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Present: Muhammad Haleem, C.J., Nasim Hasan Shah, Shafiur Rahman and Zaffar Hussain Mirza, JJ

Civil Appeals Nos. K‑48 of 1977 and K‑145 of 1984, decided on 7th January, 1986.

(On appeal from the judgment, dated 18‑8‑1976 of the High Court of Sind and Baluchistan, Karachi in Constitutional

Petition No. 26/1975).

(a) Central Excises and Salt Act (I of 1944)‑‑

‑‑‑S. 3(3) a (4)‑‑Excise Duty on Production Capacity (Cotton Fabrics)/ (Cotton Yarn) Rules, 1968, R. 4(1), proviso‑‑Capacity duty, abatement of‑‑"Total production". mode of working out‑‑Claim for abatement of capacity duty due to closure of mills‑‑Dispute over calculation of shortfall in production of factory in terms of derived average count/pick‑‑Plea that it was wrong to construe expression "total production" to mean entire poundage or total square yards of all types of material produced by adding them, repelled‑‑There was nothing in language of rules to show that expression "total production" must be worked out on basis of average count (in case of yarn) and pick per inch (in cage of fabrics)‑‑Mode adopted by department for working out "production capacity", held, was not without lawful authority.

Dost Muhammad Cotton Mills Ltd. v. Pakistan P L D 1976 Kar. 1078 ref.

(b) Central Excises and Salt Act (I of 1944)‑‑

‑‑‑S. 3(3), (4)‑‑Excise Duty on Production Capacity (Cotton Fabrics)/ (Cotton Yarn) Rules, 1968, R. 4(l), proviso‑‑"Production capacity"‑ Meaning of‑‑Plea that production capacity of a mill or factory is invariable and if work suspended therein and factory is closed for some time, a shortfall in production is inevitable, being in contradiction with language of second proviso of R.4(1). repelled‑‑Shortfall in production capacity is visualized by Rule itself and submission of appellants that this was not possible clearly indicated that construction being placed on expression "production capacity" by them was not well founded.‑‑[Words and phrases).

Mansoor Ahmad Khan, Advocate Supreme: Court arid A.A. Dastagir. Advocate‑on‑Record and Mansoor Ahmad Khan. Advocate Supreme Court with M.

Shabbir Ghaury Advocate‑on‑Record for Appellant (in both the Appeals) Wajihuddin Ahmad, Advocate Supreme Court with Yousaf Rafi, Advocate‑on‑Record (absent) with Muzaffar Hasan, Advocate‑on‑Record (in both the Appeals).

Date of hearing: 7th January, 1986.

‑‑This judgment will dispose of Civil Appeal No. K‑48 of 1977 and Civil Appeal No. K‑145 of 1984 as similar questions are involved in both these matters.

2. The main question which arises for decision pertains to abatement of capacity duty in respect of any shifts short of the statutorily specified number of shifts on which the production capacity and the duty thereon is worked out. For deciding the issue, which falls for consideration, it will suffice if reference is merely made to the facts in the case of Star Textile Mills Ltd. v. Pakistan and others Civil Appeal No. K‑48 of 1977.

3. In this case the appellant mills remained closed for 84 days in the financial year 1969‑70 resulting in the loss of 251 shifts in the Spinning and Weaving Sections. Intimation of this closure was duly given to the Central Excise Officers, as required under the Rules. of Rs.26,33,743 for loss of 251 shifts as against the installed capacity which was subject to excise duty on production capacity under subsection (4) of section 3 of the Central Excise and Salt Act 1944 was submitted by the appellants. A provisional abatement was allowed, in the first instance, by respondent No. 3 in respect of 177 shifts i.e. Rs.10,01,145.09 in respect of yarn and Rs.7,07,509.62 for fabrics and as to the remaining 74 shifts the question of abatement was left to be considered at the time of passing the final order. At the close of the financial year the appellants filed, on 8‑7‑1970, formal claim of abatement in the prescribed manner in respect of 251 shifts, each of the Spinning and the Weaving Section as contemplated under Rule 4 of the Production Capacity Cotton Fabrics Rules, 1968 and Production Capacity Cotton Yarn Rules, 1968. However, subsequently, on 2‑11‑1977 respondent No. 2 recalled the earlier order allowing provisional abatement and instead allowed only an abatement to the extent of Rs.1,81,807.35 in respect of yarn only and directed that the balance amount be recovered from the appellants. Thereupon, the appellants filed Constitutional Petition No. 583 of 1970 to question the order, dated 2‑11‑1977. This petition was, however, later withdrawn on an assurance that the matter would be reconsidered by the authorities if a review petition was filed in that connection. A review petition was, accordingly, filed before respondent No. .2 but the same, however, was dismissed, vide order, dated 14‑9‑1974 on the ground that the calculation of shortfall in the production of a factory in terms of the derived average count/pick was incorrect. The appellants, therefore, again invoked the constitutional jurisdiction of the erstwhile High Court of Sind and Baluchistan to challenge the above order, dated 14‑9‑1974.

4. Before the High Court it was contended that Respondent No. 2 had misapplied and misread the second part of the second proviso to Rule 4 (1) of the relevant Rules and, therefore, its order was illegal and without lawful authority.

The Rules,‑to the extent relevant, may usefully be reproduced below, at this stage Excise Duty on Production Capacity (Cotton Fabrics) Rules, 1968:‑‑

"4.‑‑If, in a financial year, a factory:‑‑

(i) situated in East Pakistan works for less than seven hundred and sixty‑six shifts, or

(ii) situated in West Pakistan works for less than eight hundred and ninety‑seven shifts; and the Central Board of Revenue is satisfied that any shifts short of the number specified in clause (i) or clause (ii), as the case may be, could not be worked for reasons which were beyond the control of the manufacturer, then, for each shift in respect of which it is so satisfied, the Central Board of Revenue may allow an abatement from the duty leviable under rule 3, the rate of abatement for each such shift being arrived at by dividing the total amount of duty leviable for that financial year by the number of shifts stipulated in clause (i) or clause (ii), as the case may be:

Provided ...........

Provided further that no abatement of duty shall be allowed for any reason whatever if the total production of cotton fabrics of a factory, in a financial year does/not fall short of the production capacity of such factory; and, if such total production falls ‑short of the production capacity, the abatement shall not exceed the difference of the duty leviable on production capacity and the excise duty which would have been leviable on the cotton fabrics produced in the year had the duty on production capacity not been levied."

Excise duty on Production Capacity (Cotton Yarn) Rules, 1968:‑‑

"4.‑‑(1) If, in a financial year, a factory:‑‑

(i) situated in East Pakistan works for less than nine hundred and twenty‑one shifts, or

(ii) situated in West Pakistan Works for less than one thousand shifts; and the Central Board of Revenue is satisfied that any shifts short of the number specified in clause (i) or clause (ii), as the case quay be, could not be worked for reasons which were beyond the control of the manufacturer, then, for each shifts in respect of which it is so satisfied, the Central Board of Revenue may allow an abatement from the duty leviable under rule 3, the rate of abatement for each such shift being arrived at by dividing the total amount of duty leviable for that financial year by the number of shifts stipulated in clause (i) or clause (ii), as the case may be:‑‑

Provided .......

Provided further that no abatement of duty shall be allowed for any reason whatever if the total production of cotton yarn of a factory, in a financial year does not fall short of the production capacity of such factory; and, if such total production falls short of the production capacity, the abatement shall not exceed the difference of the duty leviable on the production capacity and the excise duty which would have been leviable on the cotton yarn produced in the year had the duty on production capacity not been levied."

According to the appellants the production capacity so far as cotton yarn is concerned is fixed on single average count i.e. 26.27/s and in the case of cotton fabrics it is fixed on the basis of single, specified, particularized and fixed picks per inch i.e. 62.60 pick/inch. Accordingly, if the fixed pick per inch is reduced, the production in square yards will directly rise in terms of the quantity and if the reverse is taken, the production will be less than the production capacity. Thus, the words "total production", when comparison is intended against the production capacity, must be reduced to the same count (in the case of yarn) or the same pick per inch (in the case of fabrics) to arrive at a proper comparison. It is only when the items are reduced to a common denominator that a true comparison can be made. It is wrong to construe the expression "total production" in the second proviso of rule 4 to mean the entire poundage or the total square yards of all types of material produced, by adding them. The true result can be achieved by reducing the actual production to 26.27 count in the case of cotton yarn and to 62.6 picks/inch in the case of cotton fabrics.

5. The above plea was rejected by the Division Bench of the High Court on the ground that there was nothing in the second proviso to rule 4(1) of the Rules to suggest that the total production of the cotton fabrics produced was to be calculated with reference to any pick or count. The Court observed:‑‑

"But there is nothing in the second proviso of Rule 4(1) of the Rules even to suggest that the total production of the cotton fabrics produced is to be calculated with reference to any pick."

The Court further went on to observe:‑‑

"The expression 'total production' of cotton fabrics produce in the mill, means the actual production and not a notional production, such as is suggested by Mr. Mansoor Ahmad Khan. The expression 'cotton fabrics production in the year' at the end of the second proviso clearly means the fabrics actually produced. Again, the difference of duty mentioned in that proviso is to be calculated with reference to the duty leviable on production capacity and the

excise duty on the cotton fabrics 'produced' in the year had the duty on production capacity not been levied. The excise duty is levied under section 3(1) of the said Act on goods 'produced or manufactured'. Thus, it is clear that the total production means the goods actually produced or manufactured. There is, therefore, no warrant for the contention that the Central Board of Revenue misread the proviso. In our opinion, the submission of the counsel is misconceived and must be rejected."

This view of the High Court is challenged before us in these appeals.

We have heard Mr. Mansoor Ahmad Khan in support of both the appeals and perused the variably prepared document entitled "concise statement and submissions on behalf of the appellants" (submitted in Civil Appeal No. 48 of 1977). Two points, in the main, have been pressed before us. Firstly, that production capacity being of the plant and machinery of the mill or factory, it is invariable and the duly, chargeable being on plant and machinery of the competent capacity, excise duty can be levied once the said competence fails i.e. there is no production or manufacture on account of suspension of work in the mill or factory for any reason; and secondly' that meaning to the words 'total productions' has to be given when comparison is intended against the production capacity. The actual production, therefore, will have to be reduced to the same count (in the case of yarn) or the same pick per inch (in the case of fabrics) to enable a proper comparison. According to the learned counsel a proper comparison is possible only between like characters. Hence the two comparables must be reduced to a common frame or denominator and while comparing two different commodities it is necessary that both have the same denominator. Hence, while construing the expression "total production" in the second proviso to sub‑rule (1) of Rule 4, it should not be taken to mean the total of the entire poundage or the square yards of the actual production, by adding up the entire material produced. but this should be worked out on the basis of average count fro far as yarn is concerned) and picks per inch (in the case of cotton fabric).

We regret we cannot agree.

As regards the last mentioned submissions there is nothing in the language of the Rules to show that the expression "total production" must be worked on the basis of average count (in the case of yarn) and picks per inch (in the case of fabrics). Perhaps it may have been fairer if this procedure was followed, but there is nothing in the Statute or the Rules requiring adherence to this method for working out the production capacity. Hence if the procedure suggested by the appellants has been followed to work out the production capacity and this has been worked out by taking account of the actual production, the authorities cannot be held to have violated any law and this action cannot be declared as illegal or without lawful authority. As was pointed out by the High Court (in the case of Dost Muhammad Cotton Mills Ltd. v. Pakistan P L D 1976 Kar. 1078 the judgment wherein has been followed in the instant case), "the petitioner was free to manufacture more of any category of the fabrics and it appears that it produced a much larger quantity of medium category fabrics, the excise duty on which would alone have been more than Rupees Twelve Lakhs. If the petitioner's figure of total production of the fabrics is more, because of a larger production of a particular category of fabrics, by employing the lower pick of 54.75 then would have been the case had it employed the higher pick of 57.3. the petitioner has to thank itself for it". We considered that these remarks are in point. The mode adopted by the Department for working out the "production capacity" cannot, therefore, be held to be without lawful authority.

As regards the earlier submission made by Mr. Mansoor Ahmad Khan that the production capacity of a mill or factory is invariable and if the work suspended therein and the factory closed for some time a short fall in the production is inevitable, cannot also be accepted. Indeed, it is in contradiction with the language of the second proviso of sub‑rule (1) of Rule 4 itself. This provides:‑‑

"Provided further that no abatement of duty shall be allowed for any reason whatever if the total production of cotton fabrics of 'a factory, in a financial year does not fall short of the production capacity of such factory."

Thus, shortfall in the production capacity of the factory is visualized by the Rule itself and the submission of the appellants that this is not possible clearly indicates that the construction being placed on the expression "production capacity" by them is not well‑founded.

The upshot is that there is no force in these appeals, which are, accordingly, dismissed with costs.

M. I. Appeal dismissed.

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