FEDERATION OF PAKISTAN AND Others vs Messrs CHARSADDA SUGAR MILLS

1. MUHAMMAD AKRAM, J.-The respondent, Charsadda Sugar Mills Limited, manufactures sugar from sugar-cane and beet. It is an excisable item and the respondent-Company is required to pay the excise duty levied on the sugar manufactured by it under rule 3 of the Excise Duty on Production Capacity (Sugar) Rules, 1972, made under section 3 (4) read with section 37 of the Central Excises and Salt Act, 1944, as amended. For this purpose the production capacity of the respondent mill under the Rules was determined at 26,000 tons per annum. In this connection, however, the Central Board of Revenue, under certain circumstances, with the prior approval of the Federal Government is empowered to grant an abatement of the duty in accordance with the provisions contained in rule 4.

2. On the 27th of July 1974, the respondent made an application to the Central Board of Revenue claiming abatement of duty on 3,498.69 tons of sugar, involving Rs. 29,03,912.70, on the ground that the full production capacity could not be achieved by the mill for the year 1973-74 because:-

(a) The factory remained closed from 14th December 1973 due to the growers' strike;

(b) Large quantity of cut cane was lying on the roadside fields for more than 3 weeks losing its sugar contents;

(c) Short supply of cane because of its utilization for Gur making the price of which was then very attractive and in spite of its best efforts the company could not get the supply of cane and was, therefore, obliged to stop cane crushing on 6th March 1974; and

(d) Persistent and heavy frost during the months of December 1973, and January 1974, which had seriously damaged the standing sugarcane crop resulting in exceedingly low recovery.

3. It was, therefore, urged that the shortfall in the production was for these reasons exclusively beyond the control of the company.

4. But on the 21st of January 1975, tae Central Board of Revenue allowed the abatement in the excise duty to the respondent with the prior approval of the Federal Government in the sum of Rs. 7,10,000 only. The respondent questioned the validity of the order in Writ Petition No. 512 of 1975 filed in the Peshawar High Court at Peshawar. This order had been passed behind the back of the Company without any notice against the principle of natural justice and was, therefore, quashed by the High with the consent of the parties on the 4th November 1975. The case was accordingly remanded to the Central Board of Revenue for a fresh decision after hearing the parties. On the 5th of February 1976 the Central Board of Revenue passed the impugned order allowing abatement in the excise duty amounting to Rs. 7,10,089.90 only, with the prior approval of the Central Government.

5. In these circumstances on the 26th of March 1976 the respondent-- Company filed yet another Writ Petition No. 58 of 1976 challenging the validity of this order. On the 28th of June 1977 a Division Bench of the High Court, in accepting the writ petition, quashed the impugned order and remanded the case once again to the Central Board of Revenue for afresh disposal in accordance with the law.

6. The petitioners have therefore filed this petition for special leave from the judgment and order passed by the High Court. We have heard the learned counsel for the petitioners at length. To say the least the impugned order dated 5th of February 1976 passed by the Central Board of Revenue is not a speaking order and it does not give any reason whatever in support thereof. However, from the para wise comments called by the High Court it transpires that the Central Board of Revenue has relied, as a matter of its policy, on a formula evolved by it for general application to the effect that shortfall up to an extent of 10% of the annual production capacity could no be considered to be beyond the control of the mills for the purpose of rule 4 of the Rules. In this connection the Board has observed that production does not depend merely on raw material like sugar-cane, beet, electricity, labor etc. But also on the efficiency of management and that enterpreneurship is an important factor for the production. In the opinion of the Board in case the mills are more efficient they can easily increase their production by at least 10%.

7. Rule 4 of the Rules is reproduced as under :- "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."

8. It is self-evident that the Central Board of Revenue in allowing the partial abatement was satisfied that the shortfall in the production capacity was substantial and beyond the control of the respondent but to the extent of 855.53 tons only. In disallowing the shortfall for the remaining 2,643.16 tons of sugar claimed by the respondent the Board merely relied on its own formula by applying the 10 % cut on the total production capacity o 26,000 tons per annum. It has failed to even consider the case set up by the respondent in its application made under rule 4 of the Rules.

9. In doing so the Board acted almost mechanically and failed to exercise the discretion vested in it under the law. It was the duty of the Board to have acted justly, fairly and reasonably having full regard to the facts and circumstances of the case before it. The Board did not even weigh and examine the merits of the claim pleaded by the respondent. This indeed, tatamount to the refusal on the part of the Board to exercise quasi judicial discretion vested in it under the law. We, therefore, find that the judgment delivered by the High Court is unexceptionable and hereby dismiss this petition.