SH. FAZAL ELLAHI Versus FEDERATION OF PAKISTAN

SHAFIUR RAHMAN, J.‑‑ The petitioner is a manufacturer of nylon guts from an imported raw material called capro‑lactum. He is aggrieved by the demand of the Central Excise Department of excise duty on nylon chips, considered by the petitioner to be an intermediary product, for the period 11th June, 1966 to 30th June, 1968 and its collection from the petitioner from 1st July, 1968 to 31st October, 1973, the payment having been made by the petitioner for the later period under protest. The department did not afford him the necessary relief in the matter, hence this Constitutional petition.

2. The case of the petitioner is that it imports raw material capro‑lactum. It is first utilised in the Polymerization Section of the factory where it is converted into nylon polymer (commonly called nylon chips). "At first nylon thread of uniform size is produced which is cut into chips for facilitating storage. This cutting of monofilament into chips is necessary because the manufacturing capacity of the polymerization section which is one ton daily does not permit the entire capro‑lactum used at a time to be converted immediately into the end product Nylon gut. Chips of the requisite quantity are put into extrusion plant on the same premises to produce monofilaments of various sizes. Throughout this process, no chemical changes are involved. Nylon filaments, finally obtained are exactly the same material as the monofilament first cut into chips, having same properties and the same outward shape. Nylon Monofilaments of sizes varying from 0.20 mm to 1.40 mm (gut) is manufactured by the petitioner from Capro-lactum." "(para 2 of the petition)." One of the Directors of the Company addressed the Central Board of Revenue (Annex F, page 47 of the record) stating as follows:‑

"We manufacture Nylon Chips from imported Capro‑lactum which we sell to our Extrusion Plant where these chips are converted into Nylon Monofilaments varying from 0.20 mm to 1.40 mm which are sold for use as bristles in brush Industry, as Fishing Lines and as gut for badminton and Tennis Rackets."

2. As against this statement of facts of the case by the petitioner, the respondents have stated:

"In fact, in the case under consideration, the process of manufacture was not continuous one. The chips were to be dried, then weighed and scaled and packed and afterwards shifted to an independent section within the premises for manufacture of Nylon Guts. Thus, the two processes of chips and guts were maintained separately independent of each other by the petitioner." (para 15 (II of written statement of respondent No. 3).

3. It was further stated by the same respondent:

"In this very Mill, the chips which are sold to M/s Faral Nylon are cleared on payment of duty and when M/s Faral Nylon manufactured further products out of it, they pay duty thereon again."

4. The petitioner moved the departmental authorities with the following claims:‑

(i) Nylon guts manufactured by it should be assessed to duty at the rate 10 % ad valorem instead of Rs. 5 per pound.

(ii) Nylon guts at the intermediary stage of Nylon chips being not a "manufactured or finished" item could not be subjected to excise duty.

(iii) The end product, Nylon Guts, being taxable, the intermediary product, should be exempt from tax, as otherwise it would amount to charging of double excise duty.

(iv) Exemptions granted by the following circulars should be made available to the petitioner from 11th June, 1966 to 31st October, 1973:

(a) Notification SRO 96(R) 66, dated 11th June, 1966.

(b) Circular letter dated 6th February, 1975 applying Board's letter No. 8/6 Ex. (M&P)/ 72, dated 31st October, 1973 (Annex U) to petition.

5. So far as the first claim is concerned, it was fully satisfied by the Central Board of Revenue (Annex H).

6. As regards the second claim, none of the departmental authority acceded to it and the statutory provisions applicable to the situation are a complete answer. Section 3(1) of the Excise and Salt Act provides that "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".

7. In the definition clause the word. "manufacture" has been defined to include "any process incidental or ancillary to the completion of a manufactured product:" The preparation of Nylon chips according to the petitioner itself, is a process incidental or ancillary to the manufacture of Nylon guts. Therefore, it is as much a goods and the process a manufacture as of the Nylon guts. In view of this definition off manufacture, it cannot be urged that only the Nylon gut is the completed or finished goods, and not the earlier product. Nylon Chiips. Besides, there is uncontroverted material on record, even the admission (Annex F) of the petitioner that Nylon chips were in a state fit to be sold and were in fact sold. The learned counsel for the petitioner has tried to demonstrate that Nylon chips at that intermediary stage are neither plastic material nor goods of the description to be chargeable‑to duty. This the learned counsel for the petitioner cannot be permitted to do for it amounts to substitution on facts of recital in para 2 of his petition that "Nylon filaments finally obtained arc exactly the same material as the Monofilament first rut into chips, having same properties and same outward shape." Not objecting to the duty on end product how can it be assessed that it is a different product or material.

8. In this connection reference can profitably be made to Superintendent of Central Excise, Lyall pun v. Ch. Faqir Muhammad ( P L D 1959 SC 103) where calendering of cloth was held to be a manufacture in the following words:‑‑

" "Manufacture" is defined in the Act Section 2 (f) as including any process incidental or ancillary to the completion of the manufactured product. We are unable to agree with the view of the learned Judges that unless the content of the article is changed it remains the same in spite of its being given a finish. It might have been so if without the finish the goods were not marketable but uncalendered cloth is also sold in the market.

9. In another arse Pakistan v. Muhammad Aqil (P L D 1960 S C 4) the tanning and glazing of‑leather alone was taking place and it was held:

"The processes of dyeing and glazing of tanned leather made from sheep skins are calculated to produce goods which would fall within the description of the first two categories of tanned leather specified in item No. 23 aforesaid ....for the duty does not fall upon any process, but upon the goods produced."

10. It follows that Nylon Chips being plastic material or articles made of plastic material are dutiable under the proper heading of the First Schedule to the Act.

11. There is no prohibition in Excise Law against levying duty on the same material at more than one stage during the course of its manufacture. Actually this legal position has been noted and upheld in Colony Sarhad Textile Mills Ltd. v. Collector Central Excise and Land Customs (P L D 1969 Lahore 288). All the same, the Central Government and the Central Board of Revenue have been exercising powers reserved for them under section 12‑A of the Act for relieving the manufacturer of the multiple duty. But the exercise of this power has an entirely different content and no Court or authority except the ones specifically empowered can decide to or in fact grant exemptions. This provision of law is as follows:‑‑

12‑A. ‑‑ (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 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 whore or any part of the duty leviable under this Act under circumstances of an exceptional nature to be stated in such order on goods on which such duty is leviable."

12. Reading the two provisions of law together the conclusion follows that duty shall be leviable upto a time when an exemption under section 12‑A is granted. In other words the grant of exemption shall take effect on and from the date the exemption is ordered to take effect. There are two departmental decisions which are sought to be utilized by the petitioner. The first (Annex B) is reproduced hereunder:‑‑

"In exercise of powers conferred by subsection 12‑A of the Central Excises and Salt Act, 1944 (I of 1944) the Central Government is pleased to exempt the excisable goods mentioned in the annexed schedule from the whole of the excise duty leviable thereon under the Act.

Schedule

(1) Articles made of such of the articles of plastic material or synthetic resins as have already been subjected to excise duty.

(2) Products made of such of the products of rubber as have already been subjected to excise duty."

13. Even if all that the petitioner states including the applicability of this SRO is accepted as correct, the result is not to make Nylon chips non‑dutiable as is the claim in this petition but to make Nylon guts non‑dutiable to the extent that it is made up of duty paid Nylon chips. Thus for invoking this clause firstly duty is to be paid on Nylon chips and after that has been done, exemption from duty payable on Nylon guts made of duty paid chips could be claimed. The petitioner cannot justifiably claim exemption on Nylon chips on account of duty having been paid on Nylon guts, for admittedly it is not the case of the petitioner that either capro‑lactum or any material formed out of it before the stage of Nylon chips was duty paid. This SRO actually negatives the claim of the petitioner for avoidance of duty on Nylon chips.

14. The other exemption referred to is a letter of the Board of Revenue addressed to the Collectors, Central Excise and Land Customs, Lahore, Hyderabad and Karachi. The operative part of the order is as follows:‑

"However, the Board has carefully considered the issues involved and has decided that no duty be charged on the intermediary product i.e. granules and PVC resins provided the same are used by these manufacturers in the manufacture of excisable end products within the same factory premises. The end products shall, however, remain subject to Excise Duty at the appropriate rate.

Duty on granules and PVC resins shall be charged if they are cleared as such from the factory premises. The Collectors should not allow any clearances under bond and all clearances made out of the factories should be subjected to excise duty under the appropriate item of the Excise Schedule."

15. The benefit of this concession has been given to the petitioner as from I 1st November, 1973, that is the date when the concession was granted with no element of retrospectivity. The petitioner wants and has for this purpose, invoked the Constitutional jurisdiction, that it should be retrospectively applied to its case from October, 1966. It has already been made clear that this power is conferred on a designated statutory authority, and this Court cannot substitute itself for determining the industry, the product, the time or the conditions on which such an exemption will be granted, or whether the exemption will at all be granted or not.

16. There are left two residual grounds which the petitioner advanced at the argument stage. The first is based entirely on the interpretation of an office memo (Annex R‑page 113 of record) and its application to the facts of the petitioner's case. It is as follows:‑‑

"In connection with the classification of cylindrical nylon chips for the purpose of levy of central excise duty the Central Board of Revenue is pleased to rule that cylindrical nylon chips produced during the process of manufacture of nylon yarn from capro‑lactum which are used up in the manufacture of such yarn during the same continuous process are themselves not manufactured goods and therefore are not liable to central excise duty under item 32 of the First Schedule of the Central Excises and Salt Act 1944. No duty is leviable on them provided such chips are not taken out of the chain processes of manufacture of nylon yarn and are not put to any other use m any other way."

17. The essence of this office memo is continuity of the manufacturing process and during that process or stage, production of more than one excisable goods. If for example some one were to manufacture Capro-lactum from which is produced nylon polymer, and then nylon polymer is made into guts, and guts are E used in tooth brush, and each of these items that is capro-lactum, nylon polymer, guts tooth brush is dutiable then relief is granted in a manner to charge duty only on the end product. In the case of the petitioner on facts stated and not controverted there is no continuity during the process of manufacture. For example the nylon chips are dried, weighed, scaled, packed and shifted to an independent section for storage and sale. These steps actually retard the continuity of the manufacturing process of the end product. These steps are not essential either for completing the manufacturing process. As and when the petitioner is able to establish the continuity of the manufacturing process benefit of this circular can certainly be claimed but not on the facts stated.

18. The other residual ground advanced is contained itn para 13 of the petition and it is that M/s Dawood Cotton Industries Ltd., Karachi and Bengal Fibres Ltd., Karachi who also convert Capro-lactum into nylon chips like the petitioners and use them within their own premises for production of nylon yarn did not pay any duty on such nylon chips. In order to earn the benefit these two nylon yarn producing companies might have been able to establish that the chips (i) were not taken out of the chain processes directed towards the manufacture of nylon yarn; and (ii) were not put to any other use. In the case of the petitioner, as pointed out, these very requirements were wanting. The petitioner has not established the identity of the situation by indicating on record that given in respect of these two companies, the requirements were wanting. Without establishing such an identity discrimination cannot be pleaded successfully,

19. The upshot of the discussion is that none of the grounds advanced prevails and therefore the petition fails and is dismissed with costs.

AA./F‑89/L

Petition dismissed.