20000214

LHC asks govt to weigh fairness

of opportunities in trade

MEHMUD AHMED

ISLAMABAD: The Lahore High Court has ruled that the functionaries of the government are under legal obligation to follow the mandate of the Constitution and ensure that the special exemptions of customs duty and other taxes do not prejudice and offend the principle of fair opportunity in trade and business.

In a detailed judgement on a petition filed by Dewan Salman Fibre Limited against repeated extensions in the immunities provided for import of machines and materials for special industrial zones, the Rawalpindi Bench of the LHC said such actions would be discriminatory against competitive industries which were established in normal conditions.

Justice Mohammad Nawaz Abbasi also held that repeated extensions will be violative of Articles 18 of the Constitution that provides for fair opportunity in trade and business and Article 25 that enshrines the principle of equality of citizens before law.

However, while the Court accepted that for development of backward areas, the government could extend special benefits to the underdeveloped industry, but these had to be fair as "persons placed in the same position in the same circumstances cannot be treated discriminatory". The Court, therefore, directed the government not to grant extensions to the projects in the special industrial zones that may place their competitors in a disadvantageous position.

In its petition Dewan Salman Fibre Limited , a manufacturer of polyester staple fibre, had said it was setting up an acrylic fibre plant in the industrial estate of Hattar (Hazara) without any special exemptions in customs duties, sales, income and capital gains taxes which had been afforded to the developers of the 12 special industrial zones.

The petitioner said that Crescent Industries Chemical Limited (CICL), at the same time was setting up an acrylic fiber plant in Windher special industrial zone in Balochistan, but failed to start commercial production by the target date of June, 1999 and was seeking extension of two years.. Apprehending that the extension would soon be approved, the petitioner said it would be in that case "seriously prejudice" and would lose market because the extension would halve the cost of production of CICL. And, hence, the petitioner said the Windher project would monopolise the market.

Opposing the petition, the Deputy Attorney General, Mansoor Ahmed, and Standing Counsel for the Industrial Zones, Sher Ali, contested the arguments of discrimination raised by the petitioner and said that the Hattar Industrial Estate also enjoyed some benefits which, though, were not available to industries in the Special Zones. Hence the petitioner could not object to facilities given to the respondent. They conceded the principle of equality but said that the government could, in suitable cases on basis of "reasonable classification", extend special benefits to a special area or a class.

Appearing for the Dewan Salman Fibres, Mohammad Akram Sheikh, who was assisted by Aziz Nafees and Ali Adnan, said that after the failure of the CICL to stick to the target date, the government functionary could not "travel beyond the spirit of Article 25 of the Constitution". He said that to do so would be detrimental to the interests of industry of acrylic fibre in the country.

In his judgement, Justice Abbasi held that the special exemption, given in taxes to the machinery for the plant and its raw material was an incentive for establishment of industries in the special zones, was made until certain dates. The exemption of Customs Duty was available only in case of opening the letters of credit by or before Jan 31, 1996 and exemption of sales tax was made subject to the start of commercial production till June 30 of 1999.

The Court held that it was the prerogative of the government to extend special concessions for the development of industrial zone and its further extension indeed was a matter to be considered by the government. But the petitioner, being in competition, with manufacturers of acrylic fibre, had genuine apprehension that if a fair treatment was not given to in the matter of raw material and sales tax, its plant would have no future.

The judgement went on to say: 'It is settled law that the persons placed in the same position in the same circumstances cannot be treated as discriminatory in the light of the principle of equality and equal protection of law as envisaged under Article 25. However, this rule of equality is subject to the reasonable classification. There is ample case law on the question of equal protection of law and reasonable classification as laid down in Jibendra Kishore Achharyya Chowdhury in PLD 1957 and case of Waris Mcah questioning the Foreign Exchange Regulations (Amendment) Act the same year

Similarly the court has placed reliance on another case of Additional Chief Secretary Home Affairs vs Azizullah Memon which held that equal protection of law did not envisage that every citizen was to be treated alike in all circumstances but that persons similarly situated or placed were to be treated alike.

In this situation, the Lahore High court held that CICL and the Dewan Salman Fibre were competitors in the production and marketing of Acrylic Fiber and after the expiry of target days for starting production were entitled to equal treatment and the government functionaries were under legal obligation to follow the constitutional mandate. The Court said that any extension of immunities after that date "will definitely put the petitioner in disadvantageous position in the market" and imbalance will definitely offend the principle of fair opportunity in trade and business as provided in Article 18 of the Constitution.

Concluding, the judgement said that since the request for extension of exemption was still under consideration, the Court asked the Board of Investment, the Finance and Industries Ministries and also the Director General Special Industrial Zones to act in the light of "principle of fairness and equality and adverse effect of their decision on production of the fibre and should not act "in a manner to provide a chance to an individual to create a monopoly or eliminate his opponents in business".