BAHAWALNAGAR SUGAR MILLS Versus PAKISTAN
This judgment will dispose of three writ petitions (W.P. No.2764 or 1985., W.P.No.2765 of 1985 and W.P.No.2766 of 1985) filed by the Adam Sugar Mills Limited (previously called the Bahawalnagar Sugar Mills Limited) against the orders of the Second Secretary, Central Board of Revenue dated 27‑3‑198q, and 27‑3‑1984 respectively.
2. The brief facts of the case are that the petitioner company manufactures sugar from sugarcane and during the years 1972‑73, 1973‑74 and 1974‑75 paid excise duty on the basis of production capacity, in terms of item No.52 of Part I of the Fourth Schedule to the Pakistan Constitution 1973 read with Article 70(6) thereof. The production capacity of the petitioner was fixed by the Central Board of revenue: at 22800 metric tons of sugar, per season of estimated 160 days, under Rules 3 of the Excise Duty on Production Capacity (Sugarcane) Rules, 1972. Under Rule 4 of the said Rules, a factory suffering loss as a result of shortfall in production can claim abatement of duty. Rules 4 of the said Rules reads as follows,
4. If in a financial year, the actual production of sugar of a factory, for reasons which, in the opinion of the Central Board of Revenue, were beyond the control of the manufacturer, falls short of its production capacity to such extent as the Central Board of Revenue considers to be substantial, the Central Board of Revenue may, in its discretion but with the prior approval of the Federal Government, grant abatement of duty leviable under rule 3 at such rate and to such extent as it may consider proper.
For the years 1972‑73 and 1973‑74 the petitioner applied for abatement of the excise duty and claimed Rs.43,04,014.82 and Rs.5,72,964 respectively on the ground that the shortfalls in the production were beyond the control of the petitioner. The Central Board of Revenue, without hearing the petitioner, allowed rebate of Rs.30,27,080 for the year 1972‑73 and nothing for the year 1973‑74. Being aggrieved by these orders, the petitioner filed two writ petitions, which were allowed on the short ground that the petitioner had not been heard and the Central Board of Revenue was directed to hear the petitioner and to give its decisions hither to fore. The Central Board of Revenue thereafter heard the petitioner and again decided the matter as there after. In the meantime, the Central Board of Revenue, after hearing the petitioner, allowed rebate of Rs.45,10,738.59 for the year 1974‑75. The petitioner challenged all these three orders in writ petitions, which were dismissed. The petitioner filed three Inter‑Court appeals against the said decisions. In the meantime the Peshawar High Court in the case of Charsadda Sugar Mills v. Federation of Pakistan (P L D 1978 Pesh.23) was called upon to decide a case where the Central Board of Revenue had refused to allow rebate on the basis of standing instructions which directed that abatement should not be allowed if the shortfall was 10% of production capacity or less. The Peshawar High Court struck down such an order on the basis that such instructions rendered nugatory the discretion which was contained in rule 4. The said decision of the Peshawar High Court was upheld by the Supreme Court in the case of the same mill (1978 S C M R 27). In view of this decision, the Deputy Attorney General of Pakistan submitted before the Court in the three Inter‑Court Appeals filed by the petitioner that the respondents were willing to re‑examine the cases of the petitioner. The Inter‑Court Appeals were accordingly disposed of on 24‑2‑1981 to enable the Central Board of Revenue to re‑examine the matter. From 1981 till 1984 no action was taken by the Central Board of Revenue. The petitioner thereupon filed a miscellaneous petition directing the High Court to compel the Central Board of Revenue to re‑consider the matter. The Central Board of Revenue finally on 27‑3‑1984 allowed further rebate to the petitioner of Rs.6,38,400 in respect of the year 1972‑73, nothing in respect of the year 1973‑74 and a further rebate of Rs.9,46,200 in respect of the year 1974‑75. Being aggrieved by these decisions, the petitioner filed the present three constitutional petitions in this Court, which are now before me for disposal.
3. I have heard the arguments of the learned counsel for the petitioner and the respondents. Since the cases have been argued at length for a number of days, the parties desire that the cases should be admitted and disposed of as notice cases. Accordingly, whilst admitting these petitions, I would dispose of these cases as notice cases.
4. Before dealing with the arguments, it is necessary to say a few words about the manner in which the production capacity of a sugar mill is fixed. and the circumstances in which, the abatement of excise duty is allowed by the Central Board of Revenue in respect of shortfall, which is beyond the control of the manufacturer. Rule 3 of the Excise Duty on Production Capacity (Sugar) Rules, 1972, may be produced here with advantage.
13.(1) The production capacity of the plants and machinery in each factory shall be determined with reference to‑
(a)the manufacturer's declarations about the production capacity of his factory made to Government in any connection;
(b) the daily‑rated capacity of the factory for the crushing of sugarcane and beet;
(c) the percentage of the yield of sugar from sugarcane and beet;
(d) the quantity of sugar produced by remelting gur, khandsari or jaggery powder; and
(e) the actual production of sugar in the preceding years.
(2) Duty shall be levied at the rate of Rs.14 per hundred weight on annual production capacity stated in the annexed Schedule as determined under sub‑rule (1):
Provided that, if any additional plant or machinery or equipment is installed after the publication of these rules, duty shall be levied on such additional production capacity as may be determined under sub‑rule (1) with effect from the date of the installation of such' plant or machinery or equipment.
(3) If any plant or machinery or equipment which is not in operation at the time of determining the annual production capacity and is not, for that reason, taken into account subsequently comes into operation, duty shall be payable on such production capacity of the plant or machinery or equipment as may be determined under sub‑rule (1), with effect from the date of coming into operation of the plant, machinery or equipment."
The crushing season in Bahawalnagar District starts from October I and ends in May following. The annual production capacity of the petitioner mill was fixed at 22800 metric tons', on the basis of 1601 working days. The capacity is fixed taking into consideration the fact that the mill shall utilize sugar and beet for crushing, and gur, khandsari and jaggery powder for remelting. The working days are fixed as a base, taking into consideration such factors as normal break down in the working hours due to power failure, defect in machinery, etc. The production capacity grants to the manufacturer the advantage of producing sugar over and above production capacity, on which no Central Excise duty is levied. Rule 4 of the said Rules B enables the manufacturer to claim abatement of duty, where the shortfall in production has been beyond its control and is not minor, but substantial. The mere fact that a manufacturer sustain some shortfall, does not permit it to claim abatement as a matter of course. The question is not what is the total shortfall, but what part of the shortfall can be treated as having occurred, which was beyond the control of the manufacturer. Once the shortfall, which is beyond the control of the manufacturer, is fixed, then it is to be adjudged by, the Central Board of Revenue whether the same is substantial ‑ If it is so, then so much of the duty as was levied on the said shortfall, is recoverable. If the shortfall is not substantial, no abatement is permissible.
5. With regard to the year 1972‑73, the petitioner mill worked from 14‑11‑1972 to 19‑3‑1973. Deducting hours of closure, the mill worked for 66 days only. The mill produced 7428.18 tons of sugar, leaving a shortfall of 15,371.82 tons. The rate of Central Excise Duty on sugar in this year was Rs.280 per metric ton. The petitioner claimed rebate of Rs.43,04,109.60. The petitioner has been allowed the total rebate of Rs.36,65,480. The petitioner claimed that the shortfall in the production was beyond its control for, the following reasons:
(a)The mill could only operate for 125 days as against the standard crushing season of 160 days.
(b) Non‑availability of sugarcane in adequate quantities.
(c) Higher prices of gur rendering it uneconomical to remelt the same for manufacturing of sugar.
5. The learned Second Secretary, who passed the impugned order on 27‑3‑1984, inter alia held:
(i) That the sugarcane capacity was fixed with reference to sugar that had to be produced by the mill by the use of sugarcane, gur and khandsari, whereas the petitioner merely relied upon availability of sugarcane and did not properly plan its future supplies.
(i) (ii) Having failed to take stock of the situation at the proper time, the petitioner failed to procure and remelt gur when its prices were well within its reach.
(ii) (iii)The petitioner did not make any attempt to use khandsari as . substitute of sugarcane.
(iii) (iv)The petitioner could only produce 30% of the notified capacity even after utilising 75% of the crushing season.
(iv) (v)He accordingly, allowed a further sum of Rs.6,38,400 as abatement in addition to the claim earlier allowed.
6. 1 have seen the original file which contains the material on the basis of which the learned Second Secretary passed Tile order, This shows that in spite of best efforts and support from the administration and the M.P.As., the mill could not get adequate quantities of sugarcane and that they even went to the extent of requesting the Deputy Commissioner to allow them to stop crushing the young sugarcane (seeds), as that would have a bad effect in the next season. The file also shows that the ban imposed by the District Magistrate, Bahawalnagar, on the manufacture of gur, shakKar and khandsari from sugarcane throughout Fort Abbas, Chishtian and BahawaInagar Tehsils was only effective from 6‑1‑1973 to 30‑1‑1973, as the said order was set aside by the Lahore High Court, Bahawalpur Bench, on 30‑1‑1973. The petitioner mill thus had only 25 days to purchase sugarcane. The report also shows that the petitioner mill, though it worked for 125 days, it could not work continuously for 24 hours and if the total hours that the mill actually worked was divided by 24, the mill can only be said to have worked continuously for 66 days.
7. In the light of this report the following position emerges:‑
(i) There was an acute shortage of sugarcane throughout the whole season.
(ii) Due to acute shortage of sugarcane, the prices of gur, shakkar and Khandsari were very high.
(iii) (iii) That though the District Magistrate, BahawaInagar imposed a ban on the manufacture of gur, shakkar and Khandsari from sugarcane in three tehsils under him, the ban only lasted for 25 days. This was hardly sufficient time to enable the mill to procure any larger quantity of sugarcane, than what they normally could.
(iv) (iv)The petitioner mill could only produce 30% of the notified capacity after utilising 41% of the crushing season.
In these circumstances, the undernoted findings given by the learned Second Secretary cannot be stated to be correct or fair:‑
(i) (i)That the petitioner mill did not properly foresee and plan its future‑ procurement of sugarcane, gur, shakkar and khandsari. If there was an acute shortage of sugarcane. gur, shakkar and khandsari were hardly available, as there were many sugarcane factories in the district which were also buying sugarcane and the prices of gur, shakkar and kiiandsari would be high as to be uneconomical.
(ii) (ii)The petitioner failed to procure and remelt gur when its prices were well within reach in view of what is stated above it was C not economical to procure and remelt gur, shakkar and khandsari, as the prices were higher than normal, except for some short period of 25 days.
(iii) (iii)The petitioner did not make any attempt to use khandsari as a substitute. In view of what is stated above, it was not possible for the petitioner mill to use khandsari as substitute for sugarcane.
(iv) (iv)The petitioner could only produce 30% of the notified capacity after utilising 75% of the crushing season. Actually 41% of the crushing season was utilized.
The case, therefore, requires to be reexamined again, without prejudice to the rights of the Central Board of Revenue to see that the shortfall was beyond the control of the manufacturer and whether, in its opinion, it was substantial.
8. With regard to the year 1973‑74, the petitioner mill worked from 31‑10‑1973 to 6‑5‑1974. The mill produced 20753.70 tons of sugar, leaving a shortfall of 2046.36 tons. The rate of central Excise Duty on sugar in this year was Rs.280 per metric ton. The petitioner claimed a rebate of Rs.5,72,964. The petitioner was not allowed any rebate at all, because the shortfall was not treated as substantial within the meaning of Rule 4 of the Excise Duty on Production Capacity (Sugarcane) Rules, 1972. The petitioner claimed that the shortfall in the production was beyond its control for the following reasons:
(a) There was severe frost and prolonged foggy weather in December, 1973. Consequently the standing crop suffered heavily.
(b) Supply of sugarcane to the factory was affected by heavy rain.
(c) Operational breakdowns were frequent due to scarcity of furnace oil and diesel oil during the season.
9. The learned Second Secretary, who passed the impugned order on 27‑3‑1984, inter alia held:‑‑
(i) That the petitioner mill merely relied upon availability of sugarcane and did not use gur, shakkar and khandsari. They thus ignored the very important raw materials which had to be used by them, as sugarcane capacity is fixed with reference to sugar that is to be produced by the mill by the use of sugarcane, gur and khandsari.
(ii) Since the mill worked for 125 days as against the standing crushing season of 160 days, on the basis of which production capacity is settled, the mill succeeded in procuring adequate quantity of sugarcane for a longer period. Any plea with regard to failure of crop is untenable.
(iii) The plea of scarcity of furnace and diesel oil was raised at a stage when its authenticity could not be checked by the staff. Hence the plea was inadmissible.
(iv) That the entire shortfall was not, therefore, due to reasons beyond the control of the petitioner mill.,
(v) He accordingly did not allow any abatement of duty.
10. I have seen the original file which contains material on the basis of which the learned Second Secretary pissed the order. The material supports the findings given by the learned Second Secretary. The production capacity is fixed on the basis of crushing season of 160 days. In this year the mill crushed sugarcane for 186 days. It is, therefore, obvious that there was ample sugarcane and the petitioner could have stocked sugarcane in advance as was required. If it failed to do so and at some later stage some part of the crop was affected by frost, the failure of the petitioner mill to stock the sugarcane cannot be stated to be beyond the control of the mill. In t, this year the mill did not claim that gur and khandsari was not available due to paucity or high prices. In this view of the matter, the abatement was rightly disallowed. Even otherwise, the shortfall ,in the production capacity is about 9%. ' Earlier, the claim was inter alia disallowed on this basis. Due to the decision in the Peshawar case, the learned Second Secretary perhaps did not feel comfortable to refer to this factor again, lest his order may be set aside on this ground. However, this is an important matter. The shortfall in this year is not substantial. Unless the shortfall in production is substantial, no abatement can be allowed under Rule 4 of Excise Duty on production Capacity (Sugarcane) Rules, 1972, No interference is called for in this case.
11. With regard to the year 1974‑75, petitioner mill worked from 6‑11‑1974 to 7‑3‑1975. Deducting hours of closure, the mill worked for 92 days only. The mill produced 15073.27 tons of sugar, leaving a shortfall of 7726.73 tons. The rate of Central Excise Duty on sugar in this year was Rs.830 per metric ton. The petitioner claimed rebate of Rs.64,13,138.59. The petitioner has been allowed the total rebate of Rs.54,66,938.59. The petitioner claimed that the shortfall in the production was beyond its control for the following reasons:
(a) The sugarcane allocated to the mill was not sufficient.
(b) Transport difficulty affected availability of sugarcane.
(c) Seeds of 1974‑75 crop were damaged by the frost during the preceding year.
(d) High prices of fertilizer restricted its use and affected sugarcane yield.
(e) Complete stoppage of mill from 26‑12‑1974 to 6‑1‑1975 due to the turbine failure and high price of gur, which made it uneconomical to remelt gur for manufacture of sugar.
12. The learned Second Secretary, who passed the impugned order on 27‑3‑1984, inter alia held:‑
(i) The mill produced 156 tons of sugar for remelting gur. This quantity could have been increased through larger procurement of gur Production is fixed after taking into consideration the fact that the mill must use sugarcane, gur and khandsari.
(ii) The petitioner did not make any attempt to use khandsari as substitute of sugar.
(iii) The other difficulties as were beyond the control of the petitioner had been taken into account and acknowledge by allowing earlier abatement to the extent of Rs.45,10,738.59,
(vi) Excluding negligence and lack of advance planning on the part of the petitioner resulting in the shortfall, he allowed a further abatement of Rs.9,46,200.
13. I have seen the original file which contains material on the basis of which the learned Second Secretary has passed the order Whilst the report of the department admits that the mill crushed all the available sugarcane, both within its authorised zone area and outside its zone area, the report does not support the petitioner to the effect that transport difficulty affected availability of sugarcane, or that seeds of 1974‑75 crop were damaged by the frost during the preceding year, or that high prices of fertilizer restricted its use and affected sugarcane yield. The report admits that the mill remained closed during the season due to breakdown of electricity, defect in machinery and for maintenance. In granting abatement, what is to be seen is what part of the shortfall is beyond the control of the manufacturer and not what is the total shortfall. Once the shortfall which is beyond the control of the manufacturer, is fixed, then it is to be seen whether the same is substantial. If it is not so, it need not be allowed under rule 4. In the instant case, the findings of the learned Second Secretary are neither illegal nor perverse. Nol interference is, therefore, called for in this case.
13. In view of the above, writ petition (W.P.No.2764 of 1985) which relates to the year 1972‑73 is accepted with costs and the order of the Second Secretary, Central Board of Revenue, respondent No.2, dated 27‑3‑1984 is set aside. The case is remanded to the said learned Officer for a fresh decision in the matter, after hearing the petitioner. The case should be decided within two months. Rupees Three Thousand (Rs.3,000) is allowed to the petitioner as counsel's fee.
Writ petition (W.P.No.2766 I of 1985) which relates to the year 1973‑74 and writ petition (W.P.No. 2665 of 1985) which relates to the year 1974‑75 are both dismissed with costs. Rupees Three Thousand (Rs.3,000) is allowed to the Central Excise as counsel's fee in each case.
M. B. A./B-55/L Order accordingly.