MUHAMMAD ASLAM, TECHNICAL MEMBER.-(1). This appeal has been filed by M/s. Kohinoor Raiwind Mills Ltd. Lahore against Order - in-Original NO. 4/99, dated 11.01.1999 passed by the Collector of Customs (Appraisement), Karachi.
2. Background of the case is as under:--
(a) That to create a liberal environment for saving and investment in the country, the Federal Government introduced a number of economic reforms in the year 1990. In this context, a scheme of fiscal incentives for setting up industries in Rural Areas was introduced through Notification SRO 1284(I)/90, dated 13.12.1990 under which the Federal Government granted exemption from whole of the customs duty, surcharge and sales tax leviable and chargeable thereon to such plant and machinery' as was not between 1.12.1990 to 30.06.95, for setting upon units or for expansion, or balancing, modernization and replacement of existing units in certain areas which, inter alfa, included the areas beyond 30 kilometers from the Municipal or Cantonment Board Limits of Lahore.
(b) That in order to provide legal protection to the aforementioned reforms in order to create confidence in the establishment and continuity of the liberal economic environment created thereby, Protection of Economic Reforms Ordinance, 19N was promulgated on 09.12.91. The same provisions were incorporated in Protection of Economic Reforms Act, 1992. Section 6 of the Protection of Economic Reforms . Act, 1992 provides protection of fiscal incentives for setting up industries in the rural areas:- "Section 6:- "Protection of fiscal incentives for setting up of industries:-- The fiscal incentives for investment provided by the Government through the statutory orders listed in the Schedule or otherwise notified shall continue in force for the term specified therein and shall not be altered to the disadvantage of the investors".
The Schedule under section 6 of the Act gives statutory protection to the following notifications:-- "
1. Notification No. SRO 1283(1)/90, dated 13.12.90, issued under sub-section (2) of section 14 of the Income Tax Ordinance, 1979.
2. Notification No. SRO 1284(1)/90, dated 13.12.1990 issued under section 19 of the Customs Act, 1969."
(c) That the Ministry of Industries, Government of Pakistan vide its Circular C. No. 6(100)/90-Policy, dated 2.06.1992 decided that for the purposes of determining "rural areas" under the 'Rural Industrial Development Incentives Scheme' as envisaged in SRO 1284(1)/90, dated 13.12.1990, the distance would be measured by Collaring road mileage from the nearest octroi post. The CBR circulated the aforesaid decision of Ministry of Industries vide its letter C. No. 1(35)Mach./90, dated 27.1.92.
(d) That keeping in view these incentives, the appellants incorporated a limited company with the "Joint Registrar of Companies" vide Registration No. L 03916, dated 01.09.91. An agreement to purchase a piece of land measuring 80 kanals .And 10 marlas was executed on 26.07.92 and the same was registered vide document No. 840, dated 19.08.1992 for setting up a weaving unit located at Manga Raiwind Road in Mouza Rousa, Distt. Kasur at a distance of 34.1 K.M. Vide Thokar Niaz Beg, Pajian, Chowk Humaziz.
(e) That the notification SRO ,1284(1)/90, dated 13.12.1990 was superseded vide SRO 50(1)/92, dated 28.01.92 which was again superseded vide SRO 484(1)/92, dated 13.05.1992. SRO 484(1)/92 also covered the exemptions from customs duties and sales tax on import of machinery for units in areas excluding the Municipal or Cantonment Board Limits of Lahore and 30 K.M. Around these limits under the same conditions as were envisaged in SRO 1284(1)/90, dated 13.12.90.
(f) That after construction of building an completion of other civil work, the appellants vide their letter dated 11.5.93 requested the Deputy Director, Ministry of Industries, Government of the Punjab, Lahore to issue a 'location certificate' certifying that the proposed unit was located in the rural area as envisaged in "Rural Industrial Development Incentives Scheme". The Deputy Director of Industries, Lahore vide his letter dated 19.05.1993 confirmed that the proposed unit is located at a distance of 34.1 K.M. Vide Thokar Niaz Beg, Pajian, Chowk Humaziz which is less than 30 K.M. When measured in a straight line on horizontal plane. Since you have purchased the piece of land measuring 80 kanals and 10 marlas before the issuance of SRO 897(1)/92, dated 15.09.92, your proposed location is treated as rural area in terms of the definition prescribed by the Ministry of Industries circular dated 02.05.1992.
(g) That SRO 897(1)/92, dated 15.09.92 substituted clause 118-D in Part-I of the Second Schedule to the Income Tax Ordinance which provided tax holiday to industrial undertakings set up in rural areas between 1.12.1990 and 30.06.1995. CBR also notified the method of measurement of distances for the purpose of granting tax holiday to industrial undertakings in the rural areas in its Circular No. 28/92 issued vide C. No. 1(26) TP-II/90, dated 15.09.1992 and it was the same as was envisaged in SRO 897(1)/92.
"Measurement of distance:--The distance between an industrial undertaking and the existing outer boundary of the municipal or cantonment limit will be measured in a straight line on horizontal plane in accordance with section 11 of the General Clauses Act, 1897. The prescribed distance from the outer boundary of the municipal corporation will be defined and determined by the concerned officer of the District Administration where so required. One the exemption will however be available to those assessees who had already acted upon Ministry of Industries Circular No. 6(100)/90, dated 02.06.1991 in good faith and purchased industrial plots or started construction of buildings for the industrial undertakings on the basis of measurement of distance by covering road mile-age from the nearest octroi post."
(h) That keeping in view these clarifications and relying upon the promises of the Federal Government, the appellants entered into a contract with M/s. Toren Corporation, Hong Kong for the import of 24 sets of Air Jet looms and opened L.C. 03012 and 03013 both dated 08.06.1994. The consignments were cleared from Custom House, Karachi as detailed below:--
1. Bill of Entry No. 493, dated 25.10.1993.
2. Bill of Entry No. 546, dated 26.10.1993.
3. Bill of Entry No. F-27, dated 2.11.1994.
(i) That appellants submitted all the requisite documents alongwith the above mentioned bills of entry including the letter from Deputy Director, Ministry of Industries dated 19.05.1993. The appraising staff at Karachi Custom House extended the benefit of exemption from customs duty and sales tax under SRO 484(1)/92. The machinery was cleared and installed at the proposed location and the installation certification No. 128, dated 04.02.1996 was duly issued by the Assistant Collector, Central Excise; Chunian Division, Lahore confirming that the machinery imported by M/s. Kohinoor Raiwind Mills under the provisions of SRO 484(1)/92 had been correctly installed in the premises of said unit.
3. Subsequently, on the basis of an information, Directorate General of Intelligence & Investigation (Customs and Excise) Lahore reported to the Collector of Customs, Appraisement, Karachi that according to the map of Lahore Division published by the Survey of Pakistan, when measured on horizontal plane, the distance of the unit of M/s. Kohinoor Raiwind Mills Ltd. Was less than 30 K.M.
From the outer limit of Lahore Metropolitan Corporation, hence they were not entitled to the benefit under clause (a) of SRO 484(1)/92.
4. Since the documents delivered, declaration and statement made were found to be false in material particulars, the appellants were charged with mis-declaration and were called upon to show cause on 24.11.1997 as to why an action under the relevant provisions of law should not be taken against them and the evaded amount of Rs. 61,87,193/- on account of customs duty and sales tax be not recovered.
5. The appellants strongly contested the allegations vide written reply to the show cause notice and submitted before the learned Collector that as they had fulfilled all requirements of law and correctly availed the benefit of exemption under the relevant SRO there was hardly any justification to re-open the issue at a belated stage with the purpose of saddling them with the huge liabilities of duty and taxes in an illegal manner.
6. As they did not attend hearing on 22.12.1997, 22.08.1997, 31.10.98 and 26.12.1998, the learned Collector took ex-parte decision and held that as their consignments were imported after 29.08.1994, i.e. 24.10.1994 and 31.10.1994 respectively, the benefit of SRO 484(1)/92, dated 14.05.1992 was subject to determination of rural area by measuring distance by the method of crow flight in a straight line on horizontal plane in view of Board's latest clarification dated 11.2.95. As the Deputy Director of Industries, Lahore Division had clearly stated vide his letter No. DD2/I&M/KJ62/93/1029, dated 19.05.1993 that the unit of M/s. Kohinoor Raiwind Mills Ltd. Raiwind Manga Road, Mouza Rausa, District Kasur was less than 30 K.M. From the outer limit of Municipal Corporation, when measured in the straight line of a horizontal plane, the appellants were not entitled to the benefit of SRO 484(1)/92, dated 14.5.1992. The learned Collector further held that as the appellants had knowingly made un-true statement in respect of a rural area to deprive the national exchequer of its legitimate share of revenue, the offence attracting the provisions of section 32 of the Customs Act, 1969 stood established. He therefore, directed them to make good the payment of Rs. 61,787,193/- alongwith the liabilities of additional tax and income tax and also imposed on them a penalty of Rs.
Five lacs in clause 10(A) and 14 of section 156(i) of the Customs Act, 1969.
7. The appellants feel strongly agitated and have submitted that gross in-justice has been done to them by way of the aforesaid illegal orders which are not maintainable on the following grounds which have been amplified in the written Memo of Appeal:-- I. The show cause notice was not only the barred but also without jurisdiction. The facts of the case did not attract section 32(I) of the Customs Act, 1969. The allegations contained in the impugned show cause notice were not based on facts as the appellants neither made any false statement or declaration nor had delivered any false document to Customs, hence they cannot be held guilty of an offence under section 32(I) ibid. It has been held by Lahore High Court, Lahore in Re: Ibrahim Textile Mills Vs. Federation of Pakistan etc. Reported at (PTCL 1990 CL. 118).
In the absence of proper allegation in the notice showing that statement, or declaration made or documents filed were false in some material respect, to the knowledge or belief of the declaration, notices would be vague and not complying with the requirements of section 32(2). Under sub- section (1) of section 32, it is necessary to show that the person who made or filed any declaration or document was cognizant of or had knowledge or comprehension of the fact that whatever statement or declaration he had made or the document he had filed, was incorrect or untrue in some material particular. Conditions precedent for exercising of the powers under sub-section (2) of section 32 must be fulfilled:--
(a) Whether the person had made or caused to be made or delivered or caused to be delivered any declarations or statements knowing or having reason to believe that such documents or statements were false in any material particulars; or
(b) whether the person by reason of some collusion had connived at any duty or charge being short levied.
Orders based on no evidence or on erroneous construction are no orders in the eye of law and are liable to be set aside.
The Federal Government preferred an appeal against the aforesaid judgment of the Lahore High Court, Lahore. The Supreme Court of Pakistan in judgment (PTCL 1993 CL. 532) declined to interfere were the judgment of the High Court is well based on facts, reasons and also supported by precedents and dismissed the appeal. It was held that the cardinal principles of law is to be considered for the recovery of short levied duties which are as under:-- Firstly, that all are equal before law whether citizen or State.
Secondly, if a law prescribes period of the for recovery of money, after its lapse recovery is not enforceable through Courts.
Thirdly, that while construing a financial statute, its terms are strictly to be followed.
It was further held by the Supreme Court that for short-levied duties on account of "inadvertence, error or misconstruction", section 32(3) of the Customs Act, 1969 provides that recovery notice shall be served within six months. If that is not done, like a suit for recovery of money after lapse of the prescribed by law of limitation, the recovery becomes unenforceable.
It has been further held by the High Court in case M/s. Yaqoob Timber Market Vs. Collector of Customs (PTCL 1984 CL. 220) that "the barred amount of duty cannot be recovered".
II. The appellants decided to set up a new unit keeping in view the incentives given under SRO 1284(1)/90, dated 13.12.1990 read with Ministry of Industries Circular dated 02.06.1991 wherein it was decided that for the purpose of determining "rural areas" under the scheme of "Rural Industrial Development Incentives", the distance would be measured by covering ' road mileage' from the nearest octroi post. The company was incorporated, the land was purchased and after construction of building, the appellants got the location certificate from Deputy Director of Industries, Lahore wherein it was confirmed that the proposed industrial undertaking is at a distance of 34.1 K.M. (measured by road) from the nearest octroi post at Multan Road, Lahore and since the land had been purchased before the issuance of SRO 897(1)/92, dated 15.09.1992, the unit still fell within the rural area in terms of definition given in Circular dated 02.05.1991. As such the appellants had accrued a vested right in their favour, therefore, on the principle of 'promissory estoppel', legitimate expectancy and locus poenitentiae, the Federal Government or CBR was not entitled to withdraw the exemption till the expiry of period for which the exemption was granted.
III. CBR vide notification SRO 897(1)/92, dated 15.09.1992 provided tax holiday to industrial takings set up in rural areas by measuring the distance in a straight line on horizontal plane. It was also provided that the prescribed distance from the outer boundary of the Municipal Corporation would be defined and determined by the concerned officer of the District Administration where so required. However, one the exemption was granted to those who had already acted upon circular dated 02.06.1991 in good faith and purchased industrial plots or started construction of building on the basis of measurement of distance by covering road mileage. The said exemption was allowed in the light of decision of Economic Coordination Committee of the Cabinet dated 27.01.1992.
However, CBR did not include the provisions of one the exemption in its letter dated 29.08.94.
Further in its letter of even number dated 11.02.1995, CBR held that where part consignments were released under clarification dated 27.01.92, the balance if imported after 29.08.94 should also be extended the benefit under the earlier clarification i. e . 27.01.92. The denial of exemption on machinery imported on the promise made by the Federal Government is discriminatory being violative of Article 25 of the Constitution, which guarantees enquiry before law of all citizens and their entitlement to equal protection of law. Further it was the District Administration and not the Directorate of Customs Intelligence who was a competent authority to define the distance between the appellant's undertaking and the outer boundary of Municipal Corporation as it was in 1992.
IV. SRO 1284(1)/90, dated 13.12.1990 is a protected notification under section 6 of the Protection of Economic Reforms Act, 1992. Section 3 of the Act provides:-- "Act to over ride other laws. --The provisions of this Act shall have effect notwithstanding anything contained in the Foreign Exchange Regulation Act, 1947, the Customs Act, 1969, the Income Tax Ordinance, 1979, or any other law for the the being in force".
It is evident that the provisions of section 6 of the Act XII of 1992 continue to hold the field having not been altered, repealed or amended and all the protections and immunities conferred in terms thereof continue to remain unaffected. A bare perusal of the section 6 of the Act (XII of 1992) shows that fiscal incentives for investment provided by the Government to the statutory orders listed in the Schedule to section 6 of the Act or otherwise notified shall continue in force for the terms specified therein shall not be altered to the disadvantage of the investors. As SRO 1284(1)/90, dated 13-12-1990 is mentioned at Sr. No. 2 of the Schedule, there was statutory commitment to the beneficiaries of the said notification. The effect of the said notification was that on the satisfaction of certain conditions laid down therein exemption from whole of customs duty was to be enjoyed by a certain category of approved areas mentioned therein. The executive authority of Federation, in exercise of its delegated powers under section 19 of the Customs Act, 1969 could not withdraw the exemption to the disadvantage of the beneficiaries. The appellants were entitled to the exemption of whole of the customs duty under SRO 1284(I)/90 read with Ministry of Industries Circular dated 02.06.91 and CBR letter dated 27.01.92 as the provisions of section 6 of the Act XII of 1992 have not been repealed or modified by a legislative provisions and without amending the same, the second notification i.e. SRO 484(I)/92 has not achieved the object of defeating the consequences of exemption granted under the first notification I e. SRO 1284(1)/90.
It is a well settled principle of interpretation of statutes that vested right cannot be taken away save by express words and necessary amendment. No doubt that the legislature is also competent to amend, vary or repeal the same but the right conferred through statute can only be taken away by legislative enactment and not by an executive authority through notification in exercise of the rule making power or the power to amend, vary or Kohinoor Raiwind Mills Ltd Vs. Collector of Customs CL. 103 {Mr. Muhammad Aslam, Technical Member} rescind an earlier order/notification in the purported exercise of powers conferred under section 21 of the General Clauses Act. Supreme Court of Pakistan in its judgment on Civil Appeal 223/94 filed by Gatron Industries Ltd. Vs. Government of Pakistan PTCL 1999 CL. 359 has held that:- "Protection of Economic and Reforms Ordinance read with Protection of Economic Reforms Act, 1992 read with Foreign Exchange (Temporary Restriction) Ordinance VII of 1998 (Act IV of 1998), SRO 1284(1)/90 is protected and nothing could be done in regard thereto, through executive at to the disadvantage of the appellant".
V. Supreme Court referring its earlier judgment in case M/s. Elahi Cotton Mills Vs. Federation of Pakistan (PLD 1997 SC 582 = PTCL 1997 CL. 260) has observed in the case of M/s. Gatron Industries Vs. Government of Pakistan that provisions of Act XII of 1992 are subsequent in the and as they are contained in a special statute, they shall prevail over earlier statutes. Supreme Court declared that the machinery is exempt from payment of impugned taxes under SRO 1284(1)/90 though bills of entry were filed under claim of exemption vide SRO 484(1)/92.
8. For disposal of this appeal, the following to issues warrant determination:--
(a) Whether the measurement should be made by 'Road' or through "Crow Flight" on horizontal plane?
(b) If it is established that the unit of the appellants is not located strictly within the parameters of 30 K.M. Laid therefor, it is to be thrashed out as to whether the instant case is hit by the provisions of law contained in section 32(3) or section 32(2) of the Customs Act, 1969?
9. At the the of hearing on 24-4-99, learned counsel for the appellants Mr. Irfan Qadir, Advocate re- iterated the written version primarily emphasising that as the appellants had been accorded exemption from duty and taxes through notifications, the same could not be taken back on the basis of any clarification issued by the CBR and that even otherwise the show cause notice was miserably barred by limitation as it was issued after a lapse of three years.
10. The Learned Departmental Representative reiterated the position which is already contained in the order passed by the learned Collector and the connected record of the case.
11. We have considered the arguments of both the parties, examined the record and find that the machinery imported by the appellants on 29-8-94, 24-10-94 and 31-10-94 is not entitled to the benefit of the exempting SRO as the unit for which it was imported is admittedly less than 30 K.M.
From the outer limits of the Municipal Corporation. It is settled principle of law that in case of exemptions or concessions, the law should be strictly interpreted and not otherwise. The purpose of incorporating the condition of 30 K.M. From the urban areas was to save the environment of urban areas and so this condition was to be strictly adhered to. In so far as the violation of section 32(2) of the Customs Act, 1969 is concerned, it is established on record that the appellants were fully aware of this drawback in the matter and had deliberately declared and opted for exemption. That being so, the charge of mis-declaration is, therefore, fully proved and established against them. As the point of limitation was never raised by them at the lower Forum and the Show Cause Notice dated 24-11-97 was within three years of the release of machinery and installation certificate which was issued to them on 4-6-96, no lacuna or defect remains in the orders passed by the learned Adjudicating Officer. As the impugned orders are correct in law and on facts, the same are confirmed and the appeal rejected being devoid of any merit, substance or legal force: