PDS # 9620         Reference :   PDS # 9620

High Court Appeals Nos. 31 and 32 of 2000, decided on 16th August, 2005, Date of hearing: 16th August, 2005

KARACHI HIGH COURT

Before Muhammad Mujeebullah Siddiqui and Khilji Arif Hussain, JJ

Shakeel Ahmed for Appellants and Kh. Shamsul Islam for Respondents

COLLECTORATE OF CENTRAL EXCISE, KARACHI and another

Syed MUZAKKAR HUSSAIN and another

JUDGMENT/ORDER/FINDINGS/RECOMMENDATIONS

{MR. KHILJI ARIF HUSSAIN, JUSTICE}...........By this common judgment we would like to dispose of above
referred appeals as the same arise out of common judgment passed in Suits Nos.357 and 358 of 1998.
Brief facts of the case are that the respondent No.1 a stevedoring contractor entered into a contract for
three years in the year 1994 with Government of Pakistan for handling fertilizer imported by them at
Karachi Port. By show-cause notices dated 9-7-1997, 10-7-1997 and July, 1997, the appellant called upon
the respondent No.1 to deposit central excise duty in respect of excisable services provided to them from
17-7-1995 to 30-9-1995. October, 1995 to December, 1995 and January, 1996 to March, 1997 respectively.
The respondent No.1 impugned these notices by filing the suit for declaration, direction and permanent
injunction. The appellant filed written statement and denied the various allegations levelled in the
memo. of plaint. When the suit was listed for hearing of interlocutory applications, a request was made
by the learned counsel for the parties that since point involved in the matter was a legal one and since
most of the documents relied upon by both the sides have been brought on record, therefore, they did
not wish to lead any evidence and agreed that a final judgment may be given in the matter. The learned
Single Judge, after hearing the learned counsel for the parties decreed the suit and dismissed the
application under Order VII, Rule 11, C.P.C., filed by the appellant. Aggrieved by the said judgments
these appeals have been preferred by the appellant. Heard Mr. Shakeel Ahmed, learned counsel for the
appellant, and Mr. Khawaja Shamsul Islam, learned counsel for the respondents in both the appeals. The
only ground, on which impugned judgment is questioned by the learned counsel for the appellant is that
the suit filed by the respondent No.1 was not maintainable on the original side of this Court as the
jurisdiction of the Court is barred under section 40 of Central Excise Act, 1944. Since the learned counsel
for the appellant has questioned the judgment on the sole ground that the suit filed by the respondent
No.1 was not maintainable, we would not like to go in the merits of the matter and deal with the
question raised by the learned counsel for the parties. Mr. Shakeel Ahmed, learned counsel for the
appellant, vehemently argued that the suit filed by the respondent No.1, on the face of it, was barred by
law and if respondent felt aggrieved by the show-cause notices, then the remedy was available under the
hierarchy of the Central Excise Act itself and same could not be questioned by filing suit. In support of his
contention, learned counsel relied upon the cases of Messrs World Trade Corporation v. C.B.R. and others
(1999) 80 Tax 841, Mst. Sakina and 3 others v. The Excise and Taxation Officer `A' Division, Karachi 1989
CLC 964 and Manzoor Hussain v. Raja Shah and others 1999 SCMR 1881. On the other hand, Mr. Khawaja
Shamsul Islam, learned counsel for the respondents, argued that the show-cause notices, on the face of
it, were without jurisdiction having been issued with mala fide intentions and after expiry of the period
provided for issuing such notices, and therefore bar contained in section 40 of the Central Excise Act,
1944 is not attracted more particularly because no order passed or any assessment levy or collection of
any duty was assailed. In order to appreciate the contention of learned counsel for the parties we would
like to reproduce section 40 of the Central Excise Act, 1944, which reads as under:--- "40. Bar of suit and
limitation of suit and other legal proceedings.---(1) No suit shall be brought in any Civil Court to set aside
or modify any order passed or any assessment, levy or collection of any duty, under this Act. (2) * * * (3)
No suit, prosecution or other legal proceeding shall lie against the Federal Government or against any
officer of the Government in respect of any order passed in good faith or any act in good faith done or
ordered to be done under this Act." From a bare perusal of the said section it appears that no suit shall be
brought in Civil Court to set aside or to modify any order passed or any assessment, levy or collection of
any duty under the Act. It is an admitted position that the respondent has not filed the suit calling in
question any order passed under the Act or questioned any assessment or levy or collection of any duty
under it. The respondent No.1 has questioned show-cause notice issued by the appellant on the ground
that same has been issued malafidely without any jurisdiction/lawful authority. When special law
provides hierarchy for redress of grievance, then one cannot normally be allowed to circumvent the same
by invoking jurisdiction of Civil Court, however, if prima facie plaintiff can show mala fide on the part of
authority or any illegality, which is floating on the surface and or absence of jurisdiction, then jurisdiction
of Civil Court can be invoked in the matter. In the case of Usman Panjwani and others v. Government of
Sindh and others 1996 CLC 311, where bar of jurisdiction of Civil Court in terms of section 36.
Colonization of Government Land Act, 1912 was considered. It was held that it will not operate where an
order passed by Revenue Authority was bad in law without lawful authority. In the case of K.G. Traders
and another v. Deputy Collector Customs and 4 others PLD 1997 Kar. 541 it was held:--- "13-A. The
distinction sought to be drawn by Mr. S.M. Tariq Ali between the provision of subsection (1) and
subsection (2) of section 217 of the Customs Act for the purpose of contending that the latter 5 provision
was inserted to place an absolute bar on the jurisdiction of a Civil Court is equally unfounded. In my view,
the obvious distinction is that while clause (1) purports to confer a personal indemnity to customs officials
against being used for their actions taken in good faith, clause (2) seeks to bar the jurisdiction of Courts
to entertain suits questioning orders passed under the Act or the Rules. However, it has been consistently
held that a mala fide order or one without jurisdiction is a fraud on the law and can never be assumed to
have been passed under the particular statute. Therefore, a plea as to bar of jurisdiction could only be
sustained if it could be shown that the impugned order was passed in the bona fide exercise of powers
conferred by the Customs Act or Rules and not otherwise." The jurisdiction of the Civil Court can be
excluded by the legislature by Special Acts which deal with the special subject but the statutory provision
must expressly provide for such exclusion or must necessarily and inevitably lead to such inference. The
bar created by the relevant provision of statute excluding jurisdiction of Civil Court cannot operate in
cases, where the plea before the Civil Court goes to the root of the matter and would if upheld lead to
conclusion that the impugned order is nullity. Keeping in view the above principle of law pertaining to
exclusion of jurisdiction of Civil Court, we proceed to examine whether section 40 of the Central Excise
Act, 1944 from the facts of the case excludes jurisdiction of the Civil Court. From a bare perusal of
section 40 of the Central Excise Act, 1944 it appears that only such suit cannot be brought in Civil Court in
which party is seeking order to set aside or modify any order passed or any assessment of levy, or
collection of duty under the Act, whereas, in the suit filed by the respondent No.1, the show-cause notice
issued by the appellant was assailed, inter alia on ground that same was issued without any lawful
authority, and after expiry of the period of limitation. If from the facts on the record before the Civil
Court without going in detailed investigation, it can be established that very act questioned is without
lawful authority and jurisdiction, then instead of asking a party to go under the agony of lengthy
departmental proceedings where possibility of getting relief are limited, Civil Court can grant relief to
deserving party by holding that the very act is without lawful authority. Section 3 of Central Excise Act is
the charging section under which excise duty is levied and collected. The appellant for the first time on
9-7-1997 served show-cause notice upon the respondent that he has engaged in providing/rendering
excisable services of stevedoring facilities falling under the Heading No.9805 of 2000 of First Schedule of
Central Excise Act, 1944 and that during the period from 17-7-1995 to 30-9-1995 provided stevedoring
facilities of Rs.45,75,390 but did not pay central excise duty at the rate of 10 per cent. charges in terms
of provision contained in section 3(1) of the Central Excise Act, 1944 and sum of Rs.4,75,539 being
excisable duty for the period recoverable from the respondent. Just after one day i.e. on 10-7-1997
another notice was served for payment of the excise duty pertaining to excisable service rendered for the
period from October, 1995 to December, 1995 and then third notice was served for the period from
January, 1996 to March, 1996. Rule 10(1) Central Excise Rules on the relevant date when the show-cause
notice was serviced provided that where by reason of any inadvertence, error or misconstruction any duty
or charge has not been levied or has been erroneously refunded, the person liable to pay any amount on
that account shall be served with a notice within one year of the relevant date by an officer not below
the rank of Superintendent F requiring him to show-cause why he should not pay the amount specified in
the notice. Notice impugned were admittedly served upon the respondent much after the expiry of one
year. We would like to mention here that sub-rule (2) of the rule 10 provides different period of service
of notice. Notice under Rule 10(2) can be served within three years if by reason of any misdeclaration,
false information or collusion, any duty or charge has not been levied or has been short-levied or has been
erroneously refunded. We have asked Mr. Shakeel Ahmed, learned counsel for the appellant, whether the
show-cause notices issued by appellant fall under sub-rule (2) of Rule 10. He replied in negative.
However, he stated that the show-cause notice issued by the appellant also does not fall under sub-rule
(1) of Rule 10 as well which argument is not acceptable by us, as, show-cause notices in question by itself
provided that the amount mentioned in it are recoverable under Rule 10 of the Central Excise Rule, 1944.
He contended the notice must fall under some other provision but he was not able to point out any such
provision. We are of the view that the notices served upon by the appellant at best fall within the ambit
of sub-rule (1) Rule 10, which ought to have been served within one year of the date when the excisable
service has been rendered and for which excise duty has not been paid. In the case of Messrs Pioneer
Belting Mills Ltd. Muridkey v. Joint Secretary Ministry of Finance, Government of Pakistan and 2 others
1983 CLC 784, while dealing with similar question it was held: --- "The learned Deputy Attorney-General
endeavoured to draw a distinction between rules 7 and 10. According to him, the latter provision is
attracted only in a case where the products of a manufacturer are generally subjected to excise duty and
the assessee clears the goods in a regular way but somehow or other, some consignment escapes the levy
or is short-levied or short paid. He urged that when the duty is purposely evaded and the goods cleared
away without documentation, under rule 7 there is no bar to enforce the levy at any time and such
recovery is not governed by any period of limitation. I am unable to agree with the learned Deputy-
Attorney General. Section 3 of the Central Excise Act, is charging section, which creates a charge on
excisable goods, the moment these are manufactured. The charge, however, remains dormant until it is
quantified and the payment of the duty made or enforced under the provisions of the rules. Rule 7 can
conveniently be divided into parts; the earlier part merely provides that the duty shall be paid on the
excisable goods, at such time and place and to such person as may be designated under the rules. To the
extent of direction as to the payment of duty, this rule does not make any contribution, for under section
3, the excisable goods have already been subjected to a charge. The latter part of the rule, however,
ordains that in case the duty is no paid in accordance with the rules, or upon a written demand made by
the departmental authorities, the person responsible to pay the duty, would be liable to a penalty, which
may exceed to Rs.2,000 or 10 times of the amount of duty, whichever is greater. On the other hand rule
10 specifically lays down that when for any reason, the duty has not been levied or short-levied or short
paid, the person on whom the liability is cast, shall pay the duty, on a written demand being made within
three years, from the date on which the duty became due. It may be observed that under Notification
bearing No. S.R.O. 1645(I)/73, dated 26-11-1973 rule 10 was amended and the time limit of three years
substituted by 10 years. The purpose of this rule appears to be, to provide a limitation for the levy and
recovery of the excise duty. In the matter of recovery of the duty rule 7 is not independent of rule 10.
Both the rules are to be read together Ind the payment of duty envisaged by rule 7 has got to be enforced
with the period prescribed by rule 10. The expression `for any reason' figuring in rule 10, is
comprehensive enough to cover the omission to levy the excise duty and so also the non-payment or short
payment thereof, relatable to any cause, including the one resulting from inaction of the department and
the evasion made by the assessee. The language of rules 7 and 10 is not open to the interpretation sought
to be put thereon by the learned Deputy-Attorney General." (Emphasis added) The petition was allowed
and notice issued was declared barred by time. Since show-cause notices which formed basis of claim of
the appellant are barred by time, therefore they are without lawful authority. We are of the view that
such colourable exercise of power by authority can be questioned before the Civil Court. In the case of
Assistant Collector Customs and others v. Messrs Khyber Electric Lamps and 3 others 2001 SCMR 838 while
dealing with sections 32(1), 32(2) and 32(3) of the Customs Act which is pari materia to Rule 10 of Central
Excise Rule, Hon'ble Supreme Court held:--- ". . . .It is necessary under subsection (1) of section 32 of the
Act to show that the declarant had the knowledge or had the reason to believe that the declaration or
statement made by him was untrue/false and in absence of such allegation notice would be vague and
would not in accordance with law. Similarly, notice under subsection (2) of section 32 of the Act must
contain the allegation of collusiveness and notice under subsection (3) of section 32 of the Act should
speak inadvertence, error or misconstruction and without such allegations the notice would be defective
and against law. It may be. mentioned that the respondents after survey had been issued Final
Certificates certifying that they were manufacturer of Electric Bulbs and the quantities of raw material
required for their products were worked out. In the Survey Report the `Base Cap' and Filaments were
shown as raw material and the duties thereon as such were paid on the import. From the Survey report
and the Final Certificates, it appears that the Customs staff itself either collusive or inadvertently short-
levied the duty for which the specific notice under the relevant subsection of section 32 of the Act had to
be served on the importer within the specified time but it failed to issue/serve any such show-cause
notice in accordance with law in Appeals Nos.1358 and 1359 of 1997, therefore in absence of statutory
notice, demand notices, dated 25-7-1995 and 26-7-1995 were without lawful authority and thus, of no
legal effect. Similarly, show-cause notices dated 16-7-1995 and 23-8-1995 in Appeals Nos.1360 and 1361
of 1997 have been held to be vague and not in conformity with the law, therefore, the same have no legal
effect. It was urged by the appellants before the Honourable Supreme Court that the High Court after
fmding the notices too defective and not in accordance with law should have remanded the case to the
Customs Authorities for proceeding in accordance with law, but the Honourable Supreme Court did not
accept the contention for the reason that the period prescribed by law for service of notices had already
expired and it would be a futile exercise to remand the cases to the Customs Authorities." In the case of
Messrs Irfan Ashraf and Co. (Pvt.) Ltd. v. The Collector of Customs and 3 others in C.P. No.D-625 of 2003
and other connected petitions, a Division Bench of this Court while dealing with Notice under section
32(3) of the Customs Act, 1969 held that Notice under subsection (3) of the section 32 of the Customs Act,
1969 can be served within the prescribed period of time, provided under it and show-cause notice after
expiry of stipulated period can be termed as notice without lawful authority and liable to be struck down.
In case of Federation of Pakistan v. Messrs Ibrahim Textile Mills 1992 SCMR 1898, Hon'ble Supreme Court
held that "in case of short-levied duties on account of inadvertence, error or misconstruction, section
32(3) of the Act provides that the recovery notice shall be served within six months, if that is not done,
like a suit for recovery of money after lapse of time prescribed by law of limitation, the recovery
becomes unenforceable." In the case of Mian Muhammad Latif v. Province of West Pakistan PLD 1970 SC
180,'the Hon'ble Supreme Court held:--- "There is no doubt that under section 11 of the Sindh Revenue
Jurisdiction Act, 1876, ordinarily a party in revenue matters should exhaust all his remedies by way of
appeal before invoking the aid of Civil Court. But there are different considerations where the allegation
of a party is that the impugned order is 'nullity in eye of law, and Civil Courts have jurisdiction to examine
into cases where statutory provisions have not been complied with or the statutory Tribunal has not acted
in conformity with the fundamental principles of judicial procedure.", In another case Hamid Hussain v.
Government of West Pakistan and others 1974 SCMR 356, the Hon'ble Supreme Court held that: "It is well-
established principle that even where the jurisdiction of Civil Courts is barred and conferred upon special
Tribunals, Civil Courts being Courts of ultimate jurisdiction will have the jurisdiction to examine the acts
of such forums to see whether their acts are in accordance with law or are illegal or even mala fide." Mr.
Shakeel Ahmed, learned Advocate for the. appellant, relied upon the case of Messrs World Trade
Corporation v. C.B.R. and others (1999) 80 Tax 84 (H.C. Lah.), in the said matter civil revision appeal was
dismissed on the ground that prior to filing of Suit, Petitioner had filed Constitution Petition on the same
cause which were disposed of with direction to Collector Customs Dry Port to pass order in accordance
with law, which is not the case before us. In the case of Zamindar Paper and Board Mills (Pvt.) Ltd. v.
Collector, Central Excise and Sales Tax, Lahore and 2 others 2003 PTD 1257, while dealing with the
identical show-cause notice, a Division Bench of Lahore ' High Court held:--- " The learned counsel for the
Department has canvassed that the applicable provisions in the present case are contained in sub-rules
(1), (2) and (3) of Rule 10 of Central Excise Rules, 1994. There is no doubt that show-cause notice for non-
levy and of short-levy of excise duty can be served upon a defaulting party by the Department under
above referred sub-rules of Rule 10 ibid. However, bare reading whereof makes it clear that show-cause
notice had to specify the reasons(s) for non-levy and short-levy of the duty and such notice can only be
served within .1 the period of limitation given in the applicable sub-rule(s) that too with reference to
reason specified therein. Sub-rule (1) of Rule 10 can only be invoked for service of a show-cause notice
for the reasons of "inadvertence, error or misconstruction" leading to non-levy, short-levy or erroneous
refund of duty and such show-cause notice can be served within one year of the relevant date. Under sub-
rule (2) of rule 10 ibid, a show-cause notice can be issued "within three years of the relevant date" if non-
levy or short-levy of duty is caused due to misdeclaration, false information or collusion. Similarly sub-
rule (3) of rule 10 ibid can be resorted to through a show-cause notice within ten years of relevant date
for non-levy for duty occurring for reasons of "any false documents" counterfeit seal or impression, fraud
or any other heinous offence. 8. To put more succinctly show-cause notice can only be served under Rule
10 ibid, if: (a) Any duty or charge has not been levied or has been short-levied or has been erroneously
refunded; (b) Such non-levy, short-levy or erroneous refund has been caused by any of the reasons
cumulatively stated in sub-rules (1), (2) and (3) of rule 10 ibid, which cumulatively reproduced are: Sub-
rule (1) (i) Inadvertence; (ii) Error; (iii) Misconstruction; Sub-rule (2) (iv) Misdeclaration; (v) False
information; (vi) Collusion; Sub-rule (3) (vii) False document; (viii) Counterfeit seal or Impression; (ix)
Fraud; and (x) any other heinous offence. (c) Such show-cause notice is within the period of limitation
prescribed in each sub-rule with reference to applicable reason of non-levy or short-levy etc. ' The
inescapable conclusion thereto is that mere non-levy; short-levy or erroneous refund of duty or charge
cannot become the basis for show-cause notice. Instead of show-cause notice must be founded upon non-
levy; short-levy or erroneous refund of duty or charge occasioned/caused by any of the above reasons to
be within the scope and period of limitation separately prescribed in each sub-rule of Rule 1 ibid. In
absence of any of the three pre-conditions show-cause notice will be rendered illegal and without
competence. 9. In the present case show-cause notice alleged against the present appellant evasion of
duty/tax yet patently omits to state anyone of the ten reasons respectively prescribed in sub-rules (1), (2)
and (3) of the said Rule 10 ibid. The Adjudicating Collector by observing that tax fraud had been
committed, and by imposing penalty upon the appellant, presumed the appellant's case to fall in sub-rules
(2) and (3) of Rule 10 ibid. In the absence of a particular allegation or charge in the show-cause notice
against the appellant for having non-paid or short paid duty/tax owing to misdeclaration, false
information or collusion or by reasons of false document, counterfeit seal, fraud or heinous offence, such
presumption is obviously erroneous and could not have been drawn by the Adjudicating Authority against
the appellant. Since particular reasons were conspicuously and patently missing from the show-cause
notice. Adjudicating Authority lacked jurisdiction to imply applicability or sub-rules (2) and (3) of rule 10
to the case of the appellant." In the case of Muhammad Jamil Asghar v. The Improvement Trust,
Rawalpindi 1965 SC 698 the Hon'ble Supreme Court held: "if order of Administrative Authority based on
existence of certain circumstances, Court can make an enquiry and declare order of such authority to be
void if such circumstances are not found to exist and jurisdiction of Civil Court with respect to mala fides
can never be taken away." For the foregoing reasons, Appeals having no merit were dismissed by short
order dated 16-8-2005. These are the detailed reasons in support to our short order dated 16-8-2005.

Appeal dismissed