Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Petitioner: Messrs CLOVER PAKISTAN LIMITED, KARACHI VS Respondent: COLLECTOR OF CUSTOMS, KARACHI
Court Name: Customs Appellate Tribunal Judge(s): Muhammad Nazim Saleem, Tahir Zia Title:Messrs CLOVER PAKISTAN LIMITED, KARACHI vs COLLECTOR OF CUSTOMS,
KARACHI Case No.: Customs Appeal No. K-1222 of 2016 (Old No. K-525 of 2009) Date of Judgment:2016-06-17 Reported As: 2018 PTD (Trib.) 954 Result: Appeal allowed Judgment ORDER MUHAMMAD NAZIM SALEEM, MEMBER TECHNICAL-II--- This Order will dispose off Customs Appeal No.K-1222/ 2016 (Old No. K-525/2009) filed by the Appellant against the Order-in-Appeal No.1877/2009 passed on 23.05.2009 and issued on 15.07.2009 by the learned Collector of Customs, Sales Tax and Federal Excise (Appeals), Karachi passed on the back of Order-in-Original No.1/2009 (Manual) dated 04.05.2009 issued by the Additional Collector, Model Customs Collectorate of PaCCS, Custom House, Karachi. Earlier the Customs Appellate Tribunal, Bench-III, Karachi decided the matter against the Appellant in Customs Appeal No.K-525/2009 vide Order dated 01.11.2010. The Appellant against aforementioned order, filed S.C.R.A. No.164 of 2011 dated 28.05.2015 before the Hon'ble High Court of Sindh, Karachi, who passed following order:-- "In view of the hereinabove facts and circumstances of the case, and for the reason that the Appellate Tribunal, while passing the impugned order, has not recorded any finding with regard to the legal controversy as referred to hereinabove, we would set aside the impugned order passed by the Customs Appellate Tribunal and remand the matter back to the Tribunal to decide the case afresh and has an appropriate order by recording finding on peculiar facts of the case application of section 19-A of the Customs Act, 1969. The applicant will be at liberty to file relevant documents in support of their claim which shall be examined in accordance with law and, thereafter, appropriate order may be passed after providing opportunity of being heard to both the parties. The appeal will be decided preferably within three months from the date of receipt of this order. Instant reference application stands disposed of in above terms."
---
## Page 2
2. Briefly, facts of the case as reported are that the Appellant imported the consignments of Extra Fine Crystal Cane Sugar (HS Code 1701.9910) and filed Goods Declaration (GDs) bearing Nos. (i) I- HC-729774-050808, (ii) 1-HC-763055-090908, (iii) 1-HC-796449-151008, (iv) 1-HC-741004-160808, (v) 1-HC-742527-180808, (vi) 1-HG-765482110908 and (vii) 1-HC-719898-260708 as per self- assessm ent in terms of section 79(I)(b) of the Customs Act, 1969. Subsequently, after release of the consignments, the Appellant filed claim for refund of customs duty amounting to Rs.17.01 million vide following refund claim Nos:- (i) R-240782 dated 02.01.200911,63,834/-
(ii) R-240787 dated 02.01.200920,27,300/- (iii) R-240788 dated 02.01.200939,93,760/-
(iv) R-240789 dated 02.01.200935,22,350/-
(v) R-240790 dated 02.01.200919,73,035/- (vi ) R-240791 dated 02. 01 . 200936 ,41 ,940/- (vii) R-240792 dated 02.01.20096 89,370/- Total Rs.1,70,11,589/-
On scrutiny/audit of the aforesaid claims, it was observed that at the time of import, the appellant had not claimed exemption of customs duty in terms of serial number 2A of S.R.O. 567(1)/2006 dated 5th June, 2006 as amended through S.R.O. 787(1)/2008 dated 26.07.2008 and the goods were released on payment of customs duty and taxes. It was further observed that the refund claims were not admissible because as per relevant S.R.O. 787(1)/2008 dated 26.07.2008, the exemption was required to be claimed at the time of import. Moreover, the appellant had failed to prove that the incidence of duty and taxes, in terms of section 19A of the Customs Act, 1969, had not been passed on to the consumers. The appellant also did not provide the details of annual audit accounts at the time of filing of the refund claims to prove that the burden of duty paid was not made part of cost and end product. 3. The Additional Collector, Model Customs Collectorate of PaCCS, Custom House, Karachi decided to case vide Order-in-Original No.01/2009 (Manual) dated 04.05.2009 and passed the, following order:-- "I have examined the case record and heard arguments of both sides. the moot point in this case is not whether exemption from payment of customs duty in terms of S.R.O. 787(1)/2008 dated July 26, 2008 was available to the respondent importer or not. Admittedly at the time of import of consignments in question of extra fine crystal cane sugar (HS Code 1701.9910, the above S.R.O. was in field and (if the importer had claimed exemption under the S.R.O. it would have been allowed by the assessing officers as a matter of course (except perhaps Goods Declaration CRN 1-HC- 719898-260708 which was filed on the same day the SRO in question was issued). However, the fact of the matter is that the importer did not claim exemption while filing the relevant Goods Declarations and indeed they were unaware of issuance of aforesaid SRO as evident from para (3) of their reply dated February 20, 2009 to the show-cause notice in which inter-alia it has been stated that they filed refund claims for excess customs duty paid under section 33 of Customs Act,
---
## Page 3
1969 as soon as they found out about the change in rate of customs duty on import of crystal cane sugar. There is not denying the fact that under section 33 of Customs Act, 1969 refund of customs duty over-paid can be claimed within one year of the date of payment and the present importer has lodged claim within the due date so it is not a case which is hit by limitation of time as in case of Supreme Court judgment in Pfizer Laboratories case. It may be mentioned here that the importer has produced a lot of material in support of his plea that the incidence of duty in terms of section 19A of Customs Act, 196 was not passed on to the consumers including Financial Statements for the Half Year ended December 31, 2008 duly reviewed by the Chartered Accounting Firm, Ford Rhodes Sidat Hyder and Co., showing at serial number 8.1 of other receivables that it includes duty refund claim in respect of import of sugar amounting to Rs.1 7.01 million filed with the customs authorities. The importer has also produced another letter from the same Chartered Accountant Firm dated February 13, 2009 certifying that they have checked the books and records of the Company and ascertained that the Company has not taken into account custom duty paid in excess, amounting to Rs.1 7,011,589/- as part of its cost of product and that the incidence of the same has not been passed on to the consumers. Moreover, in their written replies submitted on February 20, 2009 and March 16, 2009 the respondent importer has argued that their financial statements for the half year ending December 31, 2008 clearly show that they have been suffering continuous losses owing to unprecedented increase in the price of raw materials, impact of increase in world fuel prices during the time, devaluation of Pak rupee, inflation and worldwide economic slow down and its effects on Pakistan economy. According to them before issuance of notification they were incurring heavy losses but they did not increase selling price of their product due to intense competition in the market. They have acknowledged the fact that on issuance of notification the additional cost being borne by them was reduced. However, landed cost with duty exemption was still higher as compared to landed cost in the past before issuance of SRO hence price reduction was not possible. Another argument advanced by, the respondent is that since the refund claims have been approved by the Deputy Collector after due verification of the relevant invoices for the six months period showing that incidence of duty and taxes in terms of section 19A of Customs Act, 1969 was not passed on to the consumer they are entitled for payment of refund amount. I have pondered. over the case long and hard and also given due weightage to the arguments of the respondent claimant and come to the conclusion that the refund claimant has failed to address the core issue at the heart of the show-cause notice as to whether incidence of duty and taxes involved on the consignments which were cleared without availing customs duty exemption of 25 percent was passed on to the consumers or not. From the study of material provided by the respondent it is obvious that this incidence was made part of the cost by the Company and passed on to the consumers and not absorbed by the Company itself. As regards the other question that since the Deputy Collector had on the basis of invoices produced by the importer satisfied himself that the incidence of duty and taxes was not passed on to the consumers therefore, the refunds should be paid, it would suffice to say that the process of sanction and payment of refund is well defined in the Collectorate and no refund is issued without pre-audit of refund claim. For pre-audit a separate section has been created in the Collectorate which is headed by a senior officer of the level of Additional Collector or Deputy/Assistant Collector. In this instance the refund files were sent for pre-audit before payment and it was observed by the Assistant Collector Incharge Pre-Audit Section that all the requisite formalities have not been fulfilled by the refund claimant especially with reference to determination of the fact whether the incidence of duty and taxes has been passed on to the consumers or not, hence the show-cause notice.
---
## Page 4
In view of above facts and admission of the importer that there was not change in selling price of their end product after release of consignments under discussion it is established that they have passed on the incidence of duty to the consumers by incorporating it in the cost of their product, and payment of claimed amount to them at this belated stage is tantamount to undue enrichment of importer; therefore the refund claims being devoid of merit are rejected accordingly." 4. On an appeal filed by the Appellant, the Collector of Customs, Sales and Federal Excise (Appeals), Karachi vide Order-in-Appeal No.1877/2009 dated 15.07.2009, passed the following order:-- "I have examined the entire case record and given due consideration to the arguments made before me. Clearly, in terms of the provisions of section 19-A of the Customs Act, 1969 read with the judgment of the Hon'ble Supreme Court of Pakistan in the Fecto Belarus case (reported as PLD 2005 SC page 605) refund of any amount under the Act can be paid only when the refund claimant establishes that he incidence of tax had not been passed to the consumer. The extracts of the authorities quoted by the learned consultant from the Indian jurisdiction are not relevant to the facts and circumstances of the instant case. Besides, copies of the aforesaid authorities/judgments have not been produced. Therefore, the argument that the provisions of section 19-A of the Act are not attracted in this case is not tenable. Consequently, the only issue left in this case is whether the appellants had passed on the incidence of tax to the consumer. The evidence on record does not support the appellants' stance that the incidence of tax with respect to the consignments under reference had not been passed to the consumer. It is an admitted position that the price of the furnished product (i.e. Tang drink) had remained the same even after exemption from payment customs duty (previously 25%) on the principal raw material (i.e. Sugar) had been granted by the Government vide Notification S.R.O. 567(1)12006 dated 5th June, 2006 as amended through S.R.O. 787(1)12008 dated 26.07.2008. It is also an established fact that sugar is the major raw material of Tang drink. Therefore, a substantial reduction in tax incidence on sugar should have affected price of the end-product to the advantage of the consumer. Obviously, that did not happen at all; the price of Tank drink continued to. be the same as previously. Thus, no benefit of the reduction in tax accrued to the consumer, meaning thereby that the incidence of tax had been passed on to the consumer. Under the circumstances, payment of refund to the appellants would tantamount to undue enrichment in violation of the principle set by the apex court in the Fecto Belarus case referred to above. Moreover, the appellants had themselves admitted in writing that the amount saved through the exemption of customs duty had been used by them for off setting accumulated losses of the company. In view of the position explained above, the certificate of the appellants -- paid Chartered Accountant and the entry in the purported Quarterly Financial Statement are after thoughts and hold no legal value. Therefore, I conclude that the appellants have not been able to fulfill the mandatory requirements of law laid down under section 19-A of the Act and, as such, the refund of Rs. 17.01 million claimed by them is not admissible to them. As for the plea of sanctioning of the refund claims by the Deputy Collector, the same is also untenable. From the record, I observe that the Deputy Collector had only attempted to pay the huge amount of Rs.17.01 million by ignoring the explicit provisions of law; he neither passed a proper order nor complied with the provisions of section 19-A of the Act. He just passed a message for refund of the aforesaid amount through the system. Therefore, the same has no legal value. It has to be said that the conduct of the Deputy Collector in this matter should be looked into seriously; why he attempted to pay the huge sum of Rs.17.01 million without even bothering to see whether the provisions of section 19-A of the Act had been complied. None of the arguments advanced by the appellants' consultant finds and support from the evidence on record. The precedents quoted by him are also not relevant to the facts and circumstances of the
---
## Page 5
instant case. I, therefore, hold that the impugned order is correct in law and on facts and there is no reason to interfere with the same. The appeal, being absolutely devoid of any merit, is rejected." 5. That the appellant has filed this appeal on the basis of the following grounds:-- (A) That the impugned order-in-original as well as order-in-appeal are opposed to the facts of the case and are contrary to law. The relevant and material considerations have been ignored and the same are based on irrelevant and extraneous considerations. (B) That the impugned orders are not based on any evidence and are non-speaking orders. These are based on conjectures and surmises. (C) That the impugned orders have been passed against the appellant without taking into consideration the evidence and documents produced on record by the appellant. It is obvious from the impugned orders that the department could not come up with any evidence to reject the refund claims of the appellant. (D) The impugned orders are non-speaking orders which are not based on any reasons at all and lacks any rational, logical or legal basis. (E) That in order to meet the requirements of section 19-A of Customs Act, 1969, and allow a refund claim the department normally accept the certificate of the Chartered Accountants with the statement of accounts of the claimant showing therein that the burden of duty has not been passed on to the consumer. In spite of the fact that a certificate of Chartered Accountants has been furnished with the half yearly published, statement of accounts which have been rejected by the Additional Collector and the Collector (Appeals) without any reason and justification in all illegal and mala fide manner. Reliance is placed on 2005 (188) E.L.T. 301 (Tri.-Del.); Beekay Hosiery Industries v. Commissioner of Customs, New Delhi, the relevant portion read as follows: "4. Passing on of duty is a matter of fact. In the present case, two certificates from Cost Accountants and Chartered Accountants clearly show that the duty on the machines "had not been passed on". Thus; the requirement under the law that refund is permissible only in a case where duty already paid had not been passed on stand satisfied...." Reliance is also placed on 2003 (156) E.L.T. 270 (TribMumbai): Commissioner of Customs and C.E. Mumbai v. Resham Sindh and Co. P. Ltd. In which the CEGAT, West Zonal Bench, Mumbai, held as follows: "................The appellants have also produced a Chartered Accountants certificate dated 22.05.2001 certifying that the appellants have borne the burden of extra duty paid which has been reflected in their balance sheet and has not been passed on to any other person." (F) That an examination of the half yearly financial statements of accounts ending 30th December, 2008, it appears that there was a loss of Rs.50.162 million. It was only for the reason that the landed cost of the raw materials were abnormally increased and, therefore, it reduced the profit earning despite the fact that in the year, 2007 in the same period the appellant was also paying duties and taxes to the Government but its profit was Rs.23,528 million. The appellant suffered losses in the first half year ending 30th December, 2008, on account of the fact that the landed cost (without customs duty) of sugar and other raw material was abnormally increased. In the case of Turakhia Ferromet Pvt. Ltd. 2003 (157) E.L.T. (Commr. Appl.), it was held that: "...Since, the price had been contracted and determined before the import itself it cannot be presumed that the same included the excess duty paid by the appellants at the time of import. No evidence in support of this presumption has been brought on record. On the other hand the appellants have produced the cost sheet which actually shows loss and again there is no evidence or finding to contradict this evidence. 5. The appellants have thus discharged the burden cost upon them under section 28D of the Customs Act." (G) That the appellant has furnished sufficient evidence in order to establish that the burden of
---
## Page 6
duty has not been passed on to the consumer. It was for this reason that the concerned officer of customs has rightly approved the refund claims of the appellant and informed it on-line. The Additional Collector has no power or authority under the Customs Act, 1969, to recall the orders of approval of the refund claims of the appellant. The order passed by the Additional Collector is illegal and without jurisdiction and is not maintainable in law. (H) That the learned respondent as well as the Collector (Appeals) have failed to appreciate that there was lesser sowing of sugar in Pakistan with estimates of 28% less crop in 2008 leading to current expected sugar crisis in the country; also 20% less crop in India, being 2nd largest exporter of raw sugar in international market; and less production of sugar in European countries, were too expected to create sugar shortage in International market with ultimate results of abnormal hike in the sugar price in international market. The Government of Pakistan in order to keep the price of sugar and its allied products in the local market within the reach of the common men decided to exempt the import of sugar from payment customs duty. The learned respondent as well as the Collector (Appeals) has failed to appreciate that the landed cost of the sugar for 1 kg in the month of January, 2008 was approximately Rs.34.42 (vide Bill of Entry Cash No.3066 dated 10.01%2008) and it was Rs.45.10 in the month of June, 2008 (vide Bill of Entry Cash No.2405 dated 11.06.2008), after the payment of duties and taxes. That the learned ADC and the Collector has failed to appreciate that with the exemption the landed cost of the sugar was Rs.45.55 in the month of July, 2008 and without exemption it was Rs.54.75 (vide Cash No.Bl-7-26-371 dated 26.07.2008). It is an admitted position that the appellant in spite of increase in the landed cost of the sugar has not increased the price of its products meaning thereby that the burden of duty has been borne by the appellant itself. (I) That the learned ADC and the Collector (Appeals) have failed to appreciate that the purpose of the notification was to control the increases of price of sugar and its allied products in the open market. Pt is an admitted position that prior to the issuance of the notification and thereafter the prices of the products of the appellant were the same. It was observed by the Collector (Appeals) that "The evidence on record does not support the appellants' stance that the incidence of tax with respect to the consignments under reference had not been passed to the consumer. It is an admitted position that the price of the finished product (i.e. Tang drink) had remained the same even after exemption from payment customs duty (previously 25%) on the principal raw material (i.e. Sugar)." The learned Collector (Appeals) as well as ADC failed to appreciate that the landed cost of Sugar after payment of duties and taxes was Rs.45.10 per kg in the month of June, 2008, while it was Rs.45,55 per kg with the exemption, therefore, the question of decrease in the price of the products does not arise, (J) That the learned respondent as well as the Collector of (Appeals) have failed to appreciate that the increase in international sugar prices and devaluation of Pak rupee were the main factors in the increase of landed cost of import sugar. The landed cost of the sugar prior to the issuance of the exemption notification was less than the landed cost after the grant of exemption. This fact itself establishes that the appellant has not passed on the burden of duty to the consumer as it has not increased the price of its product. (K) That the learned Additional Collector and the Collector (Appeals) have failed to appreciate that the moto of the government was to protect the consumers of sugar i.e. Home Consumers and Industrial Consumers from abnormal hike in the international price of sugar and the devaluation of Pak currency so that home consumers (public in general) can have easy access to sugar for home consumptions and Industrial Consumers should also have access to sugar at a reasonable landed cost in order to bear the frequent price increases to keep their products in the access of general public. (L) That it is fact of common knowledge that product manufactured, by the appellant is produced
---
## Page 7
with the use of approximately 93% of sugar which is the principal raw-material and other raw- material about 7%. The retail price of Tang sachet in the month on May, 2008, was Rs.6.00 each when the landed cost of the sugar was Rs.42.58 per kg (vide cash No.391 dated 03.05.2008). Even with the exemption under the notification the landed cost of sugar imported by the appellant in the month of July, 2008, was Rs.45.55 (vide cash No.Bl-7-26-371 dated 26.07.2008). The price of Schacht in the month of July, 2008 and even at the present is Rs.6.00 per pack. It can only be stated in these circumstances that if the appellant had increased the price of its products in the month of July, 2008, then it will be a case where the burden of tax has been passed on to the consumer. As is apparent from the above there was no increase in the price, therefore, it is proved that the burden of tax has not been passed on to the consumer. (M) That the learned ADC as well as the Collector (Appeals) has failed to appreciate that there was no condition in the exemption notification that in order to get the benefit of the notification the appellant was required to reduce the price of its products to the extent of the duty exempted under the notification. the price reduction was impossible in the facts and circumstances of the case as the landed cost of principal raw material even after the grant of exemption was much more than the landed cost prior to ' the exemption notification. (N) That the provisions of section 19A of the Customs Act, 1969, deals with the doctrine of double/undue and unjust enrichment and its avoidance whereby an importer who has paid any excess amount of duty will not be eligible for refund if he has recovered the same amount from his customer. If he tries to do so it will be double benefit i.e. recovering the cost from customer on one side and recovering it from Government as refund on other side, thus, getting double benefit which is envisaged in laws an unjust enrichment which is not allowed under the law rather is an illegal act. The importer will only be eligible for refund if he proves that he did not recover the customs duty from his customer i.e. recovery through price increase. It is an admitted position that prior to the issuance of the exemption notification and thereafter the price of products of the Appellant was same meaning thereby that the burden of tax has not been passed on to the consumer as prior to the exemption the landed cost after payment of duties and taxes was Rs.45,00 per kg. After the grant of exemption on the…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.