SARDAR MUHAMMAD RAZA KHAN, J.--(1). The Central Board of Revenue, in order to regulate the valuation of imported goods, inspection and verification of their physical nature as to type, quality specification, quantity and classification thereof etc., enforced the Inspection, Valuation and Assessm ent of Imported Goods Rules, 1994, on 14th November, 1994 through Notification No. S.R.O.
1108(1)/94. In order to achieve the purpose of the aforesaid Rules, the Federal Government engaged to Companies from Switzerland for rendering inspection services for imported goods. Such Companies under the title of "Societe General De Surveillance" (SGS) and "Cotecna Inspection S.A"
(Contecna) were declared to be the Pre-Shipment Inspection Companies.
2. The Rules aforesaid enforced on 14th of November, 1994 continued creating no alarm when, on 22nd of October, 1996, a Tax Adjustments Ordinance (Ordinance LXXXIX) of 1996, was enforced whereby a new section 18-B was inserted into Customs Act, 1969. Through newly inserted section 18-B of the Customs Act, the Federal Government was empowered to levy a service charge equivalent to to per cent ad valorem on all such goods specified in the First Schedule to the Act as were subject to pre-shipment inspection. Simultaneous therewith the Federal Government issued a Notification No. S.R.O. 1198(I)/96 on 22nd of October, 1996 whereby service charge equivalent to to per cent ad valorem was levied 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.
3. M/s. Flying Kraft Paper Mills (Pvt) Limited and all the Companies mentioned in the title have challenged the imposition of the aforesaid to per cent ad valorem service charge of three-fold grounds to the effect; firstly, that the Notification as well as Ordinance LXXXIX were void, unlawful and without jurisdiction as it related to a service charge amounting to a fee and not to customs duty. Secondly, that the impugned Notification No. S.R.O. 1198(1)/96 had no effect on the letters of credit already opened by the Importers/Companies prior to the issuance of the Notification and; thirdly, that most of the Importers of plastic, metals, Fibres, Yarn, edible oils, chemicals and dyes, had already been excluded from the scope of the intervention of Cotecna and S.G.S. For the purposes of pre-shipment inspection. All the petitions involving common questions of law and fact shall be decided through this single judgment in Writ Petition No. 1248 of 1996.
4. On behalf of the writ petitioners we were addressed by Mr. Sardar Khan, Samiullah Jan, Mr. Abdul Latif Yousafzai, Mian Fasihul Mulk, Mr. Abdur Rauf Rohaila and Mr. Yahya Khan Afridi, Advocates while on behalf of Central Board of Revenue, Customs Department and Federal Government, we were addressed by Mr. Saifur Rehman Kivani. Mr. K.G. Saber and Mr. Mursaleen Khan, Standing Counsel respectively. Notice through Fax message was issued to the learned Attorney General for Pakistan on 12-6-1997 under Order 27-A of the C.P.0 the main order .Whereabout was passed in Writ Petition No. 1394 of 1996, "M/s. Gadoon Textile Mills Limited v. Superintendent Customs and others"
5. The first objection on behalf of the writ petitioners was, that with reference to sections 25 and 25- B of the Customs Act, the very job of valuation and inspection is the responsibility of the Customs Department which the Board (C.B.R.) is either empowered to exercise itself or may appoint such officers to perform the functions aimed at by the Act, specifically enumerated in sections 25, 25-B, 30, 32 and 79 etc. Of the Customs Act. They strongly took an exception to the engagement of S.G.S. And Cotecna for the purposes of valuation, inspection and verification etcetera of the imported goods. According to the duties of the Customs Officers were entrusted to the aforesaid foreign Companies at the cost of the petitioners. The same view, put the other way round, would be that the petitioners are charged for the job which was required to be done by the Customs Department itself.
6. From the side of respondents no satisfactory answer could be given as to why the petitioners are being charged for the job which was supposed to be done by the Customs Authorities or any officer better known to be "appropriate officer" under section 2 of the Customs Act. If for the purposes of valuation and inspection we refer to section 200 of the Customs Act, that also provides inspection by officers of customs and not any other Agency of foreign origin on the expense of the importers.
7. The contention of the respondents was that section 18-B was inserted in the Customs Act and further notifications flowing from 18-B of the Customs Act, were passed under the Customs Act and hence this to per cent. Charge ad valorem was a customs duty and, thus, was validly enforced. To this a reasonable reply was put forth by the petitioners saying that to per cent ad valorem charges are not at all a (sic) fall within the ambit of Customs Act. It was a charge for the duties rendered unauthorisedly for the customs officers and hence fulfilled all the ingredients of a service charge or a "fee" and so by no stretch of imagination could be labelled as customs duty. We agree to the contention of the petitioners and hold that the impugned charge is not a customs duty but a service charge or a "fee" which does not come under the meanings of Customs duty.
8. A judgment given by a Division Bench of Baluchistan High Court in C.P. No. 401 of 1996 announced on 8-5-1997, Pakistan Paper sack Corporation v. Federation of Pakistan was referred to us where expression "customs duties" was explained in the context of its dictionary meaning. In that judgment the reproduced definition of "customs duties" given in Ballentine Law Dictionary referred to all tariffs and charges levied in the shape of taxes. Nowhere it was provided that a fee or service charges were also included in the customs duties. Black's Law Dictionary, Halsburry's Law of England Vol-12 fourth edition Part 501 Page 65 and Corpus Juris Secundum Vol-25 Page 140 were referred in connection with the meanings of "Customs duties" In none of the aforesaid Dictionaries the service charges .Or fees are given to be included in the customs duties. It is simply defined as tariffs, taxes, tolls and pecuniary charges levied upon the imported or exported merchandise. Such definition/meanings of customs duties given in the judgment of Baluchistan High Court cannot be extended to service charges and fees. In the said judgment the imposition of to per cent ad valorem charges, similarly challenged, was declared to be valid with special reference to and under the authority of a judgment given by the Hon'ble Supreme Court in Sohail Jute Mills Ltd. v.
Federation of Pakistan (PLD 1991 SC 329 = PTCL 1991 CL. 388).
9. A perusal of the aforesaid judgment of the Hon'ble Supreme Court, relied upon by the respondents before us as well, would indicate that therein the imposition of "Iqra surcharge" was challenged and it was rightly held by the Hon'ble Supreme Court that a surcharge or additional surcharge is a mere increase in the customs duty already imposed and hence squarely fell within the definition of customs duty regardless of the name "Iqra" given to it that might not phonetically sound (sic).
10. To the contrary we were also referred to a single Bench judgment of the Lahore High Court given in Writ Petition No. 20061 of 96, Nishat Mills v. Federation of Pakistan PTCL 1998 CL. 396 where the impugned to per cent ad valorem service charge was challenged and contrary to the judgment of Baluchistan High Court, it was declared ultra vires the Constitution. The Judgment of the August Supreme Court in case of Sohail Jute Mills was distinguished on the same principles.
11. The hollowness of the introduction of Cotecna and S.G.S. As pre-Shipment Inspection Companies is glaringly apparent from Annexure (1) of Inspection, Valuation and Assessment of Imported Goods Rules, 1994 whereby the intervention of the aforesaid Inspection Companies was excluded altogether in cases of import of wheat, fertilizers, petroleum Crude Oil and other P.O.L. Products, precious stones, precious metals, objects of Art etc; despite the fact that the aforesaid items/goods equally required valuation, verification of their physical nature as to type and quality as well as quantity specification. This is unreasonable as well as discriminatory among the Importers. Further discrimination is apparent from a Letter No. 16(9)/94 (IMP-D, dated 30-11-1994 (copy ,produced before us) whereby the Central (sic) goods from the scope of the intervention of Cotecna and (S.G.S) for the purposes of pre-shipment inspection. The goods were;
(a) Duty free imports or imports attracting duty at the rate of 10% or less.
(b) Imports made by public sector Organization/ Government of Pakistan.
(c) Imports Prices of which are internationally published i.e. Plastic, Metal, Fibre, Yarn, Edible oils and Chemicals/dyes etc. And
(d) Imports from country where Cotecna and S.G.S. Companies are not licensed to do the work.
12. The aforesaid exemption would speak of much more than the element of discrimination involved. With reference to (a) above duty free imports or the imports attracting customs duty at the rate of 10% or less is exempted as if such goods do not involve any factum of quality or quantity.
With reference to (b) also it is not conceivable as to how the quality, the quantity and the uniformity of prices is sacrificed in cases of imports made by public sector. The exemption given in
(c) above is also funny on the same principle, over and above the fact that the imports, the prices of which are internationally published, do not require to be subjected to pre-shipment inspection; meaning thereby, that the job of pre-shipment Inspection Companies becomes redundant when we have any document by the name or in the shape of Import Trade Prices (I.T.P). The fact is that we do have a journal in the shape of (I.T.P.) where the international prices of all the imported goods are shown. Prior to the much doubted introduction of Cotecna and S.G.S, the aforesaid I.T.P. Was effectively relied upon. We have been told at the Bar that now with effect from 11th of March, 1997 the Central Board of Revenue has issued Notification communicating the reintroduction of import trade prices system and the pre-shipment inspection programme has been done away with. The (I.T.P.) system is introduced with effect from the of first of April, 1997. The uselessness of the system speaks of itself.
13. Clause (d) of letter No. 16(9) of 1994 reproduced above is another joke which shows that pre- shipment inspection and to per cent ad valorem charges therefor had been introduced for the benefit of Cotecna and S. G. S, and not at all for the benefit of the Importers. Had it been so, the imports from the countries where Cotecna and S.G.S were not licensed to work, would not have been excluded from what we call the mischief of the rule whereby to per cent ad valorem was charged from the Importers. The Central Board of Revenue/Federal Government seemed to be least interested in the imports, the quality or the quantity thereof from the countries where Cotecna and S.G.S were not licensed to work. It seemed that they were more interested in the interest of Contecna and S.G.S. Rather than the quality or quantity specification of goods or rather than the inte4-est of importers. This also shows that the Government was more interested in making payments to the aforesaid Companies in the shape of fees and service charges rather than the imposition of customs duties which, the present imposition was not, by any stretch of interpretation.
14. Learned counsel for the petitioners produced before us another copy of Letter No. 2 (26) S (VAL:)/96, dated Islamabad the 16th of December, 1996, addressed to the President, Pakistan Chamber of Commerce indicating that the contract with Cotecna and S.G.S. Was to terminate on 11-3-1997. It also provided that to per-cent service charge will cease to be charged after when the contract with Cotecna and S.G.S. Is terminated. This letter also revealed that the aforesaid charge was a fee payable to the above Companies. It further revealed that after the discontinuation of P.S.I. Scheme the legal frame work embodied in sections 25, 25-13-- and 30 of the Customs Act will come into operation as was the case prior to the introduction of the scheme. It referred to Import Trade Price System which was in vogue prior to the introduction of Cotecna and S.G.S and stood revived after the termination of contract. Quite interesting it is to note that whole legal frame work with reference to sections 25, 25-B and 30 of the Customs Act was rendered infructuous simply to make payments to the to Companies is question when the same job was in fact the job of the Customs Department and could very well be performed in the manner as was in practice prior to the blessings showered on Cotecna and S.G.S.
15. This we believe and hold purely to be a fee or service charge and not a customs duty at all nor was it so described in Tax Adjustments Ordinance, 1996 or in the impugned Notification issued in pursuance of the said Ordinance. The levy is not a tax, both, in name as well as in substance. We cannot interpret it even as an additional duty or additional discussed by the Hon'ble Supreme Court (sic).
16. Customs Duty is a tax levied under section 18 of the Customs Act, the rates whereof are detailed in first and second schedules thereof. Both the schedules do not provide the levy of service charge on any conceivable import and hence, the impugned levy offends the provisions of section 18 of the Customs Acta The respondents cannot derive the benefit of the phrase "or any other law for the the being in force" appearing in section 18 of the Customs Act because "any other law" is mentioned for laws other than the Customs Act while Tax Adjustments Ordinance, 1996 is not strictly any other law, for, it in fact introduces a new section 18-B which for all intents and purposes has now become a part of the Customs Act and not of any other law. So far as the Customs Act is concerned, the charging section is section 18 of the Act.
17. Learned counsel for the Federal Government came out with another argument that the recovered amount of to per cent ad valorem charge is credited to the General Consolidated Funds and not transmitted to Cotecna and S.G.S. Directly and hence by going into such consolidated funds, it becomes a customs duty and not a fee or service charge. Similar point was raised before Lahore High Court in Writ Petition No. 20061 of 1996 mentioned in the earlier part of this judgment and was rebutted on the authority of Srinivasa General Traders v. State of Andhra Pradesh (AIR 1983 SC. 1246), State of Rajasthan v. Sajjan Lal Pan jawat (AIR 1975 SC 706) and Government of Andhra Pradesh v. Machine Tools Ltd. (AIR 1975 SC 2037); holding that the mere fact that the amount is credited to General Consolidated Funds is not a conclusive proof and the determining factor of the nature of charge.
18. We have already discussed and determined that the whole rule making power is exercised for the benefit of Cotecna and S.G.S. And the moment the contract terminates, the charge would cease to be recoverable. This has no nexus with the benefit of the importers. It is a paramount principle of the imposition of taxes that the levy must have some connection with the benefit rendered to the citizen taxed. In the instant case such connection is altogether missing.
19. Coming to the case law cited on either side, we would first refer to the case of Sohail Jute Mills (PLD 1991 SC 329 = PTCL 1991 CL. 388) relied upon by both the parties, and rightly so by the petitioners as well, because as already distinguished, it protects the levy of surcharge and additional surcharge under whatever name it may be and not the service charges or the fees paid to the foreign Companies whose engagement was not at all necessary and whose engagement was discriminatory as well as unreasonable. Government of Pakistan v. Muhammad Ashraf (PLD 1993 SC 176) is also distinguishable because in that case to the imposition of duty was involved.
The real point of controversy was also different in the sense that exemption from regulatory duty on the doctrine of promissory estoppel was held not attracted.
20. M/s. Sheikh Abdur Rahim, Allah Ditta v. Federation of Pakistan (PLD 1985 SC 677 = PTCL 1999 CL. 493) was relied upon by Mr. Saifur Rehman Kiyani learned counsel for the respondents in support of the fact that it is the substance and not the nomenclature of the duty which should be considered by the Court while appreciating a taxing law. In that case as well the charge was of regulatory duty, almost identical to iqra surcharge' which was rightly considered to be a customs duty and within ambit of Item No. 43 of fourth schedule. Sally Textile Mills Limited. v. (sic) by Mr. Mursaleen Khan, Advocate on behalf of Federal Government is not relevant to the facts of the present case because in that case as well the duties of 'Iqra' and additional surcharge were considered with reference to the factum of exemption. Similarly (1992 SCM R 602) also was not very relevant to the point involved in the present case.
21. Consequent upon what has been discussed above, we, while accepting all the writ petitions, hold and declare that the levy of service charge at the rate of to per cent ad valorem flowing from Notification No. S.R.O. 1198(1)/96, dated 22-10-1996 and the aforesaid Notification are void, unlawful and without jurisdiction being ultra vires the Constitution. The amount so recovered from the petitioners during the pendency of their respective writ petitions, if any, is directed to be adjusted against customs duties to be paid in future.