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Petitioner: Messrs AZIZ IMPEX, KARACHI and others VS Respondent: ASSISTANT DIRECTOR, DIRECTORATE GENERAL OF PCA, KARACHI and 3 others
Court Name: Customs Appellate Tribunal Judge(s): Jehanzaib Wahlah Title:Messrs AZIZ IMPEX, KARACHI and others vs ASSISTANT DIRECTOR,
DIRECTORATE GENERAL OF PCA, KARACHI and 3 others Case No.: Custom Appeals Nos. K-923 to K-925 of 2017 Date of Judgment:2019-04-18 Reported As: 2019 PCTLR 1324, 2019 PTD (Trib.) 1786 Result: Appeals allowed Judgment ORDER JEHANZAIB WAHLAH (MEMBER JUDICIAL-III).--- Through this common order , I intend to dispose off 03 appeals bearing Nos.K-923/ 2017 to K-925/2017 directed against the Order-in-Appeals Nos. 316 to 318 of 2017 dated 03.07.2017 passed by Collector of Customs (Appeals) Karachi wherein upheld Order-in-Original No. 392/2016- 2017, dated 15.12.2016, Order-in-Original No. 393/2016-2017 dated 15.12.2 016 and Order-in-Original No. 359/2016-2017 dated 01.12.2016 passed by Deputy Collector of Customs, Adjudica tion-I, Karachi. Since, all the 03 appeals are based on identical fact and grounds, it is needless to reproduce separately of each case, facts and grounds of Customs Appeal No. 923/2007 are taken into consideration for deliberation/decision, which are appellant is a commercial importer and imported a consignments of Sweetened Condensed Milk falling under PCT Heading 0402.9900 from Malaysia, upon receipt of shipping documents which were delivered to clearing agent Messrs Kaka Traders Karachi for transmitting Goods Declaration (GD) with the MCC of Appraisement-W es under the provision of Section 79(I) of the Customs Act, 1969 (Act) and Rule 433 of Sub-Chapter III of Chapter XXI of Custom Rules, 2001 (Rules), which he did, while claiming the benefit of SRO 1261(1)/2007 dated 31.12.2007 and as per pre-requisite deposited upfront duty and taxes leviable thereon, consequent to which GD's were numbered as KAPW -HC-30961-30082014. Upon appearance of which the competent authority defined in Section 2(a) of the Act passed assessment order dated 01.09.2014 under Section 80 and Rule 438 in exercise of the powers vested upon him through SRO 371(1)/2002 dated 15.06.2002 on much higher value, against which appellant filed first review under Rule 441 before the Principal Appraiser , who vide dated 02.09.2014 reviewed while adducing remarks in the assessment note reading as "A.V. reviewed vide KAPW -HC-12794 dated 04.07.2014".The said assessment was also not correct. 2nd review was preferred before the Deputy Collector of Customs, Group-IL MCC of Appraisement-W est. (respondent No. 2), who on 13.09.2014 upheld the same being passed under declared PCT
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Heading 0402.9900, quantity and value in addition to approval/extending of benefit under SRO 1261(1)/2007 dated 31.12.2007, consequent to which the inbuilt authority of Custom Computerized System (CCS) passed clearance order under the provisions of Section 83 and Rule 442 of the Act/Rules and the clearing agent of the appellant after obtaining delivery orders from the shippin g company obtained the delivery of consignment from the terminal after payment of their charges and transported the same to the warehouse of the appellant. After lapse of considerable period after delivery of consignment, the Assistant Director , Directorate General of Post Clearance Audit (respondent No. 1) issued audit observat ion dated 13.01.2016 alleging mis-declaration of PCT heading based on the advise given by chairman classification committee in Public Notice No. 09/MCCA dated 12.10.2009 (PN), wherein classification was changed as 1901.9090, which attracted 10% regulatory duty under SRO 568(1)/2014 dated 26.06.2014 as amended by SRO 1177(1)/2015 dated 30.12.2015, which was replied by the consultant of the appellant vide letter dated 29.02.2016, through which the formed opinion on the basis of PN was disputed, despite agitation by the appellant in categorical terms, -no intimation in regards to the outcome of the reply was ever communicated by the respondent No. 1, instead he framed contravention report and forwarded to respondent No. 3 who issued show-cause notice dated 30.08.2016 alleging mis-declaration of PCT, tantamount to contravention of Sections 32(1), 32(2) 32(A), 79(1) of the Act, Sections 3, 6, 7 and 34 of the Sales Tax Act, 1990 (STA) and Section 148 of the Income Tax Ordinance, 2001 (ITO).The appellant replied that vide letter dated 01.09.2016 through which powers/ jurisdiction under the provision of Section 179 of the Act and in the matter of Sales Tax and Income Tax was challenged, in addition to comprehensively rebutting the allegation levelled therein. The respondent No. 3 brushed aside those and passed order dated 15.12.2016 through which she held the charges levelled in the show- cause notice as established and ordered payment of Rs.370,972.00 along with default surcharge to be calculated by the department at the time of payment in addition to the imposed penalty of Rs. 30,000.00 as under: "I have examined the case record and consider the arguments put forth during hearing by the department and respondent. The importer imported a consignment of "Sweetened Condensed Milk" from Malaysia under PCT Heading 0402.9900. The Directorate alleged that the goods are correctly classifiab le under PCT 1901.9090 which is confirmed by Classification Committee's vide Public Notice dated 12.10.2009. Therefore, the importer avoided to pay regulatory duty @ 10% and income tax on this item under SRO 568(1)/2014 dated 26th June, 2014 amended vide SRO 1177(1)/2015 dated 30th November 2015, which is not applicable on this item. However , the importer has made short payment of an amount of duty and taxes i.e. regulatory duty Rs. 290539/- and income tax Rs. 17435/-. Therefore, charges levelled against the importer in the Show-Cause Notice stands fully established. The importer is directed to deposit the total evaded amount of duty and taxes amounting to Rs. 307,972/- immediately furthermore, a personal penalty of Rs. 30,000/- (Rupees Thirty Thousand) is also imposed on the importer . Moreover , the importer is also want to be careful in future. Is there is any recurrence in future the importer and his associates would be dealt with stern action. The assessing staff is required to finalized the assessment on the basis of this order and recover legitimate amount of penalty imposed. The case is disposed off accordingly ." 2. Being aggrieved an appeal was preferred before respondent No. 4, which he rejected vide order dated 03.07.2017 and maintained the order passed by respondent No. 3 being correct in fact and law. The order passed as under: "I have examined the records of the case and the arguments placed before me from the applicant's and the respondents side. The matter involved is a contrary of classification of imported goods "sweetened Condensed Milk" whether the goods "Sweetened Condensed Milk" are covered under PCT heading 0402.9900 as was cleared by the Collectorate of Customs, Appraise ment-W est, Karachi or under PCT head ing 1901.9090 as contended by the Directorate of Post Clearance Audit. The heading 0402.9900 covers milk as per explanatory notes to Chapter 4 Heading 04.02 which states: "This heading covers milk (as defined in Note 1 to this Chapter) and cream concen trated (for example evaporated) or containing added sugar or other sweetening matter , whether , liquid, paste or should (in blocks powder or granules) and whether or not preserved or reconstituted. Milk powder may contain small quantities of starch (not exceeding 5% by weight), added in particular , to maintain the reconstituted milk its normal physical state."
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As per explanatory notes to Chapter 19 heading 19.01 the heading covers "Milk preparation obtained by replacing one or more constituents of milk (e.g. butyric fats) by another substance (e.g., oleic fats)" As per the appellants' contention the imported products contains substitution of milk fat with vegetable fat and sugar . To my mind this product therefore becomes milk preparation obtained by replacing one or more constituents of milk wherein milk fat has been replace d by vegetable fat. Therefore this product is excluded from heading 0402 and qualifies to be classified under 1901.9090. The WCO decision No. HSC/32 is not applicable to the matter since the matter involved was not substitution of constituents but addition of sweetness in the shape of sucrose. In that case are constituent of milk was not replaced by another constituent as in the present case. This being so, I am of the opinion that the contention of Post Clearance Audit is correct and the appeal being without merit is not tenable. The Order-inOriginal is upheld." 3. The appellant filed the instant appeal on the basis of grounds enumerated therein, the consultant/advocates on the date of hearing argued the case strictly in accordance with those. No cross objection under Subsection (4) of Section 194A of the Act has been filed within the stipulated period of 30 days by the respondent No.1, resultant, lost right of cross appeal within the contemplation of subsection (3) of aforesaid section. Ergo, on the date of hearing representatives of respondent No.1 made averment that the conduction of audit by respondent No. 1 was correct in fact and law and the goods imported by the appellant fall under PCT Heading 1901.9090 on which benefit of SRO 1177(1)/2015 is not admissible, order passed by the respondents Nos. 3 and 4 are in consonance with that and as such be maintained. 4. Arguments heard and record perused the record and the relied upon documents/judgments by the appellant's. Prior to dilating upon other factual and legal aspect of the case, it is of vital importance for me to deliberate on the mechanism/procedure outlined by the legislature in the provision of Section 26A of the Act for conduction of audit of record of importer under Section 26(2) of the Act and on the jurisdiction/powers of Directorate General of Post Clearance Audit (PCA) or respondent No. 1 in conduction of audit under Section 25 of the STA and Section 177 of the ITO of the Sales Tax/Income Tax collected at import stage by the Clearance Collectorate/respondent No. 2 or his subordinate as per the enunciation made in Section 6 of the STA and Section 148 of the ITO in the absence of their appointments as Officer of Inland Revenue under Section 30 of the STA and Section 228 of the ITO and of respondent No. 3 for proceed with the adjudication in derogation of the provision of Section 179 of the Act and in the matter of Sales/Income Tax under the provision of Section 11 of STA and 162(1) of the ITO, in the capacity of officer of customs appointed under Section 3 of the Act. 5. For obtaining answer to the first part of my observation corresponding to mechanism/devised procedure for conduction of audit under Section 26(2) is available in Section 26A of the Act, verbatim of which is of vital importance: 26A. Conducting the Audit.---(1) the appropriate officer of Customs conducting any audit under this Act shall proceed in the manner as the Board may by rules prescribe. (2) Where any audit or inquiry or investigation is to be conducted for the purpose of ascertaining the correctness of any declaration or documents or statement, for determining the liability of any declaration or document or statement, for determining the liability of any person for duty, taxes fees surcharge fines and penalties, or for ensuring compliance with all other laws administered by the Customs, an appropriate officer of Customs may;- (a) Examine, or cause to be examined upon reasonable notice, any record or any statement or declaration or document described in the notice with reasonable specificity , which may be relevant to such audit, inquiry or investigation: (b) Summon, by giving a notice and reasonable time,- (i) The person who imported, or exported or transported or stored or held under customs bond, or filed a goods declaration, drawback or refund claim, (ii) Any officer , employee or agent of any person described in clause (a); and (iii) Any person having possession custod y or care of records and documents required to be kept under the Act and any other person, as deemed proper , to appear before him at a reasonable time and to produce such records and documents as specified in.
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6. From bare reading of the provision of Section 26A of the Act, it is abundantly clear that the appropriate designated Officer of Customs empowered by the Board for conducting audit of the record of the importer under Section 26(2) is in the manner prescribed by the Board in Rules. To this date no Rules are framed /issued by the Board despite insertion of Section 26A in the Act through Finance Act, 2006, resultant, the audit of an importer accounts/record maintained under the provision of Section 211 and Chapter XI of Act/Rules, has to be conducted by the Officials of Directorate of Post Clearance Audit or respondent No. 1 as per the mechanism provided in the Section itself, wherein appropriate officer of Customs is empowered to conduct audit or inquiry or investigation of an importer for the purpose of ascertaining the correctness of any declaration or documents or statement, for determining the veracity of any declaratio n or document or statement, for determining the liability of any person for duty, taxes, fees, surcharge, fines and penalties, or for ensuring compliance with all other laws: However , prior to proceeding with the said exercise, the appropriate officer appointed under Section 3DD of the Act for the said purpose and empowered through SRO 500(I)/2009 dated 13.06.2009, which respondent No. 1 has to either summon or give a notice and reasonable time to an importer for the conduction of audit and for the said purpose production of accounts and record as per the expression of clause (b) of Subsection (2). The first ground of the appellant in memo. of appeal is that the respondent. No. 1 has not either issued to him any notice or served a summon for the purported exercise of audit despite mandated under law and this lapse renders the audit so conducted which is the root cause of the impugned show-cause notice as of no legal effect. Since, no notice is annexed with the memo. of appeal, the representative of respondent No. 1 was asked to place the copy of the notice/summon forwarded/served to the appellant, as the copy of the same would had been available with him in the case file. The query was replied in negative, which flabbergasted me and another query was put to him that how the audit was conducted, without asking for the accounts and record of the import, the answer was on the basis of GD available in the data reservoir maintained by PRAL under Rule 110 of Rules, upon this the representative of respondent No. 1 was asked to read out the passage available in Section 26A, wherein audit of any importer is permitted on the basis of the record available in the CCS Module, to this the answer was given in negative, confirming that audit of the importer accounts/book could only be conducted upon presentation of those after receiving notice/summon to do so in the absence of that conduction of audit on the basis of the record available on the CCS Reservoir is not permitted as it is settled proposition of law that a thing has to be done as it has been prescribed to be done, in case of doing the same in any other manner render it illegal and as such void and ab initio and this have been held in countless reported judgments, reference is 2002 PTD 2457 that "the thing should be done as they are required to be done, or not at all". The Apex Court held in judgment PLD 1971 Supreme Court 61 "neglect of plane requirement of an absolute statutory enactment prescribing how something is to be done, would invalidate thing being done in some other manner" and in PLD 1973 Supreme Court 236 "it is now well established that where an inferior Tribunal or Court has acted wholly without jurisdiction or taken any action "beyond the sphere allotted to the Tribunal by law and therefore outside the area within which to law recognizes a privilege to err" then such action amounts to a "usurpation of power warranted by law" and as such an act .is a nullity that is to say the result of a purported exercise of authority which has no legal effect whatsoever" in such a case, it is well established that a Superior Court is not bound to give effect to it." The said ratio was maintained, in the case, of E.A. Avans reported as PLD 1964 SC 536 "where it has been unambiguously and categorically held that if the doing of a thing is made lawful in a manner than doing of that thing in conflict with the manner prescribed will be unlawful." The Hon'ble Apex Court in 2001 SCMR 838 and 2003 SCMR 1505 held that "while considering the impact of violation or non-observance of the method prescribed by law for doing an act in a particular manner or mode, such provision of law is to be followed in letter and spirit and achieving or attaining the objective of performing or doing of a thing in a manner other than provided by law would not be permitted. The same observation has been made by the Hon'ble Supreme Court of Pakistan in the Civil Petition filed by Director General of Intelligence and Investigation and others v. Messrs Al-Faiz Industries (Pvt.) Ltd. and others reported as 2006 SCMR 129 "if the law had prescribed method for doing of a thing in a particular manner , such provision of law is to be followed in letter and spirit and achieving or attaining the objective of performing or doing of a thing in a manner other than provided by law would not be permitted. ". The super structure built on such
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foundation namely audit observation, show-cause notice and order -in-original no matter how strong those may be have to fall, reference is made to PLD 1996 Karachi 68 which laid down that "where the initial order or notice was void all subsequent preceding, orders or super structure built on it were also void. In reported judgment 2006 PTD 978 it is held that "the entire proceeding initiated by the Adjudicating authority and further super structure thereon including the order passed by the learned Tribunal are without jurisdiction void and in-operative." The Apex Court in PLD 1971 Supreme Court 184 held that "order of a Tribunal found to be without jurisdiction ---all successive orders based upon it illegal and liable to be quashed". 7. That in regards to the second part of my observation available in para 5 supra, I have perused Section 228 of the ITO and found that the respondent No. 1 has not been appointed/designated as Officer of Inland Revenue by the legislature, instead as per Section 228 of the ITO, the Directorate General of Internal Audit has been appointed/designated as officer of Inland Revenue and for overseeing the collection of withholding Tax, Directorate General of Withholding Taxes has been established under Section 230A of the ITO, meaning thereby that the respondent No. 1 is not at all appointed /designated as Officer of Inland Revenue. Resultant neither Directorate General of PCA nor respondent No. 1 are empowered to exercise the powers of an Officer of Inland Revenue under Section 207 for conducting audit under Section 177 of the ITO. Rendering the entire act of audit in the matter of Income Tax by the respondent No. 2 without powers/jurisdiction and as such coram non judice. Our opinion stood vindicated from the latest reported judgment [2014 PTD 1733 ] Waseem Ahmed and others v. FOP and another , where it has been held in clear terms that "unless the officer of DGI&I)-FBR are not appointed and an officer of Inland Revenue, powers under the different subsection of the Sales Tax Act, 1990 can not be delegated through any SRO with that the Hon'ble High Court of Sindh declared Notification No. 775(1)/201 1 ultra vires to the Sales Tax Act, 1990".## TS## Whereas, the respondent No. 1 is indeed appointed as Officer of Inland Revenue under Section 30DD of the STA and thereafter Board delegated powers through SRO. 42(1)/2010 dated 23.01.2010 under different Sections of the STA in column (4) of SRO, subject to exercise of those under the designation of authorities given in column (3), which are (i) Chief Commissioner/Co mmissioner Inland Revenue (ii) Additional Commissioner of Inland Revenue (ii) Deputy Commissioner Inland Revenue and (iv) Assistant Commissioner Inland Revenue and not in the capacity or designation of (i) Director General/Director-PCA (ii) Additional Director-PCA (iii) Deputy Director-PCA and (iv) Assistant Director-PCA. In the instant case the entire communication including the audit observations and contravention reports were prepared and served in the capacity of Assistant/Deputy Director of PCA, which are non existent in Column No. (3) of SRO.42(I)/2010 dated 23.01.2010, rendering the same without power/jurisdiction. Hence ab initio void and coram non judice. Therefore, entire proceeding right from Audit, audit observations, contravention reports are of no legal effect. Any super structure built thereon no matter how strong it may be have to crumble down 1 as held by Superior Judicial Fora in umpteenth reported judgment PLD 1971 SC 197 Chittaranjan Cotton Mills Ltd. v. Staff Union, Raunaq Ali's PLD 1973 SC 236, 2002 PTD (Trib.) 889 in M/s. Unitex Tower Factory v. The Collector of Customs (Appeals) ) and others, K-106/03 in M/s. Silver Corporation v. The Additional Collector of Sales Tax (Adjudication), Karachi III, Major Syed Walayat Shah v. Muzaf far Khan and 2 others (PLD 1971 SC 184), Omer and Company v. Controller of Customs, (Valuation) (1992 ALD 449(1), Karachi AAA Steel Mills Ltd. v. Collect or of Sales Tax and Central Excise Collectorate of Sales Tax (2004 PTD 624), PLD 1976 Supreme Court 37 Ali Muhammad v. Hussain Buksh and others and PLD 2001 Supreme Court 514 Land Acquisition Collector , Noshehra and others v . Sarfraz Khan and others. 8. The Section 179 of the Act expresses that the powers of adjudication have to be determined by the authority adjudicating the case on the basis of "amount of duty and taxes involved excluding the conveyance. In the instant case the amount of duty and taxes involved are Rs. 482,295.00 (paid upfront duty and taxes of Rs. 174,323.00 + evaded/short paid amount of duty and taxes shown in show-cause notice Rs. 307,972.00. Case of such amount falls within the powers of Assistant Collector of Customs in terms of clause (iii) of subsection (1) of Section 179 of the Act. To the contrary , the respondent No. 3 issued show-cause notice and passed order-in-original by usurping the powers of Assistant Collector , which is not permitted under law. Nobody is allowed to usurp the powers of the defined Adjudicating Authority . Rendering the act of issuance of show-cause notice and passing of order-in-original
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in the instant case without power/jurisdict ion, hence ab initio, null and void and coram non judice . It is also settled principle that the exercise of jurisdiction by an authority is mandatory requirement and its non fulfillment would entail the entire proceeding to be coram non judice . Ref: PLD 1963 SC 663, PLD 1971 SC 184, PLD 1976 Supreme Court 514, 1983 SCMR 1232, 1984 CLC 1517 , PLD 1995 Kar. 587, PLD 1992 SC 486, 2001 SCMR 103, 2004 CLD 373, PLD 2004 Supreme Court 600, PLD 2005 Supreme Court 842, 2009 PTD (Trib.) 1996, 2009 PTD 1112, 2010 PTD (Trib.) 832, 2010 PTD 465, 2010 PTD (Trib.) 1636, 2011 PTD (Trib.) 2114, 2011 PTD (Trib.) 2557 and PLD 2014 Supreme Court 514. (Emphasis supplied) 9. I have also noticed with great concern that the respondent No. 3 in the show-cause notice have invoked Sections 3, 6, 7, 33 and 34 of the STA and 148 of the ITO without realizing that Section 3 while indeed being a charging section cannot be invoked by anyone other than an Officer of Inland Revenue whereas Section 6 is contains machinery provision laying down the procedure for collection of Sales Tax as like custom duty at the import stage by the customs authorities hence cannot be used to charge anyone including the appellant for an offence under the said section with the exception of official of Clearance Collectorate, upon whom charge under the said section can be invoked. Section 7 speaks about the determination of tax liability at the time of filing of sales tax return cum payment challan under Sectio n 26 of STA, this is also a machinery section. Section 33 contains penal clauses synonymous to Section 156(1) of the Act and Section 34 speaks about imposition of default surcharge, to be paid by the tax payer upon confirmatio n of the charges levelled in the show-cau se notice issued by the officer of the Inland Revenue under the respective Section of the STA. Section 148 of the ITO is also a section containing machinery provision akin to Section 6 of the STA, empowering custom authorities to collect levied income tax alike custom duty on the imported goods. "Provision which provides a mechanism/mode of collection are not to be construed as charging…
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