1. Leave to appeal in respect of a learned Division Bench’s judgment dated 10th March 2005 of the Lahore High Court, Lahore was granted in the following terms:
“Leave to appeal is granted, inter-alia, to examine as to whether in presence of SRO 455(I)/96 dated 13.06.1996, the respondents manufacturers of sugar were not liable to pay excise duty if 5% has been exported because this notification was followed by SRO 456(I)/96 of even date whereby under its clause (i), total exemption was granted in respect of the goods produced or manufactured in Pakistan, whereas its clause (ii) has created an exception qua rate of duty in respect of the earlier notification SRO 455(I)/96 dated 13.06.1996.”
2. The Excise Department claims that respondent No.1 is liable to pay excise duty on a certain quantity of sugar manufactured by it for the period 1998-1999. The dispute turns on the interpretation of certain statutory regulatory orders (“SROs”) issued by the Federal Government under section 12A of the Central Excises Act, 1944 (“the Act”), which provision is reproduced here under:
“12A Exemptions. (1) The Federal Government may from time to time, by notification in the official Gazette, exempt subject to such conditions, if any, as may be specified therein, any goods or class of goods or any services from the whole or any part of the duty leviable under this Act.
(2) The Central Board of Revenue may, by special order in each case, exempt from the payment of the whole or any part of the duty leviable under this Act, under circumstances of an exceptional nature to be stated, in such order, any goods or services on which such duty is leviable.
(3) Any notification or order issued under this section shall be effective from the day specified in the notification or the order, notwithstanding the fact that the issue of the official Gazette in which such notification appears is published, or the orders is delivered to the person concerned, at any time after that day.”
Under section 12A of the Act, the Federal Government from time to time issued certain exemptions from payment of excise duty in respect of ‘cane sugar’. The First Schedule to the Act describes different goods and allocates a code to each one. In this regard the code with regard to ‘cane sugar’ is 1701.1100.
3. In exercise of its powers under sub section (1) of section 12A of the Act, the Federal Government issued S.R.O. No. 455(I)/96 and S.R.O. No. 456(I)/96 (“SRO 455” and “SRO 456” and collectively referred to as “the SROs”). Both the SROs were published in the Gazette of Pakistan (Extraordinary) on 13th June 1996 and both were to take effect from 13th day of June 1996.
4. Sheikh Izhar-ul-Haq, the learned counsel for the appellant, contended that even though vide SRO 456 the rate of duty on cane sugar was brought down to “Nil” however since clause (ii) thereof referred to SRO 455 therefore SRO 456 would not be applicable to cane sugar that was produced as ‘cane sugar’ was also mentioned in SRO 455. He further stated that as the respondent No.1 did not export any cane sugar therefore it was liable to pay excise duty on 5% of its total production at the rate of Rs.1.85 per kilogram.
5. Mr. Shakil-ur-Rehman, the learned counsel for respondent No.1, opposed the appeal and relied upon the judgment of the Hon’ble High Court. He stated that clause (ii) of SRO 456 has no application to respondent No.1 as it pertains to goods other than those which have been attended to in clause (i) of SRO 456 and since SRO 456 specifically mentioned ‘cane sugar’ it could not be excluded by reference to clause (ii). The learned counsel stated that if the interpretation of the appellant’s counsel is accepted then it would render clause (i) of SRO 456 and the Table therein completely redundant. He further stated that the Federal Government had consciously brought down the excise duty payable on cane sugar to zero or “Nil” at the relevant time hence no excise duty can be charged. Alternatively, the learned counsel submitted, that though there is no conflict between the SROs and within clauses (i) and (ii) of SRO 456, however, even if one is presumed, then as per settled rules of interpretation of fiscal statutes the interpretation favourable to the tax payer (the respondent No.1) is to be preferred; reliance was placed upon the cases of Mehran Associates Ltd. v. Commissioner of Income Tax (1993 PTD 69) and Government of Sindh v. Muhammad Shafi (PLD 2015 Supreme Court 380).
6. We have carefully gone through the available record with the assistance of the learned counsel, examined the said SROs and the referred to judgments.
7. The apparent object of SRO 455 was to encourage manufacturers of sugar to export a certain quantity of the sugar produced, and if they did so then no excise duty would be payable on it and if they exported less than the stipulated minimum (which quantity kept varying) they would have to pay excise duty on the quantity which fell below the said minimum quantity of sugar at the prescribed rate (which too kept changing). The Federal Government amended SRO 455 four times (on 10.12.1997, 1.4.1998, 23.12.1998 and 21.6.1999) during the relevant period, i.e. 1998-1999. The amendments both changed the said minimum quantity of sugar as well as the rate of excise duty thereon.
8. The Federal Government confounded the matter further by the issuance of another SRO (SRO 456) on the very same date as SRO 455 was issued, i.e. 13th June 1996, and both these SROs stated that they will come into effect on 13th June 1996. Strangely enough, both the SROs were also in respect of the quantum of excise duty payable on the very same kind of sugar (cane sugar, heading 1701.1100) that was produced. In respect of the same period as mentioned above (1998-1999) SRO 456 was amended thrice (on 31.3.1998, 16.2.1999 and 21.6.1999). The last amendment brought down the rate of excise duty to “Nil”, or to put it simply, no excise duty was payable.
9. The High Court, in its appellate jurisdiction under section 36-C of the Act, set aside the judgment of the Customs, Excise and Sales Tax Tribunal and the order-in-original of the Additional Collector Adjudication. The reasoning of the High Court is given in the penultimate paragraph of the impugned judgment, which is reproduced here under:
“After hearing the learned counsel for the parties we will agree with the learned counsel for the appellant that the latter notification SRO 456(I)/96 was beneficial to the tax payer as manufacturer and since apparently the provisions of two SROs, detailed above, were contradictory which could not be reconciled, the appellant was justified in seeking application and protection of the latter SRO.
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