COMMITTEE OF ADMINISTRATION, FAUJI FOUNDATION–Petitioners versus FEDERATION OF PAKISTAN and 3 others–Respondents 1984 M L D 356 [Karachi]

Constitutional Petition No.364 of 1976, decided on 2nd April, 1984.

(a) Customs Act (IV of 1969)–

—S.19–Notification NO.SRO.372 (1)/72, dated 8-6-72—Tariff Act (XXXII of 1937),’ First Schedule–Provisional Constitution Order (1 of 1981), Art.9–Machinery–LPG Cylinders, riot used for any other purpose except for filling of liquified petroleum gas specially designed to fill LPG which is required to remain in Cylinders under very high pressure and Cylinders fitted with valves and when containing gas to be used for industrial and domestic consumers for which purpose they are provided with specially designed regulators high pressure regulators for industrial and low pressure regulators for domestic use and these regulators specially manufactured so as to fit in a manner which can safely release gas from LPG Cylinders–LPG Cylinders, held, covered by item (ii) of definition of machinery given in Notification, dated 8-6-72 as they could be considered as apparatus and appliances specially adopted for use in conjunction with machinery specified in item (i) i.e. filling plant.

(b) Tariff Act (XXXII of 1937)–

–First Sched.–Customs Act (IV of 1969), S.19–Provisional Constitution Order (1 of 1981), Art.9–Custom duty–LPG Cylinders–LPG Cylinders imported by petitioner covered by definition of machinery and coming under heading 73.24 of Pakistan Customs Tariff–Importer, held, entitled to exemption from customs duty leviable on such cylinders n excess of 20% ad valorem.

Mansoorul Arfin for Petitioner.

Abul Khair for Respondents.

Date of hearing: 2nd April 1984.

JUDGMENT

NASIR ASLAM ZAHID, J.–The petitioner in this case is the Committee of Administration, Fauji Foundation, which is a chartiable endowment constituted under the Charitable Endowment Act VI of 1890. According to the petition, “Foundation Gas” is a project owned by the Fauji Foundation and the Director Gas Operation, Ministry of Fuel, Power and Natural Resources, Government of Pakistan, granted a licence to Fauji Foundation permitting them to market liquified petroleum gas in the area of Punjab, N.-W.F.P., centrally administered tribal areas and Azad Kashmir. According to the petitioner, previously gas cylinders for marketing liquified gas were imported from Iran by the petitioner and in view of SRO 372(1)/72, dated 8-6-1972, the Petitioner was exempted from custom duty leviable on such gas cylinders in excess of 20 per cent ad-valorem and therefore, the Customs authorities were levying and collecting import duties on such imports at 20 per cent ad-valorem. According to the petitioner, it imported several consignments of` gas cylinders from Iran, on which the Customs authorities levied only 20 per cent import duty in view of the Notification, dated 8-6-1992. It is further averred -by the petitioner that due to certain problems faced by the petitioner’s suppliers from Iran and the government instructions for quick and wide circulation of liquified petroleum gas in far flung areas of the country and also to save valueable foreign exchange in import of Kerosene oil, the petitioner was ordered by the government to step up the market net-work and in the circumstances the petitioner decided to import LPG cylinders from Singapore. The petitioner imported 34,000 LPG cylinders of 11 KG and 6000 of 45 KG from Singapore but on arrival of the first consignment of such cylinders from Singapore, the customs authorities took the view that import duty was leviable on such cylinders at 50 per cent ad valorem. The matter was taken up by the petitioner upto the Central Board of Revenue, who before deciding the matter called for comments from the Collector of Customs, Karachi, The Central Board of Revenue has rejected the plea of the petitioner that the petitioner is entitled to exemption under the Notification, dated 8-6-1972. According to the Central Board of Revenue, after a thorough consideration of the case, it had been decided that these cylinder were primarily used for domestic/ commercial purposes and the petitioner’s contention that such cylinders be assessed as machinery, to which the benefit under the Notification, dated 8-6-1972 became available, could not be accepted. The petitioner has approached this Court in this constitutional petition challenging the orders of the Central Board of Revenue gird the Customs Authorities that the petitioner is not entitled to exemption from customs duty in excess of 20 per cent ad-valorem under the Notification, dated 8-6-1972 in respect of the LPG cylinders imported by the petitioner. We have heard Mr. Mansoorul­ Arfin, learned counsel for the petitioner and Mr.Abul Khair, learned counsel, who has appeared on behalf of the respondents.

2. The only point involved in this Constitutional Petition is whether the LPG cylinders are covered by the definition of machinery given in the Notification, dated 8-6-1972 and the relevant part of the Notification is reproduced here:—-

“SRO 372 (1)/72. In exercise of the powers conferred by section 19 of the Customs Act, 1969 (IV of 1969) the Central Government is pleased to direct that articles falling within the heading numbers of the First Schedule to the Tariff Act, 1934 (XXXII of 1934), specified in the table below, which are machinery or articles for use with machinery or as component parts or spare parts of machinery as defined herein, shall be exempt from so much of the customs-duties leviable thereon as is in excess of 20% ad valorem: Provided that–

(a) the article are identifiable as intended for use only with machinery acid have been given for that purpose some special shape, Size or duality;

(b) it is established to the satisfaction of the Customs Collector that the articles are used as aforesaid;

(c) no duty of customs has been imposed on the articles under the Protective Duties Act, 1950 (LXI of 1950), nor has the duty of customs imposed on the articles been changed under the said Act into protective.

Definition of machinery:

(i) Machinery, operated by power of any description, such as is used in any industrial process including the generation, transmission and distribution of power, or used in process directly connected with the extraction of minerals and timber, construction of buildings, roads, dams, bridges and similar structures, and the manufacture of goods.

(ii) Apparatus and appliances, including metering and testing apparatus and appliances specially adapted for use in conjunction with machinery specified in item (i) above.

(iii) Mechanical and electrical control and transmission gear adapted for use in conjunction with machinery specified in item (i) above.

(iv) Component parts, including spare parts of machinery as specified in items (i), (11) and (iii) above, identifiable as for use in or with such machinery.

TABLE

Heading numbers and sub-heads in the First Schedule to the Tariff Act, 1934 (XXXII of 1934).”

In the table in the aforesaid Notification various headings from the First Schedule to the Tariff Act, 1934, in respect of which exception has been granted, are mentioned and one such heading is “73.24”. It is an admitted position that LPG cylinders fall under hearing “73.24” of the Pakistan Customs Tariff but the only question, on which the parties are at issue, is whether LPG cylinders imported by the Petitioner are covered by the definition of machinery given in the aforesaid Notification so as to attract the benefit of exemption from payment of custom duty in excess of 20 per cent ad-valorem. We may at the outset clear on point which was raised by Mr. Abul Khair, learned counsel for the respondents. According to Mr.Abul Khair Ansari, learned counsel for the respondents, LPG cylinders were imported by the petitioner for sale in the market to private and industrial consumers. This is not so, as in para. 2 of the memo of petition it is mentioned that the petitioner had been permitted to market liquified petroleum gas and this gas in liquified form is filled in the gas cylinders for domestic use and for industrial purposes. Para. 2 of the petition has been admitted in tile counter-affidavit dated 9-12-1976 of Muhammad Akmal, Assistant Collector of Customs filed on behalf of the respondents, Then, according to Mr.Mansoorul Arfin, learned counsel for the petitioner, the gas cylinders imported by the petitioner are not sold but they are only used in marketing and distribution of liquified petroleum gas in toe areas permitted by the Federal Government. In the counter-affidavit it is not the case set up against the petitioner by the respondents that the gas cylinders imported by the petitioner are sold in the market. As observed earlier, the entire controversy between the parties rests upon the decision whether the LPG cylinders can be termed as the machinery within the definition contained in the Notification, dated 8-6-1972.

According to Mr.Mansoorul Arfin, learned counsel for the petitioner, LPG gas cylinders fall under items (i), (ii) and (iv) of the definition of machinery in the Notification. In support of his contention learned counsel referred to sub-paras. (g), (h), (i), (j), (k) and (1) of Para. 12 of the memo of petition which paragraphs are reproduced here : –

“(g) The respondents erred in not considering that the main machinery /articles involved in the filling and marketing of LPG are its three main components all imported from abroad. These are the LPG filling machines alongwith LPG filling pumps, the LPG cylinders and the LPG regulators. It is submitted these components are complementary to each other and one without the other cannot function. This is because the cylinders are fitted with a patent valve (part of cylinder) for filling of gas into the cylinder with the help of filling machines and release of same gas with the help of the regulator. No other regulator or the filling machines can release or fill the gas from/into the cylinders under any circumstances. Although the cylinders have been manufactured in Singapore and the valves, filling machines, regulators and their components are imported from Denmark, but all have been given, for the purpose of save operations special share and size. These articles (cylinders) are identifiable as intended for use on which machinery for which purpose these have been specially adapted in shape, size and quality.

(h) The respondents erred in not approaching that the cylinders are used in industrial processes and the petitioners were required to submit proof thereof. Accordingly the petitioner’s industrial consumers already using LPG supplied in 45 KG cylinders. There are specially designed high pressure regulators supplied by the petitioners to the petitioner’s industrial users to suit the varying energy requirements of furnaces and burning processes etc.

(i) The respondents failed to note that the petitioners cylinders cannot be used for any purpose other than the one for which they have been imported, i.e. filling of LPG. It is submitted that these containers are made of high quality steel and are very costly. They have been specially designed to fill LPG which has to remain under a very high working pressure. Petitioners categorically maintain that these cylinders cannot be put to any other use.

(j) The respondents failed to note that the petitioners have only one place where filling of LPG can be undertaken. This filling plant is located at Attock Oil Company’s Oil Field Dhullian. All the filling machines alongwith the filling pumps are located at this plant. All empty cylinders are transported to this place and filling can be done only in this plant. The cylinders are fitted with valves which are coupled with the filling heads of the filling machines which have been specially designed for filling of this gas. Later when these cylinders containing gas are used by industrial/ domestic consumers, they are provided with specially designed regulators, high pressure regulators for industrial use and low pressure regulators for domestic use These regulator are specially manufactured so as to fit in a manner which can safely release gas from LPG cylinders. These cylinders cannot be used in any other machinery directly or indirectly other than petitioners’ filling plant at Dhullian. It, therefore, goes to prove that the petitioners’ filling plant is a full–fledged industrial unit which fulfills the CBR requirements for duties on LPG cylinders (steel containers for liquified gas) as defined in. SRO 372(1)/72 for exemption in excess of 20% ad valorem.

(k) The respondent: failed to note that under the definition of machinery in SRO 372(1)/72 the cylinders when filled with LPG falls under the category of “distribution of power” for manufacture of goods. LPG being a basic source of energy (power) is filled in cylinders under pressure and distributed as such. It is now being used in the industrial process of “manufacturing of goods” like cutlery, crockery, medical instruments and curing of tobacco etc.

(1) The respondents after considering and accepting the other parts of the machinery i.e. regulators and filling machines as machinery erred in not considering and accepting the other integral and component part i.e. the cylinders as machinery within the meaning of the aforesaid Notification.”

It was further contended by the learned counsel for the petitioners that these special type of LPG cylinders are to be distinguished from ordinary containers like petrol cans which are not machinery. On the other hand it was argued by Mr.Abul Khair Ansari, learned counsel for the respondents, that LPG cylinders are in nature of containers and cannot be equated with machinery and in any case are not covered by the definition of machinery given in the Notification, dated 8-6-1972.

3. The LPG cylinders cannot obviously be used` for any other purpose except for filling of liquified petroleum gas. They are specially designed to fill LPG which is required to remain in the cylinders under very high pressure. Then these cylinders are fitted with valves and according to the petitioner, when these cylinders containing gas are used by industrial/domestic consumers they are provided with specially designed regulators, high pressure regulators for industrial use and low pressure regulators for the domestic use, and these regulators are specially manufactured so as to fit in a manner which can safely release gas from LPG cylinders. In our view, therefore, these LPG cylinders are covered by item (ii) of the definition of machinery as they can be considered as apparatus and appliances specially adapted for use in conjunction with machinery specified in item (i), that is the petitioner’s filling plant. The petitioners, filing plant is definitely machinery under item (i) of the definition nr machinery given in the Notification, dated 8-6-1972. We may also observe that the Customs Department itself had been previously treating such gas cylinders to be covered by the Notification, dated 8-6-1972 as previous imports of such cylinders were cleared on payment of 20 per cent. custom duty only. In our view, the previous interpretation of the Custom Department was correct as the LPG cylinders are covered by item (ii) of the definition of machinery given in the Notification, dated 8-6-1972. We, however, do not agree with the learned counsel for the petitioner that LPG cylinders also fall’ within items (i) and (iv) of the definition of machinery. LPG cylinders cannot be considered as machinery operated by any power and they also cannot be treated as component parts or spare parts of the filling plant of the petitioner.

3. As we have reached the conclusion that LPG cylinders imported, by the petitioner are covered under item (ii) of the definition of machinery given in the Notification SRO 372(1)/72, dated 8-6-1972 and as admittedly these cylinders come under the heading 73.24 of the Pakistan Customs Tariff, the petitioner was entitled to exemption from custom duty leviable on such cylinders in excess of 20 per cent ad­valorem. As a result, the impugned orders are set aside and it is declared that the LPG cylinders imported by the petitioner are covered by the Notification No.SRO 372(1)/72, dated 8-6-1972 of the Government of Pakistan, Ministry of Finance and that the same were exempt from custom duty leviable thereon in excess of 20 per cent. ad valorem. C.P. No.364 of 1976 is disposed off accordingly with no order as to costs.

M . Y . H .                                                                                           Petition accepted.

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