What section 31-a of the customs act, 1969 Failed to achieve
WHAT SECTION 31‑A OF THE CUSTOMS ACT, 1969 FAILED TO ACHIEVE
By Sohaib Khalid Ishaque, Advocate, High Court, Karachi
The view taken thus far by the superior Courts regarding the effect of section 31‑A of the Customs Act, 1969 seems to suggest that this section has completely obliterated any vested rights that may have accrued in favour of an importer of goods due to any exemption or concession in customs duty granted by the Federal Government in exercise of its powers under sections 19 and 21 of the Customs Act read with section 21 of the General Clauses Act. Considering the above view taken by the superior Courts in a number of cases, a question seems to arise whether the said section 31‑A has achieved complete immunity from judicial review of all withdrawals of exemption or concessions of customs duty.
In order to properly examine the above question it would be appropriate to begin by considering the background behind the promulgation of section 31 A. In the landmark case of Al‑Samrez Enterprise v. Federation of Pakistan (reported at 1986 SCMR 1917), the Supreme Court of Pakistan held that it would be inequitable and unjust on the part of the Government to deprive a person who acts upon the assurance of the right to an exemption, and on that basis exposes himself to unforeseen loss in a business transaction, by suddenly withdrawing the exemption after such person has made legal commitments.
The facts of the said case were that the Federal Government, in exercise of its powers under section 19 of the Custom Act, 1969, had through a notification dated 8‑6‑1972 exempted certain goods from so much of customs duties leviable thereon as was in excess of 20 % ad valorem. Exemption from sales tax on the said goods already stood granted by notification dated 29‑6‑1970. It was on the basis of the exemptions granted under these notifications that Al‑Samrez Enterprise purchased 100 metric tons of the exempted goods by entering into a contract with a Japanese Company. The contract was confirmed in writing on 7‑6‑1977 by means of a memo. of sale executed between the parties, and on 10‑6‑1977. Al‑Samrez Enterprise was issued a commercial import licence for the import of the exempted goods. However on 11‑6‑1977 the Federal Government issued another notification whereby the ceiling for customs duty at 20% was raised to 25% and a condition was imposed that the exemption would only be available to goods imported against an industrial licence. By another notification dated 4‑8‑1977 the Federal Government withdrew the exemption from sales tax as well. The goods arrived at Karachi port on 13‑9‑1977, but the Customs Authority refused to clear the same except on the basis of enhanced duty stated in the subsequent notification dated 1 i‑6‑1977. Al Samrez protested and claimed that they had acquired a vested right under the earlier notification of 8‑6‑1972. As the Customs Authority rejected their claim and persisted in demanding the enhanced duty, Al‑Samrez challenged the demand and the late: notification by filing a writ petition in the High Court of Sindh, which petition was however summarily dismissed in limine by a Division Bench of the Court by its order dated 28‑9‑1977. The High Court in the said order took the view that no vested right had been created in favour of Al‑Samrez in the facts and circumstances of the case. Al‑Samrez appealed to the Supreme Court against the order of the High Court.
In the Supreme Court, the question that came up for consideration was whether the impugned notification, issued after the conclusion of the contract of the appellant with the exporter, could be given retrospective effect, and thereby enhanced customs duty and sales tax on goods booked before the said notification could be legally demanded.
The Supreme Court in its judgment allowed the appeal of Al‑Samrez, and observed that if a binding contract had been concluded between the appellants and the foreign exporter or if steps were taken by the appellants creating a vested right to the then existing notification granting exemption, the same could not be taken away or destroyed in modification of the earlier one on the averred ground that under section 21 of the General Clauses Act, the Government could exercise the power of modification. Justice Zafar Hussain Mirza, who rendered the leading judgment in the Supreme Court, while disagreeing with the view taken by the High Court that no vested rights had been created in favour of Al‑Samrez, held that:
"Indeed it is well settled that tax exemptions are founded on public policy such as the encouragement of manufacturing and other industries or trades. They are granted on the theory that they will benefit the public generally or are awarded as compensation for services rendered in the performance of some function deemed socially desirable. Therefore, the exemption notification is basically addressed to the public‑at‑large or in any case to prospective importers. It will be inequitable t ad unjust to deprive a person who acts upon such assurance of the right to exemption and exposes himself to unforeseen loss in the business transaction by suddenly withdrawing the exemption after he had made legal commitments. It is in this perspective that a right is created in his favour and a subsequent withdrawal of exemption cannot be given retrospective operation by an executive act to destroy his right .. . ... ... .. "
The impugned notification and the demand made by the Customs Authority from AI‑Samrez were defended in the Supreme Court by placing reliance upon the provisions of section 30 of the Customs Act, the relevant portion whereof provided that the value of the imported goods and the rate of duty applicable thereon shall be the value and the rate of duty in force on the date on which a bill of entry for their clearance is presented. It was contended before the Supreme Court that the Customs Authority were under a legal duty to give effect to the changed rate of duty applicable on the imported goods which was in force when the bill of entry was presented by the appellants.
This argument was rejected by the Supreme Court which reasoned that the question as to what was the rate of duty applicable to the category of goods imported by the appellants was not before the Court. The rate of duty as was levied under section 18 of the Customs Act was, in any case, the rate of duty in force on the date the bill of entry was presented by the appellants. However, the real issue was whether the appellants were entitled to exemption from payment of such duty as was in force on that date. Accordingly the Court held that:
"It would appear that the mere grant of exemption under section 19 does not have the effect of modifying or altering the levy of duty under section 18 which continues to be in force. But the only legal effect is that the liability for the payment of duty that accrues under section 18 on the importation of dutiable goods is wiped off to the extent exempted. The two sections, therefore, clearly operate independently and the exercise of power under section 19 is distinct in character and scope, so that if cannot have the effect of nullifying the statutory provisions contained in section 18 whereby the charge is created by the statute itself. In the context it is not difficult to understand that section 30 has no material bearing on the controversy before us and its provisions would not be violated either way on the determination of the question whether the exemption from payment of duty earlier granted was applicable to the case of the appellants or not."
The above judgment of the Supreme Court, though eminently just and praiseworthy, was obviously disconcerting for the Government as the effect of its power to withdraw exemptions, and thereby to collect duties or taxes up to the maximum rate specified by the Legislature, stood significantly curtailed. The fact that a measure like section 31‑A was proposed to be inserted in the Customs Act suggests that the judgment was perceived by the Government as nothing less than a threatening advance by the judiciary in the circumscription of executive power.
In any event, section 5(2) of the Finance Ordinance, 1988 inserted the new section 31‑A into the Customs Act, 1969. The said section 5(2) read as under:
"after section 31, the following new section shall be inserted and shall be deemed always to have been so inserted, namely:‑
31‑A. ++Effective rate of duty++ .‑‑(1) Notwithstanding anything contained in any other law for the time being in force or any decision of any Court, for the purposes of sections 30 and 31, the rate of duty applicable to any goods shall include any amount of duty imposed under section 18, section 2 of the Finance Ordinance, 1982 (XII of 1982), and section 5 of the Finance Act, 1985 (1 of 1985), and the anti‑dumping or countervailing duty imposed under the Import of Goods (Anti‑dumping and Countervailing Duties) Ordinance (III of 1983), and the amount of duty that may be have become payable in consequence of the withdrawal of the whole or any part of the exemption or concession from duty whether before or after the conclusion of a contract of agreement for the sale of such goods or opening of a letter of credit in respect thereof.
(2) For the purpose of determining the value of any imported or exported goods, the rate of exchange of which any foreign exchange is to be converted into Pakistan currency shall be the rate of exchange in force‑‑
(a) in the case of goods referred to in clause (a) of section 30, on the date referred to in that clause,
(b) in the case of goods referred to in clause (b) of the aforesaid section, on the date referred to in that clause, and
(c) in the case of goods referred to in section 31, on the dates referred to in that section. "
(It may be noted that at the time of writing this paper section 31‑A stands slightly modified from the above version on account of some amendments brought about in 1990 and 1991. However, none of the changes which have taken place thus far affect the discussion in this paper or the case‑law cited herein)
The effect of the newly inserted section 3-A the Customs Act, 1969 first came up for consideration in the case of Mrs. Hajera Rashi Gardee v. The Deputy Collector. Customs, ‑Lahore (reported at PLD 1989 Lah. 58) before the Lahore High Court. In that case, the petitioner had imported reconditioned textile machinery into Pakistan from the United Kingdom. The ship carrying the machinery reached Karachi on 7‑11‑1977. The petitioner filed documents with the Lahore Railways for the transhipment of the machinery from Karachi to Lahore. On 18‑1‑1978, the petitioner filed a bill of entry for home consumption at the Customs Dry Port, Lahore. The Customs Authorities claimed customs duty on the consignment at 40 % ad valorem under the notification dated 1‑1‑1978. The petitioner, on the other hand, claimed that customs duty be charged at 25 % ad valorem under the notification dated 4‑8‑1977, and not at 40% under the notification dated 1‑1‑1978, as she had acquired a vested right under the earlier notification, which accrued to her not only on the date when she made the contract for the purchase of the goods from the foreign manufacture, but also on the date when the goods reached Karachi Port on 7‑11‑1977.
The Lahore High Court, however, decided against the petitioner. It held that the ratio of the Al‑Samrez Enterprise case could no longer be applied to the petitioner's case in view of the newly added section 31‑A of the Customs Act, 1969.
The Lahore High Court ruled that the provisions of section 31‑A applied "notwithstanding any decision of any Court" and that the rate of duty applicable in respect of imported goods now not only included the amount of duty imposed under section 18 of the Customs Act, but inter alia also the amount of duty that may have become payable in "consequence of the withdrawal of the whole or any part of the exemption or concession from duty whether before or after the conclusion of a contract or the agreement for ala of such goods or opening of letter of credit in respect thereof". The Court held that:
"The ratio laid down by the Supreme Court of Pakistan in Al‑Samrez's case was that the grant of exemption under section 19 of the Customs Act did not affect, modify or alter the chargeability of the goods to duty, which was provided under section 18, that by the issue of the notification under section 19, the liability for payment of duty that accrued under section 18 stood altered or wiped off, as the case may be, and that the provisions of section 30 did not stand violated, irrespective of the fact whether the exemption earlier granted was applicable to the cases of the importer or not. The newly added section 31‑A of the Customs Act which clarifies and expands inter alia the scope of section 30, clearly includes within the rates of duty applicable on imported goods, the amount of duty that may have become payable in consequence of the withdrawal of the whole or any part of the exemption or concession from duty whether before or after the conclusion of the contract or agreement for the sale of such goods or opening of letter of credit in respect thereof. In the light of this provision, which is also retrospective, it cannot be said that section 30 would now have no material bearing on the controversy, assuming the ratio stated by the Supreme Court in Al‑Samrez's case was to be applied sections 30 and 31‑A read together now clearly affect the principle behind section 19 and it cannot, therefore, be said that the liability for payment of the duty would still stand on the basis of the earlier exemption notification which has been withdrawn. "
The Lahore High Court went on to hold that the words "any decision of any Court" in section 31‑A were obviously intended to defeat the rule laid down by the Supreme Court in Al‑Samrez's case. The Court further held that the words "and the amount of duty that may have become payable in consequence of the withdrawal of the whole or any part of the exemption or concession from duty" in section 31‑A are intended to apply retrospectively to cases wherein earlier notification granting exemptions or concessions already stand modified or cancelled by later notification, and as a result of which higher duties have already become payable.
On the question whether "vested rights" had accrued in favour of the petitioner because of the earlier notification, the Court ruled against the petitioner and held that:
"The words whether before or after the conclusion of a contract or agreement for sale of such goods or opening of a letter of credit in respect thereof' are intended to refer to those points of time when vested rights are normally stated to arise in favour of an importer on the basis of an earlier notification. The word 'whether' here covers both the alternatives i.e. in either case. In short, the effect of these words is that the extended liability will prevail, even though it may have accrued before or after the two circumstances which are judicially recognized as conferring a vested right on an importer to the benefit of the earlier exemption notification. These words, therefore, also seek to affect or destroy the vested right. The new section 31‑A creates the extended liability, which arises by virtue of the amending notification, and protects it by stating that it will prevail, even though it may have accrued before or after the two dates when vested rights may have arisen in favour of the importer on the basis of the earlier notification. "
In the case of Messrs Yasin Sons v. Federation of Pakistan (reported at PLD 1989 Kar. 361) it was argued before the Sindh High Court that the application of section 31‑A of the Customs Act of the consignment in respect of which firm commitments were made prior to its enactment violates Articles 18 (Freedom of Trade, Business and Profession), 23 (the right to acquire, hold and dispose of property) and 24 (protection of property rights) of the Constitution, and further that such application also violates the ground norms of Islamic tenets which have now become enforceable because of Article 2A of the Constitution.
The Sindh High Court ruled that section 31‑A does not violate Articles 18, 23 and 24 of the Constitution, and that the enactment of section 31‑A or making of its application to a particular consignment does not violate any Injunctions of Islam either section 31‑A also came to be challenged before the said Court on the averred ground that it violated the judgment of the Supreme Court in Al‑Samrez's case. The Court, while holding that section 31‑A was enacted to nullify the effect of the decision of the Supreme Court in Al‑Samrez's case dealt with the above averment in the following manner:
"It seems that by now it is a settled law that a Legislature which has the power to make laws regarding rights of persons can make such laws whether during the pendency of a proceeding before a Court or after decision has been given and that it cannot be urged that the Legislature by exercising such power has affected the jurisdiction of the Court. In other words, the power of the Legislature is not affected by the pendency of a proceedings before a Court or existence of a judgment. It is also equally well‑settled principle that the Legislature may validate a recovery which the Government could not have at the material time levied, and the Legislature can legislate any remedial or curative legislation after discovery of a defect in an existing law as a result of the judgment of a superior Court in exercise of its Constitutional jurisdiction and that such legislation would not amount to interference with the exercise of judicial power. It may also be observed that the function of the judiciary is not to legislate or to question the wisdom of the Legislature in making a particular law nor it can refuse to enforce it even if the result of it be to nullify its own decisions provided the law is competently made. In this view of the matter until and unless we hold that section 31‑A of the Act is violative of any provision of the Constitution, we cannot question its validity on the ground that it would nullify the judgment of the Hon'ble Supreme Court ... ..."
The full effect of section 31‑A came to be considered and analyzed at length by the superior Courts in the case of the Molasses Trading & Export (Pvt.) Ltd. v. Federation of Pakistan (reported at 1993 SCMR 1905). The factual background to the above case was as follows. Molasses Trading had obtained an import licence on 28‑7‑1986 for the purpose of importing palm oil. It opened a letter of credit on 29‑7‑1986. The consignment was imported under different bills of lading on board the vessel which reached Karachi on 10‑8‑1986. Originally the duty leviable on palm oil was Rs.3,000 per metric ton. However, by notification dated 17‑4‑1986 issued under section 19 of the Customs Act, 1969, the Federal Government modified the earlier relevant notification by increasing the amount of exemption so that the duty was payable only at the rate of Rs.2,350 per metric ton. Thereafter, another notification was issued on 29‑5‑1986 whereby the same rate of exemption was maintained as was granted by the notifications of 17‑4‑1986. On 22‑8‑1986 another notification was issued under section 19 of the Customs Act, 1969 whereby the exemption granted vide the earlier two notification was modified with the result that the duty was increased from Rs.2,350 to Rs.5,350 per metric ton. Molasses Trading presented the bill of entry on 26‑8‑1986 claiming that the duty was leviable at the rate of Rs.2,350 per metric ton. However, the Customs Authorities rejected the claim of Molasses Trading, and insisted on payment of duty at the rate of Rs.5,350 per metric ton by virtue of the last notification dated 22‑8‑1986, and refused to release the goods. Molasses Trading therefore filed a Constitutional petition before the Sindh High Court challenging the validity of the notification dated 22‑8‑1986, and seeking a direction to the Customs Authorities to release the goods on payment of customs duty prevalent previously.
The Sindh High Court dismissed the Constitutional petition of Molasses Trading and held that section 31‑A of the Customs Act, 1969 had nullified the effect of the decision of the Supreme Court in the case of Al‑Samrez Enterprise v. Federation of Pakistan, and the principles enunciated therein with the result that duties and charges leviable under section 18 of the Customs Act, 1969 can be legally recovered even if the contract was concluded and other steps were taken for the import of goods before the modification or amendment of the exemption notification, and that even the duties chargeable under section 18(2) of the Customs Act, 1969 had become recoverable by virtue of the said section 31‑A having retrospective effect. In passing its judgment, the Sindh High Court relied upon an earlier decision of a Division Bench of the same Court in the case of Gul Ahmed Textile Mills v. The Collector of Customs which had reasoned on the effect of section 31‑A as under:
"The main intention of section 31‑A is to provide a legal cover for the recovery of duty at the specified rate including the amount of duty imposed under section 18 of the Customs Act, section 2 of the Finance Ordinance 1982, section 5 of the Finance Act, 1985, and the anti dumping or countervailing duty imposed under Ordinance III of 1983, and such amount of duty which may have become payable due to withdrawal of exemption notification. The closing part of section 31‑A, subsection (1) clearly indicates that if any body claims any vested right by virtue of any agreement. for sale or opening of letter of credit then it shall not prevail over this provision of law. Protection to vested right is claimed on general principle of law as enunciated in Al‑Samrez's case section 31‑A specifically refers to this decision without mentioning it and also covers rights arising from the contract, agreement of sale or opening of letter of credit. This clearly indicates that the legislature intended to completely obliterate such rights"
Molasses Trading appealed to the Supreme Court against the decision of the Sindh High Court. In his leading judgment, Justice Zafar Hussain Mirza, who had also rendered the leading judgment in Al‑Samrez's case, and with whom the majority concurred, held that section 31‑A had been enacted to set at naught the effect of the judgment of the Supreme Court in Al‑Samrez's case and had effectively achieved the purpose for which it was enacted. After a detailed analysis of the wording of section 31‑A he ruled that:
"A plain reading of the text would show that by a mandate of law the rate of duty, which was matter pertaining to the taxability or leviability of the duty, had now to include the amount not only of the duty imposed under section 18, but also the amount that would notionally become payable if the exemption is withdrawn, irrespective of whether the withdrawal takes place before or after the conclusion of a contract for the sale of goods or opening of letter of credit. It is now easy to see that the distinction between chargeability and payability of a duty under the Act has been effectively destroyed because the rate would now include the quantified amount of duty that would be payable as a result of withdrawal of exemption from duty. The direction that this will be the position whether the withdrawal is before or after conclusion of a contract or opening of a letter of credit has the effect of destroying the doctrine of vested rights on the basis of which the decision in the case of Al‑Samrez was given."
It may be recalled that in the Al‑Samrez's case, the Supreme Court had taken the view that section 30 of the Customs Act had no material bearing on the controversy before the Court, and that its provisions would not be violated either way on the determination of the question whether the exemption from payment
of duty earlier granted was applicable to the case of the appellants or not. In contrast to this view, the Court in Molasses Trading's case came to the conclusion that. prior to the insertion of section 31‑A, section 30 was not relevant to the issue whether the withdrawal of exemption would relieve a party from the payment of duty, however, after the enactment of section 31‑A, the effect of section 30 had been radically changed by including the quantified amount of duty which becomes payable by virtue of the withdrawal notification. And as such, section 30 had now become relevant for the purpose of exemption. The mere fact that section 19 of the Act found no mention in the new section, did not mean that the legal effect of the exercise of power under section 19 read with section 21 of the General Clauses Act was within the purview of section 31‑A.
The majority in the Supreme Court however ruled in favour of Molasses Trading by holding that insertion of section 31‑A does not have the effect of destroying or re‑opening past and closed transactions. As the bills of entry had been presented by Molasses Trading prior to July 1, 1988 (when
section 31‑A was enacted and enforced), its case was a past and closed transaction, and ‑was therefore not affected by the provisions of section 31‑A. The Court based this finding on the following reasoning:
"Before the insertion of section 31‑A the position was that upon the presentation of a bill of entry, by virtue of section 30 the levy of duty was crystallized. As explained in the Al‑Samrez's case, the liability to tax was created under section 18 with reference to this date, because it is the rate of duty by application of which the tax liability can be quantified or assessed. Simultaneously, any benefit of exemption also takes effect on the same date because in the very nature of things, the liability is wiped off by virtue of the exemption at the same time. Therefore, this is the crucial point of time at which, by operation of law the liability is discharged. In other words, the rights and liabilities of importers attained fixity on the said crucial date. Inevitably therefore a vested right had been created and the transaction is closed by the quantification of the tax, if any, or by the discharge of liability on that date. The mere fact that any proceedings remained pending for the assessment of the tax by a statutory functionary for the purpose of recovery of the dues, will not prevent the law from operating and producing the result of closing the transaction. This is on the simple principle that every functionary is bound by the provisions of law and has to pass a lawful order which alone is protected. Besides on this date the liability to pay tax and the exemption from payment are matters of mere calculation in terms of section 30 read with sections 18 and 19 of the Act, because the rate and value of the goods become fixed with reference to this date. Indeed no adjudicative process is involved in such a matter. Viewed in this perspective, if effect is given to the provisions of section 31‑A so as to undo the discharge of the liability which had already taken effect, it will amount to re‑opening a past and closed transaction. The simple reason is that under the existing law there was no further liability to pay the tax and by giving retrospective operation to the new dispensation a liability is being created for the payment of tax. I cannot see anything in the language of section 31‑A, expressly or by necessary intendment, to that effect. "
In the connected case of Mian Nazir Sons Industries Limited v. Government of Pakistan (reported at 1992 SCMR 883), the question before the Court was whether section 31‑A of the Customs Act covers the modification or rescission of a special order issued under section 21 of the Act. The Court found that the benefit extended under section 21 of the Act was a "concession" as opposed an "exemption" and, as such, it did not have the effect of discharging the liability from payment of customs duty. The Court observed that it was idle to pursue the matter involved in the case as no vested right would accrue in favour of an importer to refuse payment of duty subsequently upon rescission or revocation of an order under section 21, and that section 31‑A clearly stipulated that any amount of duty which becomes payable in consequence of withdrawal of a concession from duty, ‑even though such withdrawal takes place after the conclusion of a contract for the sale of goods or opening of letter of credit, would now be payable in terms of section 30 with reference to the date of presenting the bill of entry.
In the case of Government of Pakistan v. Pesticide Air Services Ltd. (reported at PLD 1993 SC 132), the exemption granted by the Government on certain goods had been withdrawn after Pesticide Air had entered a contract with a foreign supplier for the purchase of such goods. The Customs Authorities demanded duty from Pesticide Air at the rates which were in force at the time when the latter presented the bills of entry in accordance 'with the provisions of section 30 of the Customs Act. Pesticide Air, on the other hand, claimed that it was liable to pay the duty at the rate which was in force at the time when it entered into contracts with its foreign suppliers. The dispute was taken to the High Court which, following the decision in Al‑Samrez's case, allowed the Constitutional petition filed by Pesticide Air. The Government aggrieved by the decision of the High Court appealed to the Supreme Court.
The Supreme Court followed its judgment in the Molasses Trading's case and dismissed the appeal of the appellant Government on the ground that the respondent company's case was that of a past and closed transaction and was therefore not covered by section 31‑A of the Customs Act. Justice Naimuddin, however, in his minority view allowed the appeal and held that the transaction in question was fully covered by section 31‑A as the amendment brought about by the said section was fully effective from the date the Customs Act was enforced and any decision contrary to the provisions of section 31‑A had lost its efficacy.
Again in the case of M/s. Abdul Wahid Abdul Majid v. Government of Pakistan (reported at 1993 SCMR 17), the Government had increased the duty on certain goods imported by the appellant and had also imposed regulatory duty thereupon after the appellant had entered into a contract for the purchase of such goods and had also opened a letter of credit in connection therewith. The Supreme Court, while referring to its judgment in Mian Nazir Son's case, dismissed the appeal and held that;
"In the case in hand no exemption from the payment of customs duty was granted and therefore, the ratio decidendi of Al‑Samrez's case (supra) could not have been pressed into service by the petitioners even when it was holding the ground."
No doubt on the plain wording of section 31‑A. and after the detailed analysis and interpretation by the superior Courts in the cases discussed above, it is quite clear that by virtue of the provisions of the said section, an importer would be liable to pay customs duty on goods imported by him at a rate which would include any amount that would become payable because of any withdrawal of exemption or concession from duty, whether such withdrawal was before or after he had entered into a contract or agreement for the sale of such goods or opening of a letter of credit in respect thereof. It would, however, appear that in all the above cases on the effect of section 31‑A of the Customs Act, 1969, the superior Courts have placed great emphasis on the obliteration of any vested rights that may have accrued in favour of an importer who, on the basis of the rates of duty in force, enters into a contract for the purchase of goods or opens a letter of credit in respect thereof, It seems to have been consistently held that the effect of section 31‑A Is that it has completely destroyed any vested rights which may have accrued in favour of an importer who, as such, had become incapable of obtaining any relief against the withdrawal of exemption or concession of customs duty by the Government unless of course his case was that of a past and closed transaction.
It may be difficult to argue against the decision of the Sindh High Court in Annoor Textiles Mills Ltd. v. The Superintendent of Central Excise and Land Customs, Gharo (reported at 1990 MLD 914) to the effect that all imports prior to the issue of a notification levying regulatory duty under section 18(2) of the Customs Act, 1969 were covered by section 31‑A, and that an importer would not be able to claim relief against the applicability of the regulatory duty imposed on the goods contracted to be imported by him at a time when no such duty was in force.
However, as far as the withdrawal of an exemption or concession from duty is concerned, it could be argued that all avenues of obtaining relief from the Courts have not been closed by section 31‑A, even though it appears so from the cases decided thus far.
It is submitted that section 31‑A presupposes that the withdrawal of exemption by the Government under section 19 of the Customs Act, or the withdrawal of concession under section 21 of the Customs Act, as the case may be, read with section 21 of the General Clauses Act, is lawful. It is also evident from the wording of section 31‑A that it does not validate or even purport to validate any unlawful withdrawal of exemption or concession by the Federal Government. In other words, section 31‑A covers only those withdrawals of exemption or concessions which are in accordance with law.
As the withdrawal of an exemption or a concession is a discretionary power exercisable by the executive as held in the case of Army Welfare Sugars Mills Limited v. Federation of Pakistan (reported at 1992 SCMR 1652), it can be challenged as being unlawful on several grounds for instance, it may fail the test of fairness, justice and reasonableness, or it may violate the principles of promissory estoppel and legitimate expectations. It is submitted that section 31‑A would only come into operation once it is established that the withdrawal of exemption or concession is sustainable in law.
That discretionary powers of the executive are not absolute, and cannot be exercised arbitrarily or whimsically, is a principle of law recognized in all civilized Legal Systems of the world. A plethora of case‑law is available in support of this principle in jurisdictions such as United Kingdom and India. In fact, according to the recent pronouncements of our own superior Courts in a number of cases, it is now well settled that the exercise of power by the executive has to be judged on the touchstone of reasonableness and fairness.
For instance, in the case of Federation of Pakistan v. Muhammad Aslam (reported at 1986 SCMR 916) it was held by the Supreme Court that;
"all executive power has to be exercised fairly and justly, for advancing the object of the legislation. In other words every such exercise of power has to satisfy the test of reason and relevance ... ... ...Proceedings under discretion ought to be limited and bond with the rule of reason and law ... ... ..It should be remembered that no discretion vested in an executive officer is an absolute or arbitrary discretion. The discretion is vested in him for a public purpose and must be exercised for the attainment of that purpose. Even though there be no express words in the relevant legal provision to that effect, the discretion is always circumscribed by the scope and object of the law that creates it and had at the same time to be exercised justly, fairly and reasonably. "
In the case of Amanullah Khan v. Federal Government of Pakistan (reported at PLD 1990 SC 1092) the Supreme Court emphasized the need to structure discretion and observed that where the authorities fail to rationalize their exercise of power by rules, policy statements and precedents, the Courts would intervene more often than is necessary, in addition to intervening when the exercise of power appears to be arbitrary and capricious.
Again in the case of Walayat Ali Mir v. Pakistan International Airlines Corporation (reported at 1995 SCMR 650) the Supreme Court, while ruling that the exercise of discretion was circumscribed by the principles of justice and fairness, held that:
"No doubt the competent authority had the discretion but it was not unfettered. While exercising discretion, authority should not act arbitrarily, unreasonably and in complete disregard of relevant rules and regulations. The discretion to be exercised has to be judged and considered in the background of the facts and circumstances of each case ... ...discretion should not to be arbitrary, unreasonable or without reason ... ...The discretion is not be exercised on whims, caprices and moods of the authorities. It is now well settled that exercise of discretion is circumscribed by the principles of justice and fairness. The authority exercising discretion should take into consideration and advance the aim and object of the enactment, rule or regulation under which it is authorized to act . . . .. . "
As the grant and withdrawal of exemption or concession is very much a matter of discretion, the exercise of such discretion not only needs to be structured and rational, but also has to be reasonable, just, fair and in the public interest, as laid down in the above-cited decisions. It is submitted that if a withdrawal of exemption or concession fails to satisfy such requirements, it would be liable to be set aside. And if it would be so liable, it would fail to avail the cover of section 31‑A and deny the benefit of exemption or concession to an importer.
There is one aspect of the Army Welfare case (supra) which needs to be addressed. In the said case, which concerned the withdrawal of exemption granted under the Central Excises and Salt Act, the Supreme Court held that;
"No one can claim exemption from the payment of central excise duty or, for that matter, from the payment of any tax. Grant of exemption is a discretionary matter. The exercise of power under section 12‑A of the Central Excises and Salt Act as the power to withdraw the exemption under section 21 of the General Clauses Act is unconditional. It is therefore‑ not open to the Courts to go behind the notification of withdrawal of exemption on the ground that the exercise of power by the Government was improper, However if the grant of exemption was subject to the existence of certain conditions and the withdrawal of exemption was also conditional on the happening of certain eventuality, then the Government would not withdraw the exemption unless the requirement of law was fulfilled. As no such conditions were provided in section 12‑A, the Court had no authority to make its own surmises as to the propriety of reasons which had motivated the issue of the notification withdrawing the exemption,"
It is submitted that above view of the Supreme Court cannot be reconciled with its own observations in the Walayat Ali Mir case and the Muhammad Aslam case. While there can be no objection to the proposition that no one has a right to claim exemption from the payment of any duty or tax, yet if an exemption or concession from tax is once granted in exercise of discretionary powers in the public interest (as observed in the At‑Samrez case), the withdrawal of such exemption or concession should also be justifiable in, the interests of the public and should be based on sound reasons. And if the power to withdraw exemption or concession, being a discretionary power, is not absolute or unfettered, but is to be exercised in a structured and rational manner on the basis of sound and open reasons and in advancement of the aims and objects of the legislation, it cannot be maintained that such power is unconditional. In fact, it would be a contradiction in terms to say that discretionary power, even though subject to the requirements of justice and fairness, is unconditional!
It is not difficult to imagine that the executive can act unreasonably and irrationally while exercising the power to withdraw exemptions or concessions. It is submitted that if the executive had been held to have acted unreasonably and unfairly in the exercise of a number of other powers, the possibility that It can act in such manner in the withdrawal of exemptions or concessions cannot be discounted. To say that the Courts will direct the Government to fulfil the requirements of law only where the grant or withdrawal of exemption or concession is subject to the existence of certain conditions (for instance, the exemption of concession may be for a specific period), and not otherwise, is an unduly restricted view of the scope of judicial review. When the exercise of discretionary power is not absolute and is in fact circumscribed by the principles of justice and fairness, there is no reason why the Courts should not order the Government to fulfil the requirements of law in cases where the grant or withdrawal of exemptions or concessions is not subject to any conditions.
It would also be unduly restrictive for the Courts not to go behind the notification of withdrawal of exemption or concession on the ground that the exercise of power was improper. It is submitted that in order to even determine whether the exercise of power was proper or improper, the Courts would have to go behind the notification and examine the reasons therefore. In other words, it would not be possible for the Courts to decide whether the reasons for the withdrawal of exemption or concession were proper or improper without first asking for and examining those reasons. Furthermore, if it is indeed found that the reasons advanced by the Government for the exercise of its power are baseless, there is no reason why the notification should not be capable of being set aside on that ground alone. It is submitted that the reasons for withdrawing exemption or concessions should be capable of being scrutinized by the Courts, and if after such scrutiny, the withdrawal is found to be unreasonable, irrational, unjust, improper, or violative of other settled principles of law, it should be capable of being struck down by the Courts in exercise of their power pf judicial review. The proposition that the Courts have no authority to make their own surmises regarding the property of reasons for the exercise of discretionary power in the withdrawal of exemption is it is submitted, an undue restraint on the ambit of judicial review.
Another ground which may be available to an importer to contest the withdrawal of an exemption or concession is the doctrine of promissory estoppel. The doctrine was recognized and enforced by the Supreme Court in the case of Federation of Pakistan v. Ch. Muhammad Aslam (reported at 1986 SCMR 916). In the later case of Pakistan v. Salahuddin (reported at PLD 1991 SC 546) the Supreme Court, after examining a number of cases from foreign jurisdictions on the doctrine of promissory estoppel, held that the doctrine does not extend to legislative and sovereign functions, rat that executive actions were not excluded from its operations. The Court also laid down the limitations to which the doctrine of promissory estoppel was subject. These limitations were.
"(1) The doctrine of promissory estoppel cannot be invoked against the Legislature or the laws framed by it because the Legislature cannot make a representation.
(2) Promissory estoppel cannot be invoked directing the doing of the thing which was against law when the presentation was made or the promise held out.
(3) No agency or authority can be held bound by a promise or representation not lawfully extended or given.
(4) The doctrine of promissory estoppel will it apply where no steps have been taken consequent to the representation or inducement so as to irrevocably commit the property or the reputation or the party invoking it, and
(5) The party which has indulged in fraud or collusion for obtaining some benefits under the representation cannot be regarded by the enforcement of promise."
In the case of Army Welfare Sugar Mills Limited v. Federation of Pakistan (supra), the Supreme Court held that the doctrine of promissory estoppel had been evolved as an equitable doctrine with the object of pre- empting the suffering of any loss by a promisee, and that it was pressed into service to prevent the exercise of legal rights where it would be unconscionable for the possessor of those rights to do so.
The principle of promissory estoppel, which takes its roots from the English case of Central London Property Trust Ltd. v. High Trees House Ltd. (reported at (1947) K.B. 130), was lucidly expanded by the Indian Supreme Court in the case of Motilal Padampat Sugar Mills Co. Ltd. v. The State of Uttar Pradesh (reported at AIR 1979 SC 621) as under:
"It is a principle evolved by equity to avoid injustice and though commonly named 'promissory estoppel' it is neither in the realm of contract nor in the realm of estoppel. The true Principle of promissory estoppel seems to be that where one party has by words or conduct made to the other a clear and unequivocal promise which is intended to create legal relations or effect a legal relationship to arise in the future, knowing or intending that it would be acted upon by the other party to whom the promise is made and it is in fact so acted upon by the other party, the promise would be binding on the party making it and he would not be entitled to go back upon it, if it would be inequitable to allow him to do so having regard to the dealings which have taken place between the parties, and this would be so irrespective of whether there it any pre‑existing relationship between the parties or not. The doctrine of promissory estoppel need not be inhibited by the same limitation as estoppel in the strict sense of the term. It is an equitable doctrine evolved by the Courts for doing justice and there is no reason why it should be given only a limited application by way of defence. There is no reason in logic or principle why promissory estoppel should also not be available as a cause of action, if necessary to satisfy the equity. It is not necessary, in order to attract the application of the doctrine or promissory estoppel, that the promisee should suffer any detriment. What is necessary is only that the promisee should have altered his position in reliance on the promise."
The above Indian case concerned a representation by the State of Uttar Pradesh that it had decided to give exemption from sales tax for a period of 3 years to all new industrial units in the State with a view to enabling them to come an firm footing in the developing stage. The State however went back on its assurance, refused to grant the promised exemption, and tried to rely upon a policy decision to justify the same. The Supreme Court allowed the relief sought by the appellant against the State and held that:
"In, India not only has the doctrine of promissory estoppel been adopted in its fullness but it has been recognized as affording a cause of action to the person to whom the promise is made. The requirement of consideration has not been allowed to stand in the way of enforcement of such promise. The doctrine of promissory estoppel has also been applied against the Government and the defence based on executive necessity has been categorically negatived. Where the Government makes a promise knowing or intending that it would be acted on by the promisee and, in fact, the promise, acting in reliance on it, alters his position, the Government would be held bound by the promise and the promise would be enforceable against the Government at the instance of the promisee, notwithstanding that there in no consideration for the promise and the promise is not recorded in the form of a formal contract ... ... ..
It is submitted that the doctrine of promissory estoppel, being based on equity, must be capable of being displaced only if equity so demands. In other words, if the Government is able to show that in the facts and circumstances, it would be inequitable and against public interest to enforce the representation or promise made by it, only then should the Courts not apply the doctrine of promissory estoppel to bind the Government. Support for this view may be found in the above-cited case of Motilal Padampat in which the Indian Supreme Court also went to the extent of holding that:
"It would not be enough for the Government just to say that public interest requires that the Government should not be compelled to carry out the promise or that the public interest would suffer if the Government were required to honour it. The Government cannot claim to be exempt from the liability to carry out the promise on some indefinite and undisclosed ground of necessity or expediency, nor can the Government claim to be the sole judge of its liability and repudiate it on an ex parte appraisement of the circumstances. If the Government wants to resist the liability, it will have to disclose to the Court what are the subsequent events on account of which the Government claims to be exempt from the liability and it would be for the Court to decide whether those events are such as to render it inequitable to enforce the liability against the Government. Mere claim of change of policy would not be sufficient to exonerate the Government from the liability the Government would have to show what precisely is the changed policy and also its reason and justification so that the Court can judge for itself which way the public interest lies and what the equity of the case demands. It is only if the Court is satisfied, on proper and adequate material placed by the Government, that the overriding public interest requires that the Government should not be held bound by the promise but should be free to act unfettered by it, that the Court would refuse to enforce the promise against the Government. "
That disclosure by the Government of reasons for the exercise of its discretionary power is an absolute necessity for proper judicial review by the Courts is a proposition without exception. However, it may going too far to say, as held by the Indian Supreme Court, that the Court would determine where the public interest lies, and that its view of the matter would prevail over that of the Government. For in that case, the Courts would start sitting in appeal over the administrative and executive decisions of the Government, and would start exercising the functions of the executive for the executive. It is submitted that such a state of affairs would violate the basic concept of the trichotomy and separation of powers under our Constitution.
It may be noticed in this connection that the observations of our Supreme Court in the Arm), Welfare case regarding the authority of the Courts to examine the propriety of reasons behind the exercise of discretionary powers by the executive are in sharp contrast to the conclusion reached by the Indian Supreme Court on the same issue to Motilal Padampat. While our Supreme Court took a very contained view of the matter, the Indian Supreme Court perhaps went too far to assert the scope of judicial review powers. It is humbly suggested that perhaps the best course lies somewhere in between.
It may be helpful to consider the case of Government of Pakistan v. Muhammad Ashraf (reported at PLD 1993 SC 176) on the effect of section 31‑A even though the case involved the imposition of regulatory duty as opposed to the withdrawal of exemption or concession of customs duty. In the said case, the Supreme Court held that merely because at one time no regulatory duty under section 18(2) of the Cu‑toms Act was imposed or was in force, when the importer entered into a contract for the purchase of certain goods from an exporter, no embargo was thereby created upon the delegatee (the Federal Government) of the Legislature to impose tax at any time irrespective of any transaction entered into on the basis when no such tax was in force. Abstention of the Government or non‑exercise of delegated authority to impose tax at a given time under delegated authority gave no vested right to any one to be exempted from the payment of such tax when the same is subsequently imposed.
It was argued before the Supreme Court in the case referred to the preceding para. that in view of the principle of promissory estoppel the Government was bound not to impose any further tax on the goods which had been contracted to be purchased at a time when no such tax was imposed. This argument was however rejected by the Supreme Court by concluding that:
"So far as the argument on promissory estoppel is concerned, there is no question of a representation on the part of the Government, which is an essential element of the principle of promissory estoppel, when a particular item is not subjected to duty at the initial stage. The operation of the doctrine of promissory estoppel is subject to several limitations, including the one that it cannot be invoked against the Legislature or the laws framed by it because the Legislature cannot make a representation. If there was any representation extended by law, it was that under subsection (2) of section 18 of the Act, the Government could impose a duty at any time. Another limitation was that no agency or authority can be held bound by a promise or representation not lawfully given. It goes without saying that it is difficult to hold that the mere fact that no duty was imposed when the initial notification was issued imposing duty on other items, it amounted to a valid promise or representation on the part of the Government not to invoke its powers of imposition of the duty, if upon consideration of the relevant and pertinent factors, it became necessary to impose the duty subsequently during the same year. Therefore the reliance on the doctrine of promissory estoppel is inapt. "
In the case of Government of Pakistan v. Pesticide Air Service (Pvt.) Ltd. (supra), Justice Naimuddin had held that:
"The question of promissory estoppel does not arise because the Government never promised in the notification that the exemption in duty granted by the notifications shall be for a particular period or it shall not be varied or changed or withdrawn for any particular period or time. "
Also in the case of M/s. Abdul Wahid Abdul Majid v. Government of Pakistan (supra), it was held that:
" .. .. ..after the incorporation of section 31‑A, Al‑Samrez's case is no longer available for invoking in aid the doctrine of promissory estoppel in case of withdrawal of exemption from payment of custom duty
The view taken by the Supreme Court in the case of Government of Pakistan v. Muhammad Ashraf (supra) regarding the applicability of the doctrine of promissory estoppel vis a vis the imposition of afresh duty or tax, is indeed unexceptionable as in such a case it would be difficult to contend with any force that there has been a representation by the Government to the effect that it will not impose any such duty or tax (assuming of course that the power to impose the duty or tax in question has been delegated to the Government by the Legislature under the relevant statute). However, it is submitted that the rulings on the issue of promissory estoppel as regards withdrawals of exemption in the Pesticide Air and Abdul Wahid Abdul Majid cases perhaps need to be reviewed.
The finding in the Pesticide Air case to the effect that the principle of promissory estoppel would not be available where the Government does not specify the time period of the granted exemption, is uncalled for. It is submitted that even where no time period has been specified in the notification granting exemption from tax or duty, yet, implicit in such notification is the representation that the exemption is being given in the interests of the public and that it would at least continue for a reasonable period. Indeed it would be totally irrational and unreasonable for the Government to issue a notification of exemption one day, and then proceed to withdraw it the next day, or before any one can avail the benefit granted under the same.
It is equally difficult to see why, after the incorporation of section 31‑A, an importer should be deprived from invoking the doctrine of promissory estoppel in case of a withdrawal of exemption. Indeed no reasons have been advanced in the Abdul Wahid Abdul Majid case for adopting such a view.
It is submitted that the doctrine of promissory estoppel should always be available against the executive as held in the case of Pakistan v. Salahuddin, " and if in the facts and circumstances of the case, none of the limitations (laid down in the said case) to which the doctrine is subject apply, there is no reason why it should not be invoked in aid of a person who, in reliance upon the grant of an exemption or concession by the Government, has changed his position by committing his property or otherwise. As is evident from the above citations on the concept of promissory estoppel, the argument based on the doctrine does not proceed on the basis of any rights of the promisee. Instead, irrespective of the promisee having any rights, whether vested or otherwise, the doctrine is pressed into service where the person who has promised that he will not exercise his strict legal rights is estopped from enforcing such rights where it would be unconscionable to allow him to do so. No doubt it is the right of the Government to collect taxes and duties at the full rate specified in the legislation, but where the Government has itself represented that it would not demand that tax or the duty at the full rate, it should be estopped from so demanding if in the circumstances it would be inequitable and unconscionable for it to do so. In this view of the matter, the emphasis laid by the Courts on the obliteration of vested rights by section 31‑A, and the denial of relief to an aggrieved importer in consequence thereof, can perhaps be displaced by focusing instead on the legality of the withdrawal of exemption or concession itself.
Related to the doctrine of promissory estoppel is the concept of legitimate expectations which has been recognized by our superior Courts in a number of judgments, for instance, in the judgment of the Sindh High Court in the Constitutional Petition No. 502 of 1994, and recently by the Supreme Court in the "Judges case' of Al‑Jehad Trust v. Federation of Pakistan and others. As held in a number of English cases on the subject, the doctrine of legitimate expectations as a ground for judicial review is based on the principle of fairness, and constitutes a representation by the decision maker (whether express or implied from past practice) entitling the party to whom it is addressed to expect, legitimately, one of the following two things:
(1) that a hearing or other appropriate procedures will be afforded before the decision is made, or
(2) that a benefit of a substantive nature will be granted or, if the person is already in receipt of the benefit, that it will be continued and not be substantially varied. (See de‑Smith, Woolf & Jowell, Judicial Review of Administrative Action, 5th Edition, p.421).
The Indian Supreme Court in the case of Food Corporation of India v. Kamdhenu Cattle Feed (reported at 1993 SCMR 2158) held that to satisfy the requirement of non‑arbitrariness in State action, it is necessary to consider and give .due weight to the reasonable or legitimate expectations of the persons likely to be affected by the decision, or else the exercise of power may amount to be abusive or excessive.
It may thus be seen that where the executive by its representation or promise, which may be express or may be implied from a past consistent practice, leads a person to believe that the benefit of an exemption or concession from tax would be granted, such a person would have a legitimate expectation that such benefit would continue for at least a reasonable period to allow him to take advantage therefrom. To take way the benefit conferred by an exemption or concession in such a short time that no benefit can be possibly availed thereunder would certainly be irrational, unreasonable and arbitrary.
It is therefore abundantly clear that legitimate expectation can be yet another ground which would call for the interference by the Court in the exercise of discretionary power by the Government, and there is no reason why this ground should also not be available to the person affected by the withdrawal of an exemption or concession.
It is submitted that the abovementioned grounds of fairness, reasonableness, rationality, promissory estoppel and legitimate expectations, are just some of the grounds available to an aggrieved person for judicial review against the withdrawal of an exemption or concession of duty by the Government, or for that matter against any exercise of discretionary power. These grounds are by no means exhaustive, and have been discussed above merely by way of illustration. An aggrieved person may also be able to challenge the withdrawal of an exemption or concession on the grounds that the exercise of such power is mala fide, ultra vires (where the authority in question has no power in law to grant or withdraw the exemption or concession), or is based on irrelevant considerations. In fact, even excessive exercise of lawful power may itself afford a ground for judicial review in some circumstances to an affected person as recognized by the Supreme Court in the case of Independent Newspapers Corporation (Pvt.) Ltd. v. Chairman, Fourth Wage Board and Implementation Tribunal for Newspaper Employees, Government of Pakistan (reported at 1993 SCMR 1533).
It is submitted that the right to be treated in accordance with law is the inalienable fundamental right guaranteed to every person under Article 4 of our Constitution. Such right includes the rights to be treated in accordance with the principle laid down from time to time by the superior Courts. Support for this proposition may by obtained from the judgment of the Supreme Court in the case of Government of West Pakistan v. Begum Agha Abdul Karim Shorish Kashmiri (reported at PLD 1969 SC 14). As such, our Constitution makes the exercise of all discretionary power subject to the above discussed principles of fairness, justice, reasonableness, promissory estoppel and legitimate expectations laid down by the superior Courts. It is submitted that legislation cannot be interpreted to make the exercise of executive power immune from the purview of the above principles, for that would amount to deprivation of the right granted to every person under the said Article 4. In any case, the principles of fairness, reasonableness and justice must be read into the application of every statute.
It is therefore asserted that the withdrawal of an exemption or concession by the Government under section 19 or 21 of the Customs Act. 1969 read with section 21 of the General Clauses Act must pass the test of reasonableness and fairness, and must be made in the advancement of public interest. Such withdrawal must not be mala fide arbitrary, ultra vires, or in violation of the principles of promissory estoppel or legitimate expectations. The withdrawal must also not be an excessive use of discretionary power. Only if the withdrawal in question is able to satisfy the demands of the above principles, would it be able to claim the protection afforded by section 31‑A of the Act, and not otherwise. Indeed, section 31‑A presupposes that the withdrawal of exemption or concession from duty would be lawful, it does not validate or even purport validate any unlawful withdrawal of exemption or concession.
In view of the above discussion, it is submitted that even if section 31‑A destroys any vested rights that may have arisen in favour of an importer, it does not achieve, and cannot be held to have achieved, the total immunity from judicial review for withdrawals of exemption or concession, as was perhaps contemplated at the time of its promulgation, and as has been the view of the Courts thus far regarding its effect.