GOVERNMENT OF PAKISTAN And Others vs KOHINOOR INDUSTRIES LTD. And 3
This matter arises from petitions for leave to appeal filed by the Government of Pakistan against a judgment of the Lahore High Court, which ruled that a manufacturer is entitled to abatement of excise duty on production capacity when the same machinery is used to produce both cotton yarn/fabrics and man-made (synthetic) yarn/fabrics. The core legal question is whether a manufacturer, assessed for excise duty on a production capacity basis for cotton products, is entitled to an abatement of that capacity duty when they simultaneously manufacture synthetic products on the same machinery, which are taxed separately. The High Court held that excise duty under Section 3(1) of the Central Excises and Salt Act 1944 cannot be charged without granting abatement for the portion of plant and machinery utilized for producing synthetic goods already subject to duty under Section 3(4). The Supreme Court, noting the petitioners' argument that the law does not envisage such abatement simply because a different, more rewarding manufacture was undertaken, granted leave to appeal to provide an authoritative pronouncement on the interpretation of the capacity duty provisions.
- Is a manufacturer entitled to abatement of capacity-based excise duty when the same machinery is used to produce both cotton and synthetic products?
- Does the Central Excises and Salt Act 1944 permit the charging of excise duty on production capacity without granting abatement for machinery used to produce goods taxed under a different provision?
- Section 3(1), Central Excises and Salt Act 1944
- Section 3(4), Central Excises and Salt Act 1944
ORDER
SHAFIUR RAHMAN, J.---In the four Petitions the Government of Pakistan and its functionaries, seek leave to appeal against the judgment of the Lahore High Court dated 3-12-1988. Whereby the abatement in the capacity duty was held admissible in law, to the respondents.
2. The respondents had been placed on capacity so far as the production of cotton yarn and cotton fabrics were concerned. While on such capacity they also manufactured man made (synthetic) yarn and man made (synthetic) fabrics, on which duty was charged independent of the capacity. The respondents claimed abatement of the capacity to the extent duty was paid on man made yarn and fabrics. The High Court after examining the various provisions of law applicable, held as hereunder:--- "Thus, where man made (synthetic) yarn and fabrics are manufactured on the same spindles and looms utilized by a company for the production of its cotton yarn and fabrics, on which it has paid the excise duty on the basis of production capacity, the excise duty under section 3(1) of the Act cannot be charged, without granting abatement of duty on that part of the plant and machinery on which such yarn or fabrics have been produced and duties have been levied under section 3(4)."
3. It is contended by the learned Advocate-on-Record for the Petitioners that the fixation of the capacity is relatable to a particular type of manufacture with a view to encourage production over and above the capacity for which the manufacturer is not liable to tax. When within the capacity or in excess of it the manufacturer manufactures commoditures in respect of which capacity has not been fixed, he has to be charged separately for such manufactures. It is not possible to determine whether such manufacture has taken place within the limits of the capacity fixed at the cost of the capacity or after achieving the capacity. That would be a matter not determinable in the ordinary course where a factory is running on capacity. In the absence of it, the law does not envisage abatement in capacity duty simply because another more rewarding manufacture has been undertaken.
4. Points raised require fuller examination and an authoritative pronouncement for which leave to appeal is granted.