1. TANVIR AHMED KHAN, J.---This judgment shall dispose of the above six petitions as all of them are directed against the judgment dated 27-9-2001 of a learned Division Bench of the Lahore High Court, Lahore, whereby appeals filed by the petitioners under section 35-C of the Central Excises Act, 1944 (hereinafter referred to as the Act), were dismissed maintaining the earlier determination dated 19-7-2001 of the Customs, Excise and Sales Tax Appellate Tribunal, Lahore.
2. The facts briefly narrated are that the petitioners are engaged in the manufacture of Polypropylene bags/fabrics which are made through a manufacturing process whereby polypropylene granules or chips are extruded in a continuous process resulting in the polypropylene sheets which are then got cut into tapes and strips. These strips are woven to make polyprophylene fabrics and thereafter they are used for making polypropylene bags.
3. S.R.O. No,546(1)/94 was issued on 9-6-1994 whereby synthetic strips and synthetic textile material of an apparent width not exceeding 5 mm was subjected to central excise duty at the rate of 3% ad valorem. This duty was subsequently revised through S.R.O. No,710(1)/94 issued on 13-7-1994 whereunder it was recorded as Rs,2.50 per kg. An enquiry was conducted by the Director-General, Directorate of Intelligence, Customs, Central Excise and Sales Tax, Islamabad, and it transpired that the petitioners were not paying central excise duty on strips in terms of S.R.O. No,546(1)/1994 as amended by S.R.O. No,710/(1)/1994.
4. Consequent to the above enquiry the petitioners were issued show-cause notices in the months of February and June, 1995. Admittedly, as reflected from the record, Pakistan Polypropylene Woven Sack Manufacturers Association (hereinafter referred to as the Association), represented against the imposition of central excise duty upon synthetic strips inter alia pleading that synthetic strips could not be treated separately as marketable products as they are neither bought or sold in the market and had got no determinable value and, as such, could not qualify as "goods" falling within the purview of central excise duty. The Central Board of Revenue through S.R.O. No,479(1)/1995 issued on 14-6-1995 in view of their representation exempted them from the payment of central excise duty for the period effective from 9-6-1994, the date of issuance of S.R.O. 546(1)/1994 subject to the condition that the duty would be paid from 15-6-1995 onwards. It would be appropriate to reproduce S.R.O. No,479(1)/1995 which is in the following terms:- "Notification No, S.R.O.479(1)/95, dated 14th June, 1995.--In exercise of the powers conferred by section 12-B of the Central Excises Act, 1994 (I of 1944), the Federal Government is pleased to direct that the whole of the excise duty payable on polypropylene strips of 5 mm. Width or less, classifiable under heading No,5404.0000 of the First Schedule to the said Act, produced or manufactured during the period from the 9th June, 1994 to the 14th June, 1995, shall not be required to be paid for the said period, if as per prevalent practice, duty was not levied provided the manufacturer:--
(a) pays excise duty on polypropylene strips of 5 mm width or less from the 15th June, 1994, and
(b) deposits, for the period prior to 15th June, 1995, the duty in accordance with the provisions of section 3-D of the said Act." (Underlining is ours).
5. Resultantly, the demand made by the department through the show-cause notices earlier issued to the petitioners for past liability prior to 15-6-1995 was rendered infructuous and the said show- cause notices stated to have been withdrawn. The petitioners thereafter started making payments of duty in view of issuance of aforesaid S.R.O.479(1)/95 with effect from 15-6-1995.
6. The petitioners subsequently after making few payments filed different writ petitions before the Lahore High Court taking exception to the levy of central excise duty in October, 1995. The learned Judge of the Lahore High Court, through different interim orders, admitted the writ petitions to regular hearing as on similar issue, writ petitions had already been pending before the Peshawar High Court. It was also observed by the learned Judge that in similar matters, Peshawar High Court had suspended the levy of duty on strips till the final disposal of the writ petitions. Accordingly, similar order was passed by the Lahore High Court. It would be appropriate to reproduce the interim order dated 11-10-1995 passed by the learned Single Judge of the Lahore High Court in Writ Petition No,11264 of 1995, which is in the following terms:- "The petitioner's learned counsel stated that a Constitutional petition involving the same questions has been admitted to regular hearing by the Peshawar High Court. Even otherwise, there are important legal questions which require further consideration.
(2) Admit. Notice.
7. C.M.No,3 of 1995
(3) No one appears for the respondents to oppose this application. In similar matter, the Peshawar High Court had directed suspension of levy of duty on strips till the final disposal of the writ petition.
8. The same order in this stay petition."
9. All these writ petitions were dismissed through a consolidated judgment dated 19-10-1999. It was held by the learned Single Judge of the Lahore High Court by taking into consideration the determination of the learned Division Bench of the Peshawar High Court in the case of Adil Polypropylene Products v. The Federation of Pakistan (1997 M LD 2189) that the polypropylene strips were capable of being sold, therefore, the mere fact that they are not end-products would not be sufficient to exempt them from the central excise duty.
10. The petitioners assailed the aforesaid judgment of the Lahore High Court before this Court through different petitions. Leave was granted on 3-1-2000 to consider, whether the excise duty could be charged on intermediary products and whether the polypropylent strips fell within the definition of "goods". The learned Judges of this Court while granting leave issued stay orders in favour of the petitioners directing that meanwhile the disputed amounts should not be recovered from the petitioners/appellants subject to furnishing bank guarantees to the satisfaction of the concerned Collector of Central Excise.
11. All the appeals emanating out of above petitions were dismissed by this Court through a consolidated judgment dated 2-6-2000 holding that when the strips were manufactured from the granules, they changed shape, character and also the nomenclature and became excisable goods.
12. Subsequent to the dismissal of the pleas raised by the petitioners in respect of central excise duty upon polypropylene strips through their aforesaid appeals, another show-cause notice was issued calling upon them to pay central excise duty alongwith additional duty and penal charges. The notices were issued to the respective petitioners on the following dates:- S.No,Name of Unit Date of issuance of show-cause notice
1. M/s. Dae-Duck Corporation (C.P.No,3209 of 2001) 29-2-2000
2. M/s. Poly Pack (Pvt.) Ltd. (C.P. No,3207/2001) 29-2-2000
3. M/s. Tulip Polybag (C.P.No,3206/2001) 13-4-2000
4. M/s. Riaz-ud-Din Packages Ltd. (C.P.. No,3208/2001) 6-3-2000
5. M/s. Lahore Polypropylene (C.P. No,3211 of 2001) 6-3-2000
6. M/s. Poly Flex (Pvt.) Ltd. (C.P. No,3210 of 2001) 6-6-2000 The petitioners resisted the show-cause notices on the ground of limitation as, according to them, under Rule 10(1) of Central Excise Rules, 1944 (hereinafter referred to as the Rules), a period of one year is provided, .As such the notices were hopelessly barred by limitation. It was also contended that the interim orders of the Lahore High Court expired after six months under Article 199 (4a) of the Constitution of the Islamic Republic of Pakistan, 1973, and at the most all the interim orders granted to the petitioners had already lived their Constitutional period of six months by the middle of 1996. Reliance in this respect was placed upon Messrs Zahoor Textile Mills Limited v. The Federation of Pakistan (PLD 1999 SC 880). The Additional Collector (Adjudication), Lahore, through different orders directed the petitioners to pay balance/due central excise duty on polypropylene strips alongwith additional duty and penalty. The petitioners challenged the said direction of the Adjudicating Officer by filing respective appeals before the Customs, Central Excise and Sales Tax Appellate Tribunal under section 35 of the Act. The Tribunal through a consolidated judgment dated 19-7-2000 dismissed all the appeals to the extent of principal amount of central excise duty.
13. However, the additional duty as well as penalty so imposed was remitted. All the appeals were accepted with aforestated modification. The petitioners thereafter filed appeals under section 35- C of the Act which were dismissed through a consolidated judgment dated 27-9-2001 of a learned Division Bench of the Lahore High Court. Hence, these petitions for leave to appeal.
14. It is inter alia argued by the learned counsel appearing on behalf of the petitioners that under Rule 10(1) of the Rules, show-cause notices could have been issued within one year of the relevant date which in all these cases are hopelessly time-barred. The interim orders passed by the High Court lapsed after a period of six months and the bar or impediment, if any, constituted by them was lifted and ceased to be operative under Article 199. (4A) of the Constitution of the Islamic Republic of Pakistan, 1973. Since the above period had already elapsed, as such no permission of the High Court was necessary in this behalf for initiating action after six months. In this regard reliance has been placed on the case of Zahoor Textile Mills Limited (supra). According to the learned counsel, said stay orders have automatically expired after six months, as such the respondents cannot be allowed to take benefit for their own inaction in not sending show-cause notices within time. It is further argued by the learned counsel that the interim orders of the High Court temporarily affected the recovery of central excise duty and that too only for six months and after the passage of six months, the interim orders, according to him, automatically lifted and the department was free to initiate action for recovery of duty. The department by its own negligence had lost the claim being barred by limitation. He has further stated that it was an indirect tax which is ultimately passed to the seller but the petitioners throughout all this period have not calculated/secured the same at the time of fixation of the price. Another arguments has been advanced that the Central Board of Revenue had issued a Circular dated 22-3-1999 impressing upon the functionaries of Sales Tax Department to initiate action after the expiry of period of six months. These directions would, according to the learned counsel, equally apply to central excise duty and all other Wings of the Government. The department having failed to honour the departmental direction cannot be given benefit of their own default. It has also been pointed out that the central excise duty has already been abolished with effect from 1997.
15. Learned counsel appearing for the respondent department has supported the impugned judgment. He has stated that S.R.O. 546(1)/94 was changed/modified on the representation of the petitioners Association through S.R.O. No,479(1)/95 and they were exempted from payment of central excise duty for the period from 9-6-1994 to 14-6-1995. They undertook to pay duty after 15- 6-1995 and having paid for some months they took a complete somersault and engulfed the department in multifarious litigation taking exception to the very levy of the duty. The situation remained fluid for some time and was ultimately set at rest by this Court while dismissing their appeals on 2-6-2000. It has been further pointed out that in spite of the fact that the petitioners secured restraint orders from this Court on 3-1-2000 at the time of grant of leave against the judgment of the High Court, but they did not provide bank guarantee and their conduct throughout was waivering. They employed different tactics to avoid payment of duty and honouring of their commitment which prompted the department for issuance of S.R.O.479(1)/95 whereby they were given exemption for a period of one year. It has also been argued that the first show-cause notices were issued to most of the petitioners in the month of February, 1995, when it came to surface after the enquiry conducted by the Directorate of Customs Intelligence that the petitioners were not paying central excise duty in terms of S.R.O. No,546(1)/1994 issued on 9-6-1994, which notices were certainly issued within a period of one year as contemplated by Rule 10(1) of the Rules. On this basis, it is argued that the show-cause notices, subsequently issued to them reminding of their liability would not be hit by the bar of limitation.
16. We have considered the contentions advanced by the learned counsel for the parties and have gone through the entire documents placed on record with their assistance. The central excise duty is a levy under section 3 of the Act which is a charging section. The levying of central excise duty is a legislative act and its collection is regulated by the Rules prescribed under the Act. In between 'levyand 'collection the process of 'assessment of duty falls which is determined by the department.
17. This section has prescribed the manner and method under which this duty is collected. The assessm ent of central excise duty is done by the authorised officer by associating the manufacturer in the determination of quantum of duty. The collection of duty is an executive act which is the last step. Before the duty is collected its levy must have the sanction of law.
18. Here in this case the levy was imposed through S.R.O. No,546(1)/94 dated 9-6-1994 upon polypropylene strips at the rate of 3% ad valorem which was subsequently substituted through S.R.O. No,710(1)/94 dated 13-7-1994 at the rate of Rs,2.50 per k.g. In September, 1994 an enquiry was conducted by the Director-General of Intelligence and Investigation, Customs, Central Excise and Sales Tax, Islamabad, and it was revealed that the petitioners were initially liable to pay central excise duty on manufacturing of polypropylene strips at the rate of 3% ad volorem which was subsequently, as already stated, imposed at Rs,2.50 per k.g., avoided the payment of duty. On receipt of enquiry report show-cause notices were issued to the defaulters/petitioners. They made representation through their Association, which was settled by the department. Accordingly, S.R.O.
19. No,479(1)/95 was issued subject to the condition that they would start making payment with effect from 15-6-1995. They were, however, granted exemption from payment of central excise duty from 9-6-1994 to 14-6-1995. The show-cause notices earlier issued to the petitioners were withdrawn in view of issuance of S.R.O. No,479(1)/95. The petitioners paid duty for some time. However, they did not honour their commitment and challenged the very levy of duty on polypropylene strips in the Lahore High Court on the ground that the same could not be imposed as they were not saleable commodities. The first writ petition bearing No,11264 of 1995 was filed by Messrs Nazim Poly Pack on 11-10-1995 which is not a party in the present petitions and secured an interim order, whereby levy of duty was suspended till the final disposal of said writ petition. On this basis, the present petitioners filed different writ petitions in the High Court and obtained similar interim orders by giving reference to the aforementioned writ petition. All those writ petitions, as already stated in the preceding paragraphs, were dismissed by a learned Single Judge of the Lahore High 'Court on 19- 10-1999 through a consolidated judgment. Leave was granted by this Court on 3-1-2000 against the above judgment, wherein it was ordered that in the meanwhile the disputed amount should not be recovered from the petitioners subject to their furnishing bank guarantee to the satisfaction of the concerned Collector of Central Excise. The appeals arising out of petitions were dismissed by this Court on 2-6-2000.
20. The pivotal point in this case, as argued by the learned counsel for the parties, is applicability of Rule 10(1) of the Rules, which reads as under:-- "10. Recovery of duty short-levied or erroneously refunded, etc.-(1) Where by reason of any inadvertence, error or misconstruction, any duty or charge has not been levied or has been short- levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within one year of the relevant date by an officer not below the rank of Superintendent requiring him to show cause why he should not pay the amount specified in the notice."
21. It is true and there is no cavil with this proposition that the interim orders passed/made under Article 199(4a) of the Constitution expired after a period of six months. However, we have noticed that in these cases the legality of the very levy of duty was under challenge as the learned Judge of the Lahore High Court suspended the same till the decision of the writ petition. An exercise by the department in the assessm ent of levy, when the very imposition thereof was under challenge, would have been proved an exercise in futility and would certainly have given rise to multiplicity of litigation if subsequently the Courts hold the imposition of levy of duty as illegal. The law requires certainty of action and not speculative or conditional. Apart from this, it is also reflected from the monthly reports (R.T.1) submitted by the petitioners under Rule 54 of the Rules qua the goods manufactured by them in the years 1997 and even 1999 that though they had given the details of manufacturing of strips but stamped the reports as reflected from Riaz-ud-Din Poly Packages Ltd.
22. As under:-- "Excise duty on strip--Tape suspended by the Honourable Lahore High Court vide Writ Petition No,3706 - 96." (Underlining is ours).
23. How the department, in the presence of these reports when the petitioners were themselves stating that the duty stood suspended, could initiate the proceedings. The matter remained sub judice before the Lahore High Court and it is also reflected from the documents placed on record that immediately after the dismissal of their writ petitions, the petitioners approached this Court and succeeded in securing a stay order which they never honoured at the time of grant of leave by this Court on 3-1-2000. The order of this Court was in the following terms:-- "In Civil Appeals Nos.253 to 256 of 1998 titled Kashmir Polytex Limited and others v. The Federation of Pakistan and others leave has been granted by this Court 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 ad valorem basis under the Act, could be charged and recovered, as a consequence of S.R.O. 710(1)/94 dated 13-7-1996 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.
24. Since the same question is involved in the present petitions, leave to appeal is, therefore, granted.
(2) Office is directed to fix the above appeals alongwith connected appeals on 20th March, 2000.
25. Meanwhile, the disputed amount shall not be recovered from the petitioners subject to furnishing of Bank guarantee to the satisfaction of the concerned Collector of Central Excise."
26. When the department came to know that the petitioners are not even honouring the stay order granted by this Court, they issued them show-cause notices while the matter was still pending before this Court except in the case of Messrs Poly Flex (Pvt.) Ltd. (Civil Petition No,3210 of 2001) wherein the notice was issued four days after the dismissal of appeals on 6-6-2000 by this Court, the detail whereof has been given in the preceding paragraph.
27. We are not oblivious of the fact that in this case the departmental functionaries, as rightly stated by the learned counsel, must be undergoing a state of dilemma and uncertainty because in case they proceeded with the matter of recovery of duty, they would be fearing contempt of this Court as the legality of very levy was under challenge and in case they did not proceed, then the bar, as argued by the petitioners, upon rule 10(1) of the Rules may come into their way. The departmental functionaries in these cases, out of sheer propriety, had rightly waited for the verdict of this Court.
28. The petitioners would not be absolved from the payment of duty in the circumstances of the present case, imposition of which has been upheld by this Court.
29. There is another aspect of the case which cannot be lightly brushed aside. The first S.R.O. Bearing No,546(1)/94 was issued on 9-6-1994 which was subsequently modified through S.R.O. No,710(1)/94 on 13-7-1994. The moment the respondent functionaries came to know through enquiry that the petitioners were not making payments of the central excise duty, all of them were served with show-cause notices which were admittedly within the period of one year from the imposition of duty. Those notices were withdrawn after the issuance of S.R.O. No,479(1)/95 as the petitioners through their Association succeeded in getting exemption for a period of one year in the payment of duty effective from 19-6-1994 to 13-7-1995 and undertook to pay duty after the said date. The department after coming to know that the petitioners were not even honouring the stay order granted by this Court on 3-1-2000 while suspending the recovery, they immediately issued notices to the petitioners reminding them of their liability. In these circumstances, when the earlier notices were issued to the petitioners within time, the subsequent notices issued to them reminding them of their liability would not be hit by the bar of Rule 10(1) of the Rules.
30. There is also force in the arguments of the learned counsel for the respondent that the bar placed by Rule 10(1) of the Rules would not be attracted in the present case. It is to be appreciated that this Rule would be applicable in the following three cases:--
(a) Where through inadvertence, error or misconstruction duty has not been levied.
(b) Where the duty so levied was short; and
(c) Where the duty earlier paid has been erroneously refunded.
31. In the present case, there was no error or inadvertence or misconstruction on the part of the department as admittedly after enquiry when it came to light that the petitioners were not paying duty on polypropylene strips in accordance with dictates of S.R.O. No,546(1)/94, they were issued show-cause notices. By no stretch of imagination in the circumstances it can be said that there was any inadvertence or error or misconstruction on the part of the Revenue Department. The second and third situations are not applicable in the present case. In these circumstances, we are of the view that even Rule 10(1) of the Rules would not be applicable in the case in hand.
32. The other arguments of the learned counsel for the petitioners that the respondent-department did not act in accordance with circular dated 22-3-1999 issued by the Chief Sales Tax, Central Board of Revenue, Islamabad, to the Collector of Sales Tax, Lahore, would not be apt in the present case. It would be appropriate to reproduce the said circular which read as under:-- "Please refer to the subject noted above and find enclosed herewith a copy of the Supreme Court's judgment dated 19-3-1999 in Civil Appeal No,702 of 1995 and several other Civil Appeals relating to operation of the, provision of Article 199 (4-A) of the Constitution.
(2) You are advised to recover all the recoverable dues, becoming payable on the afflux of the six monthsperiod from the date of interim stay order in terms of Article 199 (4-A) of the Constitution read with this judgment.
(3) Kindly ensure compliance and send a report to Central Board of Revenue by 1-4-1999."
33. A reading of the aforesaid Circular makes it clear that the same was addressed to the Collectorate of Sales Tax in the year 1999 and not to the Central Excise Wing of the Department, which was an independent body at that time. Both these Wings were amalgamated with effect from 1-2-2002, as such the above Circular could not be pressed into service qua Central Excise Wing. Furthermore, emphasis in the said circular was upon the recovery of all the recoverable dues, meaning thereby, the amount which had already been assessed. However, in the case in hand at the cost of repetition, it may be stated that legality of the very levy was under question and, as such, it could not be assessed. Had they done so, as already stated, it would have given rise to multiplicity of litigation and create difficulties for the department in case the levy was declared otherwise.
34. Last but not the least, the conduct demonstrated by the petitioners after the inssuance of S.R.O.No,546(1)/94 would not entitle them to the relief prayed for, firstly, on coming to know through enquiry that they were not making payment of the duty, they were issued show-cause notices.
35. Thereupon, their Association, as reflected from the foregoing paragraphs, made representation to the Department and the matter was settled by issuance of S.R.O. No,497(1)/95 whereby they were exempted from payment of duty for a period of one year effective from 9-6-1994 to 15-6-1995. The petitioners did not honour their commitment made with the Department. Thereafter in their monthly returns (R.T.1) submitted under Rule 54 of the Rules, they even mentioned that the duty already stood suspended which, according to their own case now before this Court, was not so after lapse of six months. The Department was misled by this assertion of suspension of duty stated by the petitioners in their monthly returns: Again after securing stay order from this Court they did not provide bank guarantee. All these factors disentitle them to any relief as they tried to avoid payment of duty on one pretext or the other by applying different methods.
36. Resultantly, for what has been stated above, the instant petitions being without any merit are hereby dismissed and leave refused.