' NAZIM HUSSAIN SIDDIQUI, J.---This judgment will dispose of Civil Appeals Nos.253, 254, 255, 256, 479 of 1998 and 30, 31, 32, 33, 34 and 35 of 2000, as common questions of facts and law are involved in these matters.
2. Appeals Nos.253 to 256 and 479 of 1998 arise from the judgment, dated 25-11-1996, passed by Peshawar High Court in Writ Petition No.742 of 1995, while Appeals Nos.30 to 35 of 2000 have been preferred against the judgment, dated 19-10-1999 of Lahore High Court passed in Writ Petitions Nos.8039, 11264 of 1995, 2375, 2508, 3706 and 4033 of 1996.
3. The appellants are engaged in manufacture and production of Polypropylene bags at their industrial units, which are used as a medium of packaging within the country. These products are made through a manufacturing process, wherein polypropylene granules or chips, the basic imported raw material, are extruded in a continuous process resulting in polypropylene sheets, which are then cut into tapes or strips. These strips are woven to make polypropylene fabrics and then the same are used for making, polypropylene bags. It is alleged that abovementioned strips are neither vendible nor qualify as goods and are used only for manufacture of final goods.
4. In 1994, the entire Schedule to the Customs Act, 1969, was incorporated with certain modification in Central Excises and Salt Act, 1944 (hereinafter called "the Act") vide the Finance Act, 1994.
Notification bearing S.R.O. 546(1)/94, dated 9-6-1994 and S.R.0.710(1)/94, dated 13-7-1994 were issued by the Federal Government by virtue of which the excise duties on all items were to be charged in terms of said notification. In September, 1994, in an inquiry conducted by Director- General, Directorate General of Intelligence and Investigations Customs, Central Excise and Sales Tax, Islamabad, it was revealed that the appellants initially were liable to pay central excise duty on manufacturing of strips at the rate of 3% ad valorem and then Rs.2.50/kg in term of S.R.0.546(1)/94 as amended by S.R.O. 710(1)/94, and the same being covered under heading 54.04 of the First Schedule of the Act, they were not paying the same.
5. The appellants association made a representation under section 35(A) of the Act to Central Board of Revenue and inter alia, pleaded that strips as separate could not be treated as marketable product nor could be placed under heading 54.04 of First Schedule, that in the past strips had always been treated as "plastic product" falling under Chapter 39 of Schedule, and that it was discriminatory to treat strips of less than 5 mm differently than the one which were larger in width. Above representation was turned down with an observation that plastic strips of less than 5 mm were subject to central excise duty as a continuous filament yarn falling under old C.E.
Heading 08.03 and heading 54.04 under the present tariff. The issue of marketability was also refuted by the respondents on the ground that it was not relevant as the same was dutiable irrespective of its actual sale in the market or consumption within the same factory.
6. Various petitions were filed before Peshawar and Lahore High Courts to challenge the above findings, which were dismissed by the impugned judgments. Leading judgment was delivered by Peshawar High Court and the dictum laid down therein was followed by Lahore High Court.
7. Different pleas were raised before Peshawar High Court about maintainability of the petitions, including the one of challenging vires of Rule 96-ZZL of Central Excise Rules, 1944, which was inserted by Notification No.592(1)/95, dated 28-6-1995. It is as under:-- "Special procedure for collection of central excise duty on polypropylene strips (heading 5404.0000).---(1) A manufacturer may remove polypropylene strips within the factory, without immediate payment of duty, for consumption, within the same factory, in the manufacture of woven fabrics or for the manufacture of polypropylene bags subjected to duties of excise.
(2) Central excise duty involved on the polypropylene strips so removed, shall be assessed and paid on the net weight of such woven fabric plus five per cent. In case the manufacturer removes such woven fabric from the factory and does not consume the same within the same premises for manufacture of bags.
(3) If woven fabric is used within the same premises for manufacture of bags, the duty leviable on polypropylene strips shall be assessed and paid on the net weight of bags plus seven per cent. Of the weight thereof.
(4) The aforesaid duty on polypropylene strips shall be paid at the time of removal of woven fabrics or polypropylene bags out of the factory as the case may be, and necessary particulars about net weight thereof and assessable weight of the polypropylene strips shall be duly declared in the Form A.R.1. At the time of removal.
(5) If a manufacturer removes polypropylene strips for use or consumption outside his factory, he shall pay duty on such strips in the prescribed manner at the time of such removal.
(6) For accountal purposes, the duty on polypropylene strips, woven fabrics and bags shall be paid under the respective proper 'Head of Account', as determined by the Collector.
(7) Procedure prescribed in this rule shall be optional. Manufacturers electing to pay duty under this rule shall submit declaration of such option to the respective Assistant Collector and Superintendent so as to reach them not later than 29th June, 1995. A manufacturer who commences production after the said date may make the declaration within thirty days before the commencement of production.
(8) In this rule, 'plypropylene strips' means the strip classifiable under heading 5404.0000', 'woven fabrics' means the fabrics classifiable under heading "5407.2000" and "bags" means the bags classifiable under the heading "6305.3100".
(9) The provisions of the Central Excise Rules, 1944, in so far as they are not inconsistent with this rule, shall, mutatis mutandis, apply to the manufacturers opting to pay duty under this rule."
8. Relying upon the case reported as Sh. Fazal Ellahi v. Federation of Pakistan and 3 others (1988 M LD 524), it was observed by the High Court that there was no prohibition in excise law against levying duty in same material at more than one stage during the course of its manufacturing. The High Court has also observed that polypropylene strips are a kind of synthetic textile material, as such, fall under heading 54.04 and classification so made by the respondents is not open to exception.
9. Leave to appeal in above matters was granted to consider the following questions:- "After hearing the learned Advocate-on-Record for the petitioners and the learned Deputy Attorney-General, leave to appeal is granted to consider whether " under the Central Excises Act, 1944 (hereinafter referred to as the Act, sections 3, 3-C and 4 read with the Schedule thereof, excise duty prescribed on ad valorem basis under the Act could be charged and recovered as a consequence of S.R.O. 710(1)/94, dated 13-7-1994 and Rule 96-ZZL of the Central Excise Rules, 1944 on an intermediary product; whether' polypropylene, strips fall within the definition of goods and whether the excise duty could be recovered without holding an enquiry as to whether a product is a good or not."
10. Contention that above quoted rule is ultra vires to the provisions of sections 3, 3C and 4 of the Act, was repelled by the High Court with an observation that section 3 is the charging section and lays down that the excisable goods and services are liable to duties. By referring various provisions such as sections 2(19), 3-C, 4 and old C.E. No.08.03 B of Central Excise General Order of 1988, the High Court reached the conclusion that the strips specified in Firsi Schedule are excisable, valuable, vendible and a distinct entity besides being a structural unit for bags. Blastic mats could be woven from them. Also it was observed that subsection (10) of section 3 made it clear that excise duty could be charged on any class or classes of goods at the rates specified by a notification in official Gazette and determined on the basis of rate, quantity, number, volume and measurement.
Consequently it was held, and rightly so, that Rule 96-ZZL was neither outside the scope of the Act nor in conflict with it nor transgressed the limit circumscribed by it. Since the above finding of the High. Court is correct, therefore, excise duty could be charged and recovered as a consequence of S.R.O. 710(1)/94, dated 13-7-1994 and above-quoted rule on the strips; as laid down therein.
11. Next it is urged on behalf of the appellants that the strips are not excisable goods, as such, not liable to. Duty. It is noted that, according to section 3 of the Act, duty is levied on goods and since the expression "goods" has not been defined in the Act, it is to be presumed that it has been used in its ordinary dictionary meaning, i.e. An item which can be bought and sold in the market. It is pertinent to note that the Act provides definition of "excisable goods" and having regard to its definition and also the spirit of the charging section, the conclusion would be that expression "goods" in section 3 shall be interpreted and looked into with reference to "excisable goods".
According to section 3, duties specified in the First Schedule are to be levied and collected in such manner as may be prescribed on all excisable goods produced or manufactured in Pakistan and on such goods as Federal Government may, by notification in the official Gazette, specify. This section also lays down that such duties are also levied and collected on all such goods produced or manufactured in non-tariff areas and brought to the tariff areas. Such duties are also to be levied and collected on all excisable services provided or rendered in Pakistan. Being a charging section it creates charge on all the excisable goods.
12. It is not disputed that granules/chips by their own are goods within the meaning of "excisable goods" and so also the bags, which are manufactured through a process from said granules. The strips which are claimed to be an "intermediary product" being vendible and having a distinct entity fall within the scope of excisable goods.
13. Mr. Muhammad Akram Sheikh, learned counsel for the appellants, in support of contentions raised on their behalf cited:--
(1) Union of India and another v. Delhi Cloth and General Mills Co. Ltd. (AIR 1963 SC 791).
(2)Civil and Military Press Ltd. And 3 others v. Pakistan through Secretary, Finance and others (1985 CLC 1021).
(3)Trust Ceramic Industries, Landhi v. Deputy Collector II, Central Excise and Land Customs, Karachi and 4 others (1991 CLC 1923).
(4) Assistant Collector of Central Excise and Land Customs and 2 others v. Orient Straw Board and Paper Mills Ltd. (PLD 1991 SC 992).
14. In case of Union of India it was held that excise duty is on the manufacture of goods and not on the sale. The fact, therefore, that the substance produced by the manufacturer at an intermediary stage is not put in the market would not make any difference to the chargeability of the substance to excise duty, if it is covered by an item in Schedule 1 of the Act.
' The case of Civil and Military Press Ltd. Was also under the provisions of the Act. The petitioners of said reported case carried on business at Karachi as manufacturer of box cartons, which were made from corrugated board. These boards were very suitable for use as containers for fragile articles viz. Bottles, glass, crockery, etc. The word "manufacture" was interpreted in this case. It was observed that corrugated board made out of paper is neither paper nor paper board. Under the circumstances, it was held that levy of central excise duty in respect of corrugated board under item 37 of the First Schedule, was illegal and without lawful authority.
' In Trust Ceramic Industries, Landhi case, it was held that since no inquiry was conducted by the authority before charging goods of the petitioner to excise duty, the impugned order was declared illegal, without unlawful authority and the case was remanded to concerned authority to hold inquiry :after notice to the petitioner that whether goods in question were vendible ones.
' In case of Assistant Collector of Central Excise and Land Customs the scope of definition of "manufacture" was examined and held that when process was carried out only for pasting straw boards on each other or cutting them to the required size such process did not change the nature of the goods nor added completion to the manufactured goods which in quality and utility remained the same. It was also held that the process so carried out would not fall within the definition of "manufacture" being neither incidental nor ancillary for completing straw board. It was also held that in literal sense "manufacture" means production, preparation or making an article or product of corporeal or substantial nature manually or mechanically from material which after such production changes its shape, character or nomenclature or transforms into goods complete for use or sale in the existing form or otherwise.
15. Above-cited cases are not attracted to the circumstances of these appeals. On the contrary, the observations made therein materially support the pleas raised on behalf of the respondents.
For example, intermediary product by itself is no ground for not charging the excise duty if the item is covered by the Schedule, as is the factual position in these appeals. Word "manufacture' in case of Civil and Military Press Ltd. (supra) was interpreted to mean as to bring into existence a vendible product. As mentioned earlier, the strips are vendible and can be used for the purposes noted above. As regards the finding recorded in Trust Ceramic Industries, Landhi case, it is pointed out that it refers about holding of inquiry after notice. Suffice it to say that in these matters after show- cause notices were issued, inquiry was held relating to factual position. For applicability of the principle laid down in the case of Assistant Collector of Central Excise and Land Customs it was necessary to establish that the process did not change the nature of goods which in quality and utility remained the same. In these matters, as pointed out earlier, when strips were manufactured from granules, it changed shape, character and also the nomenclature and became excisable goods.
16. In consequence, these appeals are dismissed, with no order as to costs.