COLONY THAL TEXTILE MILLS LTD., MIANWALI vs ASSISTANT COLLECTOR, CENTRAL EXCISE AND LAND CUSTOMS, FAISALABAD AND ANOTHER

' The petitioner-Concern is a public limited Company which, inter alia manufactures and converts cotton and man-made fibres into yarn. It is aggrieved by the action of the respondents whereby Excise Duty is sought to be collected from it purportedly under the provisions of section 3(1) of the Central Excises and Salt Act, 1944 (hereinafter called the Act) on the stocks of cotton yarn and man-made fibres held by it at zero hour on the mid-night between 27th and 28th June, 1979. This section reads as follows :- "3.-(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. In the exercise of powers conferred by subsection (1) of section 12-A of Central Excises and Salt Act, 1944 (Act I of 1944) the Federal Government vide Notification No, S. R.

0. 810 (1)/78 dated 29th June, 1978 amended its earlier Notification No, S. R.

0. 492 (1) 77 dated 11th June, 1977 in that it was now ordered that no Excise Duty would be charged on cotton yarn, twist and thread or yarn of man-made fibres. Subsequently, a year later, on 28th June, 1979 vide Notification No, S. R. O. 555 (1)/79 the earlier Notification was superseded and a provision was now made for charging Excise Duty on cotton yarn, twist and thread, man-made fibre yarn at the rate of one rupee per kg. The relevant items of the said Notification are :-- "08.01. (1) Cotton yarn, twist and thread.

08.03 Man-made yarn waste, that is to say such man-made yarn as cannot be used for the manufacture of any kind of fabrics :-

(ii) exceeding two and a half per cent of the total production of manmade yarn in a financial year excluding the waste in the form of plastic lumps :

(a) in a factory manufacturing yarns of man-made fibres (discontinuous or waste) including ruptured filament yarns."

3. It is the case of the petitioner that on that day, i. e. 29th June, 1979 it had in its possession stocks of yarn manufactured and produced by it amounting to 3,80,336.965 kg. This fact has not been denied by the respondents. In fact there appears to be no dispute about it. According to the petitioner, this yarn cannot be charged to Duty because it was manufactured and produced by it prior to 28th June, 1979 when such yarn was exempt from Duty by virtue of earlier Notification dated 29th June, 1978 referred to above.

4. Under instructions from respondents, Subordinate Officers of the Central Excise Department visited the premises of the Mills on 28th June, 1979 and sealed the stocks of yarn made from man- made fibres and cotton yarn in the stocks of the Mills. It was further directed that no stocks of the said yarn would be removed from the Mills premises without the payment of Excise Duty at the rate of one rupee per kg. The petitioner removed some of the stocks of the yarn from their premises but it was allowed to do so only after the payment of Excise Duty at the aforesaid rate. This payment, according to the petitioner, was made under protest. This fact, too, has not been controverted by the respondents. The petitioner addressed a letter (Annex P/1) to the respondent No, 1 asking him to refund the Duty already paid to it under protest. Respondent No, 1 vide his letter (Annex. P/2) took up the position that the stocks of yarn lying in the Mills premises at zero hour of 28th June, 1979 were liable to Excise Duty.

5. It is the case of petitioner that under section 3 of the Central Excises and Salt Act, 1944, Excise Duty is levied on all excisable goods "produced or manufactured" in Pakistan. Section 12-A (1) of the said Act empowers the Central Government to exempt any goods or class of goods or services from the whole or any part of the Duty leviable under this Act. Under subsection (2) of the said section the Central Board of Revenue is empowered to exempt from the payment of the whole or any part of the Duty leviable under the Act. The Notifications in questions have been issued by the Federal Government under section 12-A subsection (1) of the Act. Thus the Duty is on "the manufacture or production" of goods in Pakistan. The recovery of the Duty levied under section 3 is an accident of administration and has no connection whatever with the levy of the Excise Duty which is essentially on goods produced or manufactured. Since it is an admitted position in the case that the stocks in dispute were produced and manufactured before 28th June, 1979, the learned counsel for the petitioner has argued that the goods which were manufactured and produced before 28th June, 1979 would continue to remain exempt from Duty even though they may be cleared or sold subsequently when the exemption had been withdrawn. He has relied upon Muhammad Younus v. Central Board of Revenue (1) in support of his submission that the method of collecting tax/duty is an accident of administration. It is not the essence of Duty of Excise which is attracted by manufacture or production. Learned counsel for the petitioner has also relied upon Collector of Central Excise and Land Customs and others v. Azizuddin Industries Ltd. Chittagong (2) and argued that the petitioner had acquired a vested right of exemption from the levy of Excise Duty on all goods produced or manufactured by it before 28th June, 1979 and that this

(1) PLD 1964 SC 113 (2) PLD 1970 SC 439 vested right could not be taken away by the subsequent Notification when the said exemption was withdrawn and that exemption granted by the earlier Notification dated 29th June, 1978 would continue to be available to goods produced or manufactured before 28th June, 1979.

6. In Colony Sarhad Textile Mills Ltd. Nowshera v. Superintendent, Central Excise and Land Customs (1), Supreme Court of Pakistan observed : - "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."

' And went on to hold :- "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 disposal, for example, by sale (wholesale or retail) in the country and nor will its contemplated export be relevant at that stage."

7. Learned Deputy Attorney-General who represented the respondent on the other hand argued that the Excise Duty could be collected by the Government even on goods manufactured or produced prior to 28th June, 1979 if the stocks of yarn although produced or manufactured earlier was in fact in the custody of the petitioner Company and was not consumed by it. According to him the effect of the Notification granting exemption is merely this that if the exempte had acquired any vested right that is to say has taken any advantage of the Notification (for instance, it has sold the goods or removed them to another place) then in view of the judgment of the Supreme Court Collector of Central Excise and Land Customs and others v. Azizuddin Industries Ltd.

Chittagong vested right would accrue to the petitioner and that vested right cannot be taken, away from it but if it has not taken advantage of the exemption then it has no vested right and since in the instant case the petitioner has not taken advantage of the Notification (has not removed the stocks from their Mills premises) no vested right would accrue to it. In this regard learned Deputy Attorney-General has relied upon Messrs Yakub & Co. And others v. The Collector of Central Excise and Land Customs, Chittagong and others (2). The petitioners in this case were dealers in salt and also crushers of salt in East Pakistan (as it then was). They would purchase crude salt from middlemen and sell it to others after having subjected the salt to washing and crushing process so as to make the grains finer for sale. Till the 30th June, 1666 by reason of several Notifications issued by the Central Government under section 12-A of the Central Excises and Salt Act, the levy and realisation of Duty on salt in Pakistan had been exempted. The latest of such Notifications remained in force till 30th June, 1966 and no further Notification was issued thereafter.

Thereafter Central Excises authorities called upon the petitioners to pay the Excise Duty on 30th June, 1966. The petitioners had certain quantities of both crushed and un-crushed salt in their warehouses and factories etc. Officers of the Excise Department visited their godowns and factories etc. In July, 1966, verified and noted the quantities of salt in their stocks and called upon the petitioners to pay Excise Duty on such salt which was in their

(1) 1979 SCMR 640 (2) PLD 1969 Dacca 477 godowns etc at the prescribed rate. The petitioners objected to the levy of Duty on the stocks which was held by them as on 30th June, 1966 and contended that the salt refined or crushed by them which was in their stocks as on 30th June, 1966 was completely exempt from Excise Duty in pursuance of the earlier Notification dated 14th June, J965 which was operative till 30th June, 1966.

8. There was a difference of opinion between two learned Judges and the matter was referred to a third learned Judge. The point on which the two learned Judges had difference of opinion was formulated by them as follows :- "Whether the salt which had been crushed by the petitioners during the continuance in force of Notification No, S. R. O. 62(R)/65, dated 14-6-1965 issued by the Central Government, but had not left the factories of the petitioners during such continuance is leviable with duty under the Central Excises and Salt Act, 1944."

' Mr. M. R. Khan, J. Agreed with Mr. Salahuddin, J. And gave the answer in the affirmative and held that with the expiry of the period of exemption, whatever manufactured salt remained in the possession of the petitioners, would be liable to Excise Duty for the reason that the exemption was no more there.

9. The reasoning of the learned Deputy Attorney-General is also based upon the aforesaid view of the Dacca High Court.

10. Mr. Abdul Hakim Khan, J. While dissenting with the other two learned Judges relied upon the judgment of their Lordships of the Supreme Court of Pakistan in the case of Muhammad Younus v.

Central Board of Revenue etc. He observed (in Messrs Yakub & Co. And others v. The Collector of Central Excise and Land Customs, Chittagong and others :- "The manner and the time of collecting duty are quite distinct from the levability of the duty. Under the Notification in question all salt manufactured in East Pakistan for the period of one year commencing on the 1st July 1965 is exempted from the levy of duty. Thus no duty could be levied on manufacture of salt during this period no matter whether it is removed from the factory during the period of exemption or thereafter. The exemption, to my mind, clearly provides that the salt manufactured during the specified period shall not be subject to the levy of the duty."

' He came to the conclusion that the salt which had undergone the process of crushing and refining in the factories of the petitioners within 30th June, 1966 was not liable for any Excise Duty and no Duty would be legally recoverable in respect of that salt, although it was not removed from the petitioners' godown or factories etc. Within 30th June, 1966.

11. It may be submitted with respect that the two learned Judges whose opinion prevailed in the case had failed to notice the judgment of the Supreme Court of Pakistan Muhammad Younus v.

Central Board of Revenue already referred to above. In the said case the Supreme Court of Pakistan had observed :- "But that method of collecting the tax is an accident of administration it is not of the essence of the duty of excise which is attracted by the manufacture itself,"

12. In my view the judgment of the Supreme Court of Pakistan in Muhammad Younus v. Central Board of Revenue which has been followed by the learned Single Judge delivering the dissenting judgment in the aforesaid Dacca case lays down the correct law and I, respectfully, venture to follow the same.

13. In view of the above discussion I hold that the stocks of yarn which had been produced or manufactured by the petitioner-Company till zero hour of 28th June, 1979 would continue to be exempt from duty by virtue of the earlier Notification No, S. R. O. 810 (1)/78 dated 29th June, 1978 and the fact that these goods were still lying in the premises of the petitioner would not militate against it and that whether these stocks were stored in the Mills premises or in an outside godown would not make any difference as long as they were produced and manufactured before the said date.

The Duty is only at the stage of production and manufacture of goods and is not dependent upon their subsequent disposal as per dictum of the Supreme Court of Pakistan in Colony Sarhad Taxtile Mills Ltd. Nowshera v. Superintendent, Central Excise & Land Customs referred to above.

Consequently action of the respondents seeking to recover the Duty on the stocks of yarn produced and manufactured earlier than the mid-night between 27th and 28th June, 1979 at the rate of rupee one per kg. Is declared to be illegal and without lawful authority.

This writ petition is accepted. There would be no order as to costs.