COMMITTEE OF ADMINISTRATION, FAUJI FOUNDATION vs COLLECTORATE OF CENTRAL EXCISE AND LAND CUSTOMS, LAHORE and 3 others
This appeal challenged the dismissal of a writ petition by the Lahore High Court, which had upheld an adjudication order demanding payment of excise duty from the appellant, Fauji Textile Mills Ltd. The appellant contested the demand on grounds of limitation under the Central Excise Rules, 1944, and alleged discriminatory treatment compared to other textile mills that received favorable adjustments for export rebates. The core legal question was whether the demand was time-barred and whether the appellant was subjected to unlawful discrimination regarding the adjustment of export rebates against yarn capacity liabilities. Upon review, the Supreme Court noted that the Central Board of Revenue (CBR) had issued a directive allowing other mills to adjust excess export rebates against yarn capacity liabilities. Confronted with this evidence of disparate treatment, the state counsel conceded that the CBR should re-examine the appellant's case. Consequently, the Supreme Court allowed the appeal, set aside the adjudication and subsequent orders, and remanded the matter to the Central Board of Revenue for a fresh decision on the validity of the demand, ensuring consistency in the application of fiscal policies.
- Whether a demand for excise duty is time-barred if not issued within the period prescribed by Rule 10 of the Central Excise Rules, 1944?
- Can a taxpayer claim discrimination if the revenue authority applies different standards for export rebate adjustments to similarly situated entities?
- Is the Central Board of Revenue required to ensure consistency in the application of fiscal directives across similar industrial cases?
- Rule 8(3), Production Capacity Rules 1968
- Rule 9, Central Excise Rules 1944
- Section 36, Central Excises and Salt Act 1944
- Rule 10, Central Excise Rules 1944
- Rule 12(6A), Central Excise Rules 1944
1. ' MUHAMMAD AFZAL LONE, J.---This appeal by leave to appeal is directed against the dismissal of the appellant's writ petition vide order dated 2-5-1990, passed by a learned Single Judge of the Lahore High Court, Lahore. The appellant had invoked the writ jurisdiction for removal of show- cause notice dated 4-6-1986 served on it by the Deputy Collector, Central Excise and Land Customs, Rawalpindi (together with orders up to the Board of Revenue) which in so far as relevant for the purpose of this appeal, is reproduced below-- "Whereas it has been reported to the undersigned by the Directorate of Revenue Receipt Audit, Lahore that during the course of audit or records of M/s. Fauji Textile Mills Ltd., Jhelum for year 1972- 73 and 1973-74, it was observed that the fixed capacity, as detailed herein under, while the deduction of duty per sq. Yds. On the exports in excess of the fixed capacity was correctly made at the lower category, the duty per Lbs. On the weight of yarn used in cloth was adjusted against the category of Fabrics actually removed from the factory at the rate of duty leviable on the category of yarn used in the manufacture of cloth exported resulting in adjustment of Rs,12,75,358.00 in excess of the rebate permissible under Production Capacity Rules, 1968.
2. ' The Production Capacity (Cotton Fabrics) Rules, 1968 being independent of Production Capacity (Cotton Yarn) Rules, 1968, such adjustment amounts to contravention of Rule 8(3) of Production Rules, 1968 read with CBR's directive bearing C.No,1/98- CX(PCII)/71 dated 27-12-1971.
3. ' Now, therefore, M/s. Fauji Textile Mills Ltd., Kala Jhelum are ordered to deposit, within 10 days of receipt of this notice, Rs,14,02,893.84 being the amount of duty and additional duty still outstanding against them and show cause as to why action, as laid down under Rules be not taken against for contravention of Rule 8(3) of Production Capacity Rules, 1968 read with Rule 9 of Central Excise Rules, 1944."
4. ' As this notice was not complied with, it was followed by the Deputy Collector's adjudication order dated 31-12-1987, requiring the appellant to deposit the said sum of Rs,14,02,893 in the Government Treasury within 30 days. This order was not disturbed in appeal by the Collector (Appeals) and the appellant's revision under section 36 of the Central Excises and Salt Act 1944, before the Central Board of Revenue, also failed.
2. In the writ petition the validity of the adjudication order, appellate and the revisional orders was assailed. Two grounds were urged before the High Court; firstly the demand notice was not issued within the time limit prescribed by Rule 10 of the Central Excise Rules, 1944, meaning thereby that the demand was barred by time, and secondly the appellant was subjected to discriminatory treatment, inasmuch as rebate was allowed to M/s. Lyallpur Cotton Mills, Star Textile Mills and Daud Textile Mills, whose cases were similar to that of the appellant. It is evident from the impugned order that the High Court did not advert to the second ground. Only the first point was disposed of, but the notice was not considered as barred by time for the reason that the Superintendent of Central Excise, Khewra, was found to have placed a demand on the appellant for payment of the disputed amount vide his Letter No,4198 dated 8-12-1975.
3. Leave to appeal was granted to examine inter alia the following questions:--
(i) Whether the demand was made and case reopened beyond the time prescribed by law?
(ii) Whether the petitioner has been discriminated against?
5. ' We have head he learned counsel for the appellant. He largely confined his submissions to the discrimination and invited our attention to CBR's Letter C.No, 1/98-CX-(CP.II)/73 dated 24-10-1973, which is reproduced below:- "From: Mr. A.K. Ansari, Officer on Special Duty.
6. To: The Collector, Central Excise and Land Customs, Karachi.
7. ' I am directed to say that it has already been decided by the Board (Copy of the letter enclosed) that in case the export rebate on fabrics which is otherwise admissible exceeds the annual duty on fabrics capacity, the excess rebate should be adjusted against the net liability for yarn capacity of the same factory. The refund claims of M/s. Star Textile Mills and Dawood Cotton Mills under Rule 12 (6A) of the Central Excise Rules, 1944 may be finalised in the aforesaid manner subject to the condition that the total adjustment shall not exceed the total liability for yarn and fabrics.
8. (Sd.)
9. (A.K Ansari), Officer On Special Duty."
10. When confronted with this letter, the learned Deputy Attorney-General, in all fairnes, expressed willingness on behalf of the CBR to re-examine the appellant's case.
11. ' In this view of the matter, this appeal is allowed; adjudication order dated 31-12-1987 and all subsequent orders including the one rendered by the High Court are set aside, and the to the Central Board of Revenue to make a fresh decision on the validity of the demand raised against the appellant. The parties are left to bear their own costs.