DIRECTORATE OF TRAINING CUSTOMS, CENTRAL EXCISE AND SALES TAX KARACHI

A STUDY OF CENTRAL EXCISE CASE LAW IN RELATION TO VALUATION DISPUTES

By:

Abdul Hameed Memon Assistant Collector

CONTENTS Chapter 0. 1. 2. 3. 4. 5. 6. Title Foreword Valuation in Central Excise Case Law - Premises and Principles Case Law - Value Case Law - Retail Price Case Law - Charges for Services Conclusion Page 3 4 11 14 18 30 40

Appendices

A. B. C.

List of Court Cases Relating to Valuation Abbreviations used for Legal Journals Bibliography

42 47 48

FOREWORD It was a good move on part of the Directorate of Training when it was decided, perhaps for the first time, that the probationers would be required to write a thesis on a subject assigned to each of them. Whereas, the rest of my colleagues selected topics relating to the Customs, I, in deference to the wishes of our worthy Director, opted to write on a different topic, relating to Central Excise. When I selected this topic relating to central excise case law, I visualised myself going through the records and files of law cell of some collectorate and gathering data relating to court cases. But our able instructor Mr. S. U. Mirza, much to my relief, informed me on consultation, that there is already a book available, written by Mr. H. A. Shirazi, which contains an account of all the court cases relating to the Central Excise. This book, comprising of three volumes, was the main source material for my thesis. Having overcome the main obstacle, now I needed some material that related to history of valuation in Central Excise and various relevant aspects. This problem was resolved when Mr. Shahid Bashir, our Director, handed over to each of us a copy of his article, titled Concept of Value in Central Excise, to acquaint us with this subject in preparation for the Final Passing Out Examination. Thus, an arduous task that I faced was made much easier. The resource book contained twenty-two cases relating to valuation; out of which twelve have been discussed in this thesis. These have been selected on the basis of their interest worthiness and relevance. Some of the cases related to the assessment of Sales Tax and some others to dutiability of certain goods; these have not been included for the sake of brevity. Out of twelve selected cases two pertain to value i.e. wholesale cash price, five to retail price and remaining five to services. I am highly indebted to Mr. Shahid Bashir, Director, Training, and Madam Riffat Hassan Abidi, Principal, whose invaluable guidance and keen interest in our training enlightened us greatly and this fact, certainly, was helpful in the completion of this thesis. I am thankful to Mr. Fateh Mohammed Sheikh, Deputy Collector, Hyderabad, who very graciously lent me his office computer for typing out the thesis. I also thank Messrs. Zulfiqar, Farooq, Shaukat, Shoaib, Ghulam Hyder, Moeen, Munir and Miss Nighat, all of Hyderabad Collectorate, who saved me the trouble of typing the whole thesis myself.

Hyderabad, 12th June 1995

(ABDUL HAMEED MEMON) Assistant Collector

Chapter One

VALUATION IN CENTRAL EXCISE

The Central Excise duty is levied on the goods produced or manufactured and services provided or rendered in Pakistan, at the rates as specified in the First Schedule to the Central Excises Act, 1944. While levying this duty there is a choice to impose it, either at a rate equal to certain percentage of worth or utility of the goods expressed in terms of value or retail price; or in a fixed sum related to physical aspects such as a number, weight, volume or other measurements. The former types of duties are called ad valorem duties and the latter ones specific duties. The specific duties are simpler to calculate and the susceptibility to fraud is low but the rates of such duties need to be frequently revised due to fluctuations in price. Ad valorem duties, although difficult to assess are now being preferred over specific duties for the following two reasons: (i) The incidence of duty is determined by quality even at the same rate of duty; better the quality, higher is the value and so is the incidence of duty. (ii) Ad valorem duties automatically follow monetary and price fluctuations. Therefore, they do not need frequent adjustments. The levy of ad valorem duties involves determination of value of the excisable goods. There has been lot of discussion on the methods of determination of value, which has finally culminated into two concepts of value, positive and notional. A positive concept is accepting the price actually paid for the goods, or if for any reason, there is no price, the price paid for similar goods. However, majority of the tax experts believes that the actual price paid is only a prima facie evidence of the value of goods. This price may be influenced by many factors and may not be a mere reflection of the relationship created by the sale itself. Accordingly, there is need to have a standard to determine the acceptability of a declared value. This leads us to the sphere of notional concept of value, or the definition of value. The definition of value was incorporated in section 4 of the Central Excises Act, 1944. The definition has been amended since then and a concept of duty on retail price has been added. After the levy of duty of excise on services, the concept of duty on normal charges was also introduced.

THE CONCEPT OF VALUE

Before amendments in section 4 of the Central Excises and Salt Act, 1944, the definition of value was as follows: Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold for delivery at the place of manufacture and at the time of its removal therefrom, without any abatement or deduction whatever, except trade discount and the amount of duty then payable.

This concept of value i.e. the determination of value on the basis of wholesale cash price of article of like kind and quality, excluding trade discount and duty payable, is very old concept. It was adopted in the section 4 of the Central Excises and Salt Act, 1944, from section 30(a) of the Sea Customs Act, 1878. The definition of value expressed in sub-section 4 of the Central Excises and Salt Act, 1944, was first amended in 1961. The definition of value was amended to the extent that trade discount to be paid to the distributor was disallowed. Section 4 of the Central Excises and Salt Act was further amended by the Finance Act, 1967, and Finance Ordinance, 1969. After amendments, the said section now reads as follows: Where under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold to the general body of retail traders or, if there is no general body of retail traders, the general body of consumers, on the day on which the article which is being assessed to duty is removed from the factory or the warehouse as the case may be, without any abatement or deduction, whatever except the amounts of duty and Sales Tax then payable. After the introduction of amendment in the definition of value, the provisions of section 4 [now section 4(1)] were amplified by the Board in Central Excise General Order no. 53 of 1967 dated 29th September, 1967. The relevant provisions of the said instructions, which are valid even now, are cited below: (i) In section 4, the expressions trade discount and place of manufacture have been omitted. For determining the assessable value, only the amounts of duty and Sales Tax have to be deducted from the wholesale cash price. (ii) In the case of goods, which are sold at equalised prices throughout the country, the expression the general body of retail traders means the general body of retail traders in the country as a whole. In other cases, where prices vary from place to place, the said expression should be deemed to refer to the general body of retail traders in the wholesale market nearest to the factory or the warehouse concerned. (iii) The section refers to wholesale cash price. If there are both cash and credit prices and the credit prices are higher than the cash price, the credit prices should be ignored. At the same time, care has to be taken that the credit price is not made a medium of evasion of duty. Where it is claimed that the higher price is a credit price, it is to be established that, firstly there are two prices; secondly, the cash price is actually lower; and thirdly, the goods are actually sold at the said lower prices. If all or most of the sales of a manufacturers products are shown to be credit sales, then the price at which such transactions take place should be reckoned as the price for the purposes of section 4. Any hypothetical cash price or the cash price for some transactions should be ignored. (iv) If the manufacturer sells part of his product to some retail traders and the rest of his products are sold to the retail traders through middleman like distributor/sub-distributor or wholesale dealer, then the price at which such middleman sells the goods is the value for the purposes of assessment.

(v) The requirement of capable of being sold can be considered as satisfied if the wholesale cash price for the general body of retail traders is periodically advertised in newspapers, market bulletins or trade journals, at least once in two months, or whenever the prices are changed. It is, however, expected from the department to be vigilant to guard against the possibility of this facility being abused by advertising fictitious prices. (vi) The assessable value is to include all charges up to the sale to the general body of retail traders. In other words, if in addition to the advertised price, or otherwise declared price, certain amounts are being charged to the retail traders on account of transport, octroi, etc., all such amounts should be included in the price for the purpose of section 4. Before applying the rate of duty, assessable value, which is wholesale cash price minus the amount of duty and Sales Tax, is to be worked out.

THE CONCEPT OF RETAIL PRICE

In the Finance Ordinance, 1969, a new concept of value was introduced. For this purpose section (4) was renumbered as section 4(1) and a new sub-section 4(2) was added in the Act. It read as follows: Where under this Act any article is chargeable with duty at a rate dependent on the retail price of the article, the retail price shall be the price fixed by the manufacturer, inclusive of all charges and taxes, other than octroi, at which a particular brand or variety of such article should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest such price. The introduction of the concept of linking central excise duty with retail price brought a fundamental change in the concept of central excise duties. These duties which were merely a device for producing revenue, became an instrument of economic control, particularly with the object of holding the price line. This concept was originally applied to consumer goods such as tea, cigarettes, vegetable products, beverages, petroleum, lubricating oils, paints, soya fabrics, yarn, batteries and cells and electric bulbs. The manufacturers of the commodities subjected to duty on retail price were required to print the retail price, at which goods were available to the general body of consumers, with indelible ink on the article itself. The non-compliance of this provision made the manufacturers liable to pay duty at penal rates. For instance, in the case of cigarettes, if retail price was not printed on the cigarette packets in the required manner, the duty at 500% ad valorem was to be levied. This sub-section was substituted by Finance Act, 1993, and re-substituted by Finance Act, 1994, and now, reads as follows: Not withstanding the provisions of sub-section (1), the Federal Government may, by notification in the official gazette, declare that in respect of any goods or class of goods the duty shall be charged on retail price fixed by the manufacturer, inclusive of all charges and taxes, other than Sales Tax levied and collected under section 3 of the Sales Tax Act, 1990, and octroi, at which any particular brand or variety of such article should be sold to the general body of consumers or, if more than one such price is fixed for the same brand or variety, the highest such price:

Provided that the retail price shall be legibly, prominently and indelibly printed or embossed on each article, packet, container, package, cover or label, as the case may be. The difference between the new and substituted sub-section is that under the old provision the option of printing retail price was with the manufacturer and by availing of this option he could pay duty on lower rate; one requirement being printing of retail price on the products and another indirect requirement was that the retail price had to fulfil the criteria as laid down in sub-section 4(2). If he failed to print the retail price he had to pay the duty under section 4(1) at a much higher rate. But, now the provision is mandatory for the articles notified under sub-section (2) and if the requirements of the sub-section are not fulfilled by the manufacturer, he can be held to have contravened the sub-section (2) and penalised accordingly. In order to amplify the provisions for levy of duty on the basis of retail price the Board issued various general orders and instructions from time to time. The first of these orders was the Central Excise General Order no. 14 of 1969 dated 16.07.1969. One relevant and operative provision of the said General Order is as follows: Excise duty is to be calculated on the basis of printed and advertised retail price without any abatement thereof. For instance, if the printed or advertised price is Rs. 3 and the rate of duty is 15% the amount of duty payable will be Rs. 0.45. The case of bulk supplies to the government organisations and industrial concerns is dealt with by general order no. 23 of 1969, which provides as under: (i) If the goods supplied to the government organisation and industrial concerns are of special specification, then the actual price at which the goods are sold should be printed on the containers or packages. (ii) If the goods supplied to the government organisations or the industrial concerns are placed in special containers/packages and are of the same specifications as goods sold to general consumer, then the normal retail price per unit should be printed on the containers/packages of such supplies. A subsequent letter of the Board, no. 18/9-Es(R&P)/70 of 1971, added: In case the manufacturers can furnish a copy of the contract under which the goods are being supplied to Government /Semi-Government organisations or recognised industrial concerns and makes a declaration that the goods supplied are not meant for sale in the market to the general body of consumers and are specially made for supply to the contracting party, assessment may be made on the contracted price inclusive of the duty and other charges. In the concept of levy of duty on the basis of retail price the printing of retail price on the containers/ packages was of paramount importance. In order to guard against any misuse or violation of the provisions of the facility, rule 231-A was inserted in the Central Excise

Rules, 1944, vide SRO. 122(I)/69 dated 28.6.69. The said SRO was issued along with the Finance Ordinance, 1969, which added section 4(2) in the Act. Rule 231-A reads as follows: 231-A Submission of containers, etc.: (1) Wherein with reference to the retail price of such goods as printed on the package, container, cover, wrapper, label or tag, six specimens of such package, container, cover, wrapper, label or tag shall be submitted to the Superintendent of Central Excise having jurisdiction, at least one week before such package, container, cover, wrapper label or tag is used in relation to such goods. (2) Where any package, container, cover, wrapper, label or tag is used in relation to any goods referred to in sub-rule (1) without complying with the provisions thereof, such goods, if found in the possession of any dealer, or retailer of such goods, shall be liable to confiscation. It has been a point of dispute whether the manufacturers can be asked to pay the duty at the retail prices at which goods are actually sold by the retail traders to the consumers. In certain cases it can be higher than the retail price fixed by the manufacturers. The question is, whether the manufacturer can be made liable to penal action on this account. This issue was considered by the Board and instructions were issued vide central excise General Order no. 10 of 1975. The relevant provisions of the said general order are as follows: There seems to prevail an impression that when an excisable article is sold to a consumer at a price higher than the retail price printed thereon, on the basis of which excise duty has been paid, no offence under the excise law has occurred; and no action can be taken by the department against the manufacturer of the article for short payment of duty. This impression is not altogether correct. Where duty is chargeable on the basis of retail price, sub-section (2) of section 4 of the Central Excises and Salt Act, 1944, enjoins the manufacturer to declare, for the purpose of duty, the price at which the article should normally be sold to the general body of consumers. Hence, whenever it comes to notice that an article subject to the duty is actually selling at a price higher than the declared price, the matter would call for investigation. In such a case, if the examination of purchase/sale documents through which the goods reach the retailers and other records reveal that the manufacturer charged such a price from the wholesalers/retailers that it left them hardly any margin of profit and the article could not possibly be sold at the printed retail price, then the obvious inference would be that the manufacturer under-declared the retail price, and action of the excise officer for violation of law would be in order.

THE CONCEPT OF NORMAL CHARGES

In the Finance Ordinance, 1970, central excise duty on services provided or rendered by hotels and restaurants and duty on advertisements was introduced. Duty was levied on the percentage of normal charges. Simultaneously, vide the same ordinance, sub-section (3) of section 4 was added to define this concept of value, which reads as follows, after being amended by the Finance Act, 1993:

Where under this Act any services, facilities and utilities are subject to duty at a rate dependent on the charges therefor, and (a) any such services, facilities or utilities are, in any case, rendered or provided free of charge or at a concessional rate, the duty shall be levied and collected on the amount which would have been charged for such services, facilities and utilities had they not been rendered or provided free of charge or at a concessional rate: Provided that the amount of commission on insurance premium and discount on advertisements allowed in the ordinary course of business shall not be included in the charges for the purpose of levy and collection of duty; and (b) the amount with reference to which the duty shall be levied shall be the total amount charged for all services, facilities and utilities provided or rendered including the charges for supplies or merchandise therewith. The concept of normal charges was probably adopted from the concept of normal value devised by the Customs Co-operation Council, Brussels. The reduction of charges on any account is to be ignored and duty is to be levied on the charges that would have been charged in normal circumstances. This concept has been the subject matter of discussion in the superior Courts. The courts have, as would be seen in Chapter Five, held that different charges can be fixed for different categories of customers. Such lower charges for a category can not be described as concession, and therefore, the duty will be levied and collected on actual lower charges received in such cases. It may be pointed out that for a long time, the concept of value i.e. valuation on the basis of wholesale cash price were identified in the Customs for imported goods, and in Central Excise for the valuation of domestically manufactured or produced goods. For the purposes of valuation of imported goods, however, the concept of normal value as propounded by the Customs Co-operation Council was internationally recognised and has worked successfully for years. This concept was adopted in Central Excise while defining the basis of valuation in the case of excisable services where the basis is normal charges. However, the said concept was not completely adopted for Central Excise purposes. The concept of normal value is undergoing a change and the GATT Code of Valuation is being adopted for the evaluation of imported goods in Pakistan. When this is done, efforts may also be made to change the concept of value in central excise in the light of GATT Code of Valuation.

VALUATION OF IMPORTED GOODS

The Finance Act, 1994, added a fourth dimension to the central excise duty by subjecting imported goods to the levy of duty, through an amendment in section 3(1) of the Central Excises Act, 1944. The amended sub-section (1), now, reads as follows: There shall be levied and collected in such manner as may be prescribed duties of excises on all excisable goods, produced or manufactured in Pakistan or imported into Pakistan and on such goods, as the Federal Government may,

by a notification in the official Gazette, specify, as are produced or manufactured in the non-tariff areas and are brought to the tariff areas, and on all excisable services, provided or rendered, in Pakistan, as and at the rates, set forth in the First Schedule. This amendment has added a new aspect to valuation in Central Excise i.e. valuation of imported goods. This aspect has been taken care of by adding sub-section (4) to section 4 of the Act, which reads as follows: Where under this Act any article is chargeable to duty at the import stage, it will be assessed to duty on the value determined in accordance with section 25 of the Customs Act, 1969(IV of 1969), or, as the case may be, section 25B thereof. The valuation of imports, under the Customs Act, 1969, comprises of two concepts i.e. Normal value, as elucidated in section 25 and Import Trade Price (ITP) value as fixed by the Controller, Valuation, under the authority delegated by the Central Board of Revenue, which in turn has been so empowered by the section 25B of the Customs Act, 1969. The concept and method of valuation of imports, under the Customs Act, 1969, is an entire subject in itself and, perhaps, too extensive to be covered by this paper. The refuge, however, may be sought in the fact that presently the imports remain exempt from the levy of the Central Excise Duty as provided by the notification no. SRO 544(I)/94 dated 9.6.94. *****

Chapter Two

CASE LAW - PREMISES AND PRINCIPLES

The Central Excises Act, 1944, imposes the Central Excise Duty on the goods and services and prescribes the ways and means to collect it. The administration of this Act is the responsibility of Central Excise Officers, as are appointed under rules framed by the Federal Government under the authority of section 37 of the Act. These officers are also empowered to settle all disputes through adjudication that arises under the Act. The adjudication powers have been conferred upon the officers of Central Excise by section 33. The adjudication proceedings, presided over by the Central Excise Officers are of quasi-judicial nature and the adjudicating authority is required to follow principles of natural justice as universally accepted. The adjudicating authority delivers its judgement under the provisions of the Act and the rules made thereunder. The person aggrieved by the decision of adjudicating authority has the right to appeal to the Collector (Appeals) or the newly constituted Customs, Central Excise and Sales Tax Appellate Tribunal, as provided in section 35 and 35B of the Act, respectively. Under new provisions of the Act, which were incorporated by the Finance Act, 1989, but made operative recently, there exist limited powers of revision by the Federal Government, as provided in section 36. A person failing in appeal before the Appellate Tribunal has been given the right under section 36C to apply to the Appellate Tribunal, requesting to refer the case to the High Court on a point of law. In some cases the reference can be made even to the Supreme Court, as provided in section 35D of the Act. But, the provisions relating with the reference to the High Court and the Supreme Court are new and the case law under these is yet to be formed. In the old provisions of the Act there was no reference to the High Court or the Supreme Court and all the adjudication were to be done by the departmental authorities or the Federal Government itself. Then how the Central Excise Case Law was formed? What are the premises and basis of Central Excise Case Law? The Central Excise Case Law was formed under the law of writs as enunciated in the Constitution of the Islamic Republic of Pakistan. The article 199 of the Constitution defines the writ jurisdiction of the High Courts. The relevant portions of the Article 199 are quoted below: 199. (1) Subject to the Constitution, a High Court may, if it is satisfied that no other adequate remedy is provided by law, ___ (a) on the application of any aggrieved party make an order ___ (i) directing a person performing, within the territorial jurisdiction of the court, function in connection with the affairs of the Federation, province or a local authority, to refrain from doing anything he is not permitted by law to do, or to do anything he is required by law to do; or (ii) declaring that any act done or proceeding taken within the territorial jurisdiction of the court of a person performing function in connection with the affairs of the Federation, a province or a local authority has been done or taken without lawful authority and is of no legal effect; or ...

(2) ... (3) ... (4) Where ___ (a) an application is made to a High Court for an order under paragraph (a) or paragraph (c) of clause (1), and (b) the making of an interim order would have the effect of prejudicing or interfering with the carrying out of a public work or of otherwise being harmful to public interest or state property or of impeding the assessment or collection of public revenues, the court shall not make an interim order unless the prescribed law officer has been given notice of the application and he or any person authorised by him in that behalf has had an opportunity of being heard and the court, for reasons to be recorded in writing, is satisfied that the interim order ___ (i) would not have such effect as aforesaid ; or (ii) would have the effect of suspending an order or preceding which on the face of the record is without jurisdiction. (4A) An interim order made by a High Court on an application made to it to question the validity or legal effect of any order made, proceeding taken or act done by any authority or person, which has been made, taken or done, or purports to have been made, taken or done under any law which is specified in Part-I of the First Schedule or relates to, or is connected with, state property, or assessment or collection of public revenues shall cease to have effect on the expiration of a period of six months following the day on which it is made, unless the case is finally decided, or the interim order is withdrawn, by the Court earlier. It can be seen from the perusal of above excerpt from the Constitution that there are three types of writs which the High Court can be petitioned for in respect of any adjudication or proceeding under the Central Excises Act, 1944. These are: (i) Writ of Prohibition i.e. order directing any Central Excise Officer to refrain from doing what he is not permitted by law to do, (ii) Writ of Mandamus i.e. order directing any person to do what he is required by law to do, and (iii) Writ of Certiorari i.e. order declaring that certain judgement or act of the Central Excise authorities is without lawful authority and therefore, of no legal effect. In most cases third type of writ is petitioned for seeking to annul an order passed by a Central Excise officer in exercise of his adjudication powers, while the two former writs are petitioned for in fewer cases. In all these cases, invariably, a point of law is involved which the court resolves and the decision of the court becomes case law for future adjudication and cases.

The case law is an important source of interpretation of laws and statutes and sets a precedent for future similar cases. Not only that courts resort to the case law whenever a point of law arises in a case but the Central Excise officers should also take guidance from case law while acting as presiding officers in the adjudication process. As already mentioned, in the cases before a High Court or the Supreme Court a question of law is involved and the court has to interpret certain provisions of law. In case of central excise law and other fiscal statutes, the courts follow certain principles or rules of interpretation, which have been already set by the decisions of the courts in the past cases. Some of these rules and principles are discussed below: (i) The charging provisions are to be construed strictly whereas assessment and collection provisions are to be construed liberally. (ii) The subject should not be made liable for tax unless the clear provisions of the statutes warrant such a step. (iii) Where there is doubt in the matter, an interpretation favourable to the subject should be preferred. (iv) There is no equity, intendment and presumption as to tax. (v) Interpretation helping evasion of taxes is not permitted. (vi) Substance and not form is to be taken into consideration. (vii) Legislative intention must be gathered from the language used in the enactment. (viii) Legislative intent and purpose must be given effect to and not thwarted on any vague and nebulous theoretical concept. (ix) The statute must be construed as a whole. (x) One must have regard to strict letter of law. (xi) The statutory words should not be given wider meanings. *****

Chapter Three

CASE LAW - VALUE

There were two cases relating to the valuation i.e. the concept of wholesale cash price as given in the resource book. In one of the cases the appeal of the department was turned down and rightly so as the department was not allowing the deduction of commission meant for the distributor and the wholesaler against the spirit of section 4 as prevailing at that time. In the other case, stand of the department was partly upheld. The cases are discussed below: PLD 1961 Supreme Court 66 Government of Pakistan through the Secretary, Ministry of Finance Appellant Versus M/s. Popular Tobacco Company, Karachi Respondents Judges Present: A. R. Cornelius CJ, Amiruddin Ahmed, S. A. Rehman, Fazal Akbar and B. Z. Kaikaus, JJ. M/s. Popular Tobacco Company, Karachi, a manufacturer of cigarettes, sold their cigarettes for cash price to distributors. The distributors in their turn sold them to the wholesale dealers and the wholesale dealers passed them on to the market. From the cash price which the distributor had to pay when he received goods from the factory there was deducted a discount, part of which the distributor retained for himself, the other part being intended for the wholesale dealer to whom he sold the goods. The company was originally assessed on the basis of the amount which they actually received from the distributors, that is the price fixed by them for the goods less the discount allowed. Subsequently, the Inspector of Central Excise directed them to include the discount in the amount on the basis of which excise duty was assessed. The respondent refused to comply with the demand. As a result the respondent filed a writ petition the High Court of West Pakistan, Karachi Bench. The department was called upon to state the reasons why a demand was made to include the discount in the amount on which duty was to be assessed. The plea taken on behalf of the department was that the distributor was a privileged person and an agent of the respondent and, therefore, the discount allowed to him was not the trade discount contemplated by section 4 of the Central Excises and Salt Act, 1944. In the alternative, it was contended that only that part of the discount should be deducted which was intended for the wholesale dealers. The learned judges of the high court were unable to accept that the distributor was a privileged person or an agent and accordingly, they issued a writ as prayed for. The appeal was then filed by the government in the Supreme Court challenging the decision of the High Court. In the argument before the Court the contention that the distributor was a privileged person or an agent was dropped.

The first contention put forward by the Attorney General was that the distributor was not a wholesale dealer and the deduction permitted by section 4 is only the trade discount intended for such dealer. The honourable Court held that, in the first place, section 4 did not speak of the dealer but only of the wholesale cash price, and it could not be denied that the distributor purchased goods wholesale and paid a cash price. It was in fact provided in the agreement between the respondents and distributors which was placed on the record by the appellant that the distributor received delivery of goods only on the payment of the full cash price less the trade discount, but it was not even correct to say that the distributor was not a wholesale dealer. He purchased the goods wholesale and in accordance with the allegations of the appellant himself sells the goods wholesale to the wholesale dealers . The mere fact that he was called distributor can not exclude him from the category of wholesale dealer. At the same time, if section 4 were to apply only to the sale made to the wholesale dealer and the distributor be not a wholesale dealer the result would be that excise duty would not be payable in this case at all, because it was only at the point when the goods leave the factory that the tax was to be assessed. Any subsequent transaction was not liable to excise duty and therefore it would not be possible to levy duty on the basis of the transaction between the distributor and the wholesale dealer. The alternative contention put forward by the appellant was that only that part of the discount should be allowed which was intended for the wholesale dealer. The Court observed that, This contention too is not supported by any sound argument and this point is really included in the contention dealt with in the preceding paragraph. The last contention of the Attorney General was that the sale to the distributor was only a colourable transaction. The Court held that, Now, if this contention was true on facts the appellant would have a case. But there are no materials at all on the record for holding that the transaction is only colourable. The distributors do pay money in cash to the respondents before they take delivery of the goods and it is only on the basis of some strong evidence that the transaction could be held to be fraudulent and the record lacks any such evidence. The Court further observed, The intention of the law is that excise duty should be paid by the manufactures on the amount which they actually receive and it is on such amount that excise duty was being originally levied. The demand for additional duty made by the Excise Department was unjustified. The appeal was dismissed accordingly. 1980 SCMR 773 Crescent Textile Mill Limited Appellants Versus The Member (Central Excise), Central Board of Revenue, Islamabad and others Respondents Judges Present: Anwarul Haque CJ., Karam Elahee Chauhan, and Abdul Qadir Sheikh, JJ. The facts of the case were that M/s. Crescent Textile Mill Limited had contracted to supply to the Government of Pakistan, Department of Investment Promotion and Supplies, a

certain quantity of Khaki Drill, commercially described by the appellant as C-555, and described by the contracting Department as T.C.2 no.1, at the assessable rate of Rs. 1.83 and inclusive rate of Rs. 2.41 per yard in the year 1964. Another contract was given to the appellant by the Directorate of Industries (Supply Wing), Government of West Pakistan, Lahore, for the supply of cloth described by the appellant as Drill Cotton, Mineral Khaki (Quality no. 2) and described by the Government Department as T.C. 2 no. 2, at the assessable rate of Rs. 1.43 and inclusive rate of Rs. 1.88 per yard. However, the appellant declared the same rates for the purposes of the assessment of excise duty for both the qualities of cloth, namely, assessable rate of Rs. 1.37 and inclusive rate of Rs. 1.80 per yard, and paid the excise duty accordingly. The matter was referred by the Superintendent, Central Excise and Land Customs, to the Assistant Collector, Central Excise, Lahore, who by his order dated the 5th of November, 1974, approved the rates fixed by the Superintendent, namely, Rs. 1.75 assessable and Rs. 2.31 inclusive or ex-mill price per yard for both the qualities of cloth, on the ground that they were identical and should be priced similarly. As a result, the appellant was called upon to pay the arrears of excise duty calculated on the basis of the rates approved by the Assistant Collector. The appeal filed by the appellant was dismissed by the Collector of Central Excise and Land Customs and the revision petition was similarly dismissed by the Government of Pakistan. The appellant thereupon filed a writ petition in the Lahore High Court which was dismissed by a Division Bench. The learned judges observed that the appellant did not contend before the Assistant Collector that the two supplies were different in quality and that in any case, the determination of assessable value per yard of each sample was not open to question for the reason only that the manufacturer chose to describe the two products under different specifications. Leave to appeal was granted by the Supreme Court to examine the contention that the High Court was in error in thinking that the difference in the quality of the two consignments was not pressed before the relevant authorities in the Central Excise Department, as this was, in fact, the main grievance urged by the appellant against the assessment made by the Assistant Collector. It was further observed in the leave granting order that as the excise duty and the sales tax were to be levied under the law in accordance with the sale price of the commodity sold, it was necessary to discover the basis on which the two qualities of cloth had been uniformly treated for this purpose by the Excise Department, although the prices charged from the concerned departments of the Government were admittedly dissimilar. Before the Supreme Court it was submitted by the counsel for the appellant, that right from the beginning, the case of the appellant had been that the two contracts entered into with the Government of Pakistan and the Government of West Pakistan, respectively, were for two different qualities of cloth, which were priced differently, and, accordingly, the same rates could not be assessed for both the qualities. He submitted that all the relevant information was available to the departmental authorities in the contract documents, but they were ignored by them, and instead a much higher rate of duty was assessed even on the second quality cloth. The counsel submitted that the appellant accepted the rates fixed for quality no. 1 and was aggrieved only by the identical rates assessed for quality no. 2. The counsel appearing for the department, submitted that the appellant itself had treated both qualities as being identical by declaring the same rates and that it was within the

power of the Assistant Collector to reject the rates declared by the appellant and assess the rates on the basis of the higher price mentioned in the contract with the Central Government. The honourable Court held that the Counsel for the department is clearly right in stating that the appellant itself had declared identical rates for both the qualities of cloth, but he is not right in saying that the appellant had taken the position that both the consignments were of identical quality; nor is he right in saying that the department could enhance these rates in utter disregard of the specification and the rates mentioned in the two contracts. It is clear that the appellant deliberately declared lower rates for quality no. 1, but this incorrect declaration did not absolve the departmental authorities from examining appellants contention that the two consignments were of different qualities and specifications, and were priced differently. The Court further maintained that, In order to determine the correct value for the purpose of the levy of the excise duty, the department had necessarily to determine whether the two consignments were of the like kind and quality before assessing uniform rates for them. We find that in taking a decision on this point, the departmental authorities completely ignored the difference in specifications as mentioned in the government contracts concerned ... In view of the technical description of the two qualities as brought out in the specifications stipulated in the two contracts, there is no doubt at all that the two qualities were different, and they could not have been assessed at identical rates. Such identical assessments was erroneous on the face of the record, and was in violation of the express provisions of section 4 of the Act. The learned judges of the High Court were in error in thinking that the appellant had not stressed the quality difference before the departmental authorities. The judges finally decided that while the assessment arrived at by the departmental authorities for quality no. 1 was not open to any exception, the assessment fixed for quality no. 2 was without lawful authority and of no legal effect. The department was therefore directed to assess the duty on quality no. 2 at rates not exceeding those mentioned in the relevant contract with the Government of West Pakistan, namely Rs. 1.43 assessable and Rs. 1.88 inclusive per yard. The appeal was, thus, accepted. In this case it would be seen that if the departmental officer had assessed the two qualities on their contact prices then not only the revenues realised would have been higher but the case of the department would also have been upheld as can be seen from the judgement which directed that quality no. 2 should be assessed at rates not higher than the contract prices. By adopting a value fixed between the two contract prices the assessing officer introduced an element of arbitrariness in his order and rendered it devoid of logic. *****

Chapter Four

CASE LAW - RETAIL PRICE

In the case of assessment on the basis of retail price, the right of fixing the retail price has been conferred upon the manufacturers, who naturally tend to fix the retail price on lower side so as to avoid payment of lawful duties. The result is that there arise so many disputes in this context, resulting in court cases. Five of such cases are discussed below: PLD 1979 Karachi 545 Atlas Battery Limited, Karachi Petitioners Versus Superintendent, Central Excise and Land Customs and three Others Respondents Judges Present: I. Mahmud and Muhammad Zahoorul Haque, JJ. The petitioners, Atlas Battery Limited, a manufacturer of storage batteries of various types and specifications, received purchase orders for the supply of batteries from two customers, namely Gandhara Industries Limited (later National Motors Limited) and the Ministry of defence, Government of Pakistan. Storage batteries, produced and manufactured in Pakistan, were then subject to levy and collection of central excise duty under section 3(1) of the Central Excises and Salt Act, 1944, at the rate set forth in the First Schedule thereto. Entry no. 53(1) of the First Schedule prescribed the following rates: 53. Electric Batteries and Parts thereof. (1) Storage Batteries ___ (a) If retail price is legibly, prominently and indelibly printed on each battery, (b) If not covered by clause (a), 25 percent Retail Price. of

200 percent ad valorem.

For the purpose of excise duty, the retail price was determined under section 4(2) of the Act, which read as follows: 4(2) Where under this Act any article is chargeable with duty at a rate dependent on the retail price of the article, the retail price shall be the price fixed by the manufacturer, inclusive of all charges and taxes, at which any particular brand or variety of such article should be sold to the general body of

consumers or, if more than one such price is so fixed for the same brand or variety, the highest such price. The case of the Excise Department was that on investigation and scrutiny of the AR-1 Forms submitted by the petitioner to the excise staff at the time of removal of the goods from the factory, it was found that the petitioner had declared less retail prices in the AR-1 Forms than the contract prices. As per particulars mentioned in the charts accompanying the demand notice, showing the basis of calculation of the differential duty short paid to the extent of Rs. 170,780.75 in the case of supplies to Gandhara Industries Limited and Rs. 387,772.50 in the case of supplies to Defence Department, making a total short fall of Rs. 558,553.25. A show-cause notice, dated 1st June 1963, was issued alleging, inter alia, that the petitioner had contravened the provisions of section 4(2) of the Act and also rules 226 of the Central Excise Rules, 1944, for failure to maintain proper records. Other allegations were also made in the show-cause notice; that the petitioner had failed to print the retail price on each battery as required under item 53(1) (b) of the First Schedule and, as such, was liable to pay excise duty at the rate of 200% ad valorem; and further that 2H.N-A batteries supplied to the Defence Department at prices even less than the contract price should have been assessed at the higher consumer price for 2H.N. batteries, as both were of the same brand or variety, and that the petitioner had evaded duty on that account under section 4(2) of the Act. But, the honourable High Court did not consider it necessary to enter into any discussion with regard to the last two allegations, because the collector had adjudicated them in favour of the petitioner. The controversy before the Court was, therefore, limited to the consideration of the first mentioned allegation in the show-cause notice with regard to the declaration of the lesser retail price than the contract price in contravention of section 4(2) of the Act. The contention of the petitioner before the Collector of Central Excise and Land Customs, which contention was reiterated before the Court, was that while declaring retail prices in the AR-1 Forms for purposes of assessment it was entitled to deduct from the retail price: (a) the cost of packing and special marking, (b) money value of the special warranty for replacement of returned defective batteries, and (c) the cost of transport and conveyance - all of which deductions were non-excisable goods and services. The Collector of Central Excise and Land Customs by his order dated 30th January, 1974, rejected the contention of the petitioner and held that the definition of retail price in section 4(2) of the Act was inclusive of all charges and taxes. He, therefore, ordered the petitioner to pay the amount of Rs. 558,533.25 as the differential excise duty short paid and imposed a penalty of Rs. 6 Lac under rules 226 and 210 of the central excise rules. The petitioner appealed to the Secretary, Central Board of Revenue, the respondent no. 2, who dismissed the appeal and maintained the imposition of the differential duty but reduced the penalty to Rs. 3 Lac. The petitioner, then, filed an appeal to the Central Board of Revenue, which, also dismissed the appeal by its order dated 30th January, 1975, and maintained the imposition of the differential duty but remitted the penalty in full.

The main contention of the counsel for the petitioner before the honourable Court was that the point of time, at which the liability for payment of excise duty accrued or was attracted, was the time when the goods are produced or manufactured. Section 3(1) of the said Act provides that excise duty shall be levied on all excisable goods produced or manufactured in Pakistan, at the rates, set forth in the First Schedule. However, the actual assessment of the duty was to be made at a latter point of time, namely, at the time of removal of the goods from the factory. It was submitted that excise duty was leviable on an excisable article, produced as an intermediate product during the course of manufacture, even if the article was not removed from the factory for sale. He relied in support of this submission on certain observations of the Indian supreme court, that excise duty was leviable on excisable goods manufactured or produced and not on their sale. In the light of these observations, it was urged by the counsel that the cost and expenses incurred by the petitioner after the batteries had been manufactured or produced, are to be excluded in determining the retail value for the purposes of levying excise duty, such as extra costs and expenses for packing the batteries, for making special markings on them, the cost of transport and conveyance and also future expenses which may be incurred on cost of replacement of defective batteries in terms of the warranty. The honourable judges maintained, We have considered this submission but, in our view, it has no force. Observations of the Indian court are not relevant, as in those cases the courts were dealing with the wholesale cash price and not with the retail price. Whereas, determination of the wholesale cash price is relevant under section 4(1) of the said Act where the article is chargeable with duty at a rate dependent on the value of the article, under sub-section (2) of section 4 of the Act, the retail price of the article has to be determined in the manner defined in the sub-section. The Court further held, The language used in section 4(2) of the Act is clear and unambiguous. It provides that the retail price shall be the price fixed by the manufacturer inclusive of all charges and taxes. It is clear to us that the contract price, at which the batteries were to be sold to the two customers, in question, is the priced fixed by the manufacturer. That price is to be inclusive of all charges and taxes and, in fact, it is not disputed that the price quoted by the petitioners included these charges as also the rate of duty. The actual price under the purchase orders is, therefore, the retail price under section 4(2) of the Act. It is only in a case where no price is fixed, or when the price fixed, is a concessional price because there is a special business relationship between the parties, who are not dealing at arms length, that a notional retail price has to be determined, as the price at which the particular brand or variety of such article should be sold to the general body of consumers. No such question arises in the present case. In fact, there was in most cases a retail price to general body of consumers and a special concessional price for the two customers in question. The collector would have been within the law to levy duty at higher retail price for consumers generally, but he levied duty at lower contract price. Therefore no prejudice could be said to have been caused to the petitioner ... For the foregoing reasons, we find no merit in this petition. It is accordingly dismissed with costs. The matter did not end here as M/s. Atlas Battery Limited filed a petition in the Supreme Court seeking leave to appeal against the judgement of the High Court. The leave was granted and hence the following case:

PLD 1984 Supreme Court 86 Atlas Battery Limited, Karachi Appellant Versus Superintendent, Central Excise and Land Customs, Circle C, Karachi, and Others Respondents Judges Present: Mohammad Haleem, Acting CJ, S. A. Nusrat and Zaffar Hussain Mirza, JJ. Leave to appeal was granted by the Supreme Court to examine the following questions: (i) That under sub-section (2) of section 4 of the Act, which was introduced by the Finance Act of 1969, the petitioners had been given the right to fix the retail price of the goods sold by them to Gandhara Industries Limited and Ministry of Defence, Government of Pakistan. And so the respondents had no jurisdiction to question their decision in that behalf specially when on said goods the retail price had been legibly, prominently and indelibly printed by them, as required by Item no. 53(1) of the First Schedule to the Act; (ii) That since the petitioners had printed on their goods the retail price in the said manner, the same were chargeable to excise duty at 25% and not on the contract price at which they had sold the goods to the aforesaid two incumbents; (iii) That the duty chargeable would be on the retail price as fixed by the manufacturer, provided the said price had been legibly, prominently and indelibly printed on the goods as required by Item no. 53(1) of First Schedule to the Act. The fact, however, is that the petitioners had complied with all the said requirements, and so their decision could not be questioned by the respondents nor could the respondents have charged from them duty on the basis of the contract price; (iv) That the High Court was in error to uphold the orders passed by the respondents not realising that the contract price at which the petitioners had sold their goods to the above said two incumbents had to be a special price. Because; (a) the goods in question had to be specially marked and packed by them, (b) the same had to be delivered at places specified by the said purchasers, and (c) if the goods in question were found to be defective for any reason during the period of 15 months they were to be replaced free of cost. If allowance to the petitioners had been given on this account, as the same involved extra expenditure and which conditions are not normally applicable in the case of sales to wholesalers and retailers generally, the High Court would have felt no difficulty to hold that the stand taken by the petitioners was wholly tenable, and the contrary findings recorded against them by the respondents were based on considerations other than the spirit of section 4(2) of the Act read with Item no. 53(1) of the First Schedule attached thereto; and, (v) That having conceded the position that when the price fixed is a concessional price because there is a special business relationship between the parties who are not dealing at great length, then a notional retail price has to be determined as the price at which the particular brand or variety of such article should be sold to the general body of consumers,

the High Court fell in error in the application of the said principle to the facts of the present case in that it equated the contract price at which the goods were sold to the said two incumbents as with the retail price in disregard of the fact of the special conditions of contract at which the said goods had been sold. The honourable Supreme Court held that the concept of retail price as the basis for determination of the excise duty was introduced under a scheme, by means of insertion of a new provision i.e. sub-section (2) in the original section 4 of the said Act, by the Finance Ordinance, 1969, which also substituted the Schedule making consequential changes, whereby the scheme was applied to the goods of every day use having a direct bearing on the cost of living. The object underlying the scheme was no doubt to stabilise prices and to simplify the matter of the payment of excise duty so as to obviate the cumbersome procedure for the determination of the value for the purpose of duty. The plain reading of the sub-section shows that the retail price has been defined to constitute the following ingredients: (i) It shall be the price fixed by the manufacturer, (ii) It shall be inclusive of all charges and taxes, (iii) It shall be the price at which the particular brand or variety of such article should be sold to the general body of consumers, and (iv) If more than one such price is so fixed for the same brand or variety, it shall be the highest of such prices. The Court observed: While it is correct to say that it is for the manufacturer to determine the retail price in order to print the same on his goods, it will not be entirely correct to contend that he can do so arbitrarily at his discretion without any fetters of law upon his discretion ... In other words before the price printed on each item of batteries of a particular brand or variety can become the basis for the assessment of the duty it has to constitute retail price in terms of section 4(2) ... Therefore, fixation of the price of an article by the manufacturer implies that the article is of such a nature as to be capable of being offered to the general body of consumers, which means it is open to a general offer to all persons willing to purchase the article at the price fixed thereon. It is in this context that availability of the article at such price is an essential ingredient of retail price to be fixed by the manufacturer. This would also clearly stipulate to exclude any artificial or arbitrary price fixation by the manufacturer, having no reference to the general body of consumers. In the present case, however, the controversy between the parties was confined to the question whether the appellants were entitled to deduct from the retail price the cost of packing and special markings, money value of special warranty for replacement of returned defective batteries and cost of transportation. Admittedly, for the purpose of excise duty the appellants fixed the price after deducting the aforesaid charges form the contract price. However, even if the manufacturer is held to have the absolute discretion to fix

any price of his products, the clear import of section 4(2) of the Central Excises and Salt Act is that in fixing retail price all charges and taxes are to be taken into account and included. Therefore, if sale by special contract is considered as a sale to the general body of consumers, since admittedly all charges were not included in the retail price fixed and printed, the appellants were not entitled to be assessed at the reduced level and would have been properly assessed on the ad valorem basis under Item no. 53(b) read with section 4(1). There is another aspect of this case which may be taken note of at this stage ... Batteries of type 2HN were sold to Gandhara Industries ... The retail price of such batteries fixed by the manufacturer, at the relevant time was Rs. 252 for general public but they supplied these batteries to the aforesaid purchasers at Rs. 130 and disclosed the price as Rs. 80 for purposes of excise duty. Similarly type 3PA-271 were supplied to the same purchasers ... The retail price fixed for this type was Rs. 460 which was subsequently raised to Rs. 488, but price declared to the department was Rs. 120 per unit for the purpose of duty ... It, therefore, appears that the appellants were offering the same type of goods to the general body of consumers at much higher prices than the contracted prices to the two buyers under special terms of contract, but were further fixing notionally the price for the purpose of excise duty still at lower rates by deducting charges as stated above. Since the two retail prices were fixed for the same variety of goods, the assessing authority would have been within the legitimate bounds of law to fix the retail price at the higher rate for the assessment of duty. However, the authorities assessed the appellants at the contract prices to the advantage of the appellants. It is in this context that the High Court expressed the view that the Collector would have been within the law to levy duty at the higher retail price for consumers generally. In view of the above we are unable to accept the contention that the retail price fixed and printed on the goods in this case constituted the retail price for purposes of levy of duty. This being so the assessing authority would have been justified in levying the duty in accordance with clause (b) of the Entry no. 53(1) read with section 4(1) of the said Act, but since the department has not adopted this basis of assessment, we agree with the High Court the action of the department did not call for interference. In view of the foregoing reasons there is no merit in this appeal which is dismissed. In this case it would be seen that the department adopted a lenient stance and demanded the duty on the basis of contract prices whereas they could have levied the duty, either at penal rates of 200 percent ad valorem as the provisions of section 4(2) were not adhered to; or at a rate dependent on the highest retail price at which the batteries were being supplied to the general body of consumers.

1985 CLC 1901 M/s. Moonlite (Pak) Limited Petitioner Versus Federation of Pakistan and four Others Respondents Judges Present: Ajmal Mian and Ally Madad Shah, JJ. The brief facts are that the petitioners manufacturing woollen yarn and having their factory in SITE area of Karachi, were served with a show-cause notice, dated 29.4.1974, by the Assistant Collector, alleging therein that during the period from 15.2.1972 to 20.2.1974, the petitioner had paid excise duty on the prices lower than the declared, advertised and printed retail prices for different descriptions and counts of woollen yarn. It was also alleged that there was short payment of Rs. 281,602.32. Consequently, they were called upon to show-cause against the recovery of the short paid amount. The Assistant Collector after hearing the petitioner maintained the above show-case notice and the demand. The petitioner being aggrieved by the above order filed an appeal, which was allowed by the Collector by his order. It may be pertinent to reproduce herein below the operative portion of the above order, which read as follows: It has been contended by the appellant that the values shown on disputed AR-1s were actually retail prices printed on the different tags attached to the bundles of woollen yarn at the time of clearance. The Assistant Collector has reported that a perusal of the cash ledger and original credit memos produced by the party confirm that at no stage they have cleared or realised any amount which is in excess of the amount shown in the clearance documents ... Since it is established that the factory did not get anything more than on which duty was paid and no sample of the packages are available either with the Circle Officer or with the party, of the goods then cleared, the Assistant Collectors order is set aside and the appeal is allowed. After that the Central Board of Revenue opened the case under suo moto revisional powers on 12th August, 1978. Its order revived the order of the Assistant Collector. The petitioner being aggrieved by the above order filed an appeal before respondent no. 1, which was dismissed. The petitioner being aggrieved by the above two orders filed the petition before Sindh High Court. In order to understand the case, it may be pertinent to reproduce item 44 of the First Schedule to the Act at the relevant time, which read as follows: Item 44. Woollen Yarn Woollen yarn, all sorts, including knitting wool ___ (1) If weight and retail price are legibly Such rate not exceeding, thirty percent of prominently and indelibly printed on retail price as may be fixed by the Central

every package, cover, wrapper or label;

Board of Revenue by notification in the official Gazette and different rates may be fixed with reference to different conditions and circumstances. 200 percent ad valorem.

(2)

If not covered by (1) above

The case of the petitioner was that though they had declared and advertised the prices mentioned in their letter dated 20th January, 1973, but they printed the prices on the goods lower than the declared price and sold the same on the above low prices and paid the excise duty thereon accordingly. Whereas the case of the respondent was that even if it was to be assumed that the petitioner had printed on the wrappers or on the labels the prices lower than the prices declared by the petitioner in their above letter dated 20th January, 1973, and advertised in the newspapers, the respondents were justified in adopting the highest prices as the basis for the levy of the excise duty. Both the learned counsels referred to the Supreme Court judgement in the case of Atlas Battery Limited vs. Superintendent, Central Excise and Land Customs, Circle C, Karachi, and others. The honourable Court noted: A perusal of the above quoted judgement of the honourable Supreme Court indicates that the respondent department is entitled to examine the question, whether the prices printed by a manufacturer of goods are the actual prices for the general body of consumers or whether they are fictitious. If the department finds that the prices so printed are not actual prices for the general body of consumers, it can press into service sub-section (1) of section 4 of the Act. In the instant case the Collector, Central Excise, in his above quoted passage of the order concluded that factually the petitioner had sold the goods at the printed prices and even for lesser prices, which were less than the prices declared in the above letter and advertised in the newspapers ... However, as pointed out by Mr. Liaquat Merchant [the counsel for the department] the fact remained that the petitioner had declared maximum retail prices in their above letter, dated 20th January, 1973, and advertised the same. There is nothing on record to indicate that this declaration was withdrawn by the petitioner or that they had re-advertised the lower prices in order to inform the general body of consumers. It was then contended by Mr. Khalid M. Ishaque [the counsel for the petitioner] that factually if the printed prices were not to be acted upon in terms of above Item 44, the respondents could have invoked above-quoted sub-section (1) of section 4, but could not have assessed the excise duty under sub-section (2) of section 4 of the Act ... As regards the submission of the learned counsel for the parties, we have noticed that in the above show-cause notice the period mentioned is from 15.2.1972 to 20.2.1974, whereas in the petitioners above letter, dated 20th January, 1973, the prices mentioned therein were to be effective from 7th February, 1973, and therefore, reworking of the amount of the excise duty will have to be done if the impugned demand includes the period prior to 7th February, 1973. In our view, it will be just and proper to remand the case to the CBR. with the direction to examine the finding of the Collector and also to examine the question whether the petitioners have been charged with effect from 7th

February, 1973, on the basis of the declared prices contained in the petitioners letter, dated 20th January, 1973 or from 1.2.1972 ... The above petition stands disposed of in the above terms. The point of interest in the above case was that the Collector had reversed the decision of the Assistant Collector and decided in favour of the party, but the Central Board of Revenue reopened the same and revived the decision of the Assistant Collector. The party filed a petition against the orders of the Board, which was not accepted, and the original order of the Assistant Collector was upheld.

1989 CLC 2045 Premier Tobacco Industries Limited Petitioner Versus Deputy Collector of Central Excise and Land Customs and two others Respondents Judges Present: Inayat Elahi Khan and Wali Muhammad Khan The facts giving rise to this constitutional petition were that the Premier Tobacco Industries Limited were engaged in the manufacture of cigarettes under the brand name of K-2 and manufactured different varieties of the same brand. In the month of February 1970, the Deputy Superintendent of Central Excise and Land Customs was informed that the petitioner wanted to introduce another variety of their K-2 brand to be known as K-2 Economy Plain 20s. It was pointed out by the petitioner that the price of this variety was reduced by reducing the cost of packing material. The retail price of one thousand cigarettes of K-2 Plan 20s was Rs. 100 whereas the retail price of one thousand cigarettes of K-2 Economy Plan 20s was fixed at Rs 92. The manufacture of the new variety of cigarettes continued from 21.02.1979 up to 29.03.1979. The production of the new variety, however was discontinued by the petitioner from 29.03.1979 as it did not prove a profitable concern. According to the petitioner at the time of discontinuation of production of K-2 Economy Plain 20s the left over stock of 14.52 million of cigarettes was re-packed in containers of K-2 Plain 10s with prior permission of the Deputy Collector of Central Excise and Land Customs, Peshawar. Subsequently, a show-cause notice was issued to the petitioner that they had contravened the provisions of section 4(2) of the Central Excises and Salt Act, 1944, and Rules 9 and 52 of the Central Excise Rules, 1944. It was alleged by the department that clearance of the aforesaid quantity of cigarettes during February and March, 1979, at the retail price of Rs. 1.85 per packet of 20s as against the actual retail price of Rs. 2 per packet of the like kind and quality had resulted in less payment of Central Excise duty amounting to Rs. 43,155. Thus the case was taken up by the department for adjudication. The Deputy Collector, Central Excise and Land Customs, Peshawar, by his judgement dated 15.04.1980 came to the conclusion that an attempt at evasion of central excise duty had been proved against the petitioner. The petitioners were accordingly directed to pay the evaded central excise duty amounting to Rs. 43,155 under the provision of Rule 10 of the Central Excise Rules, 1944, with a penalty of Rs. 431,550. On appeal by the petitioner, the Collector, Central Excise and Land Customs, while maintaining the imposition of excise duty, reduced the penalty to Rs. 1,00,000. On revision, the Federal Government, Ministry of Finance, however, condoned the entire penalty imposed on the petitioner but the order about the payment of

excise duty was maintained. The petitioner feeling aggrieved filed the constitutional petition in the Peshawar High Court. The departments view, as also apparent from the impugned orders of respondents nos. 1 to 3, was that since two prices were fixed for the same brand or variety of cigarettes, the higher of such prices was to determine the amount of central excise duty. It was also said that the cost of packing material was not relevant in the case. The only difference was that the K-2 20s pouch was marketed wrapped in cellophane while the Economy pouch was not so wrapped and despite being marketed as Economy the cigarettes remained the same. Thus it was concluded that the difference in cost of packing alone does not entitle the petitioner to claim that a different brand or variety has come into being. In support of the writ petition it was contended that the petitioners were producing a different variety of K-2 brand cigarettes which was clear from the packing material and under section 4(2) of the Central Excises and Salt Act, 1944, the petitioner were within their right to fix different prices for this variety; that it was not correct to say that only word Economy was written on the packing but in actual fact the pouches were without cellophane and the paper used in packing was also cheaper which made the pouches less attractive and thus it was altogether a different variety. The honourable Court held that: In the case it appears that retail price of Economy cigarettes fixed by the petitioner was rejected by the department not for the reason that the packing material was not of inferior quality but on the ground that the quality of cigarettes in both the cases was the same. There is sufficient material on the record to show that the petitioners have been selling the same brand of cigarettes in different types of packing which had the effect of changing the variety of the cigarettes sold to the consumers. The petitioners were, therefore, competent to fix lesser retail price for Economy cigarettes on account of the inferior packing material for it constituted a different variety and the department was not justified in demanding the excise duty from the petitioner on the basis of higher retail price of the same brand of cigarettes. The impugned orders of the respondents demanding excise duty amounting to Rs. 43,155 were, therefore, declared to be without lawful authority and of no legal effect. The writ petition was accordingly accepted. Thus, in the above case it is observed that different packing for the same brand of product changes the variety of the product in terms of section 4(2) and different retail price could be fixed for it. An identical case of M/s. Souvenir Tobacco Company Limited is discussed below.

1989 CLC 1134 M/s. Souvenir Tobacco Company Limited Petitioner Versus Deputy Collector, Central Excise and Land Customs and two Others Respondents

Judges Present: Saeeduzzaman Siddiqui and Abdul Rasool Agha, JJ. The petitioner, a public limited company that was engaged in the manufacture of cigarettes, had been marketing the same under the brand name Melburn. On 6th February, 1983, the petitioner informed the Superintendent, Central Excise and Land Customs, Karachi, that they intended to introduce their running brand of Melburn cigarettes in soft packing of twenty cigarettes and they also forwarded the specimen of soft packing and label as required under the rules. In the said letter the petitioner also intimated the authorities, that the retail price of the Melburn cigarettes packed in soft packing will be Rs. 4.40 excluding the octroi. The petitioner was already marketing Melburn cigarettes in crush proof packing and the retail price of twenty cigarettes in such packing was fixed at Rs. 4.50. In July, 1983 the Intelligence Staff of Central Excise and Land Customs made enquiries against the petitioner and reached the conclusion that they were evading a portion of central excise duty payable on Melburn brand of cigarettes by fixing a lower retail price and had thus evaded a sum of Rs. 357,127 on account of central excise duty, between the period from 6.2.1983 to 9.7.1983. The above amount of Rs. 357,127 was calculated on the basis of higher retail price of Melburn cigarettes sold by the petitioner in crush proof packing. The Deputy Collector, Central Excise and Land Customs, accordingly by his order, dated 27.9.1983, directed the petitioner to pay a sum of Rs. 357,127 on account of evaded excise duty. The petitioner also failed in his case in appeal and the revision. The petitioner, thereafter, filed the petition in the High Court. The counsel for the petitioner contended that the view taken by respondents nos. 1 to 3 that the petitioner had fixed two retail prices for the same brand or variety of the cigarettes was based on erroneous interpretation of section 4(2) of the Central Excises and Salt Act, 1944. It was accordingly contended that the retail price of Melburn cigarettes sold by the petitioner in crush proof packing at Rs. 4.50 could not be adopted as the retail price of Melburn Cigarettes sold in soft packing as the two varieties of cigarettes were different though carried the same brand. It was pointed out that the difference of ten paisas in the retail prices of two varieties was natural, as crush proof packing was costlier and superior as compared to soft packing. The counsel for the department on the other hand contended that there being no change in the quality of the cigarettes which were marketed by the petitioner in two different types of packing, the case fell squarely within the mischief of section 4(2) of Central Excises and Salt Act, 1944, and as such the respondents rightly adopted the higher retail price for the purposes of assessing the excise duty as the petitioners were selling the same brand and variety of cigarettes under two different retail prices. The honourable Court observed that, A careful reading of section 4(2) of the Act would show that the legislature while referring to fixation of retail price of goods by the manufacturer have used two different words, namely brand and variety. It, therefore, follows that the manufacturer of goods is entitled to fix retail prices in respect of each brand and variety differently. The words brand and variety have different meanings in English language ... and carry different connotations. It is, therefore, quite possible that there may be different varieties of the same brand of goods. Apart from this, it is not disputed before us that cigarettes are normally offered

for sale in some container or packing. This is also reflected in Entry no. 02.03 of First Schedule to the Act, which provides for legible printing of retail price on each packet of cigarettes. Similarly, Rule 231-A of Central Excise Rules, 1944, also provides that the manufacturer is required to supply the specimen of packing to the authorities before marketing the same. Section 4(2) of the Act makes it permissible for a manufacturer to include in the retail price of goods fixed by him all charges and taxes. These charges will naturally include the cost of container or packet in which such goods are normally offered for sale. It is, therefore, quite conceivable that where a particular brand of goods is offered in different types of packets/containers, the retail prices may vary. The respondents while rejecting the plea of petitioner did not advert to this aspect of the case and also failed to consider the meaning and scope of the word variety used in section 4(2) of the Act ... We are, therefore, of the view that Melburn cigarettes offered for sale by the petitioner to the general body of consumers in crush proof packing and soft packing were of different varieties though the brand of the cigarette was the same, and as such the petitioner was entitled under section 4(2) of the Act to fix different retail prices for each variety. We accordingly declare the impugned order without lawful authority and of no legal effect. *****

Chapter Five

CASE LAW - CHARGES FOR SERVICES

Section 4(3) of the Central Excises Act, 1944, provides for levy of duty at a rate proportionate to the charges for services. The Act further stipulates that all concessions offered are to be ignored while working out the amount of duty and normal charges for services have to be considered for this purpose. The disputes have arisen in different cases that whether the reduced charges for services offered to a particular class or category of customers constitute concession in context of the Act or not. This dispute was settled as will be seen in two cases involving M/s. Sky Room Limited and M/s. Hashwani Hotels Limited which are discussed below:

PLD 1962 Karachi 244 M/s. Sky Room Limited, Karachi Appellants Versus Assistant Collector of Central Excise and Land Customs, Karachi Respondent Judges Present: Naimuddin and G.M. Kourejo, JJ. The petitioner was the subsidiary of the Pakistan International Airlines Corporation and owns hotel known as The Inn. The room rates of hotel were such that it offered discounts to special categories as given below: (i) Special 10% discount to all airlines staff including PIA/KLM staff other than operating crew on duty and PIA/KLM guests; (ii) Special 15% discount to any one staying over four weeks; (iii) Special discount of 45 to 55% to all operating crew on duty and transit passengers staying only on PIA account. However, in case of (i) and (ii) the central excise duty and surcharge were not based on discounted rates but on normal rates whereas in case of (iii), the duty and surcharge collected were based on discounted rates. By a show-cause notice dated 28.9.1976, the Assistant Collector required the petitioner to show cause why it should not pay the amount of Rs. 545,346.37 being the amount of excise duty in arrears which amount included Rs. 323,085.04 on account of additional duty. The petitioner submitted the explanation and took the stand that no additional amount of duty was due or payable and further submitted that the liability to pay central excise duty on all services, facilities and utilities is fixed and limited to 15% of the actual charges recovered or charged by a hotel or restaurant in terms of Part II of Schedule to the Central

Excises and Salt Act, 1944. It was further explained that the room charges and other charges for services, facilities and utilities in respect of PIA crew on duty and transit passengers staying on PIA account differ from the charges recovered from normal customers. It also explained that in the case of PIA crew and PIA transit passengers a special rate has been fixed and central excise duty is charged on 15% of the actual charges received by the Hotel from Pakistan International Airlines Corporation in accordance with the law. However, the Assistant Collector of Customs by his order, dated 29.10.1976, did not accept the explanation of the petitioner to the show cause notice and confirmed the demand of Rs. 545,346.37. Aggrieved by the aforesaid order the petitioner came up in the constitutional petition in the High Court of Sindh. A preliminary objection raised by the department was that the petition was not maintainable, as the petitioner had not availed of alternate remedy of appeal available to it under the law. The court held that: In our view the objection is misconceived in this case. It is admitted that appeal against the impugned order would have been filed before the Collector of Customs who as stated in the affidavit-in-rejoinder had taken certain view of the matter. Here we may reproduce paragraph 4 of the affidavit-in-rejoinder, which has not been controverted either by any reply or at the bar. I say that after the impugned order had been passed a meeting was held with Collector, Central Excise and Land Customs, on 5.1.1977. At this meeting the Collector of Central Excise and Land Customs, Karachi, advised the petitioners that the demand for duty was in accordance with law and would have to be paid and no useful purpose would be served by protracted litigation. He advised the petitioners to pay the amount of duty demanded amounting to Rs. 2,14,552.76 and promised to grant a stay for recovery of the penalty imposed by the respondent. In these circumstances, since the Collector had made up his mind about the petitioners case no useful purpose would have been served in filing an appeal against the impugned order inasmuch as the appeal was not an alternate or equally efficacious remedy and the petitioners had no other remedy except to invoke the extraordinary jurisdiction of this honourable court. Therefore, it is obvious that it would have been futile to go in appeal before the Collector of Customs. Further, the petition involves interpretation of an important provision of excise law and it is in the interest of all including the respondent that there should be an authoritative pronouncement on the question by a superior court, for it is stated at the bar that there is none. There are large number of cases where petitioners have been entertained in the constitutional jurisdiction, particularly in the nature of certiorari in spite of alternate remedy by way of appeal or otherwise being available under special circumstances.

It was submitted by the counsel for the petitioner that different rates were fixed by the petitioner for different classes of people and also for different periods of stay in the Hotel and they were in the nature of rate structure and not by way of any concession, for rent was charged by the Hotel at the same rate from each customer of the same class. On the other hand it was submitted by the advocate for the respondent that the Pakistan International Airlines Corporation crew members and transit passengers and other classes of people were given discount in room rates and therefore, it was a concession within the meaning of section 4(3)(a) of the Act. The honourable court held that, From the provisions of clause (i) sub-section (3) of section 4 of the Act it is clear that if any services, facilities or utilities are rendered or provided free of charges or at a concessional rate in such case the duty has to be levied and collected on the amount which would have been charged for such services, facilities and utilities if they had not been rendered or provided free of charges or at a concessional rate. In our view the words which require special attention and which are key words in the provisions under consideration are in any case and concessional rate. Now, it is well known practice in the field of trade and commerce that various merchandise or commodities are sold to different classes of customers at different rates; for example a mill sells cloth produced by it in wholesale at a rate different from the one charged by it at its retail shop and in such a case the rate charged from a wholesaler cannot be termed as a concessional rate, for the term concession in our view imports reduction of prices already fixed for a class of customers or for a quantity, and if different rates are fixed for different classes of customers or for different quantities, then the difference in rate cannot be said to be a concession. Further, according to dictionary meaning the term, in the present context, means, rebate or reduction in fixed rate or price as a favour but when the rates or prices are already fixed and known and the services, facilities and utilities could be obtained by any person of that class then the question of favour would not arise. Furthermore, the provisions contemplate an individual case as the words used are in any case which in our view will not cover rates fixed for different classes of customers. The Court concluded, The experience shows that in commerce and trade there are generally different rates for different classes of customers or different quantities or for services used for different periods. It is, therefore, apparent that the rates charged from different airlines or from PIA on account of their crew members and transit passengers are not in the nature of concession and they could conveniently be termed as, or compared with the rates for bulk sale, quantity-wise or number wise ... We would accordingly declare that the order impugned in this petition, so far as it relates to additional duty, is without lawful authority and is, therefore, of no legal effect. Thus, the court decided that no concession was granted in the cases under consideration and the plea of the department was not accepted. PLD 1982 Lahore 621 M/s. Hashwani Hotels Limited Petitioner

Versus Government of Pakistan and two Others Respondents Judge Present: Muhammad Ilyas, J. M/s. Hashwani Hotels Limited, a public limited company, owning a Four Star Hotel namely Holiday Inn in Islamabad, charged different rates from different classes of customers. The services, facilities and utilities rendered or provided by the petitioner by letting out rooms of the hotel were subject to duty under the Central Excises and Salt Act, 1944. The rate of the duty set forth in paragraph 1 of part 11 of the First Schedule to the said Act was 15 per cent of the charges for the services, facilities and utilities. The petitioner had been paying duty on the income actually derived by it from different categories of the customers in accordance with the rates fixed for different classes of customers. Deputy Collector, Central Excise and Land Customs, Rawalpindi, however, demanded duty at the highest of these rates, namely the ones fixed for Frequent International Traveller. This demand was placed on the petitioner by means of show cause notice, according to which if the petitioner was charging less from other categories of customers even then it was bound to pay duty at the highest rate. In this connection, he relied on clause (a) of sub-section (3) of section 4 of the said Act. The said notices were taken exception to by the petitioner by making a representation to the Central Board of Revenue, but the representation was rejected by the Board and, thereafter, writ petition was filed in the Lahore High Court. In the Court, it was contended by the counsel for the petitioner that the petitioner had been charging its customers strictly in accordance with the rates set out, without showing concession to any individual in the matter of payment of rent prescribed for the category to which he belonged and, therefore, the provisions of clause (a) of sub-section (3) of section 4 of the said Act could not be pressed into service by the respondent for justifying the demand in question. In this connection, the reliance was placed by him on the judgement delivered by a Division Bench of the Sindh High Court on 29th September, 1981, in Sky Room Limited vs. Assistant Collector, Excise and Land Customs, in Constitutional Petition no. D-5 of 1977. According to the counsel for the petitioner, concession means a grant or favour extended to a particular individual but since all customers of the petitioner falling in a particular category are charged in accordance with the rate prescribed for that category, without showing concession to any of them, it was not a case of concession. The phrase in any case was also interpreted similarly as in the above mentioned case. In reply, it was urged by the counsel for the respondents that for the purpose of sub-section (3) of section 4 of the said Act, charges for services, facilities and utilities in dispute were the maximum charges specified in the hotel tariff and that all other charges were concessional rates. While dealing with the expression in any case used in clause (a) of sub-section (3) of section 4 of the said Act, it was maintained by the counsel for the respondents that this expression not only covered the case of a particular individual but was also applicable to the case of a number of individuals and the classes of individuals. In this connection he placed reliance on section 13 of the General Clauses Act, 1897, which provides

that unless the subject or context otherwise requires the words in singular include the plural and vice versa. In regard to the case of Sky Room Limited, his submission was that the judgement in that case having been delivered by a Court other than the Lahore High Court was not binding on the latter Court and, therefore, there was no bar to the Court taking a contrary view. The learned judge observed as under: I respectfully agree with the learned judges of the Sindh High Court that the management of a hotel can prescribe different rate for the different categories of customers and that if the rates fixed for any category is less than that of the other the former cannot be treated as a concessional rate within the meaning of clause (a) of sub-section (3) of section 4 of the said Act. While subscribing to the conclusion reached by the Sindh High Court, I will like to add that according to sub-section (3) of section 4 of the said Act, undoubtedly, the charges for services, facilities and utilities are to be fixed by the management of the hotel and not by the law or the excise authorities. It is only the rate of the duty which is to be prescribed by law. Fixation of different charges for all categories of customers is not forbidden by law. Perhaps, such fixation has got to be done by the management for operational considerations. The law also does not insist that a single uniform charge shall be fixed for all categories of customers. Further, there is noting in the law to suggest that if different charges are prescribed for different categories of customers, the duty shall be paid according to the charge which happens to be the highest. ...According to learned counsel for the petitioner, any person coming to the hotel is charged in accordance with the rate applicable to the customers of his category. It is not alleged by the respondents that any customer was shown concession in the matter of payment of charges applicable to the category of customers to which he belonged. The mere fact that the charges payable by a particular category of customers is the highest does not mean that others who have paid in accordance with the charges prescribed for their respective categories have been shown any concession or favour. Therefore, without going into the question whether the words in any case refer to the case of a particular individual only or also embrace the case of number of individuals, I hold that since the present case does not involve any concession it does not attract the provisions of clause (a) of sub-section (3) of section 4 of the said Act. ...In this view of the matter, I accept the petition in hand and declare that show-cause notices issued by the Deputy Collector as well as the order passed by the Central Board of Revenue are without lawful authority and of no legal effect. Since, crucial government revenue was to be affected in all similar cases all over the country and for all future cases, the government was rightly aggrieved by this decision and filed an appeal before the Supreme Court challenging the order of the Lahore High Court. The details are given below.

PLD 1990 Supreme Court 68 Government of Pakistan and others Appellants Versus Messrs Hashwani Hotel Limited Respondent Judges Present: Nasim Hassan Shah, Ghulam Mujaddid and Ali Hussain Qazilbash, JJ. The leave to appeal against the order of the High Court discussed above was granted by the Supreme Court to consider, whether the charging provision clause (a) of section 4(3) of the Central Excises and Salt Act, 1944, applies to a concessional exception within the respective categories of customers prescribed in advance or to the category itself considered with the category of customers charged at the highest rate. The counsel for the appellant contended that the duty was not being demanded on the basis of any notional rent but was in accordance with the provisions of sub-section (3) of section 4 of the Central Excises and Salt Act of 1944. The main emphasis of the counsel was on the word concession mentioned in sub-section (3) of section 4 of the Act. It was contended that law debarred the respondent from creating categories of customers. According to the counsel, it was a mere pretext to come out of the ambit of the word concession. The counsel, then, pressed into service section 13 of the General Clauses Act, 1897, in order to explain the scope of the expression in any case used in clause (a) of sub-section (3) of the Act. The reasoning was same as in the two cases referred to above. The counsel for the respondent supported the impugned judgement and submitted that the word concession cannot be legally extended so as to cover the categorisation done by the respondent. According to the learned counsel, the categorisation was nothing new in the hotel business and the management is fully authorised to do so without violating any legal provision. The counsel also relied upon the case of Sky Rooms Limited vs. Assistant Collector, Central Excise and Land customs, Karachi. The honourable Supreme Court in its judgement observed: Before examining the wording of clause (a) of section 4(3) of the Act to which reference shall be made later on, it is essential to advert to the accepted principles for the construction of statutes with special reference to the taxing statutes. The first and the foremost principle of interpretation is that words are to be taken in their literal meaning. The plain ordinary meaning of the word is to be adopted in construing a document. There have to be special circumstances where this principle is to be deviated and certain words have to be interpreted differently than their plain meanings with reference to the context. The court cited several judgements in this respect. The Court also referred to the following paragraph from the Statutory Construction (Crawford Edition page 270):

Where the statutes meaning is clear and explicit, words cannot be interpolated. In the first place, in such a case, they are not needed. If they should be interpolated, the statute would more than likely fail to express the legislative intent, as the thought intended to be conveyed might be altered by the addition of new words. They should not be interpolated even though the remedy of the statute would thereby be advanced, or a more desirable or just result would occur. Even where the meaning of the statute is clear and sensible, either with or without the omitted word, interpolation is improper, since the primary source of the legislative intent is in the language of the statute. The honourable Court also agreed with the reasoning of the judges of Sindh High Court while the examining the meaning of the word concession in section 4(3)(a) of the Act, in the case referred to above. The Supreme Court in its judgement noted, We have not found anything in the aforesaid provision [i.e. section 4(3)(a)] which either expressly or even by implication prohibited the hotel management to create different categories of different customers. There being no legal bar we are of the view that categorisation was lawful and was not done with any ulterior motive or to avoid paying the duty. The court then also subscribed to the views of the Lahore High Court, expressed in the impugned judgement. The honourable court added: This leaves us to examine as to whether section 13 of the General Clauses Act can be of some help to the learned counsel for the appellants so far as the expression `in any case is concerned. The expression `in any case is to be read conjunctively not disjunctively. Having held that categorisation does not amount to any concession, we dont think that section 13 is applicable in the instant case. The result is that there is no merit in this appeal which is hereby dismissed. Thus, it was settled that prescribing different rates for different categories of customers did not amount to concession. It may be worthwhile to mention here the fact that some organisations like Pakistan Railways and Pakistan Telecommunication Corporation do not pay the duty on services provided to their employees free of charges or at concessional rates. An exception was taken by the Central Board of Revenue in the case of latter organisation but the dispute now has been settled in favour of the organisation. A similar case of M/s. Palace Hotel, Karachi, is discussed below which was of slightly different nature and was decided in favour of the department. PTCL 1984 (CL) 49 M/s. Palace Hotel, Karachi Petitioner Versus

Additional Secretary, Ministry of Finance and two others Respondents Judges Present: Ajmal Mian and Fakhruddin H. Sheikh, JJ. The brief facts are that the petitioners were served with a show-cause notice dated 22nd November, 1978, for alleged contravention of provisions of section 4(3)(a) of the Act and rule 96 of the Central Excise Rules, 1944, for not paying the differential amount on account of the concessional rates of rent allowed by the petitioners to some of the customers, namely, Rs 82,474.40 and additional duty at 50% of the duty involved, namely, Rs. 20,582.17. The above demand was resisted by the petitioners. However, respondent no. 3 through his order dated 25th March, 1979, maintained the above demand and also imposed a penalty of Rs. 100,000. This order was upheld both in appeal and revision. The petitioners being aggrieved by the above orders filed the petition in the High Court of Sindh. In support of the petition the counsel for the petitioners made the submission that the concessional rates of rent for the rooms were charged by the petitioners for the reason that the petitioners were unable to provide the required facilities and, therefore, the impugned levy of Rs. 82,474.40 on account of difference in the rates was not sustainable. Further, submissions were also made in respect of additional penalty and penalty of Rs. 100,000 imposed by the respondent no. 1 but these being not relevant to valuation are not discussed here. The counsel for the petitioners referred to the case of M/s. Sky Rooms Limited, Karachi, vs. Assistant Collector of Central Excise and Land Customs, Karachi, in which a Division Bench of the Sindh High Court while construing section 4 of the Central Excises and Salt Act, 1944, held that, In our view the convenient and safe criteria for judging whether a concession has been allowed or not would be that if two customers of the same class are sold the same goods in the same or similar quantity at different rates, then in the absence of some other good reason, the one who purchases the same at lower rate can be said to have been granted a concession. The counsel laid emphasis on the words then in the absence of some other good reasons. It was urged by him that if there was some other good reason then the different rates can be charged for the same room even for the same class of persons. The court observed, Even if we were to accept the above interpretation canvassed by the learned counsel for the petitioners, the burden of proof was on the petitioners to show that there were some other good reasons, which in our view the petitioners have failed to show. However, it has been urged by Mr. Muhammad Jamil, that the respondents were aware of the fact that the main building of the petitioners hotel was under demolition and that the hotel was run in the annexe to the main building. In our view, the above facts do not entitle the petitioners to charge different rates for the same rooms from different persons of the same class. In this view of the matter no exception can be taken to the impugned demand of Rs. 82,474.40. However, the penalty of Rs. 100,000 imposed under Rule 226 was declared to be ultra vires and for additional penalty the case was remanded back to the respondent passing the original order. The petition was allowed to this extent only. The demand of differential amount of Rs. 82,474.40 was, thus, held to be lawful. A case of M/s. Hotel Hilton International is discussed below which, although not relevant to valuation but to chargeability to duty under section 3 of the act, is included not only because of the fact that it has been categorised with the cases falling under section 4 of the Act in the book which is the main source of this thesis but also for its interest value.

NLR 1991 Tax 109 M/s. Hotel Hilton International (Now Avari)Petitioner Versus Government of Pakistan Respondent Judge Present: Rustam S. Sidhwa, J. The brief facts of the case are that during the period from 1.3.1978 to 31.12.1980, the Hotel Hilton International Lahore, petitioner, which had rented out four shops in its premises to Pak Punjab Carpets, Hilton Car Rental, Muslim Commercial Bank Limited and Kims Craft on monthly rent, had not paid excise duties amounting to Rs. 32,535 on the basis of rents charged by them. Accordingly, the Deputy Collector of Central Excise on 13/14.6.1981, issued notice to the petitioner to show cause why the excise duty amounting to Rs. 32535 and penalty amounting to Rs. 16268.50 be not realised from them for contravention of rules 10, 96W and 226(3) of the Central Excise Rules, 1944. The petitioner replied to the show cause notice, stating, inter alia, that it had not let out the four shops for living purposes and, therefore, the said shops could not be deemed to be a part of the hotel and that no services were rendered, no drinks were sold and no person used the shops as lodging houses and, therefore, no services, utilities or facilities were provided. The Deputy Collector of Central Excise, Lahore, found the petitioner guilty of violation of law and held the petitioner liable to excise duty amounting to Rs. 32,535 and additional duty by way of penalty amounting to Rs. 16,268.50. Being aggrieved by the said order, the petitioner preferred an appeal, which was dismissed. A revision petition filed by the petitioner before the Central Board of Revenue met the same fate. The petitioner, then filed a writ petition in the Lahore High Court. On behalf of the petitioner it was submitted that the said four shops were not rented out but actually licensed out on the basis of license fees under license agreements. It was submitted that since the shops were not rented out and that they were not used for living purposes and no services were rendered and no person used the said shops as alleged rooms and it was therefore, not liable for payment of any excise duties. The Court observed that the case of the petitioner that it had licensed out the four shops on a license basis under license agreements was negated by its own admission made in reply to the show cause notice that the shops had been let out on long terms basis; that their rentals were received monthly; that its relationship with those parties was that of landlord and tenant; and that the shop rentals could not be treated as excisable services provided or rendered by the hotel. The Court added, It appears that the petitioner has changed its contract basis with its occupants subsequent to the Deputy Collectors order and now wants to rely on it to defeat the impugned orders. This the petitioner cannot be permitted to do ... Generally, all renting of rooms to passengers by hotels, taverns, inns and boarding houses is on a license basis, to ensure that the arrangement does not create any estate or interest in the property. Shops in posh hotels are rented out on two basis; lease or license. The trend now is under the latter. The word rent used in item 13.01 of part 11 of the First Schedule to the Central Excises and Salt Act, 1944, is used in the general sense, to refer to all payments made by persons occupying or using premises in a hotel under any system or arrangement, whether lease or license.

The honourable Judge cited the two cases viz. of Palace Hotel, Karachi, and Hotel Inter-Continental, Karachi, which were ordered by the Court to pay the duties on shop rentals and licensing. The court held that, The case of the Palace Hotel and Hotel Inter-continental, Karachi, are on all fours with the present. The orders of the officers of the Central Excise, therefore, are legal and proper. No interference in the constitutional jurisdiction is called for. There being no merit in this petition, the same is dismissed. *****

Chapter Six

CONCLUSION
It was observed during the study of cases relating to valuation disputes that although the concept of wholesale cash price is more complex and difficult to apply than the concept of retail price and should have been the subject of higher number of disputes than the ones pertaining to the retail price. But, the statistics speak to the contrary. Out of twenty two cases relating to valuation disputes as mentioned in the resource book only two pertain to the concept of wholesale cash price whereas seven relate to the retail price. The reasons may be summarised as under: (i) The manufacturer has been given the right to fix the retail price who uses this right arbitrarily without fulfilling the requirement of including all the charges, specially the profit margins of the middlemen, in the retail price of the product. (ii) It is, perhaps, easier to detect the arbitrary fixation of retail price by the manufacturer by market surveys than to ascertain the actual wholesale cash price; the latter one being a complex and fluid concept. Thus, in this case the lesser number of cases in relation to wholesale cash price can be attributed to inability of the department to detect arbitrariness of the manufacturer in this case. The case of M/s. Atlas Battery Limited, mentioned in this thesis, is a landmark case. First the High Court and then the Supreme Court established that if a manufacture does not fix retail prices according to provisions of section 4(2) then he contravenes the provisions of law and the duty can be levied at penal rates. But, now after the substitution of the First Schedule to the Act, the provision of penal rates of duty does not exist any more. Then, the question arises: how a manufacturer can be penalised if he fixes retail price on lower side to avoid payment of lawful duties by not including some of the charges or profit margins of middlemen up to the retail stage, in the retail price? He can be penalised under Rule 210 of Central Excise Rules, 1944, for contravention of section 4(2) but then what value or retail price should be considered for levy of duty? Here, general order no. 10 of 1975 may be of some assistance. The general order, quoted in chapter one, says that in such cases the purchase/sale documents up to retail stage be examined and if no adequate profit margins have been allowed to distributors/ dealers then the action of the Central Excise Officer will be in order. As for the concept of charges for services is concerned, the disputes have been limited to cases involving the question whether charging of reduced fees from different categories of customers amounted to concession in terms of section 4(3) or not. Three superior courts i.e. Sindh High Court, Lahore High Court and finally the Supreme Court have given the decision that fixing different rates for different categories of customers does not amount to concession in terms of section 4(3) of the Act and therefore duty will be charged on charges actually received according to the rate structure. Further, another noteworthy point is that the constitutional requirement, as laid down in clause (1) of the Article 199, is that the writs described in the said article can be issued when no other adequate remedy under the law is available to the aggrieved person. But it is observed that in many cases petitions are filed in the superior courts without exhausting all

the remedies available to the petitioners under the law. Such remedies under excise law are available in form of appeal and revision. Whenever, party approaches the High Court without availing of these alternatives and the departmental representative points out this lacuna, petition can be dismissed in limine. The case of M/s. Sky Room Limited, which is mentioned in this work, was such a case when the petitioner had not availed of remedies of appeal and revision but the petition was allowed only because the department did not controvert the stand of the petitioner that the appellate authority had already formed its mind on the issue. To conclude; it was found that study of the Central Excise case law is an indispensable requirement for the officers of Central Excise. This study will help them clearing their concepts of different intricacies involved in the adjudication, thus leading them to right and rational conclusions and decisions. As a result not only the number of cases going for litigation into higher courts will decline but the possibility of departmental decisions being quashed by the courts will also diminish. *****

Appendix A

LIST OF COURT CASES RELATING TO VALUATION

S. No. 1. Title Court Journals Reference PLD 1961 SC 66 Issue in Dispute Value

Pakistan through the Secretary, Ministry of Finance, Government of Pakistan, Karachi, Appellants Versus Popular Tobacco Company, Karachi, Respondents

Supreme Court

2.

Crescent Sugar Mills and Distillery Ltd., Petitioners Versus Pakistan and Others, Respondents

Lahore High Court

a)PLD 1978 Lah 864 b)1978 Law Notes (Lah) 38

Dutiability

3.

Atlas Battery Ltd. Karachi, Petitioners Versus Superintendent, Central Excise and Land Customs and 3 others, Respondents

Sindh High Court

a)PLD 1979 Kar 545 b)PLJ 1979 Kar 79

Retail Price

4.

Sterling Products (Pakistan) Ltd., Petitioners Versus Deputy Collector, Central Excise and Land Customs, Karachi and others, Respondents

Sindh High Court

a)PLD 1979 Kar 643 b)PLJ 1979 Kar 173

Dutiability

5.

Atlas Battery Ltd. Karachi, Petitioners Versus Superintendent, Central Excise and Land Customs, Circle C, Karachi, Respondents

Supreme Court

NLR 1980 SCJ 200

Retail Price: Leave to Appeal in Supreme Court

6.

Pakistan Investment Ltd., Plaintiff

Sindh

a)PLD 1980 Kar

Dutiability

S. No.

Title

Court

Journals Reference 275 b)PLJ 1980 Kar 202 a)PLD 1982 Lah 621 b)NLR 1982 Tax 155 c) PLJ 1982 Lah 348 d)PTCL 1983 CL 33 1980 SCMR 773

Issue in Dispute

Versus Pakistan & 2 others, Defendants Hashwani Hotels Ltd., Petitioners Versus Government of Pakistan and 2 others, Respondents

High Court

7.

Lahore High Court

Charges for Services

8.

Crescent Textile Mills Ltd., Lyallpur, Appellants Versus The Member (Central Excise) Central Board of Revenue Islamabad and others, Respondents

Supreme Court

Value

9.

Sky Room Ltd. Karachi, Petitioners Versus Assistant Collector of Central Excise & Land Customs, Karachi, Respondents

Sindh High Court

a)PLD 1982 Kar 244 b)PTCL 1982 CL 8 c)NLR 1982 Tax 148

Charges for Services

10.

Atlas Battery Ltd. Karachi Appellant Versus Superintendent, Central Excise & Land Customs, Circle C Karachi and others Respondents

Supreme Court

a)PLD 1984 Kar 244 b)NLR 1984 Tax 22 c)PTCL 1984 CL 250

Retail Price

11.

Palace Hotel Karachi, Petitioners Versus Additional Secretary, Ministry of Finance and two others, Respondents

Sindh High Court

PTCL 1984 CL 49

Charges for Services

12.

Daroon Rubber Works Industries Ltd. (through Managing Director),

Lahore High

a)1985 PTD 278 b)PLJ 1984 Lah

Assessable Value for

S. No.

Title

Court

Journals Reference 257

Issue in Dispute Sales Tax

Petitioners Versus Government of Pakistan through Secretary, Ministry of Finance and 4 others, Respondents 13. Darsons Rubber Works Industries Wazirabad, and Montgomery Flour and General Mills Ltd., Sahiwal, Petitioners Versus Government of Pakistan, through Secretary, Ministry of Finance, Islamabad & 4 others, Respondents 14. Moonlite (Pak) Ltd., Petitioners Versus Federation of Pakistan and 4 others, Respondents 15. Asif Amin Silk Mills, Petitioners Versus The Deputy Collector, Central Excise and Land Customs, Lahore & 2 others, Respondents Lever Brothers (Pakistan) Ltd., Petitioners Versus Central Board of Revenue, Government of Pakistan, Rawalpindi & 2 Others, Respondents 17. Souvenir Tobacco Company Ltd., Petitioners Versus

Court

Lahore High Court

PTCL 1984 CL 257

Assessable Value for Sales Tax

Sindh High Court

a)1985 CLC 1901 b)PTCL 1985 CL 424

Retail Price

Lahore High Court

PLD 1988 Lah 320

Evasion & Valuation

16.

Lahore High Court

1988 MLD 2958

Retail Price

Sindh High Court

1989 CLC 1134 Retail Price b) PTCL 1989 CL 522

S. No.

Title

Court

Journals Reference

Issue in Dispute

Deputy Collector, Central Excise and Land Customs & 2 Others, Respondents 18. Premier Tobacco Industries Ltd., Petitioners Versus Deputy Collector of Central Excise & Land Customs and 2 others, Respondents 19. Government of Pakistan and Others, Appellants Versus Messrs Hashwani Hotel Ltd., Respondents 20. Hilton International (Now Avari), Petitioners Versus Government of Pakistan, Respondent 21. English Biscuit Manufacturers Ltd., Petitioners Versus The Assistant Collector Central Excise and Land Customs, Landhi Division, Karachi and 3 others, Respondents Sindh High Court 1991 PTD 478 Sales Tax Assessment Lahore High Court Supreme Court a) PLD 1990 SC Charges for 68 Services b) PTCL 1990 CL 427 c) PLJ 1990 SC 33 d) NLR 1990 SCJ 135 NLR 1991 TAX Dutiability 109 Peshawa r High Court a) 1989 CLC 2045 b) NLR 1990 Tax 29 Retail Price

22.

Ittehad Chemicals, Petitioners Versus Islamic Republic of Pakistan through Additional Secretary, Ministry of Finance and 2 others, Respondents

Supreme Court

1991 SCMR 1676 Valuation: Leave to Appeal in Supreme Court

S. No.

Title

Court

Journals Reference

Issue in Dispute

*****

APPENDIX B

ABBREVIATIONS USED FOR LEGAL JOURNALS

S. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 10. Abbreviation PLD SCMR CLC MLD PTD PLJ TLR NLR SCJ PTCL LAW NOTES Journal Pakistan Legal Decisions Supreme Court Monthly Review Civil Law Cases Monthly Law Digest Pakistan Tax Decisions Pakistan Law Journal Tax Law Report National Law Reporter Supreme Court Judgements Pakistan Tax & Corporate Law Law Notes

*****

Appendix C

BIBLIOGRAPHY
1. 2. 3. 4. Central Excise Case-Law of Pakistan Concept of Value in Central Excise (Article) Manual of Central Excise Laws The Constitution of the Islamic Republic of Pakistan by Mr. H. A. Shirazi by Mr. Shahid Bashir by Mr. Najib A. Choudhry

*********