Case Summary & Legal Holding

This judicial decision was delivered by the Customs, Federal Excise and Sales Tax Appellate Tribunal. The matter involves proceedings between SHAHZAD GHEE MILLS LTD., GADOON AMAZI and COLLECTOR OF CUSTOMS, SALES TAX AND FEDERAL EXCISE (APPEALS), PESHAWARHonorable Justice Humayun Khan SikandariIshtiaq Ahmad,Muhammad Azam, officially reported as 2012 PTD 1697. The court reviewed applicable Pakistani statutes, procedural requirements, and governing case-law authorities. The full text below contains the complete facts, arguments, and legal reasoning rendered by the honorable bench.

Full Judgment Text & Judicial Ruling

2012 P T D (Trib.) 1697

[Customs, Federal Excise and Sales Tax Appellate Tribunal]

Before Muhammad Ibrahim Khan, Member (Judicial) and Humayun Khan Sikandari, Member (Technical)

Messrs SHAHZAD GHEE MILLS LTD., GADOON AMAZI

Versus

COLLECTOR OF CUSTOMS, SALES TAX AND FEDERAL EXCISE (APPEALS), PESHAWAR and another

Appeal No. Cus.537/PB of 2007, decided on 5th January, 2010.

(a) Customs Act (IV of 1969)---

----Ss. 156, 168, 179, 193 & 194-A---Criminal proceedings and confiscation/recovery proceedings---Scope---Criminal proceedings before the Special Judge, Customs and the confiscation/recovery proceedings before the adjudication/Appellate Authority, were concurrent independent and mutually exclusive---Adjudication/Appellate proceedings for the confiscation of the goods or recovery of short-levied/non-levied duty/taxes under Customs Act, 1969, neither would involve a criminal prosecution nor a punishment for an offence---No trial of the offence would take place for any offence, nor was any punishment awarded to the offender---Two proceedings, in circumstances, were not inter-dependent and neither could remain suspended for the sake of the other.

Adam v. Collector of Customs PLD 1969 SC 446 rel.

(b) Administration of justice---

----Adjudicating officer would pass a speaking order, which was one of the exhilarating principles of the whole concept, around which the principles of natural justice revolved---Order by the adjudicating officer, must be based upon sound, cogent and plausible reasons; and he should reflect his true inner process of thought, through introspection---Recorded reasons were the essence of a speaking order.

(c) General Clauses Act (X of 1897)---

----S. 24-A---Statutory obligation of judicial/quasi-judicial authorities---All judicial/quasi-judicial authorities were obliged to pass judicial/ adjudication by a speaking order manifesting by itself that the judicial/ adjudicating Authority had applied its judicial mind to the issues and the points of controversy involved in the case---When the reasons would not be forthcoming, Appellate Authority/court would be deprived of the valuable views of the subordinate fora---Order which was not a speaking order and devoid of reasons, was not sustainable being in contravention of the law---In the absence of properly framing issues, adjudicating authority or the first Appellate Authority could follow any trajectory and even sail into uncharted territories, which was not appreciable in the eyes of law---Adjudicating Authority and the first Appellate Authority must pass speaking orders, duly supported by reasoning and showing due application of mind to the points of facts and law applicable while disposing of the cause before it.

Messrs Engro Chemical Pakistan Ltd. v. Additional Collector of Customs 2003 PTD 777 rel.

(d) Customs Act (IV of 1969)---

----Ss. 97 & 98---Period for which goods may remain in warehouse---Taking out goods out of warehouse---Under provisions of S.98 of the Customs Act, 1969, the maximum period for which the goods could be stored in the warehouse was one year, and for perishable goods, the permissible period was three months---Collector as well as the Federal Board of Revenue had been empowered to extend that period further---Under S.97 of the Customs Act, 1969, no warehoused goods could be taken out of the warehouse, except on clearance for home consumption or export or for removal to another warehouse or as otherwise provided in the Customs Act, 1969.

Duty Free Shop Ltd. v. Central Board of Revenue 2002 PTD 1167 rel.

(e) Customs Act (IV of 1969)---

----Ss. 32 & 180---Untrue statement---Issuance of show-cause notice before confiscation of goods or imposition of penalty---Scope---Show-cause notice must cite the relevant provisions of law, under which it was issued---Show-cause notice in terms of S.32 of the Customs Act, 1969 must disclose all the material fact, on the basis of which the charges of misdeclaration, connivance, suppressive or fraud were intended to be raised---Adjudicating Authority had erred by invoking all the provisions of S.32 of the Customs Act, 1969 and not the relevant provisions thereof for the purpose of the statutory notice; and it could not be ascertained whether the notice had been issued under S.32(2) or S.32(3) and S.32(3-A) of the Act---Such failure on the part of the Authority had rendered the impugned show-cause notice not to be in consonance with the requirements of S.32 of the Customs Act, 1969---Foundation of show-cause notice would be bona fides, if the same conveyed an impression that the officer issuing the statutory notice had applied his mind to the facts of the case; and had not issued the notice in a mechanical manner---Only those sections of the Customs Act, 1969 should be cited in the notice which were material and relevant and had been fixed with proper application of judicial mind---Indiscriminate citation of multiple sections resulted in the show-cause notices being declared as illegal---Person against whom proceedings were held could not be punished for the charge different from the one, for which notice had been given---Show-cause notice should be based on accurate and factual position---Where a show-cause notice did not specifically allege collusion, mis-declaration, suppression of facts or fraud, as a basis for issuance for the recovery of the non-levied/short levied amount, the importer could not adequately reply to it where any charge was levelled against any person, he should be intimated for such charge in clear terms where the initial order or statutory notice was void, all subsequent proceedings, or superstructures built on it were also void.

D.G. Khan Cement Company Ltd. v. Collector of Customs, Sales Tax and Central Excise, Multan 2003 PTD 1797; Osman Abdul Karim Bawaney v. Collector of Customs PLD 1962 Dacca 162; Iram Ghee Mills Ltd. v. Appellate Tribunal 2004 PTD 559; Quetta Textile Mills Ltd. v. Government of Pakistan and others 1990 ALD 582; Messrs Central Cotton Mills, Ltd. v. Collector and others 1992 CLC 841; Khawja Tanneries Ltd. v. Controller of Valuation NLR 1987 TD 202; Government of Pakistan v. Shah Sons 1991 CLC Note 338 Page 259; Anisa Rehman v. P.I.A. 1994 SCMR 2234; Motilal Lalchand Shah v. L.H. Kau 1984 (17) E.L.T. 294 (Guj); Raphael Pharmaceuticals v. Superintendent 1988 (38) E.L.T. 11 and Koruta Rubber Co. v. Collector 1987 (32) E.L.T. 216 and Kamran Industries v. Collector of Customs PLD 1996 Kar. 68 rel.

(f) Words and phrases---

----"Mistake", meaning and connotation.

Black's Law Dictionary rel.

(g) Words and phrases---

----"Corrigendum", meaning explained.

(h) Customs Act (IV of 1969)---

----S. 180---Issue of show-cause notice before confiscation of goods or imposition of penalty---Provisions of S.180 of Customs Act, 1969 were quite exhaustive---Once the adjudicating authority would arrive at a conclusion that some important relevant sections of the law had not been invoked, an independent show-cause notice was required to be issued---By issuing a corrigendum so as to bring an infringement within the ambit of existing proceedings, would violate the principles of natural justice---Such improprieties being apparent on the face of the records, could not be upheld---Proper care was required to include all the points of facts and law in the show-cause notice---No law existed whereby a second show-cause notice was precluded in order to incorporate additional points of facts and law, but, if the second or revised show-cause notice would enlarge the scope of the earlier one, by taking advantage of the defence already disclosed by the party, in his reply thereto and also in the personal hearing, it would be illegal and barred by the principles analogous to res judicata---Corrigendum could be issued for rectifying any mistake in the show-cause notice, but where the rectification would affect the basis of the show-cause notice, then the limitation period, if any, had to be computed with effect from the date of the issue of the corrigenda or the revised show-cause notice and not from the first show-cause notice originally served---Where any corrections were made other than clerical errors to compensate for any provisions of law which had been incorrectly invoked or not invoked same would render the original show-cause notice as time barred, if such corrections were not made within the original validity of the show-cause notice.

Hassan Associates v. Additional Collector of Customs Adjudication 2003 PTD (Trib.) 1489; Jasoda Jasoda Jiban Shah v. S.K. Chatterjee AIR 1961 Cal. 195; Lalwani Earthmowers Ltd.'s case 1999 (113) ELT 641; Halsbury's Laws of England-4th Edition Volume 23, Para 29 and Associated Cement v. C.T.O. 48 S.T.C. 466 SC rel.

(i) Customs Act (IV of 1969)---

----Ss. 18, 30(b), 32 & 104---Levy of customs duty---Scope---Section 18 of the Customs Act, 1969, which was a charging section would create the charge, at the time of "import" or "export", but the payability was regulated by other provisions of the Customs Act, 1969---Appropriate Customs Officer possessed the power to recover any non/short levied tax, which he was required to collect, but had not been collected---Word 'charge' was vide enough, to include regulatory duty, sales tax, federal excise duty, advance income tax, which were found to be non/short-recovered by the appropriate customs officer---Customs Officer though merely would collect some of the said taxes on behalf of the relevant department, but as Collecting Agent, his power to collect those taxes, should naturally include the ancillary power to recover any non-short collected amount as well---Word "charge" would include any kind of encumbrance, not satisfied by the importer, at the time of clearance of his goods from the warehouse, either for home consumption or export.

Halsbury's Laws of England-4th Edition Voluem 23, Para 29; Associated Cement Co. v. C.T.O. 48 S.T.C. 466 SC and Crescent Pak. Industries Ltd. v. Government of Pakistan 1990 PTD 29 ref.

Duty Free Shop Ltd. v. Central Board of Revenue 2002 PTD 1167 rel.

(j) Customs Act (IV of 1969)---

----Ss. 32, 32-A, 97 & 156---Untrue statements or mis-declaration---Imposition of penalty---Scope---Monetary penalty could not be imposed, where alleged mis-declaration did not involve loss of revenue---Penalty could only be levied in case of wilful evasion of duty and taxes---Penalty could be declared as illegal, if no wilful breach was dis-covered---Customs Officials could not escape their responsibilities to ensure that the goods were not removed illegally from the bonded warehouse---Where the goods were removed from the warehouse unlawfully, the Customs Department could not escape its responsibilities to see that the goods were not removed unlawfully and without the payment of the duties and taxes---Heavy penalty was not justifiable in such cases---Customs Act, 1969 did not provide to impose in all circumstances the penalty, as double or thrice the Customs value of the goods, but to secure the payment of the duty and taxes in case of violation---Provisions of penalty were criminal in nature and that "mens rea" or intention of the party was relevant---Heavy penalties even in cases of absolute liability were deprecated---Order imposing penalty for failure to carry out a statutory obligation, was the result of a quasi criminal proceeding and penalty would not ordinarily be imposed, unless the party either acted deliberately in defiance of the law or was guilty of contumacious or dishonest conduct, or acted in conscious disregard of its obligation---Penalty would not also be imposed merely because it was lawful to do so---Whether penalty should be imposed for failure to perform a statutory obligation was a matter of discretion of the Authority to be exercised judicially and on consideration of all the relevant circumstances---Even if a minimum penalty was prescribed, the Authority competent to impose the penalty would be justified in refusing to impose the penalty, when there was technical or venial breach of the provisions of the Customs Act, 1969 or where the breach flows from a bona fide belief, that the offender was not liable to act in the manner prescribed in the statute---Wrong citation of the section, could not deprive the Customs Authorities of their jurisdiction, to impose the penalty and to recover the same as they possessed the plenary powers in that behalf---Importer would have no cause of action for seeking the intervention of the higher forums, in cases, where no prejudice was shown to have been caused on account of the citation of a wrong section---Case of illegal removal of impugned goods by the importer from the bona fide warehouse, having been established, it was directed by the Tribunal that the leviable duty and taxes on the assessed customs value be recovered from the importer---Imposition of heavy penalty was not justifiable which was reduced to 30% of the assessed customs value of the impugned goods---Impugned orders were modified to that extent, accordingly.

Kamran Industries v. Collector of Customs (Exports) PLD 1996 Kar. 68; Sardar Chemical Gadoon v. Collector of Customs and Central Excise, Peshawar PTCL 1999 CL 813; Scanmatic Systems (Pvt.) Ltd. v. The Collector of Customs, Customs, Excise and Sales Tax Appellate Tribunal, Lahore PTCL 1999 CL 114; Eastern Rice Syndicate v. Government of Pakistan PLD 1959 SC 364; Pakistan v. Hardcastle Waud PLD 1967 SC 1; Bijhama Traders v. Collector of Customs, 1989 MLD 4592; National Construction Co. v. Government of Pakistan PLD 1989 Kar. 174; National Construction Co. (Pakistan) Ltd. v. Government of Pakistan 1990 CL 217; Mst. Baigan v. Abdul Hakeem 1982 SCMR 673 and Sindh Engineering (Pvt.) Ltd. v. C.E.S.T.A.T. Karachi Bench 2002 PTD 2556 rel.

Ishtiaq Ahmad for Appellant.

Muhammad Azam, Superintendent, Taj Malook, Superintendent and Naseer Khan, D.S. for Respondents.

Dates of hearing: 11th February, 30th March, 21st April, 20th May, 22nd June, 6th July, 17th August, 28th September, 30th September and 13th October, 2009.

JUDGMENT

HUMAYUN KHAN SIKANDARI, MEMBER (TECHNICAL):--This appeal has been field by Messrs Shahzad Ghee Mills Ltd., Gadoon Amazai (hereinafter called as the appellant) against the Order-in-Appeal No.499 of 2007, dated 15-8-2007, passed by the Collector of Customs, Sales Tax and Federal Excise (Appeals), Peshawar.

2. Precisely, the stated facts of the case as recapitulated from the available case record are that on 14-11-2006, the Customs Staff visited the premises of the appellant (holder of Manufacturing Bond Licence No.2 of 2000), and examined the record maintained in respect of the imported raw material, finished goods ex-bonded or exported, balanced quantity of raw material, finished good and waste etc. Physical stock taking of raw material, finished goods and waste was also carried out in the presence of the representatives of the licensee namely Messrs Sahibzada Sadaat Yar and Muhammad Jamil and a stock taking report was prepared on the spot as summarized in Table-I below:--

S.No.

Description of goods

Balance Qty as per record

Physically found

Shortage

1.

Vegetable Ghee

605.00 MT

365.037 MT

339.963 MT

2.

Tin Plate

367.386 MT

50.00 MT

317.963 MT

3.

Tin Plate shown to be Ex-bonded vide Bills of Entry No. 256, dated 13-2-2006 and 246 dated 2-2-2006 but without payment of leviable duty and taxes.

--

--

273.363 MT 10.787 MT

4.

Waste of Tin Plate

279.821 MT

30.00 MT

249.281 MT

5.

Waste of RBD/ Oilen Oil

304.558 MT

50.00 MT

254.558 MT

3. It was observed that the quantity of raw material, finished goods and waste products found in stock were less than the balance shown in the Bond Register and the shortages confirmed that the appellant had clandestinely and unauthorizedly removed the dutiable/taxable goods (raw material, finished goods and waste) without payment of the leviable duty and taxes and without proper accountal thereof as summarized in Table-II below:--

S.No.

Description of goods

Assessable value in Rs.

Amount of duty and taxes

1.

Raw material used in 339.963 MT Ghee i.e. (i) RBD Palm Oil = 142.785 MT (ii) Oilen Oil = 197.178 MT

3689234 5216796

Rs.5938874.00 (Custom duty @ 10800 PMT & 9050 PM, RD @ Rs.50 PMT, ST @ 15% FED @ 15% AIT @ 3% and CED @ Rs.1 PKG.)

2.

Tin Plate 317.386 MT

13880419

Rs.7269870 (CD @ 25% ST 15% and AIT @ 6%)

3.

Tin Plate involved in Ex-Bond Bills of Entry filed but payment not made (38.150 MT).

1566705

Rs.820562.00 (CD @ 25% ST 15% and AIT @ 6%)

4.

Waste of Tin Plate (249.821 MT)

10307830

Rs.5398726.00 (CD @ 25% ST 15% and AIT @ 6%).

5.

Waste of RBD/Oilen Oil (254.558 MT)

6656054

Rs.4490301.00

Total Duty and Taxes Involved:

Rs.23918333.00

4. Since on demand, the appellant could not produce any documents to prove the lawful clearance of the goods (ex-bond GDs or Shipping Bill etc) and to justify and account for the shortages (duty and taxes amounting to Rs.23.918 million), an F.I.R. No.28/2006, dated 14-11-2006 was lodged against him for fraudulent and clandestine removal of dutiable/taxable goods. Hence, the evasion of the duty and taxes was proved prima facie, as per the appellant's own record and physical stock taking, and therefore, the appellant was alleged to have violated the provisions of sections 32(3-A), 97, 104, 105, 107, 111, 116 of the Customs Act, 1969 and Manufacturing Bond Rules 352(2)(9), 358, 361, 362 of the Customs Rules, 2001, punishable under sections 156(1)(14), (57), (58), (59) and (62) of the Act ibid. Accordingly, a contravention case was made out against the appellant and submitted for subsequent adjudication. A show-cause notice was issued to the appellant and after hearing the parties, the learned Additional Collector of Customs, Custom House, Peshawar vide his Order-in-Original No.41 of 2007, dated 12-3-2007, ordered as under:--

"13. Having examined the whole case record and hearing both the parties after giving them full opportunities to plead and prove their case by bringing forward all the grounds of defence and entertaining all the requests of both the prosecution and the defence in this regard, the following has been observed:

(i) The respondents were availing the manufacturing bond facility notified under Chapter XV of S.R.O.450(I)/2001, dated 18-1-2001. Under the said notification, the respondents are entitled to:

(a) Import raw material/input goods without customs levies.

(b) The record of input goods received, finished goods manufactured, exported or cleared for home consumption shall be maintained in the format set out in Appendix-IV to the above referred chapter.

(c) The export of finished goods shall be made against the Bill of Export prepared by the licensee of manufacturing bond and endorsed as "export from manufacturing bond".

(d) Removal of finished goods for home consumption subject to limitation and restriction provided in the import policy order for the time being in force, on payment of duty and taxes leviable thereon.

(ii) Under proviso to Clause 9 of Rule 352 of the Customs Rules, 2001, there is a set procedure for disposal of factory rejects (waste) which is reproduced as under:--

"the factory reject shall be allowed removal by an officer of customs not below the rank of an Assistant Collector, at the appraised value and custom duty, central excise duty and sales tax shall be levied as if it had been imported into Pakistan in that condition".

(iii) Perusal of the record revealed that the respondent had imported input goods without payment of custom levies but they neither exported the finished goods as no bills of export have been furnished nor presented Bill of Entry to prove clearance of the same for home consumption of the finished goods as well as factory rejects on payment of leviable duty/taxes.

(iv) This is a simple case of illegal removal of raw materials, finished goods and waste thereof by the above referred licensee from the bond without payment of duty and taxes or any evidence of export thereof which is clearly evident from the record maintained by the unit itself. The prosecution through their revised statement as per Table-IV below showing quantity, value and duty/taxes involved in the raw materials, finished goods and waste, has proved their case, beyond any doubt regarding clandestine removal of the same without payment of leviable duty and taxes which confirms wilful and conscious commission of offence by Messrs Shahzad Ghee Mills Ltd.; in violation of the provisions of Customs Act, 1969 referred to in paras 4 and 8 above and Customs Rules, 2001, notified vide S.R.O.450(I)/2001, dated 18-6-2001;

TABLE-IV

1

2

3

4

5

Description of goods

Details of raw-materials used in the manufacture of 339.983 MTs Vegetable Ghee

Import Value/Assessable Value (Rs)

Customs Duty (Rs)

R. Duty @ Rs.50 PMT

Finished Goods i.e. Vegetable Ghee found short = 339.386 MT

RBD Palm Oil = 142.785 MTs Olien Oil = 197.178 MTs

417 US$ PMT Rs.3689234.00

@ 10800 PMT = 1542078

7139

427 US$ PMT Rs.5216796.00

@ 9050 PMT = 1780517

9859

Total: Rs. 8906030

3322595

16998

Imported Tin Plats found short 317.386 MTs

______

Euro 34213.31 = Rs.10610602 US$ 52772.28 = Rs. 3269817 Total: Rs.13880419

@ 25% = Rs.3470105

0

Ex-bonding vide B/E # 256 dt: 13-2-2006 and B/E # 246 dt: 2-2-2006 without duty & taxes = 38.15 MT

______

18059.58 US$ and 5663.175 Euro = Rs.1566705

@ 25% = Rs.391676

0

Waste of imported Tin Plate found short = 249.821 MTs

______

Value Appraised @ Rs.16000 PMT = Rs.3997136

@ 25% = Rs.999284

0

Waste of RBD/Olien Oil (from finished products) shown in the record is = 304.558 MTs N Non recoverable @ 60% = 182.555 MTs Recoverable @ 40% = 122.000 MTs Found Available = 50 MTs Quantity found short = 72.000 MTs

Short (i) Quantity of waste RBD oil = 36 MT (ii) Quantity of waste of Oline Oil = 36 MTs Total: = 72 MT

Value Appraised @ Rs.10000 PMT = Rs.720000

@ 10800 PMT = Rs.388000 @ 9050 PMT = Rs.325800 Total: Rs.713800

3600

Grand Total

Rs.29070290

Rs.8897460

20598

6

7

8

9

10

Sales Tax @ 15%

FED @ 15%

AIT @ 3%

CED @ Rs.1 PKG

Total Duty & Taxes in (Rs)

0

785768

180727

142785

2658497

0

1051076

241747

197178

3280377

0

1836844

422474

339963

5938874

2602579

0

@ 6% 1197186

0

7269870

Rs.293757

0

Rs.135129

0

Rs.820562

749463

0

344753

0

2093500

0

215610

49590

72000

1054600

3645799

2052454

2149132

411963

17177406

(v) Hence Messrs Shahzad Ghee Mills Ltd., Gadoon Amazai Industrial Estate have been found to have wilfully and consciously defrauded the national exchequer which is evident from the fact that the accused unit has presented Ex-bond Bill of Entry No.246, dated 2-2-2006 and Ex-Bond Bill of Entry No.256, dated 13-2-2006, removed the goods but did not pay the duty and taxes involved therein. Similarly, shortage of raw materials, finished goods and waste confirms conscious evasion of duties and taxes. This commission has been categorically admitted by the Chief Executive of Messrs Shahzad Ghee Mills Ltd., vide his letter dated 7-2-2007, whereby they have requested the Customs authorities for working out the duty and taxes involved in the instant case for which they have expressed their willingness to pay.

(vi) The contention of Messrs Shahzad Ghee Mills Ltd., to the effect that the evasion of duty and taxes and the malpractices having been committed by the lower staff of the unit does not hold ground and thus, does not exonerate the owner/directors from the charges of commission of offence. Thus, the charges levelled against Messrs Shahzad Ghee Mills Ltd., Gadoon for violation in terms of subsections (1) and (2) of section 32 and section 32A of the Customs Act, 1969 and the Customs Rules, 2001 have been established beyond any shadow of doubt.

(14) Messrs Shahzad Ghee Mills Ltd., are therefore, directed to pay the duty and taxes to the tune of Rs.1,71,77,406 (including Customs duty = Rs.88,97,460, Regulatory duty = Rs.20,598, Sales Tax = Rs.36,45,799, Federal Excise = Rs.20,52,454, Advance Income Tax = Rs.21,49,132, Central Excise Duty = Rs.4,11,693). A mandatory penalty equal to three times the value of the goods, (i.e. Rs.29.07 million) which comes to Rs.87.21 million is also imposed on the aforesaid unit under Clauses 14 and 14A of subsection (1) of section 156 of the Customs Act, 1969."

5. Being aggrieved of the impugned order-in-original, the appellant filed an appeal before the Collector of Customs, Sales Tax and Federal Excise (Appeals), Peshawar, who vide his Order-in-Appeal No.499 of 2007, dated 15-8-2007, ordered as under:--

"(8) I have examined the case record and considered the written as well as verbal submissions of both the parties. Perusal of the case record reveals that the Customs Staff visited the premises of Messrs Shahzad Ghee Mills Ltd., and examined the record maintained by the management of the unit i.e., imported raw material, goods ex-bonded or…

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