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Constitutional Petition No.D-967 of 1984, decided on 18th December, 1985.

---S.60, Sched. V, Part II & Item 3--Sind Octroi Rules, 1964, Rr.2(m), 35, 36, 41(1) & 75--Levy of octroi on imported goods--Imported goods in transit not intended by importer for consumption, use or sale within octroi limits of Local Council, held, would not be leviable with octroi by Local Council, especially when importer thereof had made necessary declaration that such goods would be shifted from octroi limits and would be utilized at place far from octroi limits of Local Council.

---S.60--Sind octroi Rules, 1964, Rr.87, 88, 90, 95, 98 & 99--Levy of octroi on imported goods--Goods in transit could not be kept in warehouse established by Municipal Committee for more than 60 days- Breach of the Rules, held, would not entail levy of octroi on such goods, but at the most penal rent could be charged for excess period in accordance with scale fixed by Municipal Committee in that respect.

---S.60--Sind Octroi Rules, 1964, Rr.189 & 192--Levy of octroi on imported goods--Petitioners not found liable to pay octroi in respect of disputed imported goods could not be held, liable for evasion of payment of octroi dues--Question of registration of criminal case against petitioners and question of composition of offence of evasion and payment of penalty by way of such composition would not arise in circumstances

Muhammad Ali Sayeed for Petitioner.

Muslim Naqvi for Respondents.

Date of hearing: 12th December, 1985.

-This is a Constitution Petition by which the petitioners who are a public limited company engaged in the manufacture and sale of cotton yarn and allied products have called in question the correctness of the order, dated 11-11 1984 passed by respondent No. 2, the Deputy Director of Octroi.

The facts leading to the passing of the impugned order may be summarized as follows. The petitioners imported 241 cases of textile machinery for the purpose of setting up a Spinning Mill at Noori Abad, Industrial Estate, in Dadu District. On arrival of the said machinery in Karachi in May, 1984, the petitioners made a necessary declaration as to utilization of the goods outside Karachi. Pending the shifting of the goods to the installation side, the petitioners had them stored in the bonded warehouse with the approval of the K.M.C. Octroi authorities. Meanwhile, the petitioners also furnished a bank guarantee, dated 16th May, 1984 in the sum of Rs.50,000, ensuring that the goods in question would ultimately be moved outside the K. M. C. limits. However, owing to delay in shifting of the petitioners, the Deputy Director by his order, dated 11-11-1984 (impugned order) called upon them to pay a sum of Rs.2,72,238 as octroi demand and ten times of the same demand as penalty, bringing the total amount to be paid by them to Rs.19.618. On the same day the Habib Bank was also required by a letter to pay the amount of the bank guarantee. Aggrieved by the said order, the petitioners first approached the Mayor, K.M.C. who however, returned the appeal, on the ground that it did not lie to him. The petitioners then presented a fresh appeal to the Director of Octroi who after hearing the same announced an oral order declaring that he was not competent to hear the appeal because he had himself passed some orders in the case. Despite their repeated attempts the petitioners did not succeed in getting, a copy of the order made by the Director. Ultimately, they were constrained to file this petition particularly when they realized that no useful purpose would be served by the internal appeals, as the dispute involved interpretation of the provisions of the Sind Local Government Ordinance, 1979 and the relevant rules governing the dispute.

After hearing the arguments addressed at the bar, this petition was allowed with no order as to costs by short order, dated 12-12-1585. Following are reasons in support of the said short order.

It was contended by the learned counsel for the-petitioners the so long the machinery in question was stored in 'the bonded warehouse and there was no evidence to show that it was meant f6r sale, use or consumption within K.M.C. limits, octroi could not be levied on the said machinery. He further submitted that even on expiry of the validity period of the pass allowing goods to remain in the bonded warehouse, the owners of the goods would at the most be liable to penal rent and in the event of non-payment of such rent the goods in question would be liable to seizure. The other grievance of the learned counsel for the petitioners was that the procedure contained in rule 75 was not followed and the petitioners were not given show-cause notice before passing of the impugned order. He further argued that no powers were available to the K.M.C. or its officers to impose penalty or fine. The learned counsel also attacked several octroi rules as being ultra vires of the statutes namely, Sind Local Government Ordinance, 1979. He also expressed the view that the concept of composition had been totally misconstrued and consequently, the application of octroi and the penalty on that basis was wholly without jurisdiction.

To begin with, reference may be made to section 60, Sind Local Government Ordinance, 1979 (hereinafter referred to as the Ordinance). It empowers council which includes Metropolitan Corporation to levy all taxes, rates, tolls and fees as mentioned in Schedule V. In part II of this schedule fall the taxes etc. which are leviable by Corporation including Metropolitan Corporation. Municipal Committees and Town Committees. Item 3 of this part shows that tax is leviable on import of goods for consumption, use or sale in the local area. Octroi as defined in rule 2(m) of Octroi Rules 1964 (hereinafter referred to the said rules.) is nothing but a tax on the import of goods for consumption, use or sale thin octroi limits. As required by rule 35 of the said rules, when goods liable to octroi are presented at an Octroi Post, a declaration is to be made by a person in charge of the goods in order to show if the goods are meant for consumption, use or sale within the octroi limits or are for other purposes such as immediate export or temporary retention within the octroi limits and ultimate export etc. According to rule 36 if no declaration is made under rule 35, the goods shall be deemed to be intended for consumption; use or sale within the octroi limits. Rule 41(l) provides that when it is declared that the imported goods are intended for consumption, use or sale within octroi limits, the octroi clerk shall assess the octroi payable in respect thereof and on receipt of the amount shall issue an octroi receipt. Thus it is clear the octroi is leviable when either declaration under rule 35 is not filed or if it is filed and goods imported are declared to be intended for consumption, use or sale within octroi limits.

In the instant case, the admitted position is that the goods in question have been imported within octroi limits of the K.M.C. and the petitioners have filed a declaration tinder rule 35 to the effect that they are intended to be shifted to Noori Abad in District Dadu and utilized there for installing a Spinning Mill. In this connection reference may be made to paras 3 and 6 of the petition which reflect the factual position as stated above. It would appear that the K. M. C., respondent No.1 have not denied the contents of the above two paras in the counter-affidavit filed or their behalf. Thus the goods in question are not meant for consumption, use or sale within the K. M. C. limits. That is also not the case of the respondents. Therefore, the question would arise if the goods would still be subject to levy of octroi The learned counsel for the respondents contended that as provided in rule 95, the goods in transit could be kept in the bonded warehouse for a maximum period of 60 days and since that period has already expired and the goods have not yet been moved out of Karachi, the petitioners have committed breach of the rules for which they are liable to be prosecuted.

It may be observed that once the respondents have- accepted the petitioners' declaration under rule 35 above, that the goods in question are to be shifted to and utilized at Noori Abad in District Dadu, they have no power to levy octroi on Such goods until it is proved by reliable evidence that the petitioners have changed their mind in respect of the said goods which are now intended for consumption, use or sale within K.M.C. limits. The learned counsel for the respondents frankly conceded that no such evidence is available with the respondents. On the contrary, it is not denied that the goods continue to be lying in the warehouse. However, as disclosed in the impugned order the octroi seems to have been levied on the ground that the goods have not been moved from the warehouse within the period of sixty days fixed by the rules.

No doubt rule 95 does not permit the goods in transit to be kept in the warehouse for more than 60 days. But breach of this rule however does not entail levying of octroi. The warehouse referred to in this rule is clearly the octroi warehouse which is to be established by the Municipal Committee with the approval of the Government under rule 87. According to rule 88 every such warehouse is to be in charge of a clerk and Municipal Committee has power under rule 90 to levy such charges for use of the octroi warehouse as may be fixed by it from time to time. As provided in rule 98, the clerk in charge of the octroi warehouse has power to charge penal rent in accordance with the scale fixed by the Municipal Committee for the excess period for which the goods have remained in the warehouse. If the penal charges as levied by the clerk of the warehouse are not paid, the goods would be liable to seizure under rule 99. It is thus clear from the above rules that rent or penal rent for the excess period is to be charged for the use of octroi warehouse established under rule 87, which is obviously the property of the Municipal Committee. In the instant case no such warehouse has been rented out by the petitioners and the goods in question are said to be stored in the warehouse which belongs to Custom Authorities. Consequently; it is between the petitioners and the Custom authorities to sort out the question of charges for use of the warehouse. It was also conceded by the learned counsel for the respondents that the respondents have no intention to levy penal rent against the petitioners. Since penal rent as provided in rule 98 is not intended to be levied the question of seizure of the goods in the event of non-payment thereof would not arise.

The impugned order further shows that the penalty equivalent to ten times of the octroi dues has been imposed by way of composition of the offence. In this connection, reference may be made to rules 189, and 192 which are reproduced as under:

"189. Where a case of an evasion of Octroi is required to be registered against any person under any of the provisions of these rules, an Investigation report shall be forwarded to Octroi Office, and such case shall be deemed to be registered as soon as an Investigation Report has been forwarded under this rule."

"192. When a case of the evasion of Octroi has been registered against a person, such person may apply for the composition of the offence, and if he pays the octroi due and an amount by way of composition equivalent to ten times the Octroi due, the Inspecting Officer may compound the offence an issue and Extraordinary Pass."

As has been pointed out in the foregoing paragraphs, the petitioners, are not liable to pay octroi in respect of the goods in dispute. Consequently, they cannot be held to have made any evasion in payment of the octroi. It is not the case of the respondents that a case of evasion of octroi has been registered against the petitioners. Even otherwise as is clear from rule 189 above, such 'case can be registered when as a result of investigation contemplated by the said rule, charge of evasion of octroi is prima facie made out. It is after the case of evasion of octroi is registered against the petitioners, that they can apply under rule 192 above for composition of the offence and if they pay the octroi dues and the amount equal to times the said dues by way of composition, the Inspecting Office may then compound the offence. As stated above since no evasion has been made by the petitioners in payment of octroi, the question of registration of such case against them does not arise. Even otherwise, it is not alleged by the respondents that any such case has been registered against the petitioners. Assuming for the sake of arguments that such case has been registered, there is no indication that any show-cause notice has been issued to the petitioners in this regard. As provided in rule 75 if the goods covered by transit pass are not exported within the period specified in the pass, the case shall be reported to Octroi Inspector who shall investigate it as a case of evasion of octroi. The grievance of the learned counsel for the petitioners was that no step has been taken in compliance with the rule. If the investigation had been made under the rule, show-cause notice would have been given to the petitioners. Admittedly no such notice has been served on the petitioners. Therefore, even if the investigation has been done, it is of no legal consequence as it has obviously been made behind the back and in absence of the petitioner

As pointed out above, the requirement of rule 192 is that the case of evasion of octroi is registered against the petitioners, initiative for composition of the offence is to be taken by the petitioners themselves. It is an admitted position that no such application has been trade on their behalf. Accordingly, they cannot be called upon to pay the penalty by way of composition of the offence. Any such direction is without lawful authority.

To sum up it may be stated that since the respondents have produced no proof that the goods in transit are intended for consumption, use or sale within the octroi limits of the K.M.C., they have no power to levy octroi in respect of the said goods. Conse quently, the petitioners cannot be held liable for evasion of payment of the octroi dues. No such case of evasion can, therefore, be registered against them and the question of composition of the offence of evasion and payment of penalty by way of such composition would not arise. Accordingly we are of the view that in the circumstances of the case, the impugned order relating to payment of octroi dues and the penalty by way of composition of the offence is illegal and without lawful authority and it is hereby set aside.

However, the respondents will be free to examine if the petitioners have committed breach of any rules and if so, take appropriate action in accordance with law.

H.B.T.F-4/K Petition allowed.

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