1. DORAB PATEL , J.-The appellant is a public limited Company incorporated under the Companies Act, 1913, and it owns a textile mill in Nowshera. This mill manufactures both cotton yarn and cotton fabrics which are sold in the country and also exported abroad. Cotton yarn and cotton fabrics have always been excisable goods under the Central Excises and Salt Act, 1944 (hereinafter called the said Act), and section 3 of this Act until its amendment in 1966 read:- "3. Duties specified in the First Schedule to be levied.-(I) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods produced or manufactured, and on all excisable services provided or rendered, in Pakistan, as, and at the rates, set forth in the First Schedule.
(2) . . . . .
(3) Different tariff values may be fixed for different classes --- or descrip--tions of the same article.
(4) .
2. Cotton fabrics and cotton yarn are items 15-A and 16 respectively in the First Schedule of the said Act. Duty on both these items was levied on an ad valorem basis and in view of Mr. Mumtaz Hussain's arguments I have to point out that cotton fabrics were divided into four classes; super fine, fine, medium anal course and the rate of duty depended on the quality of the cloth, It was higher on the superior varities and the position about excise duty on yarn was similar.
3. However, textiles have been exported from the sub-continent for many years and section 37 of the said Act empowers the Central Board of Revenue to make rules to provide for the grant "of a rebate of the duty paid on excisable goods . . . Which are exported out of Pakistan". Therefore, in the exercise of this power, the Central Board of Revenue had framed rules in 1944 known as the Central Excise Rules. 1944, and rule 12 of these rules relates to the rebate of duty on goods exported from the country. This rule, in so far as, is relevant reads:- "12. Rebate of duty on goods exported.-(1) Rebate of the duty paid on any excisable goods may be granted by the Collector if the goods are exported in accordance with the procedure set out in the relevant provisions of Chapter IX of these rules, and subject to the conditions and limitations contained in this rule.
4. (2)
(4) ---------------.------..
(3) . . . . . . . . . . . . . . .
(5) . . . . . . . . . . . . . .
(6) The rebate may be granted by the Collector if he is satisfied that duty had actually been paid on the goods, which were exported, and that the goods were duly exported in accordance with the prescribed procedure.
5. (6A), (6B) and (6C) . . . . . . . .
(7) . . . . . . . . . . . . . .
(8) .. . . . . . . . . . . .
(9) .. . . . . --- . . . . . . . . .
(10) . . . . . . . .. . . . . . .
6. I would emphasise here that this rule provides only for the grant of a rebate and not for the refund of the excise duty paid on goods which are exported. This distinction is important for reasons which will presently become apparent.
7. Sweeping changes were made in the said Act in 1966. This was in pursuance of the sixth amendment of the Constitution which, inter alia, empowered the Federal Government to levy excise duty on the basis of the production capacity of industrial units and plants. But, as neither of the learned counsel relied on this amendment, it would be sufficient to state here that the Finance Act of 1966, made sweeping changes in section 3 of the said Act in order to give effect to this amendment of the Constitution. Subsection (4) of section 3 of the said Act was repealed by section 4 of the Finance Act, 1966 and substituted by subsections (4), (5), (6) and (7). Only subsection (4) i< relevant to Mr. Mumtaz Hussain's arguments and it reads:- "(4) With the prior approval of the Central Government, the Central Board of Revenue may, in lieu of levying and collecting under sub-- section (1), duties of excise on excisable goods, by notification in the official Gazette, levy and collect duties on the production capacity of plants, machinery undertakings, establishments or installations producing or manufacturing such goods; and such notifica--petition shall specify-
(a) the guiding principles for the determination of production capacity,
(b) the production capacity, as determined in accordance with such guiding principles, of the plant, machinery, undertakings, establish--ments or installations affected by it, (c) the duty or the rate of duty on production capacity,-and
(d) the manner of collection of such duty."
8. The next three subsections which were also inserted by the Finance-Act of 1966, deal with the manner in which an aggrieved person can challenge the assessment of the production capacity of his factory, but I need not refer to them as they are not relevant to the appellant's case; and it is sufficient to observe here that Committees were set up in order to determine the production capacity of cotton mills. However, as the concept of levying a duty on the production capacity of a mill was a noval concept, guidelines had to be furnished abut the method for assessing the production capacity of mills. And, the guidelines for determining the production capacity of cotton mills were contained in a resolution of the Ministry of Finance, which was issued on the 12th of August, 1967. These guidelines are relevant to the submissions of the learned counsel for the parties therefore, it would be convenient to reproduce the relevant paragraphs of the resolution of the Ministry of Finance. They read:----
(4) The guiding principles, to be notified under subsection (4) of section 3 of the Act, on the basis of which the Committee should determine the production capacity of individual cotton textile factories are as follows:-
(i) The national average annual production of each statutory category of cotton fabrics/cotton yarn on a per loom/spindle basis taking production of the past three years into account:
(i) Category wise annual production of the individual units for the past three years or such lesser period as may be available.
(iii) Category wise annual production of comparable units for the same period.
(iv) Production capacity of an individual unit calculated on the basis of the technically possible maximum production potential of the plant and machinery installed in the unit, it were to aim atmaximisingits profits before tax.
(v) Growth factor, keeping in view the past rate .Of improvement in production and likely increase in efficiency relating to improvement in technical managerial, labour and financial factors of individual mills,
(5) The annuals production capacity of individual factories shall be expressed for each statutory category of cotton fabrics in terms of square yards and for each category of cotton yarn its terms :of. Pounds.
(6) For the purpose of determining the liability to duty, of a factory the production capacity of the factory for each excise category of fabrics/yarn, determined on the basis of the above principles, will be multiplied by the statutory rate of excise duty for that category.
9. (7)
(8) The Committee should also recommend the procedure for the grant of refund in respect of various categories of cotton fabrics and cotton yarn which are exported.
(9) . . . . . . . . --- .. . . . . . . ---------------------------------------------------..
10. The production capacity of a mill depends upon the efficiency of its Management and labour, the state of its plant and machinery, and such other considerations which may vary from mill to mill.
11. Now, whilst, these considerations are included in the guidelines, which I have quoted, in addition to these considerations, the Committees which determined the production capacity of cotton mills, had also to take into account the annual production of comparable units and the "national average annual production of each statutory category" of cloth or yarn. And, to the extent to which these circumstances were taken into account, the production capacity of a mill would be different from its optimum production capacity.
12. I am fortified in my opinion by the observation of the Report of the Textile Industry Capacity Committee at page 10 of the report- "The survey has revealed that the present efficiency of the textile industry is quite low. In the case of spinning, efficiency ranges generally (with exceptions) from 70 % to 95 % with the bulk of the population concentrated near the lower end of the range. The situation in the weaving sector is still worse, the general range with exceptions) being from 45 % to 85 % This observation of the Committee about the poor efficiency of the majority of mills is relevant to the appellant's claim, because the poor performance of the majority of the mills necessarily weighs down the notional average annual production, and as this is one of the five components for determining the production capacity of a mill, it follows that the production capacity of a mill whose efficiency is above the average level of efficiency in the industry will be less than its optimum production capacity. In other words an efficient mill will produce more fabric or yarn, as the case may be, than its production capacity as determined under the said Act, and, to the extent to which the actual production of such a mill exceeds its production capacity, the mill will not pay excise duty on the excess of its production over its production, as determined by its production capacity.
13. Another significant feature of the guidelines is the direction to determine the. Production capacity of a mill with regard to each category of fabric and yarn. I have referred to this because Mr. Mumtaz Hussain appeared to think that this guideline was ultra vires of the objects of the said Act or of the rules framed in 1944. I am unable to accept this submission. As pointed out earlier, the rate of excise duty was always higher upon the superior qualities of fabric and yarn, and the direction to assess the produc--petition capacity of a mill with regard to each category of fabric or yarn produced by that mill was in consonance with the manner in which the said Act had been enforced since its promulgation.
14. Now, just as the actual production of an efficient mill can exceed the production capacity of that mill, the actual production of any category of fabric or yarn produced by an efficient mill can exceed the production capacity of the mill for that category of fabric or yarn. And, similarly the quantity of fabric or yarn exported by an efficient mill may exceed its production capacity for the category of fabric or yarn exported. Therefore, it was no longer practicable to apply rule 12 of the Central Excise Rules, 1944 to the cotton industry and so the Central Board of Revenue promulgated on 22nd April, 1968, The Excise Duty on Production Capacity (Cotton Yarn) Rules, 1968 (hereinafter referred to as the yarn rules) and "The Excise Duty on Production Capacity (Cotton Fabrics) Rule, 1968" (hereinafter referred to as the Fabric Rules) rule 8 both of the yarn and of the fabric rules deal with the manner in which a cotton mill can obtain rebate of excise duty on the products exported by it, and, for the purposes of this appeal, the rules are in pari materia. I will presently examine them in detail but at this stage it would be sufficient to state that the appellant had no grievance with rule 8 of the fabric and of the yarn rules as originally promulgated. However, identical provisos were added to these rules on the 21st of June, 1968. And the appellant's plea in its concise statement is that- "the purpose of insertion of the provisos was that full rebate on the quantity of a specified Category be given only to the extent to which that category was taken into account for the purpose of calculating the production capacity of the plant and that rebate in respect of any quantity of a particular Category exported in excess of that quantity be given at the rate applicable to the next lower Category to the extent that lower Category was taken into account for the purposes of calculating the production capacity."
15. Finally on the 31st of December, 1968, another clause was added to the aforesaid provisos in the said rules and the purport of this clause, according to the appellant, was that- "where rebate in respect of any excess quantity exported could not be given against the available quota of the next lower Category, rebate on such excess quantity may be allowed against the available quota of the higher Category to the extent to which that higher Category was taken into account for the purposes of calculating the production capacity. The rate at which the rebate was to be allowed, however, was the rate applicable to the Category actually exported."
16. Rule 8 both of the yarn and of the fabric rules was again amended in 1971, but as the appellant is aggrieved only by the amendments in these rules of 21st of June, 1968 and of 31st of December, 1968, it is not necessary to examine the subsequent history of these rules.
17. Reverting now to the facts of this appeal, the production capacity of the appellant's mill was determined in due course and on the promulgation of the yarn and the fabric rules, it commenced paying excise duty on its products and collecting rebate against its export under these rules.
18. According to learned counsel, the appellant had no grievance with the yarn fabric rules as originally enacted. This is not surprising because as I will presently show the ambiguity in the rules enabled exporters of textiles to obtain what amounted to a subsidy on their exports. Therefore, it is not surprising that identical amendments were made in both these rules, and the effect of these amendments was to reduce the profits which exporters of textiles were making on their exports.
19. And, as the appellant was an exporter, its profits were reduced -by the amendments. But despite these amendments it insisted on calculating its claim for rebate on the same basis as before the amendments. This led to differences between the appellant and the respondent, and for the period from the date of the amendment in these rules (21st June, 1968 to the period ending 30th June, 1969) the appellant claimed a sum of Rs. 54,63,116.10 as rebate for its exports, but as the respondent accepted the appellant's claim for a sum of Rs. 42,84,480, he called upon the appellant by his notice dated 26th July, 1969 to pay the balance of Rs. 11,78,636.10. The appellant refused to comply with this notice and filed a writ petition in the Peshawar High Court to challenge the validity of this notice and to restrain the respondent from enforcing it.
20. The appellant's case in the High Court was that the amendments of the yarn and fabric rules of 21st June, 1968 and of 31st December, 1968 were ultra vires of the rule-making powers conferred by section 3k4), read with section 37 (2)(xvi) of the said Act. Secondly, according to the appellant, these amendments were being illegally given retrospective effect, and they were illegal on the further ground that they were inconsistent with rule 12 of the Central Excise Rule, 1944 which was still in force. Finally, according to the appellant, the impugned amendments were unjust, arbitrary and discriminated against the appellant.
21. The respondent contested the writ petition and as Mr. Mumtaz Hussain has pressed this appeal on grounds not taken in the High Court, it would be sufficient to observe that the learned Judges of the Peshawar High Court dismissed the writ petition of the appellant by a well-considered judgment (we say so with respect) dated 23-2-1973.
22. As the appeal turns solely on the wires of the amendments in the yarn and the fabric rules, it would be convenient to set the mouth shut. Rule 8 of the yarn rules as it stood on 22-4-1968 read: "8.-(1) Duty due on cotton yarn which is removed from a factory for export in accordance with the procedure prescribed in ,Chapter IX of the Central Excise Rules, 1944, or for removal to a licensed warehouse in accordance with the procedure prescribed in Chapter V11 of the said rules, may be deducted at the appropriate rate mentioned in sub-rule (2) of rule 3 from the monthly instalment of duty payable for that month under rule 6."
23. Rule 8 of the fabric rules, as promulgated on 22-4-1968 read: "(1)
24. (2)
(3) Duty due on cotton fabrics which are removed from a factory for export in accordance with the procedure prescribed in Chapter IX of the Central Excise Rules, 1944, or to a licensed warehouse in accordance with the procedure prescribed in Chapter Vl1l of the said Rules, may be deducted from the monthly instalment of duty payable for that month under rule 6 at the following rates, namely:
(i) Superfine cotton fabricsSeventy paisa per sq. Yd. plus two rupees and eighty paisa per lb.
(ii) Fine cotton fabricsForty paisa per sq. Yard plus one rupee and seventy-- five paisa per lb.
(iii) Medium cotton fabricsTwenty paisa per Sq. Yard plus one rupee and ten paisa per lb.
(iv) Coarse cotton fabricsTen paisa per sq. Yd. Plus fifty-five paisas per (b.
25. I now turn to the amendments in these rules and as Mr. Mumtaz Hussain admitted that the amendments in the yarn and the fabric rules were in pari materia, it is not necessary to quote rule 8 of both these rules as stood after their amendments. I will, therefore, only quote rule 8 of the fabric rules amended on 21-6-1968 it read
(1) . . . . . . . .
(2) .. . . . . . . . . . . . .
(3) Duty in respect of cotton fabrics which are removed from a factor. For export in accordance with the procedure prescribed in Chapter U of the Central Excise Rules, 1944, or to a licensed warehouse accordance with the procedure prescribed in Chapter VII of the said Rules, may be deducted from the monthly instalment of duty payable for that month under rule 6, at the following rates, namely:
(i) Superfine cotton fabrics Seventy paisa per sq. Yard plus two rupees and eights paisa per lb.
(ii) Fine cotton fabricsForty paisa per sq. Yard plus one rupee and seventy-five paisa per lb.
(iii) Medium cotton fabricsTwenty paisa per sq. Yarn; plus one rupee and ten; paisa per lb.
(iv) Coarse cotton fabricsTen paisa per sq. Yard, plus fifty-five paisa per lb.
26. Provided that such deduction of duty shall be admissible separately in respect of each category of cotton fabrics up to the maximum of the production capacity of that category on which duty is leviable under rule 3: Provided further that if the quantity of any category of cotton fabrics removed from the factory during a financial year I n accordance with this sub-rule exceeds the production capacity of that category on which duty is leviable under rule 3, then in respect of the excess quantity deduction of duty may be allowed against the production, capacity of any other category of cotton fabrics on which duty is leviable under rule 3 at lower rate, subject to the condition that the total of such quantity and of the quantity of that other category of cotton fabrics removed under this sub-rule does not exceed the produc--petition capacity of that other category.
27. Finally, the following clause was added to this rule after the words "does not exceed the production capacity of that other category" by the amendment of 31-12-1968: "And where deduction of duty in respect of any excess quantity or any part thereof cannot be so allowed, deduction of duty in respect of such excess quantity or part may be allowed against the production capacity of any other category of cotton fabrics on which duty is leviable under rule 3 at a higher rate but such deduction shall be allowed at the rate of duty prescribed in rule 3 for the category of fabrics which is removed from the factory, subject to the condition that the total of such quantity and of the quantity of that other category of cotton fabrics removed under this sub- rule does not exceed the production capacity of that other category."
28. I will now examine these rules, and one of Mr. Mumtaz Hussain's submissions was that rule 8, as originally framed, was valid because it was similar to and consistent with rule 12 of the Central Excise Rules, 1944. The submission is fallacious, because the similarity is only a seeming similarity.
29. Thus, although both according to rule 12 and rule 8 if for example goods meant for export are stored in a licensed warehouse, then rebate of duty on such goods can be granted by the Collector. But, here the similarity between the rules ends and rule 12 prescribes that "rebate may be granted by the Collector if he is satisfied that duty had actually been paid on the goods which were exported". Mr. Mumtaz Hussain submitted that this rule entitled the exporter to the refund of the duty paid on the exported goods. Assuming that be so, it is very clear that the Collector cannot, under this rule, grant to an exporter in the guise of rebate any amount in excess of the excise duty paid or due on the exported goods, but unlike this rule, as rule 8 is ambiguous, the power conferred under it appears at first sight to be very wide, because the rule merely states that duty on fabric and yarn which are exported "may be deducted from the monthly instalment of duty payable for that month". As the rule does not in terms limit a mill's power to claim a deduction for its exports, Mr. Mumtaz Hussain thought that the rule supported his submissions, but that is not so, because the rule has been framed under clause (xvi) of subsection (2) of section 37 of the said Act which I will presently consider. At this stage, I would only observe that the rule speaks of a deduction from the monthly instalment of duty payable by a mill. Now this monthly instalment depends not on the physical capacity of a mill to produce cloth or yarn but upon the capacity as determined by the Committees se! Up for this purpose to which I referred earlier. I will, therefore, refer in this judgment to the production capacity so determined as the production capacity and if the cloth or yarn exported by a mill exceeds the mill's production capacity for the category of cloth or yarn exported how was the reimbursement under this rule to be made? The difficulty arises only in the case of efficient mills which export cloth or yarn in excess of their production capacity. And, as this is what happened in the instant case, the real question in the appeal is whether the appellant could under its claim for a rebate on exports deduct under this rule an amount in excess of the excise duty payable on the category of fabric or yarn exported. This problem could not arise under rule 12 under the Central Excise Rules, 1944, because duty under this rule is levied on actual production, and the calculation of rebate on exports does not present any problem because the rebate cannot exceed the refund of duty payable on the goods which were exported. But, as the provisions of rule 8 of the yarn and the fabric rules are ambiguous, Mr. Mumtaz Hussain submitted that the provisos, which were added to rule 8 of the yarn and the fabric rules by the amendment of 21-6-1968 and of 31-12-1968, were ultra vines and illegal, because the appellant was entitled to full rebate of the excise duty on its actual exports.
30. Presumably on the principle that discretion was the better part of valour, learned counsel was reluctant to calarify what he meant by the appellant's liability for duty on its actual exports.
31. Secondly, in advancing this submission, he assumed that the word "rebate" meant refund. The submission is fallacious, because rebate, according to the Oxford dictionary, means "deduction from the sum to be paid, discount, drawback". However, learned counsel relied on the fact that the respondent had permitted the appellant a refund of the excise duty against its exports. This may have been, because according to rule 8, duty on exports can be deducted by a mill from its liability for excise duty, therefore, I will assume that the respondent was allowing the appellant in 1968 a refund of the excise duty paid by it on account of its exports. But, the appellant was not paying excise duty in 1968 on its actual production. As it was only paying excise duty in 1968 on the production capacity of the categories of cloth and yarn manufactured by it, to the extent to which its exports exceeded the production capacity of the category of cloth or yarn exported, it had not paid excise duty on this excess of its exports over its production capacity. Therefore, I find it difficult to understand the appellant's claim but an illustration would help to elucidate it.
32. I would first recall here that rule 8 has divided the types of fabrics manu--factured by mills into four categories: super fine, fine, medium and coarse. The rate of duty at the relevant time on these four categories of cotton fabrics was 70 paisas per square yard, 40 paisas per square yard, 20 paisa per square yard and 10 paisas per square yard, respectively. There was also a levy on a weight basis, but for the purpose of the illustration and in order to simplify calculations, I will ignore this levy. I will also assume that the appellant was manufacturing all the four categories of cotton fabrics specified in rule 8 and that at the relevant time, it exported a million and a half square yards of fine cotton fabrics on which the duty was 40 paisas per square yard: Therefore, if production capacity taxation had not been introduced, the appellant would have paid a duty of Rs.
33. 6 lacs on its production of a million and a half square yards, and this amount would have been refunded to it, because the entire production was exported. However, as production capacity taxation was introduced, the appellant became liable to pay excise duty on its production capacity of fine cotton fabrics, and as it was obviously an efficient mill, its production capacity was less than its optimum capacity. That is way it was earning heavy rebate on its exports. So, I will assume that the production capacity of the appellant for fine fabrics was only one million square yards, therefore, the duty payable by it on this category of cloth was Rs. 4 lacs and not Rs. 6 lacs.
34. Now, there is no dispute about this sum of Rs. 4 lacs, but, according to Mr. Mumtaz Hussain, the appellant was entitled to a rebate of more than Rs. 4 lacs and as he submitted that this claim was supported even by the amendments in rule 8 which he challenged, I would recall here that rule 8 as it stood after its amendment on 21-6-1968, entitled a mill to deduct excise duty in respect of its exports "up to the maximum of the production capacity" of the category of cloth or yarn exported and the proviso then prescribed how a mill's claim was to be adjusted if it exceeded the excise duty paid or payable on the production capacity of the category of cloth or yarn exported. This proviso supports Mr. Mumtaz Hussain's submission, because it implies that a mill could claim a deduction of excise duty although the claim exceeded the excise duty paid or payable on the category of cloth or yarn exported. But, how is such a claim to be determined? After repeated enquiries, Mr. Muntaz Hussain stated that a mill was entitled to the refund of duty on its actual exports. Now, in the hypothetical case which I am examining, exports were one and a half million square yards and learned counsel was emphatic that full rebate to the appellant meant rebate at the rate of 40 paisas per square yard, because that was the rate of duty on fine quality fabrics. But, this means that the appellant's claim is for Rs. 6 lacs and this would have been the duty refundable to it if rule 12 of the Central Excise Rules, 1944 had remained in force. Therefore, whilst the appellant wishes to limit its liability for taxation under the production capacity system, it bases its claim for a rebate on the old rules.
35. With this observation, I would examine Mr. Mumtaz Hussain's criticism of the amendments inserted in rule 8 on 21-6-1968 and on 31-12-1968, and the question is only of the appellant's claim for the balance of Rs. 2 lacs (the difference between Rs. 6 lacs and Rs. 4 lacs in the hypothetical case which I am examining). Now, according to the provisos inserted in rule 8 on 21-8-1968 as its entitlement for refund for excise duty on fine quality fabrics had been exhausted, the appellant was entitled to deduct this balance of Rs. 2/9 lacs from its liability for excise duty on the medium quality fabrics manufactured by it, but at the rate of 20 paisas per square yard only because this was the rate of excise duty on medium cotton, fabrics. I will assume that the appellant was exporting the four categories of fabrics, therefore, situations would arise in which it could not adjust its claim for Rs. 2 lacs against the unutilized balance of its claim for refund of duty in respect of its production of medium cotton fabrics. This would entitle the appellant to adjust the -balance of its claim of Rs. 2 lacs against its liability for duty on the coarse cotton fabrics manufactured by it, but at 10 paisas per square yard, because that was the rate of duty applicable to coarse cotton fabrics. In these circumstances, it is obvious that the appellant might not be able to deduct its entire claim of Rs. 2 lacs against its liability for excise duty on the medium and coarse cotton fabrics manufactured by it. Then came the amendment of 31-12-1968 and in the situation which I am examining, this amendment would have entitled the appellant to adjust the balance of its claim of Rs. 2 lacs against its liability for excise duty on super fine cotton fabrics but at the rate of 40 paisas per square yard only and not at the rate of 70 paisas per square yard which was the rate of duty on super fine cotton fabrics.
36. Mr. Mumtaz Hussain submitted that the appellant might have been able to deduct this balance of Rs. 2 lacs against its liability for excise duty on its medium and coarse cotton fabrics if it had been allowed to adjust its claim at the rate of 40 paisas per square yard instead of at the rates prescribed in the rule. That is obvious, and similarly, the appellant would have benefited more under the amendment of 31-12-1968 if it could have deducted its claim of Rs. 2 lacs against its liability for excise duty on super fine cotton fabrics at the rate of 70 paisas per square yard instead of the rate of 40 paisas per square yard, which was prescribed in the amendment. But the Central Board of Revenue which framed rule 8 on 22-4-1968 was competent to modify it if it found that the rule framed by it was not satisfactory. Therefore, learned counsel challenged the virzs of the amend--ments and also submitted that they were unjust and arbitrary in so far as they limited and curtailed the appellant's right to what learned counsel described as a full rebate on its actual exports.
37. I am not impressed by these submissions. Taking first the appellant's appeal to the principles of equity and justice, as I explained earlier, the appellant was claiming much more than the full rebate" of excise duty on its exports. Therefore, the learned Judges of the Peshawar High Court were not impressed by its attempt to challenge the amendments of rule 8 and Mr. Irshad Hassan Khan drew our attention to the fact that a similar view was taken by a Division Bench of the Lahore High Court in Colony Thal Textile Mills Ltd. v. The Superintendent of Central Excise and Land Customs Sargodha and 3 others (PLD 1971 Lab. 376). I respectfully, agree with this view, and, in my humble opinion, no other view was possible. Further, as I suggested earlier the appellant wishes to take advantage of the system of the production capacity taxation in so far as it reduces its liability for excise duty bur it presses its claim for a rebate on the basis of the rules which had been repealed on the introduction of the production capacity system. I regret to say that I am not impressed by the appellant's conduct and it can obtain the concession conferred by rule 8 on the terms prescribed in that unless of course it can prove that the amendments in the rule were ultra vires and illegal.
38. Now, according to learned counsel, not only were the amendments w high he challenged ultra vires and illegal, but they were illegal on the further ground that they were retrospective and delegated Legislation which was retrospective was illegal. In order to appreciate this argument, it is necessary to examine the power of the Central Board of Revenue to grant rebate to manufacturer; on their exports. This power is contained in section 37 of the said Act which read until its amendment in 1969:- "37.-(1) The Central Board of Revenue may make rules to carry into effect the purposes of this Act.
(2) In particular, and without prejudice 'to the generality of the foregoing power, such rules may-
(xvi) provide for the grant of a rebate of the duty paid on excisable goods or on excisable goods used in the manufacture of any other good,; which are exported out of Pakistan or shipped for consumption on a voyage to any port outside Pakistan."
39. The question is of the proper construction of clause (xvi) and as learned counsel feebly submitted chat his submissions were supported by the amend--ment of this clause by Finance Ordinance, 1969, I would examine this amend--ment also. By Finance Ordinance, 1969, the clause which I have quoted was repealed and substituted by the following clause:- "(xvi) provide for permission to export goods on payment of duty or otherwise, and for the grant of rebate, on any basis, of the whole or any part of the duty paid on or in respect of any excisable goods which are exported or which are used in the manufacture of any other goods which are exported out of Pakistan or shipped as provisions or stores for consumption on board a ship or aircraft proceeding to any destination outside Pakistan;"
40. As this clause permits the Central Board of Revenue to make rules for the grant of rebate "on any basis", learned counsel submitted that the amendments inserted in rule 8 on 21-6-1968 and on 31- 12-1968 would have beta valid if the words "on any basis" had been contained in clause (xvi) as originally promul--gated. But, as these words were not in the clause when the Central Board of Revenue made the impugned amendments in rule 8, these amendments were invalid and could not be saved by the power subsequently conferred on the Central Board of Revenue to provide for the grant of rebate on any basis.
41. I am not impressed by this argument. It is true that the words "on any basis" were not to be found in clause (xvi) as originally enacted, but a power to grant rebate necessarily includes the power to grant rebate on any reason--able basis, and, on the other hand, the mere insertion of the words "on any basis" would not entitle the Central Board of Revenue to frame rules for the grant of rebate on an .Arbitrary or capricious basis. Therefore, the only point which requires examination is whether the amendments of rule 6 were ultra vires, because, according to Mr. Mumtaz Hussain, they curtailed the rebate to which the appellant was entitled on its exports.
42. Rule 8 both of the yarn and the fabric rules as well as the impugned amendments in these rules are a species of subordinate Legislation. And, in the words of Craies on Statute Law, 7th Edition, page 297---- "The initial difference between subordinate legislation and statute law lies in the fact that a subordinate law-making body is bound by the terms of its delegated or derived authority, and that Courts of law, as a general rule, will not give effect to the rules, etc., thus made, unless satisfied that all the conditions precedent to the validity of the rules have been fulfilled."
43. As observed by Lord Greene M. R. In Carltona Ltd. v. Commissioners of Works ((1943 2 All E R 560)--- - "All that the court can do is to see that the power which it is claimed to exercise is one which falls within the four corners of the powers given by the Legislature and to see that the powers are exercised in 'good faith. Apart from that the Courts have no power at all to enquire into the reasonableness, the policy, the sense or any other aspect, of the transaction."
44. I respectfully agree with these observations and the only question is whether rule 8 of the yarn and of the fabric rules falls within the four corners of the power to frame rules for the grant of a rebate of the duty paid on excisable goods." The question is of the meaning of the word "rebate" and it is obvious that the ceiling limit of the rebate to which textile mills are entitled under the said Act for their exports would be the duty paid by them "on the excisable goods" (namely: their exports), therefore, the Central Board of Revenue was only empowered to frame rules which could permit an exporter to obtain the refund of the excise duty paid by him on the goods exported by him, and the Central Board of Revenue was not competent to frame rules which could entitle a textile mill to deduct from its liability for excise duty an amount which exceeded the excise duty paid by it on the categories of fabric and yarn exported by it, because any such excess amount could not by definition be part of the rebate to which the mill was entitled, and would necessarily be in the nature of a subsidy or grant of the mill.
45. Now, as I explained earlier, there is no difficulty about assessing a claim for rebate under the Central Excise Rules, 1944, but the position is somewhat more complicated under the new system of taxation, as excise duty is payable only on the production capacity of the categories of fabric and yarn manufactured by a mill. And, as an efficient mill can manufacture fabrics in excess of its production capacity, it can also export fabrics in excess of its production capacity for the categories exported. But, as this increased production, whether exported or not, does not increase its liability for excise duty, it cannot advance a claim for rate on the excess of its exports over its production capacity of the categories of cloth or yarn exported. It is true that rule 8 as originally enacted was ambiguous, but it was framed under section 37(2) (xvi) of the said Act and as this clause only empowered the Central Board of Revenue to frame rules "for the grant of a rebate of the duty paid on excisable goods . . . . . Which are exported", the ambiguity in the rule must be construed in such a manner that the rule does not become inconsistent with this clause and this means that on a proper construction of the rule no mill can, in the guise of a rebate, obtain a sum of money in excess of the excise duty paid by it on the category of cloth or yarn exported.
46. Learned counsel then stressed the fact that the construction placed on the rule by the appellant had been accepted by the respondents before the amendment of the rule. The erroneous interpretation thus placed on the rule by the respondent for a very short period did not confer any right oil the appellant to have this erroneous interpretation perpetuated, therefore, it cannot complain of the amendments which curtailed the relief to it, it was not entitled in-law.
47. Learned counsel then submitted that the grant of rebate category-wise was illegal and had created all the complications in the instant case. The second limb of the submission is correct, because it is the grant of rebate category --wise which is fatal to the appellant's claim, but apart from stating that the grant of rebate category-wise was illegal, learned counsel was not able to show us how the grant of rebate category-wise was illegal or even unreason--able, and on the other hand, one of the guidelines in the resolution of the Ministry of Finance on which he relied reads :--- "The annual production capacity of individual factories shall be expressed for each statutory category of cotton fabrics in terms of square yards and for each category of cotton yarn in terms of pounds."
48. Additionally, according to the Schedule of said Act, since 1958 cotton fabrics, for example, had been divided 'into at least three categories and the rate of excise duty was higher on the superior types of fabrics. But, this is the very essence of a system of progressive taxation and the mere fact that the basis of taxation was being altered from an ad valorem basis to the production capacity system could not have justified the abolition of this system of progressive taxation in the absence of some law or rule or guideline to the contrary. But, learned counsel was not able to refer us to any circumstance which could show that the object of the Legislature or 'that one of the objects of Legislature in altering the system of taxation was to abolish the progressive system of taxation under which textile products were divided into categories so that the superior varieties were taxed at a higher rate. Therefore, the submission that the grant of rebate category-wise was illegal is absolutely fallacious.
49. Learned counsel, who was aware of the infirmities in the appellant's case, then attempted. To take the bull by the horns by advancing a submission which I supposed has the merits of originality.
50. According to learned counsel the concept of excise duty was restricted to a duty levied on goods manufactured and consumed in the country, therefore, according to learned counsel, no law could be made to levy duty on goods manufactured for 'export, and, so, if any goods were exported, a duty which was described as an excise duty had to be refunded in full to the exporter. The learned Deputy Attorney --General's reply to this submission was that the argument was contrary to the plain language of section 3 of the said Act which expressly empowered the Federal Government to levy excise duties "on all excisable goods produced or manufactured . . . . In Pakistan." Mr. Mumtaz Hussain was aware that the language of this section was contrary to his submission that by definition excise duty could not be levied on goods which were exported, therefore, he advanced a much more sophisticated argument. He rightly pointed out that in a federation the rights of the federation and of the federating provinces are governed by the Constitution and that in our case the power of the Federal Government to levy excise duty was derived from Entry No. 45 of the Federal Legislative list in the Government of India Act, 1935 (which corresponds to Entry No. 43(b) of the Third Schedule of the 1962 Constitu--petition). Entry No. 45 which was in force when the said Act was promulgated read:- "45. Duties of excise on Tobacco and other goods manufactured or produced in India except (there follow certain exceptions)."
51. Entry No. 43(b) of the 1962 Constitution is in pari materia with this entry and as the entry does not define the meaning of the word "excise", learned counsel's submission was that the word "excise" had to be construed in the manner submitted by him, therefore, the Federal Legislature was not competent to tax exports, because that would be contrary to the meaning of the word "excise". The submission is correct to the extent that the Federal Legislature's power to levy excise duty under this entry is limited by the ordinary grammatical meaning of the word "excise" as the word has not been defined in the Federal Legislative List.
52. The Oxford Dictionary, Vol. 111, page 379 defines the word "excise" as- "any toll or tax, a duty charged on home goods either in the process of their manufacture or before their sale to the home consumers."
53. Similarly, Webster's New International Dictionary at page 890 defines the word "excise" as- "any duty, toll or tax, and inland duty or 'impost levied upon the manu--facture, sale or consumption of commodities within the country. Also a tax upon the pursuit or following of certain sports, trades or occupations . . . ."
54. The word "excise" is thus a word of wide import, and it is clear from the dictionaries that an excise duty can be a tax on local production simpliciter, therefore, the Federal Legislature was empowered by Entry No. 45 which became Entry No. 43(b) in the 1962 Constitution, to impose an excise duty on goods manufactured locally, irrespective of the question whether they were exported or not.
55. Mr. Mutaz Hussain then submitted that the meaning of a word could be modified by usage and practice and if a word had acquired a received meaning, by usage or through the Courts, then it had to be given the same meaning in a statute and further in a country governed by a written Constitution, the Legislature could not arrogate to itself wider powers than those actually conferred through words and expressions which had been construed by the superior Courts or in other statutes.
56. Interesting though this submission be, the short answer to it is, that the appellant is claiming, in the guise of a rebate, an amount in excess of that which it has paid for excise duty. However, with this observation, as we have heard learned counsel at length on the meaning of the word "excise" and as there is no pronouncement by this Court on the question thus raised, I would briefly explain why learned counsel's submission is without any merit.
57. Halsbury in his Laws of England, Fourth Edition, Vol. 12, defines customs duties, and excise duties in paragraphs 501 and 775 respectively as follows :---
501. Nature of customs duties.-Duties of customs, as customs duties, in the strict sense are pecuniary charges or tolls payable upon goods exported from or imported into the country, as contrasted with excise duties which are payable upon goods produced and consumed within the country.
775. Nature of excise duties-Excise duties fall under three main headings.-(1) those charged on articles or commodities produced or manufactured in the United Kindom; (2) those charged on certain betting and gaming activities; and (3) those charged on excise licences, which are called excise licence duties . . ."
58. Although paragraph 501 of Halsbury lends some support to Mr. Mumtaz Hussain's argument, the definition of excise duty by Halsbury is fatal to learned counsel's submission. Therefore, it cannot reasonably be contended that the English concept of excise duty is of a duty which by definition cannot be levied upon domestic manufactures which are exported. Mr. Mumtaz Hussain then referred us to paragraphs `'6 and 747 in the same Volume of Halsbury. Paragraph 746 states that a duty of customs is chargeable on beer and the next paragraph sates that "A customs drawback is allowed when imported beer is exported. . . " Similarly, learned counsel relied on paragraphs 812 and 815. The former reads: "A duty of excise is charged on spirits distilled or manufactured by any other process whatsoever in the United Kingdom." Paragraph 815 then states that a drawback is allowed in respect of spirits which are exported. Vile were al-,c: referred to other passages in Halsbury in which it is stated that drawback of excise and customs duty is permitted on goods which are exported.
59. I regret my inability to understand how these and other passages in Halsbury can help Mr. Mumtaz Hussain in his submission, because these passages merely comment on the provisions of the English Customs and Excise Act, 1952, which permit the refund of excise duty on locally manufactured products which are exported. These provisions might have helped the appellant's case if learned counsel had been able to show us that the English Customs and Excise Act, 1952 and its history are in pari materia with the said Act and its history, but learned counsel did not even attempt to argue that the two Statutes and their, histories were in pari materia. Secondly, and this is much more important, if, by definition, excise duty was a duty which could not be levied on exports, it would not have been necessary to make express provisions in the English Customs and Excise Act, 1952, for the refund of duty to exporters. Therefore, far from supporting the appellant's case, the provisions of the English Customs and Excise Act go against its case.
60. Since I am on the subject of legal dictionaries, I may also refer here to the definition of the word "excise" in Jowitt's Dictionary of the English Law. This definition reads: "A duty on certain commodities is charged on most cases on the manufacturer; such are duties on spirits, malt, tobacco, etc. There are also duties which, though not properly in the nature of excise, are classed under this head; such as the licences which are required to be taken out annually by those who manufacture or deal in certain goods, or carry on certain employments, and also what are sometimes known as assessed taxes, e. g., those payable on motor vehicles, and formerly on male servants and armorial bearings."
61. The view taken by the learned Editors of Words and Phrases Legally Defined is also similar (.See 1969 Edition, page 197). However, Mr. Mumtaz Hussain relied on the definition of the word "excise" in Wharton's Law Lexicon. Wharton defines the word as- "the name given to the duties or taxes laid on certain articles produced and consumed at home. . . "
62. Although the view of the learned author supports Mr. Mumtaz Hussain's submission, I have no hesitation in preferring the view of Halsbury and Jowitt, the more so, as this view is supported by judgments of the Privy Council and of the Superior Courts of the other common law countries which I will presently consider.
63. Mr. Mumtaz Hussain then referred us to the definition of the word "excise" in Black's Law Dictionary (Revised Fourth Edition). The definition reads :- "An inland imposition, paid sometimes upon the consumption of the commodity, and frequently upon the retail sale,"
64. Although the definition supports learned counsel's submission, the view of the learned author is based upon the American Excise Law, therefore, this definition would have been relevant if learned counsel had shown us that Excise Laws in America are similar to our laws. But, as he could not throw any light on the law prevalent in America, the view of the learned author is of no assistance to learned counsel's submission.
65. I now turn to the case law cited by the learned counsel and whilst Mr. Mumtaz Hussain relied on the judgment of the Federal Court In the matter of the Centra,' Provinces and Berar Sales of Motor Spirit and Lubri--cants Taxation Act, 1938 (AIR 1939 FC 1). Mr. Irshad Hassan Khan relied on a series of Judgments of the Indian Supreme Court which are based upon a pronounce--ment of the Judicial committee.
66. The question in the judgment of the Federal Court was of the vires of the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, and I may explain here that most of the Provincial Governments which were set up under the Government of India Act, 1935, introduced a sales tax in order to finance their development activities, and whilst the Government of the Central Provinces introduced the tax to which I have referred, the Madras Government had promulgated the Madras General Sales Tax Act of 1939. The vires of the Madras Ac. Was challenged up to the Privy Council and the validity of the Legislation in both cases was upheld by the Federal Court and by the Privy Council. Further the common contention raised in both the cases was that the impugned Legislation was bad, because it amounted in pith and substance to an excise tax. In repealing this contention, Sir Maurice Linfrod Gwyer. C. J., observed in the Matter of the Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938 at page 6 :- "But its primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption. I am satisfied that that is also its primary and fundamental meaning in India ; and no one has suggested that it has any other meaning in Entry (45)."
67. Although the observations of the learned Chief Justice support Mr. Mumtaz Hussain's submission to the hilt, the question whether excise duty could be levied on exports, did not arise for consideration in the case before his Lordship, therefore, the observations are obiter dicta. And, although I would be reluctant to dissent from the obiter dicta of so eminent a Judge, as Sir Maurice Linfrod Gwyer, C.
68. J., I find that this obiter dicta is inconsistent with the view taken by the Privy Council in Governor- General in Council v. Province of Madras (AIR 1945 P C 98). In this case too the Privy Council had occasion to analyse the nature of an excise duty and Lord Simonds, who pronounced the judgment of the Board, observed "The term `duty of excise' is a somewhat flexible one : it may, no doubt, cover a tax on first and perhaps on other sales ; it may in a proper context have an even wider meaning."
69. It was this observation which was followed by the Indian Supreme Court in the judgments on which Mr. Irshad Hassan Khan relied. However, I would first examine another judgment of the Privy Council reported in Atlantic Smoke Shops, Limited v. Collon and others (1943 A C 550).
70. The question in this Canadian cases was of the validity of a levy on tobacco, and although the provisions about taxation in the Canadian Consti--tution are different from those in our---s the Privy Council had occasion to examine the nature of an excise duty and Lord Simon, L. C., who pronounced the judgment of the Judicial. Committee observed at page 564 "Excise" is a word of vague and somewhat ambiguous meaning. Dr. Johnson's famous definition in his dictionary is distinguished by acerbity rather than precision. The word is usually (though by no means always) employed to indicate a duty imposed on home manufac--tured articles in the course of manufacture before they reach the consumer."
71. I would pause to observe here that this dictum too is fatal to the appellant's case and further it is inconsistent with the observations of Sir Maurice Linfrod Gwyer, C. J., in the Federal Court judgment on which the appellant relies.
72. I now turn to the cases relied upon by the learned Deputy Attorney --General and as pointed out by him, in Firm Ram Krishan Ramnath Agarwal Kamptee v. The Secretary, Municipal Committee, Kamptee (AIR 1950 SC 11.). Kania, C. J., had occasion to analyse the nature of excise duty and he observed : "Excise duty is a tax on manufactured goods." This dictum was re-examined and approved by the Indian Supreme Court in Messrs Chhotabhui Jethabhaf Palel and Co. v. Union of India and another (AIR 1962 S C1006). Kapur, J., whose observations are directly relevant to Mr. Mumtaz Hussain's attempt to restrict the meaning of the word "excise" observed in paragraph 55 of his judgment; "Thus according to the Indian cases decided on the nature of duties of excise ultimate incidence is not of any importance or relevance. In dealing with excise duty (AIR1963SC1760) there is no mention of a direct or indirect taxes ; the Indian Legislature has avoided this incidence to be charac-- teristic of the tax ; (2) taxable event is the manufacture or production of goods ; it is immaterial what happened to them afterwards whether they are sold, consumed, destroyed or given away ;
(3) it is not a necessary incidence that the manufacturer must be able to pass it on to the consumer or indemnity himself : (4) the general tendencyof its being passed on may be there but it may be prohibited by the circumstances, economic or otherwise. The fact that the manufacturer has no chance to get the tax from the buyer does not affect the legality of the tax."
73. This analysis of the meaning of the word "excise" was followed in later judgments of the Indian Supreme Court reported in In re: Sea Customs Act (1878), S. 20 (AIR1963SC1760) and in Messrs Shinde Brothers, etc. v. Deputy Commis--sioner, Raichur and others, etc. (AIR1967SC1512). I, therefore, agree with Mr. Irshad Hassan Khan's submission that the Indian view is fatal to the construction which the appellant seeks to plate upon the word "excise".
74. I have also found two judgments of the High Court of Australia in which the learned Judges of the Australian High Court have examined the meaning of the word excise" and both these judgments support the respondent's case. In Peterswald v. Martley ((1903-4) 1 C L R 497), Griffith, C. J. Referred to the concept of excise duties prevailing in England and in America and then observed (page 908) :---- "The fundamental conception of the term is that of a tax on articles produced or manufactured in a country."
75. This judgment was followed thirty years later by the Australian High Court in Matthews v. The Chicory Marketing Board (Victoria) ((1938) 60 C L R 263) and so it will be seen that Mr. Mumtaz Hussain's submission is not supported even by the meaning placed upon the word "excise" in Australia.
76. The result of this discussion is that learned counsel's submission that the meaning of the word "excise" had been modified, as claimed by him, is supported only by the judgment of the Indian Federal Court, but the view of the Privy Council of the Indian Supreme Court and of the High Court of Australia is fatal to learned counsel's submission. I would, therefore, hold that the word "excise" is a word of wide import and because the meaning of the word is so flexible, excise duty can be levied upon local manufactures which are exported and this means that the appellant's challenge to the vires of the said Act is totally misconceived. But, as the Legislature was competent to levy excise duty on exports it was also competent to waive that duty on terms to be fixed by it. Now, instead of fixing those terms it .Delegated its powers to do so under section 37 (2) (xvi) of the said Act to the Central Board of Revenue. But, I would repeat that the power thus delegated was only the power to refund the excise duty which had been refunded or was due on goods which were, actually exported. Now, there is no dispute that the rebate granted to the appellant sometimes even exceeded the duty paid on the production capacity of the category of cloth or yarn exported.
77. Necessarily, therefore, the appellant was receiving a refund of the duty payable on its exports, therefore, the rule was not only eminently reasonable, but it erred on the side of generosity in favour of textile mills.
78. Learned counsel, however, relied on the dictum of Russell, C. J., in Kruve v. Johnson (1) that subordinate legislation could be struck down as in--valid if it was unreasonable. And, according to learned counsel, the grant of rebate category-wise was unreasonable. I am unable to accept this submis--sion, because as I explained, the grant of rebate category-wise was in accordance with the principles according to which the said Act was administered when the production capacity system was brought into force. Secondly, even if the grant of rebate category-wise has created some anomalies, any alternative system would have created greater anomalies. Thus, for example, if the appellant's strange construction of rule 8 had been accepted, it would have put such a premium on exports that it might have led to a shortage of textile products in the country. I have referred to this example only in order to show that the proper solution of the problems raised by the production capacity system of taxation turned on answers to questions of a technical nature and considerations such as the necessity of stimulating exports in changing conditions of international trade. Therefore, putting the appellant's case at its highest, it can only be said that the grant of rebate category-wise created some problems which would not have arisen if another system had been dropped. But, that other system would have created further problems. In this background, would we be justified in striking down rule 8 of the yarn and of fabric rules by importing our own notions of what was reasonable in questions of which the Legislature was the proper judge ? This is the necessary implication of learned counsel's submission and m deciding an identical plea, Russell, C. J., in Kruse's case observed "But unreasonable in what sense ? If, for instance (the bye-laws) were found to be partial and unequal in their operation as between different classes, if they were manifestly unjust, if they disclosed bad faith, if they involved such oppressive or gratuitous interference with the rights of those subject to them as could find no justification in the minds, of reasonable men, the Court might well say Parliament never intended to give authority to 'make such rules, and that they are unreasonable and ultra vires. But it is in this sense, and in this sense only, as I conceive, that the question of unreasonableness can properly be regarded. A bye-law is not unreasonable merely because particular judges may think that it goes further than is prudent or necessary or convenient, or because it is not accompanied by a qualification or an exception which some Judges may think ought to be there ,Indeed, if the question of the validity of bye-laws were to be determined by the opinion of judges as to what was reasonable-in the narrow sense of that word- the cases in the books on this subject are no guide for the reveal, as, indeed, one would expect, wide diversity of judicial opinion, and they lay down no principle or definite standard by which reason--ableness or unreasonableness may be tested."
79. I agree with the criteria laid down by the learned Chef justice for decid--ing the reasonableness of subordinate legislation, and I would emphasize that Judges should not strike down a rule because in their opinion a different rule p might have been better. A rule framed by a delegatee of the Legislature should be struck down only, if, for example, it is manifestly unjust or oppressive.
80. Therefore even if we assume for the sake of argument's that the appel--lant's claim about how rebate is to be calculated would be a fairer method of calculating rebate, rule 8 enabled the appellant to obtain as adjustment of the entire duty paid by it on the category of cloth or yarn exported. As this means that the appellant was receiving the refund of the duty which had been paid by it or was due from it on the goods exported, it cannot possibly be contended that the rule was manifestly unjust or oppressive. However, the appellant might perhaps have succeeded in its claim if it had proved its allegation that the rule had been applied to it in an arbitrary or discriminatory manner, but in view of Mr. Irshad Hassan Khan's submissions, Mr. Mumtaz Hussain dropped the plea that the rule had been administered oppressively or unjustly in the instant case.
81. Therefore, as his contention about the unreasonableness of the rule fails, I see no merit whatever in this appeal, and I would dismiss it with costs.
82. MUHAMMAD AKRAM, J.-I agree.
83. KARAM ELAHEE CHAUHAN. J.-I agree, However I have also added a separate note of my own I have gone through the judgment proposed to be delivered by my learned brother Dorab Patel, J.
84. In this case and I respectfully agree with the same. However, in view of the importance of the matter, I would like to add a few words of my own.
85. 2.'The main argument of the learned counsel for the appellant is that excise duty in its very nature is a duty which is leviable on goods intended for home consumption, but as the goods in dispute were such which had in fact been exported by his client out of Pakistan and were neither intended for home consumption and nor were they in fact so consumed, therefore, in the very nature of this levy, it could not have been imposed on those goods and hence the duty realised from him should be refunded to him in full. At this place, it is necessary to refer to (charging) section 3 of the Central Excises and Salt Act. I of 1944 (hereinafter called the Act) (as amended), which is headed as "duties specified in the first Schedule to be levied" and lays down that
(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods produced or manufactured; and on all excisable services provided or rendered, in Pakistan, as, and at the rates, set forth in the First Schedule.
(2) The Central Board of Revenue may, by notification in the official Gazette fix, for the purposes of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings in the First Schedule as chargeable with duty ad valorem and may alter any tariff values for the time being in force.
(3) Different tariff values may be fixed for different classes or descriptions of the same article.
(4) With the prior -approval of the Central Government, the Central Board of Revenue may, in lieu of levying and collecting under subsection (1) duties of excise on excisable goods, by notification in the official Gazette levy and collect duties on the production capacity of plants, machinery, undertaking establishments or installations producing or manufacturing such goods ; and such notification shall specify-
(a) the guiding principles for the determination of production capacity;
(b) the production capacity, as determined in accordance with such guiding principles, of the plants, machinery, undertakings, establish--ments or installations affected by it,
(c) the duty or the rate of duty on production capacity, and
(d) the manner of collection of such duty.
(5) The production capacity of any plant or machinery or part thereof specified in a notification under subsection (4) shall upon an application made to the Central Government within thirty days of the notification by any aggrieved person. Be reviewed by Standing Tribunal constituted under subsection (6) to which the application shall be referred ; and the decision of the Standing Tribunal confir--ming, reducing or increasing the production capacity shall be final; Provided that, in the case of any plant or machinery used for the manufacture of cotton fabrics or cotton yarn, the production capacity of which was determined before the 30th June, 1970, any aggrieved person may, within such time as the Central Government may by notification in the official Gazette, specify in this behalf, make an application in writing to the Central Government for re-examination of the production capacity, such application shall be referred by the Central Government to such a Standing Tribunal constituted under subsection (6) ; and the decision of the Standing Tribunal on such reference shall be final.
(6) The Central Government shall for the purpose of subsection (5) constitute a Standing Tribunal consisting of not less than two persons each of whom may be either an officer not below the rank of a Joint Secretary to the Government of Pakistan or a person who held such rank at the time of his retirement from service.
(7) The Central Board of Revenue may by notification in the official Gazette, at any time, cancel a notification under subsection (4) , and where a notification is so cancelled or, for any reason whatsoever, cannot be given effect to, the duty under subsection (1) in lieu whereof the duty under subsection (4) was levied by such notification, shall be levied and, with necessary adjustment, collected for the financial year during which such notification is cancelled or for the period for which it cannot be given effect to.
86. Explanation-For the purpose of this subsection ; an order of a Court suspending or staying the collection of the whole or any part of the duty under subsection (4) shall be deemed to be a reason for which a notification under subsection (4) cannot be given effect to."
3. The phrase "excisable goods" is defined in section 2(d) of the Act which states that "in this Act, unless there is anything repugnant in the subject or context, excisable goods specified in Part I of the First Schedule as being subject to a duty of excise and includes salt". The word "manu--facture" is defined in section 2(f ) of the Act-(and so far as relevant to be reproduced for this case)-states that "manufacture" includes any process incidental or ancillary to the completion of a manufactured product and any processes of re-manufacture, remaking, reconditioning or repair and the processes of packing or re-packing such product and ---". In the instant case, it is not disputed that the goods on which duty has been levied are specified in Part I of the First Schedule of the Act. It is also not disputed that the aforesaid goods were produced or manufactured by the petitioner in Pakistan. If these two conditions are fulfilled, then these goods come within the ambit of the charging section 3 above reproduced and the authorities concerned were justified, the moment these goods were produced or manufactured, in Pakistan, to levy and recover excise duty on them. The charging section talks of levying duty on production or manufacture and is not concerned with their sale or what happens to those goods after they are produced or manufactured. For instance, if a manufacturer or producer, after he has produced or manufactured the goods, just stocks them, or, to be more precise, hoards them without disclosing whether he intends to sell them in the country or to export them then can it be said that as there is no certainty that the goods were intended for home consumption, therefore, no duty should be levied on them. The answer is in the negative, because, the duty under the Act is leviable on their production and manufacture and is not dependent on their sale or other manner of disposal. Take another E case. Suppose the goods produced or manufactured are sold by the producer manufacturer to A, who sells them to B and B sells them to C and, in this way. After passing 100 hands, they ultimately reach Z who exports them. Now can it be said that as in this case the goods have been ultimately exported out of Pakistan and were not consumed in the country itself, therefore they were not liable to duty on their production or manufacture. The answer, in accordance with the apparent tenor of the section above reproduced, is, again, in the negative.
87. The duty, it is thus clear, is only at the stage of production and manufacture of the goods and is not dependent on their subsequent disposals for example, by sale (wholesale or retail) in the country and nor will its contemplated export be relevant at that stage. The Legislature has used the words "goods produced or manufactured in Pakistan" and there is no string of the kind "intended or meant to be consumed in Pakistan" or "except those which are exported or are intended to be exported out of Pakistan". If the Legislature stopped short after saying that the excise duty will be levied on "goods produced or manufactured in Pakistan" we should neither add to nor diminish anything from these words, so as to extend or curtail their import. The Legislature was well aware that goods produced in the country can be exported and if it intended to exclude such category of goods which were exported, it could have provided for their exclusion from the charging section, but, as there exists no such thing or exception, we cannot add these exceptions ourselves in the Statute.
4. Learned counsel argued that if goods intended for export or actually exported were not outside the pale, scope or juristic concept of the word "excise duty" (or duties of excise) then why a provision -was made for authorising the Central Government (now Central Board of Revenue) to frame Rules under section 37(2) (xvi) of the Act (as amended) which inter alia may" provide for permission to export goods on payment of duty or other--wise, and for the grant of rebate, on any basis, of the whole or any part of the duty paid on or in respect of any excisable goods which are exported or which are used in the manufacture of any other goods which are exported out of Pakistan or shipped as provisions or stores for consumption on board a ship or aircraft proceeding to any destination outside Pakistan". According to the learned counsel, this showed that the juristic concept of "excise duty" did not include duty on goods which, though produced or manufactured in the country, were not intended for home consumption, but were intended for export and this is why that in keeping with that concept, the Central Government (now Central Board of Revenue) was authorised to make Rules for total exemption or partial rebate of duty on exported goods. Section 37, according to the learned counsel, was headed as "power of Central Board of Revenue to make rules". Its subsection (1) laid down that "the Central Board of Revenue may make rules to carry into effect the purposes of this Act". Subsection (2) stated that "in parti--cular, and without prejudice to the generality of the foregoing power, such rules may provide for"-(as laid down in clause (xvi) reproduced above). Not to levy duty on exported goods, was one of the purposes of the Act which, as such, was consistent with the submission that excise duty was essentially a duty which was levied only on such goods which were intended for home consumption and it was in keeping with that purpose that scope was left for exempting them by making rules on the subject or otherwise as laid down elsewhere in the Act. The provisions of charging section, it was argued, should be read in this way that when it stated that duties of excise shall be levied on all excisable goods produced or manufactured in Pakistan, then it meant that as the word excise duty (or duties of excise) excludes exported goods this exception was inherent in that section itself, especially when, according to the learned counsel, it was supported from the point of view of the construction which he placed on section 37(2) (xvi) of the Act and which was, simply, illustrative of his point of view and not exhaustive on the subject in hand.
5. I have considered this argument seriously, but am unable co endorse it for the purposes for which it is being advanced. The provisions of the Statute, to which reference has been made, show that the duties of excise are, according to the Legislature, levied on all scheduled goods produced or manufactured in Pakistan. Section 12(A) of the Act, which is headed as "exemptions" lays down that 1.1) the Central Government may from time to time, by notification in the official Gazette, exempt subject to such conditions, if any, as may be specified therein, any goods or class of goods or any services or class of services from the whole or any part of the duty leviable under this Act.
(2) The Central Board of Revenue may, by special order in each case, exempt from the payment of the whole or any part of the duty leviable under this Act, under circumstances of an exceptional nature to be stated, in such order, any goods or services on which such duty is leviable". It is in keeping with this power to grant exemptions that section 37 inter alia provided for making of rules on this subject and particularly for rebates on exported goods. The provisions to which refer--ence has been made rather tend to show that exported goods are also liable to fall within the charging section if they were produced or manufactured in Pakistan, though the Central Board of Revenue has been given the power to grant rebate or exemptions on them. The exemptions, whether total or partial, are dependent upon the power of the statutory authority concerned to be exercised in accordance with law and the Rules on the subject and is not inherent in the concept of excise duty, because, had that been so, then there was no reason to make it dependent upon the prerogative of the aforesaid statutory authority as analysed above, inasmuch as, you cannot re-exempt that which is already exempted and is not covered by the charging section itself. The exemption or rebate may be allowed on exported goods as a matter of policy to earn foreign exchange, but, to argue that goods intended for export, in their very nature, are not subject to duties of excise under the Act, is not correct, because, if that is so held it may inter alia lead to drift away all the goods out of Pakistan in order to escape excise duty and thus leave nothing for home consumption. It is to check this tendency of profiteering and price hike and to maintain supply balance in the country that the Legislature chose to make the law in this form that it made all scheduled goods subject to duties of excise at the stage of their production and manufacture and then to boost earning of foreign exchange left scope for granting relevant exemption or rebate on such terms, con--ditions, forms and rates as may be legally imposed. From this, it cannot be inferred that this showed lack of legal competency on the part of the appropriate Legislature to legislate that duties of excise shall be levied on production and manufacture of scheduled goods in Pakistan without excluding exported goods, or goods intended for export from their ambit.
6. The term "excise duty" (so far as I know) has not been precisely or authoritatively defined in any statute of Pakistan and so far as the dictionaries and attempts made in different case-law are concerned, they show, as observed in Governor-General in Council v. Province of Madras (AIR1945PC98) that this term is a flexible one. As I see it, mostly it is used in contra--distinction from custom duty which is levied on goods going abroad or imported from abroad, while duties of excise are levied on home-made goods or goods made in the taxing country. The juxtaposition of these terms in the legislative list appended to the Constitution appears to lend support to this view.
88. But there is nothing so inherent in these terms to suggest that goods which are subjected to excise duty will not come under custom duty when exported, or vice versa that when they are to be subjected to custom duty if exported they could not be subjected to excise duty at the stage of their production or manufacture. As a matter of domestic policy, the Government may provide adjustments and rebates but such adjustments, rebates and concessions do not automatically flow from the term "excise duty" itself. This duty has been in force in the sub-continent of India and Pakistan under various enactments long list of which is given in the third Schedule of the Central Excises and Salt Act I of 1944 which were repealed when that Act was enforced. The excise-duty- legislation of this sub---Continent does not lend any support to the plea of the learned counsel that this word has always been understood here juristically or otherwise as not applicable to goods though produced or manufactured in the country, but later exported or intended to be exported.
89. Despite our suggestion, he made no effort to point out any such thing from the aforesaid statutes or the previous legislative history of this country on the subject. His argument, therefore, that this was the only well-understood or adopted meaning of the term "excise duty" in this country, is not borne out from anywhere and rather the practice being to the contrary, the law under discussion from that point of view is quite in consonance with the meanings of this term as herein held by me above. And lastly what turns on the name given to this levy so long as it is covered by the enactment under which it is levied and which enactment in its own place was well within the legislative competence of the relevant legislature which enacted it, and which continued it, and further, which competency has not been shown to us as lacking at any stage-a subject discussed in quite some detail by my learned brother Patel, J.
7. As regards the case reported in the matter of the Central Provinces and Berar Salesof Motor Spirit and Lubricants Taxation Act, 1938 (AIR1939FCI) on which learned counsel relied for his submission, it may be stated that it was a case from Central Provinces of the then India and purported to examine the relation of a duty of excise to a tax on sales. The matter was reconsidered by the Federal Court in Madras Provinces v. Boddu Paidanna (AIR 1942 P C 33) where the position of the previous case was explained in detail. Gwyer, C. J. Made a resume of the views expressed in the earlier case and on page 34 column 2 observed that "they left open however the question on which side of the line a tax upon the first sales of goods manufactured or produced in the province was to be regarded as falling". While dealing with this matter on page 35, it was then held that; "In 1939 FC 18=AIR 1939 FC 1, the opinions expressed were advisory opinions only, but we do not think that we ought to regard them as any less binding upon us on that account. We accept, therefore, the general division between the Central and Provincial spheres of taxation which commended itself to the majority of the Court in that case. They did not reach their conclusions by assigning any particular technical meaning to the expressions duty of excise" or `tax on the sale of goods', but rather by construing the language in which the taxing powers of the Central and Provinces respectively are conferred, in such a way as to give effect to what appeared to them to be the scheme of the Act-and to reconcile the conflict which might otherwise arise between two independent taxing authorities. They recognised that the expression "duty of excise" is wide enough to include a tax on sales; but where power is expressly given to another authority to levy a tax on sales, it is clear that "duty of excise" must be given a more restricted meaning than it might otherwise bear."
90. On the other hand the fact that "duty of excise" is itself an expression of very general import is no reason at all for refusing to give the expression "tax on sales" the meaning which it would ordinarily and naturally convey. In these circumstances the question at issue in the present appeal appears to us to lie within a very small compass.
91. The duties of excise which the Constitution Act assigns exclusively to the Central Legislature are, according to 1939 FC R 18=AIR 1939 FC 1 duties levied upon the manufacturer or producer in respect of the manufacture or production of the commodity taxed. The tax on the sale of goods, which the Act assigns exclusively to the Provincial Legislatures, .Is a tax levied on the occasion of the sale of the goods. Plainly a tax levied on the first sale must in the nature of things be a tax on the sale by the manufacturer or producer; but it is levied upon him qua seller and not qua manufacturer or producer. It may well be that a manufacturer or producer is sometimes doubly hit but so is the tax-payer in Canada who has to pay income-tax levied by the Province for provincial purposes and also income-tax levied by the Dominion for Dominion purposes : see 1924 A C 999 ; 1937 A C 260. If the tax-payer who pays a sales tax is also a manufacturer or producer of commodities subject to a central duty of excise, there may no doubt be an overlapping in one sense ; but there is no overlapping in law. The two taxes which he is called on to pay are economically two separate and distinct imposts. There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter; what happens to it afterwards, whether it be sold, consumed, destroyed or given away. A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as in the case of the most of the Excise Acts) when the commodity leaves the factory for the first time, and also became the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which attracts the duty, even though it may be collected later ; and we may draw attention to the Sugar Excise Act in which it is specially provided that the duty is payable not only in respect of sugar which is issued from the factory but also in respect of sugar which is consumed within the factory. In the case of a sales tax, the liability to tax arises on the occasion of a sale, and a sale has no necessary connection with manufacture or production. The manufacturer or producer cannot of course sell his commodity unless he has first manufactured or produced it ; but he is liable, if at all, to a sales tax because he sells and not because he manufactures or produces ; and he would be free from liability if he chose to give away everything which came from his factory. In our opinion the power of the Provincial Legislatures to levy a tax on the sale of goods extends to sales of every kind, whether first sales or not ; and we regret that we are unable to. Agree with the contrary opinion which has been expressed by the High Court". On the same page, the matter was further examined and it was held that "We do not think, for reasons which we give hereafter, that the Australian case referred to has any bearing on the question which we are now called on to determine. That question is this ; assuming the right of the Central Legislature to tax the production of a com--modity/and the right of the Provincial Legislatures to tax its sales, can a good reason be shown for excluding a particular category of sales on the ground only that they are sales by the producer. According to the High Court, a tax on the first sale of goods is so connected with their production that it is an excise duty ; but, with great respect to the Court, that appears to us to be hardly the question. Every tax on the sale of goods produced in India is in a sense an excise duty, whether the sale is the first, second or third, though an excise duty is not necessarily a sustain sales ; and the High Court should have formulated their proposition thus ; a tax on the first sale of goods is so connected with their production that it cannot properly be described as and is in fact, a tax on sale. Stated in this way, the proposition is surely difficult to sustain. We may recall that in 1935, when the Constitution Act was passed ; the distinction between a producer's or manufacturer's sales tax and sales taxes (including retail sales taxes) of other kinds was familiar to economists and those concerned with public finance (see Findlay Shirras: Science of Public Finance, Vol. TI, Chap. 25) ; and it is therefore not without significance that Parliament did not think fit to confine the Provincial taxing power in terms to sales taxes other than taxes on first sales. It is also material, even if not necessarily conclusive, to point out that the judgment of the High Court would deprive the Provincial Legislature of the whole yield of taxes on first sales, and not merely of the tax on the first sale of commodities which are also subject to a duty of excise ; and it would do so without in practice conferring any corresponding benefit on the Central fisc, since for plain reasons of convenience the number of commodities on the production of which it is administratively worth while to impose an excise duty will always be very limited."
92. At page 37, the Honourable C. J. Further observed that; "I may perhaps be myself responsible for some of the confusion which seems to have arisen, by reason of the suggestion which I made in 1939 F. C. R. 18=AIR 1939 FC 1 that the Central Legislature should be regarded as having power "to impose duties on excisable articles before they become part of the general stock of the Province, that is to say, at the stage of manufacture or production, and the Provincial Legislature an exclusive power to impose a tax on sales thereafter". In using these words I intended to do no more than suggest a con--venient dividing line between the two spheres of jurisdiction ; but I certainly did not mean to elevate the dividing line to a legal principle, the application of which might attract those numerous American authorities, of which perhaps (1927) 12 Wheat. 419 was the first, where the question has been considered at what point commerce ceases to be inter-state or foreign commerce and becomes the domestic commerce of a State and taxable by it. I should much regret if any contribution of mine to the elucidation of the problems which come before this Court were thought to have included the introduction of some kind of `original-package' doctrine and all the refinements and com--plications which that doctrine has brought in its train in the Courts of America."