but because it is to be exercised at a quasi-judicial level, such is to be rational, just and reasonable.
11. This aspect has not been adverted to at the departmental level at all. The matter, therefore, requires re-examination. It will not be feasible at this level, to lay down any hard and fast rule as to how an adjudicating officer is to exercise his discretionary powers upon due examination in an individual case. We may, however, note that specific figures invariably appear side by side with the relevant times of penalties in the quoted Rules. Those figures carrying specific amounts, we dare say, are obsolete now. Manifestly, a sum of Rs,10,000 in 1944 when the Rules were framed and promulgated must have been quite a different quantity. Beside, the Rules contemplate the higher of the two penalties, occurring side by side. All these indicate the legislative intent. Even then, where discretion is left and a maximum penalty is envisaged, it must always be seen whether a given case qualifies for the maximum or less and if less how much less.
12. ' In the circumstances, where a serious action has been taken and, in effect, the petitioner mills stand closed down totally depriving, according to Mr. Malik, livelihood of some 400 workmen, such- like exercises of imposing of embargos, consequent upon levy and non-realisation of exemplary penalties is to be invoked with considerable care and caution. In point of fact, the operative mechanism of the above provisions itself indicates the criteria, which the department has to keep in mind, while exercising its jurisdiction in matters of this genus. What is more, when these powers are exercised, the relevant rules are to be strictly construed, favouring the tax payer rather that the Department, as is a settled principle of law.
13. ' At this stage, we may also, briefly, advert to section 35(1-A) of the Central Excises Act, 1944, where under the relevant appeals (then) lay to the Collector. The proviso, attached to the subsection, in cases of hardship, incorporated a discretionary power of relaxation in making deposit of the excise duty demanded or the penalty levied. Regrettably, while opinion as to hardship in such cases is to be formed by the appellate authority, mind was not brought to bear on that aspect and at least two such appeals namely, in Constitutional Petitions Nos.703 of 1996 and 845 of 1996 were dismissed, solely, on the ground of non-deposit. Here, it may bear mention that in so far as recovery of the excise arrears is concerned, the Department could all the time resort to the insurance guarantees but, somehow, it did not do so, a matter calling for due enquiry and, surely, such would be held in course of time.
14. In the circumstances, we set aside the impugned orders and remand these cases back to the Deputy Collector. We may note here, as urged now, that the excise duty in dispute in the petitions has since been paid by the petitioner.
15. ' All that remains on that score, therefore, is the penalty in each case but because we have set aside the relevant orders, the penalty momentarily disappears. Even so, we impose a condition on the petitioner within a month of the date of this order, to provide insurance guarantees to the satisfaction of the Nazir of this Court equivalent to the same amount as the claims of excise duty in these petitions, which may be appropriated by the department in case it is still thought fit to re- impose the penalty. This, at the same time, would not preclude the department from imposing higher or lower penalties, if permissible by law. Correspondingly and in the same terms the petitioner would also provide bank guarantees in relation to some arrears of capacity tax, about which Mr. Malik says that there were instalments but part of which, according to Mr. Abdul Sattar Silat, for the Department, still remains outstanding. The Bank guarantee last mentioned, figures for which would be provided by Mr. Abdul Sattar Silat to the Nazir of the Court within a week's time of the signing of this order, would be encashable, if and when the Deputy Collector, upon applications to be moved by the petitioner within a further two weeks time, either does not allow any instalments of such outstanding or there is a failure to pay any part thereof, if the Deputy Collector, in his discretion, in course of time, allows instalments relatively.
16. ' The foregoing order would apply mutatis mutandis to Constitutional Petition No,D-845 of 1996 as well but that case, being one involving alleged clandestine removal of goods would be promptly attended to by the department with due action according to law.
17. ' Subject to foregoing, these petitions are allowed.