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Constitutional Petition No.1034 of 1986, decided on 24th February, 1987.'
---S.2(f) & First Schedule, item 9(1)--.Excise duty--'Coloured cement 'and' cement paint' under Schedule of Act, held, were two different items attracting different rates of duty-- Difference between the two should not depend on mode of user--Cement paint was categorised in categories of varnish paint etc. and it was treated different from coloured cement which was a category of its own under heading 'mineral products'.
---S.2(f) & First Schedule, item 27--Excise duty--Petitioner engaged in manufacture of coloured cement but department without applying its mind changed classification from 'coloured cement' to 'cement paint' without giving any reason except that as 'cement paint' had been categorised under item No.27 of First Schedule to the Act, coloured cement should be included in definition of paint--Held, decision of the question rested on evidence of experts of technical nature to determine what was cement paint and how it differed from coloured cement--Mere inclusion of cement paint under item No.27, did not automatically make coloured cement, 'cement paint'--Order of Department was declared to have been passed without lawful authority and of no legal effect and case remanded for proper adjudication and for deciding question of difference between 'coloured cement' and 'cement paint' in light of evidence produced by parties.
S.A. Sarwana for Petitioner.
S.M. Noorul Hassan for Respondents.
Date of hearing: 24th February, 1987.
.--The petitioner is engaged in making and selling Coloured Cement. Before undertaking the business of manufacturing Coloured Cement by letter dated 22-2-1974 it requested the respondent No.3 to intimate the rate of duty and sales tax. Respondent No.3 accordingly informed the petitioner that the item falls within the category of section 2(f) of Central Excise and Salt Act, 1944 and liable to excise duty under item 9(1) of the First Schedule at Rs.100 per ton. The petitioner then obtained the licence for manufacturing Coloured Cement and products were marketed under the name of "Snowem" and Concer In the year 1977-78 the rate of duty on coloured cement was increased and the Deputy Superintendent Central Excise and Land Customs on his visit to the factory made an endorsement that the rate of duty on coloured cement has been fixed at Rs.105.35 per metric ton and therefore assessment should be made accordingly. To the same effect a letter was issued to the petitioner. The defendant No.3 by his letter dated 3-12-1977 informed the petitioner that from 11-6-1977 rate of duty on coloured cement has been increased from Rs.105.35 per ton to Rs.225.35 per ton. A demand was made for the differential amount of duty which was paid by the petitioner The Superintendent Intelligence of Central Excise and Land Customs reclassified the petitioners' product as cement paint, subjected it to duty under item 27 of the First Schedule to the Excise & Salt Act. He also asked the petitioner to obtain a new licence under item 27 of the 1st Schedule. The petitioner closed down production under protest and informed the Superintendent The petitioner also requested the respondent No.3 to stay action.
On 10-6-1978 the respondent No.2 issued a show-cause notice to the petitioner for recovery of tax and imposition of penalty. The petitioner submitted his reply dated 24-7-1978 and 3-7-1978 that its products fall under item No.27. It was denied that he was manufacturing cement paint. By order dated 16-1-1979 respondent No.2 ordered payment of Rs.48,235.79 being the central excise duty at 22% of the retail price and further imposed a penalty of Rs.50,000 on the petitioner. The Deputy Collector had placed reliance on petitioner's letter dated 2-4-1975 treating it to be an admission of manufacturing cement paint. Petitioner filed an appeal against the said order without any success. Before the Collector who was the appellate authority, the petitioner had submitted a report from the Central Testing Laboratory, Karachi to show the ingredients of its products and of white cement. Again on 16-10-1979 the petitioner started his work and it seems that he paid the excise duty @ 22% at the retail price under protest. The respondent No.3 rejected the appeal by order dated 27-11-1979 against which a Revision Application was filed which was also rejected on 7-1-1986. Mr. Sarwana the learned counsel for the petitioner has contended that reclassification of the petitioner's products from coloured cement to cement paint was arbitrary and without lawful authority. From the record the undisputed facts seem to be that from the very beginning the respondents have been treating the petitioner's products to be coloured cement. It was on that basis that the petitioner has been charged with excise duty which was paid without any objection. The controversy seems to have arisen when in the year 1977 by the Finance Act 1977 (Act XXX of 1977 (PLD 1977 Statute 356) amendments were made in the first schedule. Item No.9 reads as follows:----
9. Cement--
"Cement" includes clinker but does not include products known as or used as cement paints.
| (1) White or coloured cement | One hundred and five rupees and thirty-five paisa per tonne. |
| (2) All other sorts of cement | Forty-two rupees and thirty five paisa per tonne." |
Item 27 reads as follows:-----
25 ......................................................
26 ..
27. Paints, pigments, varnishes and polishes- ----
All sorts paints (including as or used as cement paints), pigments, distempers, colours, dyes, enamels, varnishes, glazes, lusters, thinners, blocks, cellulose lacquers and polishes (except creams and polishes falling under item No.25), and their ancillaries, in any form, liquid, solid, semi-solid, paste, powder or granules--
| (1) If retail price and quantity are legibly, prominently and indelibly printed on each container of package. | 22 per cent of the retail price. |
| (2) If not covered by sub-item (1). | 2200 per cent, ad valorem." |
In item 27 cement paint was also included in the category of paints. The definition of cement paint has not been given anywhere nor there is any evidence on record to show what is a cement paint and how it differ from coloured cement.
2. Mr. Noorul Hassan the learned counsel for the respondents contended that in the absence of the definition of the cement paint literal and dictionary meaning should be taken into consideration. According to the learned counsel any cement used for painting or colouring the house shall be called cement paint. The contention of the learned counsel does not seem to be tenable. Under the schedule "coloured cement" and "cement paints" have been categorised as two different items attracting rates of duty. . Difference between the two should not depend on the mode of user. If the contention of the learned counsel is extended it may lead to illogical result and one item will overlap the other. Cement paint has been categorised in the categories of varnish, paint etc. and it is treated different from coloured cement which has a category of its own under the heading 'mineral products'. The respondents without applying their mind changed the classification and no reason for change has been given. The only reason seems to have been given by the respondents is that is 'Cement paint' has been categorised under item No.27 the coloured cement should be included in the definition of paint. Mere inclusion of cement paint under item No.27 does not automatically make it cement paint. The decision of this question rests on evidence of experts of Technical nature to determine what is a cement paint and how it differs from coloured cement. These questions can be determined only by recording evidence which we are afraid in these proceedings we cannot do. However, the fact remains that the respondents have classified coloured cement as cement paint without any evidence and without applying their mind to the facts and circumstances of the case and the legal provisions operating at the relevant time. In view of these circumstances and reasons we hold that the impugned orders passed by the respondents are without lawful authority and are of no legal effect. We remand the case to the respondent No.3 for proper adjudication and to decide the question of difference between coloured cement and cement paint in the light of evidence if produced by the parties. Subject to these observations the petition is allowed.
M.Y.H./B-36/K Petition allowed.
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