ORDER: KHALIL MASOOD, MEMBER (TECHNICAL).--(1). The background to this case is that as a consequence of seizure of a vehicle made by the respondent on 22.10.1986 goods as well as 96 gate passes were recovered. Subsequent, investigation revealed that M/s. Diamond Industrial Enterprises had manufactured lead oxide during the period from May, 1985 to 22.10.1986 and cleared it without payment of Central Excise duty which the product considered to be a pigment attracted under 1st schedule to the Central Excise Act, 1944 (hereinafter referred to as the 'Act') @ 10% on retail sale price. Proceedings were thus initiated which culminated in issue of order-in- original No, 55 of 1987 dated 16.11.1987 by determining a liability of Rs. 17,70,067/- on account of Central Excise duty alongwith a redemption fine of Rs. 50,000/- on seized goods. Product in question was however not held to be liable to sales tax in view of C.B.R's order C.No, 1(61)CE/Budget/86 dated 7.4.1987. In appeal the impugned order was set aside and case remanded for de novo consideration vide order in appeal No, 1000/87 dated 30.12.1987 with the following observations:-- "11. The appellant has produced evidence to show that Lead Oxide produced in the jurisdiction of Lahore Collectorate is not classified as a pigment and is not being charged to Central Excise duty.
At the time of the institution of the case and the seizure of the subject goods, the case was made out for non-payment of sales tax and until the passing of the impugned order, the appellant was made to pay sales tax on the Lead Oxide produced by him. In the Central Excise records, the goods were treated as free from Central Excise duty.
12. From the above discussion the facts come to light as under:-- i. For sales tax and customs purposes, Lead Oxide is classifiable under heading No, 28.27 and Zinc Oxide under heading No, 28.19. ii. According to the Dictionary meaning; in the common trade parlance, and from the end use point of view, both Zinc Oxide and Lead Oxide are not categorized as pigments. iii. According to some encyclopedia and certain books on chemical industry, the term pigment has a wider connotation. In this broader sense and according to this interpretation Lead Oxide, Zinc Oxide and Titanium Dioxide are included in the scope of pigments. iv. Historically speaking; "Paints, Pigments, varnishes and polishes", were liable to Central Excise duty as well as Sales Tax until 1969; when both the levies were merged and a composite Central Excise duty was levied on the aforesaid items, on the basis of retail price. The products were simultaneously exempted from the levy of sales tax vide notification S.R.O. 127(1)/69 dated 28.6.1969. The same treatment of exemption from sales tax was continued in SRO 666(1)/81 dated 25.6.1981 and all items falling under headings 32.05, 32.06, 32.07, 32.08 and 32.09 were exempted from sales tax. In addition, iron oxide falling under heading 28.23 was also exempted from sales tax.
Thus, all items which the Board then considered to fall under item 04.03 of the Central Excise schedule were exempted from sales tax. It is important to note that lead oxide which falls under heading 28.27 was not exempted from sales tax as aforesaid. The possible interpretation being that the Board until June. 1981 did not consider Lead Oxide to be a pigment. Lead Oxide, therefore, even today is liable to sales tax. v. The issue of the classification of lead oxide as well as Zinc Oxide, for the purposes of Central Excise schedule, is still open before the Central Board of Revenue.
13. In view of the foregoing I order as follows:--
1. The impugned order in original No, 55 of 1987 dated 16.11.1987 is set aside and the case is remanded to the adjudication officer for de novo consideration.
2. The position as prevailing on 15.11.1987 a day before the passing of the impugned order in original is restored.
3. The seized goods are ordered to be restored to the appellant.
4. The ruling of the Central Board of Revenue regarding the classification of goods in question may be awaited and any action in the matter be taken and finalized after the ruling is received from the Central Board of Revenue.
5. The arguments and grounds agitated by the appellant at the original and the appellate stage. for the classification of his products be furnished to the Central Board of Revenue".
2. Subsequently, the C.B.R. vide C.No, 16(19)ST/88 dated 22.4.1988 held that the item not being specifically exempt was liable to tax. C.B.R. vide letter No, 1(61)CE/Budget/86 dated 27.10.1988 also ruled that being pigments lead oxide and zinc oxide fell under item No, 04.03 of the 1st schedule to the Central Excise Act. 1944 and therefore, attracted excise duty. Thus both the products were considered to be liable of excise duty as well as sales tax. In view of this ruling of the C.B.R. the appellants were called upon to pay leviable taxes by a letter dated 13.11.1988.
Against this, case was agitated in the High Court of Sindh vide C.P. No, 1334 of 1988. By a judgment dated 28th and 29th August, 1989, it was ordered that petitioners should have been given an opportunity of being heard before being asked to pay duty and tax after informing them about the ruling/decision of the C.B.R. particularly in view of the earlier remanding of the case by Collector Appeals for de novo consideration after obtaining ruling from C.B.R. Action taken was considered to be not only in complete violation of the decision in appeal but also violating the principle of natural justice. The Hon' able High Court disposed of the petition by declaring the letter dated 13.11.1988 calling upon the petitioner to pay sales tax and excise duty as without lawful authority and of no legal effect and remanded the case' for adjudication afresh. A letter was addressed to appellant vide C.No, 16/201-CE-Seiz/86 dated 28.12.1988 informing them about the contents of C.B.R's ruling and the fresh date of hearing. By another Petition No, 617-K of 1989, the appellant moved the Supreme Court of Pakistan for leave to appeal against the High Court's decision on the ground that High Court- had erred in obtaining to interpret the classification of zinc oxide and lead oxide as to whether these were chemicals or pigment specially when the Central Board of Revenue in the absence of any reasoning or the basis disclosed declared the above articles as pigments and also remanding the matter to Deputy Collector to lead evidence in rebuttal of a ruling given by the C.B.R. which being a superior authority proceedings in remand would be a mere formality. This perception was not shared by the learned judges of the Supreme Court and the petition was dismissed.
3. Consequently, proceedings were initiated afresh and vide ONO No, 6 of 1991 dated 31.7.1991, the case was decided against the appellant who once again went in appeal and ironically the case was again remanded by the learned Collector (Appeals) vide order-in-appeal No, 152 of 1991 dated 19.12.1991. Case was heard afresh and ONO No, 4 of 1993 dated 16.2.1993 maintained the liability as in the first order in original dated 16.11.1987. Case was again heard in appeal and vide order-in-appeal dated 20.5.1993 once again remanded with the observation that original order was not a speaking order on vital issues and observations of superior courts. Yet another Deputy Collector heard the case afresh and vide ONO No, 68 of 1994 dated 23.1.1994 maintained the order of his predecessor.
Collector Appeals who had earlier remanded this case once again heard the appeal and vide order in appeal No, 122/94 dated 19.6.1994 remanded the case that adjudicating officer should apply is mind and take an independent decision without being influenced by the ruling issued by the Central Board of Revenue. Four more years passed and then another Deputy Collector now called Additional Collector who vide order No, 708/98 dated 19.11.1998 passed a very comprehensive order spread over 96 pages by which maintained the liability for payment of excise duty but relying on C.P. No, D-928 of 1995 remitted penalty. An appeal before the Collector Appeals filed against this order was rejected as having no merit as according to learned Collector Appeals primary issue involved in the case was classification of goods to which all the adjudicating officers have given proper attention and have rightly held lead oxide to be pigment.
4. The present appeal before us is against this impugned order. We have at length heard both the parties who were apparently emotionally charged perhaps as a result of protracted litigation remaining in conclusive for over fourteen years. As is evident from the background of this case we have carefully considered the records of this case. On conclusion of hearing in which both sides vehemently contested and stood firmly behind their arguments given during past 14 years and having considered the records of this 'case, we have come to the conclusion that many questions/issues arise in this case each one of which needs to be examined threadbare so that clear, lucid and unambiguous answers become available to bring this long outstanding case to a conclusion.
5. The foremost question in this case, of course, is to determine whether the goods under dispute were chemicals or these had reached a stage of processing through a chemical process where these could be classified as pigments. At the very outset, like other officers, who dealt with this case all these years. we are also confronted with an extremely generic description under Item No, 04.03 of the 1st Schedule of the Act which reads as follows:-- "Paints, pigments, varnishes and poliches".
The very nature of this generic description creates an impression as if unfettered discretionary powers have become available to executive officers to call any product any thing for levy of excise duty in the absence of any prescribed parameter or well defined criterion. In order to overcome this limitation the first adjudicating officer out of the many options available primarily took the route of consulting many technical books to reach conclusions about the attributes of disputed goods. In the process definition of 'pigment' as appearing in Megraw Hil Concise Encyclopedia of Science and Technology, Chemical Process, Chambers 20th Century Dictionary, Nateruats-Their Properties and Uses, Remingtion and France and Chemical Industries by T.I Williams were considered and it was concluded that both zinc oxide and lead oxide were pigments.
6. Many more times when this case was heard and decided and the remanded for lack of application of mind or crucial facts not having been considered, the end result has always been the same. One adjudicating officer while taking a decision vide order No, 68 of 1994 went to the extent of concluding as follows:-- "1 am of the opinion that 'lead oxide' is by all means a pigment in character and usage thus classifiable under item 04.03."
Thus by all means all adjudicating officers and there have been as many as five officers at different times adjudicating the same case deciding it either on the basis of their opinions or with reference to technical literature but reaching the same conclusion that the products in dispute were nothing but pigments and thus attracting excise duty.
7. If the case was to be decided merely on the basis of definition of pigments as appearing in technical, dictionaries then sincere efforts should have been made to make more research to reach the truth in totality. Had that been done a more transparent picture would have emerged facilitating decision as chemical and technical characteristics were also available in the following technical books: Treatise on Coatings-Vol-3-Part-1 Myers and Long describes technical characteristics as follows:-- "Many lead pigments are fabricated from Lead Oxide. Commercially there are primarily two different types of lead oxides. The yellow orthrombic litharge used mainly in the manufacture of pigments and the red tetragonal type used for storage fulteries".
Organic Coating Technology Volume-II-Payne-Page 835 describes as follows:-- "In the regular process metatic lead is heated in a furnace until it is converted into Litharage (PGO).
The Litharage is then heated in another type of furnace to oxidise it to Red Lead".
Similarly, Outlines of Paint Technology Volume-I Morgan page 95 describes that:-- "Red Lead Pigment is manufactured by calcinating litharge in an oxidising atmosphere at about 350C".
Thus litharge by itself is not a pigment but a chemical that is used in the manufacture of pigments.
Red Lead in view of its highly toxicity is a dying pigment and is seldome used.
8. It appears to us that too much one sided emphasis in technical dictionaries has been placed while deciding this case. In fact, the product in question was derived through a chemical process and had certain chemical characteristics as well as usages which should have been the deciding factors as each such substance has a chemical formula which subject to test is verifiable. We proceed according to this criterion by describing chemical characteristics to draw a conclusive distinction to reach a logical conclusion as follows:-- Red Lead Litharge Lead Tetraoxide Chemical name Lead Monoxide pb or 2pbo, pb Orange Colour Yellow or red As pigment in paints and in particular anti- corrosive paints.Usage In manufacture of storage batteries Rubber and in manufacture of other pigments.
9. In view of our desire, the representative of respondent placed before us chemical reports of different laboratories from where samples of seized goods were tested and also copies of over 90 delivery orders recovered from seized vehicle depicting supplies to various buyers. We have carefully scrutinised these.
10. PCSIR Laboratory report signed by Director General dated 3.8.1991 without describing whether or not a test was undertaken states that 'lead oxide' is an oxide which is basically a chemical. It finds use both as chemical and a pigment. It has also been classified as a pigment in the colour indese as CI pigment yellow 46 bearing CI No, 77577.
11. HEJ Research Institute of Chemistry report dated 20.1.1991 confirmed zinc oxide and lead tetraoxide to be chemicals.
12. Customs House Chemical Laboratory report dated 23.3.1990 found samples on test to be lead oxide in the form of bright red colour fine powder. Another earlier report from Customs laboratory found it as Lead Oxide Red in the form of bright red colour fine powder classifiable under PCT heading 28.27.
13. We have also glanced through the delivery orders which except in one or two isolated cases depict sales to rubber industry or storage battery manufacturing industry in which manufacturers have been describing the product as litharge, red oxide or Red Lead in the same breath without realising that different descriptions could mean different things. However regardless of this one primary characteristic is evident in chemical test of samples in customs laboratory i,e, found to be bright red colour fine powder. This is the chemical characteristic of lead Monoxide (PbO) or in other words litharge. What is chemically red lead is in fact is lead tetraoxide (PbG) which is orange in colour.
14. In view of these chemical test findings as well as usages we have come to the conclusion that lead oxide in this case had not reached such stage of manufacture through a chemical process of classification at a temperature of over 350c based on which it could be categorised as pigment.
Hence it fell outside the preview of item No, 04.03 of the Central Excise and Salt Act 1st Schedule and thus was not liable to Central Excise duty sought to be imposed as a result of a ruling from C.B.R. In fact, Central Board of Revenue should have resisted the temptation of issuing a ruling at the point of time when it was issued and that too in a vaccum. Classification of goods and in particular that of chemicals, their derivatives or preparations can only be given on the basis of very clear determination of chemical attributes which is possible only through chemical test and not on the basis of authority or wisdom.
15. After having conclusively settled the foremost question in this case by holding that Lead oxide seized in this case had not reached a stage of manufacture as could categorise it as pigment in which state alone it could become liable to excise duty, we take up another crucial question in this case which was agitated all along in the proceedings and also before us after issue of ruling by CBR. This question is whether all those officers who dealt with this case were able to apply their minds in the face of ruling. While giving the ruling, C.B.R. observed as follows:-- "However, the adjudicating officer may very clearly be informed that he should not get prejudiced by the Board's classification. The above ruling is not, repeat not, binding on the adjudicating officer to whom Collector Appeals has remanded the case vide order-in-appeal cited above. The adjudicating officer should examine the issue independently as if no ruling has been apply his mind and decide the case purely on merits. He is at liberty to exercise his discretion and to defer with Board's ruling".
It was very laudible to create such semblance of fairness but as the subsequent treatment demonstrated it was more a fiction than reality. Apprehending that in the face of this ruling none of the officers adjudicating this case will have the will and the courage to decide this against ruling the appellant approached Sindh High Court as well as Supreme Court but both superior courts believed that despite ruling of CBR the adjudicating officers exercising judicial powers would be able to decide the case purely on merits. However, subsequent events demonstrated that all adjudicating officers like a chorus decided against the appellant as perhaps none had the courage to decide the case keeping in view its merits and incur the wrath of CBR. Even the consideration at appellate forum five times resulted in remanding of the case rather than conclusive decision on the grounds of lack of application of mind. Interstingly, one appellate officer dealt with the case twice and on both occasions remanded the case on same grounds without realizing that he himself was altogether not applying the mind but was expecting from officers much junior to him to do so. And finally when as a result of a legal change the officers at the appellate forums were restrained from remanding the cases to arrest the tendency of purposeless exercise of judicial function, the Collector (Appeals) against whose orders this appeal has been filed before us felt it prudent to reject this by refusing to apply his mind by expressing confidence that all adjudicating officers have given proper attention to the primary issue.
16. This state of affairs, which we have noticed in this case further confirms our view CBR should have resisted the temptation of giving ruling in this case despite the decision of Collector (Appeals) as no one would have known better then the Central Board of Revenue itself that no officer could afford to go against the dictates of CBR which the categorical ruling represented.
17. Another very cricial question raised in the course of hearing was about the levy of 200% excise duty in the absence of printing of retail sale price which if printed would have resulted in duty @ 10%. This question now is of purely academic interest and, therefore, to serve this interest we take it up lest it remains unanswered. There is a philosophy behind this concept of excise duty on retail sales price which was originally introduced by the legislature while passing the Finance Bill 1969-70 in an effort to arrest unbriddled price spiral to protect ordinary consumers. While presenting the budget, Finance Minister in his budget speech observed as follows:-- "Central Excise duties have so far been largely used as a device for producing revenue. Time has now come when their potential as an instrument of economic control should equally be exploited particularly with the object of holding the price line. To this end, a scheme has been devised to link excise duties with retail price of excisable goods. For the time being, the scheme is being applied to goods of every day use having a direct bearing on the cost of living.
The broad features of the scheme are: i. Printing of retail price, fixed by the manufacturer, on the article itself or its package. ii. Levy of excise duty as a part of the printed retail price. iii. Conversion of separate levies of excise duty, sales tax, defence surcharge and rehabilitation tax into one single consolidated excise duty. iv. Progressive incidence of duty in step with printed retail price, keeping the rate low for cheaper varieties. v. Prohibitive rate of duty for not printing retail price. The scheme is designed mainly to achieve the following objectives:
(a) To stablise prices by making unwarranted price hikes uneconomical for the manufacturer.
(b) To ensure that the consumer pays the price fixed by the manufacturer and no more.
(c) To eliminate under-declaration of value for assessment of taxes and stop evasion of revenue.
(d) To dispense with the discretion of excise staff in the matter of valuation and obviate a major cause of friction or collusion between the tax collector and the tax payer.
The articles of common demand which will be subject to the scheme are:--
(1) Tea.
(2) Electric bulbs and fluorescent tubes.
(3) Dry Cells and electric batteries.
(4) Soap.
(5) Vegetable product (Vanaspati).
(6) Cotton Fabrics.
(7) Art Silk Fabrics.
(8) Woolen Fabrics.
(9) Knitting Wool.
(10) Toilet Preparations and cosmetics.
(11) M.S. Product.
Thus will of the legislature which passed the Finance Bill was achieved by reflecting this concept in many commodities of daily use and 200% duty in the absence of retail prices was a punitive duty to ensure that the will of the legislature was not flouted in respect of goods of every day use having a direct bearing on the cost of living. Even if disputed goods would have been pigments, levy @ 200% would have been inconsistent with the spirit and philosophy of the introduced concept as unlike cement the pigments are not goods of daily use but industrial raw materials.
18. It is a pity this case has lasted for over fourteen years. In the absence of bloated ego and vanity, this case could have settled long ago without feelings of animosity and rancour which has been caused between the tax payers and tax collector. When there is a realization that both are making a very valuable contribution in promoting national interest the rancour and animosity is replaced by mutual respect.
19. We have comprehensively dealt with all the crucial questions involved in this case which has led us to conclude that the disputed products i,e, lead oxide and alongwith it zinc oxide which the appellant were producing were not liable to excise duty as being chemicals when this case was made against them. We, therefore, set aside the impugned order and allow the appeal.