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Writ Petition No. 1671 of 1970, decided on 13th November 1970.

r. 8(3), provisos read with Central Excises and Salt Act (I of 1944), S. 37(2)(xvi)‑First two provisos added to r. 8(3) on 21‑6‑68 do not conflict with rule contained in cl. (xvi) of S. 37, Central Excises and Salt Act as it stood prior to its amendment by Finance Ordinance (XVI of 1969)‑Interpretation of statutes.

Where the contention was that the first two provisos added on 21‑6‑68 to rule 8(3) of the Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968, were ultra vires of section 37(2)(xvi) of the Central Excises and Salt Act, 1944, as it stood prior to coming into force of the Finance Ordinance, 1969, and the subsequent amendment made in the law by the Finance Ordinance, 1969, could not validate the two provisos.

Held : The first two provisos added on 21‑6‑68 to rule 8(3) of the Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968, being in the nature of fiscal legislation, have to be strictly construed and their validity is to be judged by the state of the law, as it existed on the date the provisos were added to the relevant rule, and the subsequent amendment in clause (xvi) cannot be retrospectively employed to confer vali dity on these provisos, if they are found to be ultra vires of the original clause. But the provisos added to rule 8(3) do not in any manner conflict with the rule contained in clause (xvi) of section 37(2) of the Act as it stood prior to its amendment in 1969.

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-----‑Legislation void ab initio for want of competence in Legislature at relevant time‑Cannot be validated by subsequent conferment of necessary jurisdiction.

Province of East Pakistan v: Md. Mehdi Ali Khan P L D 1959 S C (Pak.) 387 ref.

Zaheer Ahmad Khan for Petitioner.

‑This petition under Article 98 of the Constitution seeks to challenge the validity of certain orders made by the Central Board of Revenue concerning the deduction of excise duty admissible to the petitioner‑company, namely, the Colony Thal Textile Mills Limited, Ismailpur, Bhakkar, in respect of exports of cotton fabrics made by the firm in the months of May and June 1970.

2. It is stated that the petitioners manufacture cotton fabrics and cotton yarn under a licence issued under the Central Excises and Salt Act, 1944 (hereinafter called the Act), and that under S. R. O. 61(R)/68 and 62 (R)/68 dated the 22nd of April 1968, they are liable to pay excise duty on the basis of production capacity. It is added that on the exports of cotton fabrics manufactured by them the petitioners were allowed deduction of excise duty according to rule 8 (3) of the Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968 (hereinafter called the Rules). Under this sub‑rule the deduction was accord ing to the rate prescribed for the category of fabric exported by the petitioners, but on the 31st of December 1968 two provisos were added to rule 8 (3) of these Rules which have had the effect of reducing the amount of deduction admissible to the petitioners on account of the exports. It is contended that these provisos are ultra vires of section 37 (2) (xvi) of the Act as it stood before its amendment by the Finance Ordinance of 1969, which came into force with effect from the 1st of July 1969. It is submitted that the amendment made in the relevant law on the 1st of July 1969, could not validate the two provisos in question as they were void ab initio.

3. In the alternative the submission is that even if the provisos are valid, the Central Board of Revenue has erred in interpreting them to the disadvantage of the petitioner‑firm: It is argued that the deduction admissible to the petitioners in respect of their exports could, in no case, be assessed at a rate lower than the one applicable to the category of the exported fabric.

4. In order to appreciate these contentions it is necessary to reproduce here, for facility of reference, the relevant provisions of the Act and the Rules. The levy of the excise duty is sanctioned by subsection (1) of section 3 of the Act which reads as under:‑

"There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in Pakistan and a duty on salt manufactured in, or imported by land into, any part of Pakistan as, and at the rates, set forth in the First Schedule."

Section 37 of the Act is to the following effect:

"(1) The Central Board of Revenue may make rules to carry into effect the purposes of this Act.

(2) In particular, and without prejudice to the generality of the foregoing power, such rules may‑

(xvi) provide for the grant of a rebate of the duty paid on excisable goods or on excisable goods used in the manufacture of any other goods which are exported out of Pakistan or shipped for consumption on a voyage to any port outside Pakistan :

Provided that Rules made under this clause shall provide that.

6. Clause (xvi) of section 37 was amended by Ordinance XVI of 1969, published in the Extraordinary Gazette of Pakistan, dated the 28th of June 1969, and it now reads as follows:

"(xvi) provide for permission to export goods on payment of duty or otherwise, and for the grant of rebate, on any basis, of the whole or any part of the duty paid on or in respect of any excisable goods which are exported or which are used in the manufacture of any other goods which are exported out of Pakistan or shipped as provisions or stores for consumption on board a ship or aircraft proceeding to any destination outside Pakistan."

7. Rule 8 (3) framed by the Central Board of Revenue, with the prior approval of the Central Government, in exercise of the powers conferred by subsection (4) of section 3 of the Act read with section 37 thereof reads as under:‑

"Duty due on cotton fabrics which are removed from a factory for export in accordance with the procedure prescribed in Chapter IX of the Central Excise Rules, 1944 or to a licensed warehouse in accordance with the procedure prescribed in Chapter VII of the said Rules, may be deducted from the monthly instalment of duty payable for that month under rule 6, at the following rates, namely :‑

8. Two provisos were added to this sub‑rule on the 21st of June 1968, and a third one on the 31st of December 1968 in the following terms:

"Provided that such deduction of duty shall be admissible separately in respect of each category of cotton fabrics up to the maximum of the production capacity of that category on which duty is leviable under rule 3:

Provided further that if the quantity of any category of cotton fabrics removed from the factory during a financial year in accordance with this sub‑rule exceeds the production capacity of that category on which duty is leviable under rule 3, then in respect of the excess quantity deduction of duty may be allowed against the production capacity of any other category and cotton fabrics on which duty is leviable under rule 3 at a lower rate, subject to the condition that the total of such quantity and of the quantity of that other category of cotton fabrics removed under this sub‑rule does not exceed the production capacity of that other category :

and where deduction of duty in respect of any excess quantity or any part thereof cannot be so allowed, deduction of duty in respect of such excess quantity or part may be allowed against the production capacity of any other category of cotton fabrics on which duty is leviable under rule 3 at a higher rate but such deduction shall be allowed at the rate of duty prescribed in rule 3 for the category of fabrics which is removed from the factory, subject to the condition that the total of such quantity and of the quantity of that other category of cotton fabrics removed under this sub‑rule does not exceed the production capacity of that other category."

9. For the purpose of assessment of excise duty the production capacity of the petitioner‑firm has been fixed by the Excise Department for each category of cotton fabrics and cotton yarn. The categories enumerated for fabrics are coarse, medium, fine and super‑fine. It is conceded that the total excise' duty levied on the petitioners is calculated on the basis of the production capacity fixed for each category of the manu factured fabric multiplied by the rate of duty specified in sub‑rule (2) of rule 3 of the Rules, and the same rates are repeated in sub‑rule (3) of rule 8 for the purpose of calculating the deduction of duty admissible on exports. It would appear, therefore, that the total excise duty levied on the petitioners represents the notional aggregate of the duty which would be payable if the petitioners were actually manufacturing the maximum quantities of each category as specified in the assessment of its production capacity. It is stated that no extra duty is levied if the actual manufacture exceeds the specified manufacture capacity in each category and similarly no deduction is allowed ordinarily if the actual production falls short of the specifications.

10. Clause (xvi) of section 37 (2), as it stood before the amendment, contemplated that the rules shall provide for the grant of a rebate of the duty paid on excisable goods which are exported out of Pakistan. The amendment introduced in this clause by the Finance Ordinance of 1969 makes it more elaborate and permits for provision to be made for the grant of rebate, on any basis, of the whole or any part of the duty paid on or in respect of excisable goods which are exported. It is conceded at the bar that the offending provisos, added to rule 8 (3) in 1968, would be fully covered by the amended clause (xvi), but it is contended that the amendment cannot be applied restrospec tively and therefore, the validity of the provisos has to be tested in relation to the unamended clause.

11. The provisos in question being in the nature of fiscal legislation, have to be strictly construed ; and in any case the learned counsel is right in saying that their validity is to bet, judged by the state of the law, as it existed on the date the provisos were added to the relevant rule, and the subsequence amendment in clause (xvi) cannot be retrospectively employed to confer validity on these provisos, if they are found to be ultra vires of the original clause. Such a view would be in accordance with the principle laid down by their Lordships of the Supreme Court in Province of East Pakistan v. Md. Mehdi Ali Khan (P L D 1959 S C (Pals.) 387) to the effect that a legislation which is void ab initio owing to want of competence in the Legislature at the relevant time cannot be validated by a subsequent conferment of the necessary jurisdiction. In these circumstances we proceed t to examine the validity of the provisos in the light of the un amended clause (xvi) of section 37 (2) of the Act.

12. As already stated, clause (xvi) of section 37 (2) of the Act, under which rule 8 (3) has been framed, contem plates that the rebate on exports shall be of the duty paid on such goods. Now, the question is what is the duty paid by the petitioners on the goods exported by them. Their production capacity having been assessed at certain maximum quantities for each category of the fabrics manufactured by them, the duty payable by them is, therefore, related to these quantities. If the exports of any particular category exceed the maximum specified, then with regard to that excess quantity it cannot be said that excise duty has been paid at the rate applicable to that category. In such a case the second proviso rightly provides that the excess shall then be debited towards the lower category of goods included in the assessment of production capacity, and accordingly the rebate to be allowed on exports of that excess quantity would have to be calculated at the lower rate applicable to the other category. The third proviso, which is however not attracted in the present case, then deals with a situation where the excess exports cannot be debited towards the lower category, and provides that such excess may be counted towards a cotton fabric of the higher category, but the rebate shall be at the rate applicable to the category actually exported. This proviso is again in keeping with the operative part of the unamended clause (xvi), as the rebate has to be of the duty paid, and not of any higher amount which has not actually been paid.

13. It seems to us, therefore, that the provisos added to rule 8 (3) do not in any manner conflict with the rule contained in clause (xvi) of section 37 (2) of the Act. For the same reasons we are also of the view that the Central Board of Revenue has not erred in interpreting the provisos in question, or in applying them to the facts of the present case. Accordingly the present petition fails and is hereby summarily dismissed.

K. B. A. Petition dismissed.

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