Customs Appeals Nos.K-1841 to K-1859 of 2001, decided on 22nd May, 2003. Versus Customs Appeals Nos.K-1841 to K-1859 of 2001, decided on 22nd May, 2003.
ORDER
ZAFAR IQBAL, MEMBER (TECHNICAL).‑ ‑‑This order will dispose of Customs Appeals Nos. K‑1841 to K‑1859 of 2001, as all these appeals arise out of common question of law and involve similar facts.
2. Brief facts of the case are that the appellant namely, Messrs Dawlance (Pvt.) Ltd. imported the consignment of compressors vide Bill of Entry IGM No.789 of 1996, dated 3‑6‑1996, for manufacturing of refrigerators/deep‑freezers and sought release claiming concessionary rate of duty under S.R.O. 504(I)/94, dated 9‑6‑1994 admissible to goods not manufactured locally. The Central Board of Revenue vide its Letter C. No. 1/88/Mach./84‑Pt‑V, dated 7‑6‑1995 had directed the respondent not to release compressors for refrigerators/deep‑freezers after 31‑12‑1995 under S.R.O. 504(I)/94, dated 9‑6‑1994, as the same were manufactured locally. There was a Public Notice No.21/95‑(A), dated 26‑4‑1995 in which the benefit of concessionary rate of duty was disallowed to refrigerators/deep‑freezers/compressors being locally manufactured and the operation of this Public Notice was also suspended till 31‑12‑1995 vide a Public Notice No.34 of 1995(A), dated 27‑6‑1995 in pursuance of the above referred Board's letter.
3. The post clearance scrutiny of the appellant's documents revealed that the subject consignments were released under concessionary notification, as claimed by the appellant, even after receipt of the Board's aforesaid letter, dated 7‑6‑1995 and the Public Notices cited above. It was alleged by the respondent that the goods were fraudulently cleared by the appellant in order to defraud the Government of its legitimate revenue amounting to Rs.2,31,273.
4. It was also alleged that the documents delivered and the declaration and statements made were false in material particular, therefore, the appellant had violated the provisions of subsection (1) and (2) of section 32 of the Customs Act, 1969.
5. The appellant was accordingly served with a show‑cause notice on 4‑3‑1999, whereby he was asked that as to why the benefit claimed on the import of compressor be not withdrawn and penalties in terms of clauses (10‑A) and (14) of section 156(1) of the Customs Act, 1969 be not imposed.
6. The appellant vide his reply to the show‑cause notice denied all these allegations and submitted detailed explanation. However, the Adjudication officer did not agree with his point of view and passed the impugned order. The said order has now been assailed through this appeal.
7. The appellant contends that‑‑
(a) the respondent had failed to appreciate that at the relevant point in time, the appellant was fully entitled to clear the components and sub‑components for refrigerators and deep‑freezers imported by them under the benefits of S.R.O. 504(I)/94, dated 9‑6‑1994. That the appellant has fulfilled all the conditions required for availing such benefit;
(b) the respondent had failed to appreciate that at the time of import of the goods these were subject to pre‑shipment inspection and the CRF issued in the case clearly state the concessionary rate of duty as claimed by the appellant. The appellant has claimed the concessionary rate of duty as was applicable at the time of clearance of the goods under the statutory notification;
(c) the learned respondent had completely ignored the decision of the Lahore High Court in the case of United Refrigeration Industries (Pvt.) Ltd. v. Federation of Pakistan and another (PTCL 2001 CL 423) in which it was held at page 436 that the department while giving exemption of customs‑duty before and after the issuance of Customs General Order No.7 has conceded that the compressors were not being manufactured in the country and the petitioner under the certificate already accepted by the Collectorate was entitled to the exemption. The learned respondent completely ignored this decision and decided the case to the contrary.
(d) the respondent had failed to appreciate that at the time the goods were cleared, S.R.O. 504(I)/94 did not contain any requirement that only those goods which were not being manufactured locally were eligible to the concessionary rates provided by the notification;
(e) the respondent had failed to appreciate that the amendments made to S.R.O. 504(I)/94, vide S.R.O. 545(I)/98, dated 12‑6‑1998 cannot be given retrospective effect so as to apply to the clearance of goods by the appellant. It is settled law that a notification which imposes an obligation or takes away a right can only be applied prospectively and not retrospectively;
(f) that only those goods as are not manufactured locally are eligible to the concessionary duty rates, was not present in S.R.O. 504(I)/94 at the time the appellant cleared the "compressors" imported by it. Such a requirement had been omitted by the Government when issuing S.R.O. 540(I)/94. That the words "as are not manufactured locally" inserted into S.R.O. 504(I)/94 vide S.R.O. 545(I)/98 cannot be taken to have been a part of S.R.O 504(I)/94 before the issuance of S.R.O. 545(I)/98 on 12‑6‑1998 and to so create a requirement which clearly did not exist at the time the "compressors" were cleared by the appellant. This may not be done even if the intention is to remedy an assumed deficiency. Reference may be made in this regard to the judgment of the Supreme Court of Pakistan in the cases reported as Hirjana & Co. v. Commissioner of Sales Tax (1971 SCMR 128 at 131) and Government of Pakistan v. Hashwani Hotels (PLD 1990 SC 68 at 74, 75):
(g) the respondent had failed to appreciate that all of the conditions of S.R.O. 504(I)/94 have been complied with by the appellant and the Authorities even discharged and returned the indemnity bond filed by the appellant. This clearly shows that the authorities rightly believed that the appellant had lawfully availed the benefit provided by S.R.O. 504(I)/94 and have now simply changed their minds in order to unlawfully extract customs‑duty not payable by the appellant.
8. The respondent defended his action on the basis of the reason given in the impugned order.
9. We have heard the rival parties and the case record has been examined.
10. According to the stance taken by the respondents compressors only in knocked down condition could be imported on concessionary customs duty under S.R.O. 504(I)/90, dated 7‑6‑1990, which is read as under:
"S.R.O. 504. In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969) and in supersession of the Ministry's Notification No. S.R.O. 479(I)/92, dated the 14 th May, 1992 the Federal Government is pleased to exempt raw materials, sub‑components and components imported for the manufacture of goods specified in Table‑I below, subject to the following conditions:‑‑
(i) the components should be to such kicked down conditions as is approved by the Government for each item appearing in "Table‑I";
(ii) the manufacturer has suitable in‑house facilities or progressive manufacturing of the goods in respect of which he claims exemption under this Notification;
(iii) the manufacturer shall furnish to Chief, Survey and Rebate, Board of Revenue, or any other authorized in this behalf, in the prescribed form, the list of goods that he is manufacturing or intends to manufacture alongwith the details of raw materials, sub‑components and components required. The Chief for such Authorized Officer in consultation with the Collector of Customs, Central Excise and or Sales Tax shall certify the annual capacity of the unit for the manufacture of such goods and total requirements of various types of raw materials; sub components and components alongwith the quantity required for the manufacture of each item;
(iv) the manufacturer shall chalk out deletion programme spreading over a maximum period of five years within which period he shall achieve a minimum deletion in the manufacture of items to the extent of 75% of the C&F value of the inputs of the manufactured items. Continued availability of the exemption under this Notification shall be contingent upon.
(a) the achievement of progressive annual deletion as approved by the Central Board of Revenue or Ministry of Industries, as the case may be; and
(b) the use of locally manufactured deleted goods.
(v) at the time of import of raw materials, sub‑components and components, the manufacturer shall make a written declaration on the till of entry to the effect that the raw materials, sub components and components has been imported in accordance with his entitlement in terms of condition (iii) and that he has achieved deletion level in accordance with condition (iii);
(vi) at the time of import the manufacturer shall furnish to the Collector of Customs an indemnity bond alongwith post‑dated cheque of the amount equivalent to the customs‑duties and sales tax exempted, to abide by the conditions laid down in the Notification failing which the shall pay customs‑duties and sale tax leviable on each consignment in any order penalties that may be imposed by the Collector of Customs in this behalf;
(vii) the manufacturer shall maintain record of the inputs and goods manufactured out of them in such form as may be prescribed by the Central Board of Revenue;
(viii) the manufacturer shall within one year of the date of filing of bill of entry for home‑consumption relating to raw materials, sub‑components and components shall apply to the Collector of Customs for discharging the indemnity bond and post‑dated cheque, the application being supported by a certificate in the form set out below, issued by the Assistant Collector of Customs and Central Excise within those jurisdiction the manufacturing unit is located; and
(ix) in case Assistant Collector of Customs and Central Excise is not satisfied regarding the consumption of imported inputs or use of locally produced deleted inputs, he shall report his findings to the Collector of Customs concerned who shall initiate proceedings for encashment of bank guarantee or post‑dated cheque and penal action for making false declaration.
The refrigerator is included in Table‑I to the above said S.R.O., therefore, the customs‑duty on the import of compressors to be used in refrigerator is chargeable on the concessionary rate of 10% of the value. In nutshell, according to the respondents, the benefit of the S.R.O. in question could only be extended under the import policy of the Government to the appellant in case of import of compressors in knocked down condition and not in built‑up condition and that since the appellant was importing compressors in complete built‑up condition, therefore, it was not entitled to this special concession. The advice tendered by the Ministry of Industries was to the following effect:
"Deletion programme for progressive manufacture of refrigerators issued in favour of Messrs United Refrigeration Industries Limited on 9‑9‑1990 allowed import of compressors with overload relay and accessories in C.B.U. condition ...under concessionary rate of duty. Subsequently, on the request made by PEL for inclusion of compressors assembled by them for manufacture of refrigerators and deep‑freezers and after having views and representation from the different refrigerators/deep freezer manufacturers, the matter was considered by this Ministry and following decision was taken/issued to Central Board of Revenue vide this Ministry's O.M. No. 3(62)/93/D.M, dated 22‑12‑1994 for taking necessary action.
"In view of position stated above and keeping into account the market situation in which the locally manufactured refrigerators/deep‑.freezers have to compete with the imported ones, some incentives are required to be given to Messrs PEL for assembling 100% parts/components of compressors in order to make the locally assembled compressors cheaper than the imported. This Ministry is, therefore, of the view that option may then be let to the manufacturer of refrigerators and deep freezer to use either low costs locally assembled compressors or high cost imported compressors."
(2) It is further stated that taking the above decision into account, the deletion program from progressive manufacture of No Frost Refrigerators issued in favour of said firm (Messrs United Refrigeration Industries (Pvt.) Limited) vide this Ministry's O.M. of even‑number, dated 20‑3‑1997, it was made quite clear that against the component compressor in Proforma "C" that all the manufacturers of refrigerators and deep‑freezers have been given option to use either low cost locally assembled compressor or high cost imported compressor at commercial (statuary) rate of duty. The compressor was, therefore, also allowed to be imported in C.K.D. Form to enable PEL to locally assemble the same."
11. In the light of the policy of the Government to give incentives to the local industry, it was decided that the locally made compressors with low cost if being manufactured inside the country shall be used and that the high cost compressors would be allowed to be used with payment of customs duty at commercial rate.
12. The respondent stated that the benefit of the S.R.O. under discussion for import of compressors on concessionary rate was withdrawn under Customs General Order No.7 of 1998, dated 24‑3‑1998 with the inclusion of compressors in the list of locally manufactured item on the request of PEL on its setting up a project of manufacturing the compressors which remained operational till 30‑3‑1999. He added that under the policy an incentive was to be given to the local industry, therefore, on setting up the' project of manufacturing the compressors by PEL, the concession in customs‑duty on import of compressor was withdrawn. However, there was no proof of availability of locally made compressors in the market with the respondent and the S.R.O. in question under which the appellant was availing the concession in customs‑duty on the import of the compressors remained enforced without any modification.
13. The respondent further stated that the letter, dated 17‑11‑1998 written by PEL to Central Board of Revenue stated that locally manufactured compressors would be available in the market but due to less demand in the market, the project was closed. The respondent thus, has not been able to give a satisfactory answer to the question as to whether without modifying or rescinding the notification in question, the statutory concession made available on the import of compressors could be withdrawn or taken away through an administrative order in super session, to the notification issued under the statues.
14. Learned counsel for the appellant on the other hand while placing reliance on the above said letter, dated 17‑11‑1998 of PEL argued that the PEL in unequivocal words had made a request that since the compressor 'manufacturing plant was closed down with effect from 10‑11‑1998, therefore, the item Should be excluded from. Customs General Order No.7 of 1998, dated 24‑3‑1998. According to him, the compressors manufacturing plant set up by the PEL remained operative only for a short period 'and that, too, was set up by PEL for self consumption in the refrigerators being manufactured by PEL and that the same were never introduced in the market for sale. The learned counsel contended that the manufacturing of compressors by the PEL for self consumption without sale in the market on commercial basis would not undo the policy of the Government of providing the facility of import of compressors on concessionary rate of customs-duty of the use of refrigerators under the S.R.Os. in question.
15. With a view to provide a better living to a common person, it was essential to reduce the price of the item of general use and therefore, a special concession in customs‑duty was made available to the manufacturers of refrigerators under S.R.O. 504(I)/94, dated 9‑6‑1994 issued under section 19 of the Customs Act, 1969 with the result that the refrigerators would be available in the market within the reach of purchasing power of a. common person.
16. The components of a few items of the general use were not being produced and manufactured in the country and were being imported for the manufacturing of items such as specified in Table‑I to the S.R.O. 504(I)/94, dated 9‑6‑1994, therefore, the same were exempted from the customs‑duty chargeable under First Schedule to the Customs Act, 1969. This is admitted that the compressors being manufactured in the country were not available in the market and that the permission was given for the import of compressors under the above said S.R.O. on a concessionary rate of customs‑duty and the appellant had been availing the benefit of S.R.O. in question on the import of compressors before 24‑3‑1998 and again was made available to him after 30‑3‑1999 and this special concession was only withheld during the period from 24‑3‑1998 to 30‑3‑1999. Thus, the pivotal question for determination would be, whether the manufacturing of compressors by PEL, an industrial unit in country without commercial production would take away the statutory concession on customs‑duty available to all the manufacturers of refrigerators and whether for the said reason such concession could be withdrawn through a Customs General Order for the benefit of an individual unit.
17. It is understandable that the concession on the import of compressors was given for the reason that the same were not being manufactured in the country, were not available in the market, therefore, without ensuring availability of compressors being manufactured by PEL in the market and its capacity of commercial production, the withdrawal of concession on the presumption of locally made compressors were available in the market was not justified. Undoubtedly, PEL while manufacturing compressors for self consumption would .not be entitled to the concession of customs‑duty available under the S.R.O. in question and in case of commercial production would also make the S.R.O. ineffective for other manufacturers of refrigerators but the respondents without collecting any evidence direct or circumstantial about the commercial production of compressors by PEL and the supply the same in the market withdrew the concession on customs‑duty. In absence of any evidence of the sale compressors by PEL in the market the mere establishment of a plant of compressors by the PEL for the use of same in the refrigerators being manufactured in its industrial unit would not permit the respondents to take away the concessions of customs‑duty on the import of compressors under the S.R.O. in question, which would amount to restrict the market to the refrigerators being manufactured by the PEL and allow the said unit to create monopoly in the business at the cost of healthy and free competition in violation of Constitution for providing fair opportunity of lawful business under Article 18 of the Constitution of Islamic Republic of Pakistan, 1973.
18. The refusal of the legitimate statutory concession made available by the Government through the departmental instructions in the form of Customs General Order would amount to undo the effect of notification issued under section 1" of the Customs Act, 1969. The departmental' instructions such as Customs General Order is issued for guidance of the field instructions such a Customs General Order is issued for guidance of the field staff to achieve the purpose of the statute, and if such departmental instructions are issued in conflict to statutory law or to undo any Such law, the same would not have any legal effect. Undoubtedly, the import of compressors under the S.R.O. in question and the charge ability of customs‑duty on concessional rate was subject to the non‑availability of local made compressors and for the denial of benefit of the S.R.O. in question, there would be the following essential prerequisite; (a) that the manufacturer has suitable in‑home facilities to manufacture the components of an individual item as mentioned in Table‑1 to the S.R.O. in question for which exemption in the customs duty is being claimed; (b) that such components are in such knocked down condition as is approved by the Government. The respondent on the basis of certificate given by the appellant to his eligibility prepared survey report and found the appellant entitled to the exemption. Therefore, so far as first condition is concerned, the department white giving exemption of customs‑.duty before and after the issuance of Customs General Order No.7 has conceded that the compressors were not being manufactured in the country and the appellant under the certificate already accepted by the Collectorate was entitled to the exemption given under the earlier S.R.O. issued in 1996 and subsequent S.R.O. which is still in field.
19. However, the knocked down condition of compressors can better be defined by the manufacturers and unless the technical distinction between the knocked down and built‑up condition is notified by the Government, in the light of technical distinction to be made by the original manufacturer, the general definition of the two being made by the functionaries of the Government in their discretion through artificial manner would not take away the concession in the customs‑duty given under the S.R.O. in question.
20. The withdrawal of exemption in customs‑duty on compressors under the S.R.O in question, through Customs General Order without technical interpretation of the tern "knocked down condition" and issue of notification by the Government accordingly was not legal and they customs General Order being violative of the S.R.O. under discussion; would be of no consequence. This is noticeable that even Customs General Order in question was not specifically made applicable in case of import of compressors and again the functionaries through a misconception were withholding the legitimate benefits available to the appellant. Thus, neither the certificate given by the appellant and approved by the Customs Authorities lost its validity and legal status nor Customs General Order was made applicable to the import of compressors as such. Therefore, the interpretation of notification by the concerned department under which the compressors are being imported on concessionary duty through Customs General Order in question was against the spirit of the scheme and policy of law. Fortunately, in order to support this view, we have been able to place our hands on a number of judgments reporter as URL v. Pakistan (PTCL 2001 Cl. 423), Hirjana & Co. v. Commissioner of Sales Tax (1971 SCMR 128) and Government of Pakistan v. Hashwani Hotels (PLD 1994 SC 68).
21. For the foregoing discussion it is held that the appellant was entitled to the concession of customs‑duty under S.R.O. 504(I)/90, dated 7‑6‑1990 and the same was illegally refused on the basis of Customs General Order No:7, dated 24‑3‑1998, thus the benefit of the said S.R.O. shall be available to the appellant, and notwithstanding the Customs General Order No.7, dated 24‑3‑1998, it would be deemed to have always been so available to him. The Customs General Order should have no effect' on the right of the appellant relating to the claim of exemption on customs‑duty under S.R.O. 504(I)/94, dated 9‑6‑1994, the refusal of the same by the respondent would, therefore, be without lawful authority. These appeals are thus allowed and the impugned orders are set aside.
C.M.A./1010/Tax (Trib.) Appeals allowed