Full Judgment Text & Judicial Ruling

2018 P T D (Trib.) 1225 [Customs Appellate Tribunal] Before Tahir Zia, Member (Judicial-II) Messrs SIKANDAR AND CO., KARACHI and 2 others Versus COLLECTOR OF CUSTOMS, COLLECTORATE OF CUSTOMS and another Customs Appeal No.K-131 of 2016, decided on 3rd July, 2017. (a) Customs Act (IV of 1969)--- ----Ss. 3-DD, 26-A, 32, 79, 80 & 83---S.R.O. No.500(I)/2009, dated 13-6-2009---Mis-declaration---Fourteen consignments were imported documents corresponding to said imports were delivered to Clearing Agent for transmitting goods declaration with the Collector of Customs (Appraisement)---Clearing Agent on the strength of description available on the import documents, transmitted goods declarations accordingly---Out of said 14 goods declaration, 6 were released by the System itself upon that the declarations were correct and true---Rest of the declarations were either selected for examination by the System or appeared on the desktop of the Monitor of the Appraiser---Goods in question, after examination were found in accordance with the declarations and the reports so prepared were posted in the reservoir of the goods declaration for perusal of the Assessing Officer, who passed the assessment order---Clearing Agent, thereafter obtained delivery orders from the shipping company and after paying the dues of the terminals obtained the deliveries of the goods and transmitted those to the warehouse of the importer---After post clearance purportedly an information was received by the office of Collector of Customs, MCC of Appraisement that certain unscrupulous importers were obtaining clearance of goods classifiable under PCT Heading No.8407.9090 on which the leviable amount of duty and taxes, were 20% customs duty---Collectorate MCC of Appraisement on the basis of said information opined that, the present importer, in connivance and collusion of his Clearing Agent, mis-declared the description of the goods in question and caused loss to exchequer in the shape of short payment of duty and taxes, which act fell within the ambit of violation of Ss.32(1)(2), 32-A, 79 & 80 of the Customs Act, 1969 punishable under S.156(1)(14)(14-A) of said Act and framed contravention report; Collectorate issued show-cause notice to the importer---Collector of Customs, thereafter passed order-in-original through which he held the charges levelled in the show-cause notice as established against the importer and ordered the importer to deposit amount of duty and taxes along with penalty---Validity---Upon passing of assessment order under S.80 of the Customs Act, 1969 by competent Authority, same could not be disturbed by any Authority for preparing contraventions report overlapping assessment orders for initiation of adjudication proceedings; on the basis of which Collector of Customs issued show-cause notice and passed order-in-original---Only course available under law for Collectorate of MCC of Appraisement was to challenge the assessment orders before the Collector of Customs (Appeals) under S.193 of the Customs Act, 1969 in exercise of the powers delegated upon him---Instead of adhering to the prescribed procedure available in the Act, authorities reopened the assessment/clearance order under S.195 of the Customs Act, 1969, under which no powers were vested either of the authorities---When the right of appeal had been accorded by the legislature under the provisions of S.193 of the Customs Act, 1969, the provisions of S.195 thereof was un-operational and could not be exercised---Collecotrate of Appraisement implicated and the collector customs charged the importers for mis-declaration under the provisions of S.32 of the Customs Act, 1969, merely on the basis of assumption/ presumption, that the importers had transmitted goods declaration on the basis of erroneous description and PCT heading in order to hoodwink the customs and to evade the amount of duty and taxes---Importer had no part to play while conduction of examination---Case against the importer, was based on presumptions, assumptions, conjectures and rowing and fishing inquiry which failed the test of judicial scrutiny---Appellate Tribunal, allowing appeal, vacated the show-cause notice and set aside the order-in-original. [Case-law referred]. (b) Customs Act (IV of 1969)--- ----Ss. 207, 208 & 209---Liability of Clearing Agent during the course of clearance of consignment---Scope---Such liability was to be evaluated under the provisions of Ss.207, 208, 209 of the Customs Act, 1969, which indicated that an Agent would represent his principal and until and unless any direct evidence was attributed against him, or when department was not able to prove any criminal intent on his part, he could not be penalized under the general provisions of the Customs Act, 1969, unless he would violate the governing conditions of his license. Sardar Muhammad Ishaque for Appellants. Saeed Soomro, PA/D/R for Respondents. Date of hearing: 6th June, 2017. JUDGMENT TAHIR ZIA, MEMBER (JUDICIAL-II).---Through this order, I intend to dispose of Appeal bearing Nos. K-131/2016 directed against Order-in-Original No. 301/2015-16 dated 10.12.2015 passed by Collector of Customs, Adjudication-I, Customs House, Karachi. 2. Briefly facts of the case are the appellant No. 1 imported 14 consignments of Marine Engines from China, the documents corresponding to the said imports were delivered by him either to appellant No. 2 or 3, who act as clearing agents , for transmitting Goods Declaration (here-in-after to be referred as GD) with the Collectorate of Customs Appraisement (West) in terms of Section 79(1) of the Customs Act, 1969 (here-in-after to be referred as Act) and Rule 433 of Sub-chapter III of Chapter XXI of Customs Rules, 2001 (here-in-after to be referred as Rules). They on the strength of the description available on the import documents transmitted GDs under either PCT 8407.2100 or 8407.2900 and claim for extending benefit of reduced amount of duty and taxes under the regime of Free Trade Agreement between Pakistan and China (FTA) notified to SRO 659(I)/2007 dated 30.06.2007 and while doing so deposited upfront duty and taxes worked out on the basis of declaration after obtaining pay order from the appellant No. 1 in the NBP against different Cash numbers dated as GDs are dated , which were numbered and dated as KAPW-HC-4600-17072013, KAPW-HC-25875-30082013, KAPW-HC-83841-04012014, KAPW-HC-101780-10022014, KAPW-HC-141877-14032015, KAPW-HC-125305-31032014, KAPW-HC-155818-09042015, KAPW-HC-141276-29042014, KAPW-HC-156568-27052014, KAPW-HC-174885-30062014, KAPW-HC-57154-20102014, KAPW-HC-178100-14052015, KAPW-HC-187841-28052015, KAPW-HC-188812-29052015. With the exception of 06 GDs bearing Nos. KAPW-HC-57154-20102014, KAPW-HC-141877-14032015, KAPW-HC-155818-09042015, KAPW-HC-178100-14052015, KAPW-HC-187841-28052015 and KAPW-HC-188812-29052015. Out of these 06 were released by the system itself upon evaluating that the declaration in all aspect of the goods imported by appellant No. 1 are correct and true, rest were either selected for examination by the system or if appeared on the desktop of the monitor of the Appraiser , he opted to get the goods examined under the provision of Section 198 and Rule 435 of the Act/Rules and to proceed with after adducing his opinion referred the GDs to the Deputy Collector of the Group who gave his assent and routed the GDs to the Deputy Collector of Terminal, who marked those to either examiner or Appraiser posted there for conduction of examination for verification of the declaration. The goods after examination were found in accordance with the declaration and the reports so prepared were posted in the reservoir of the GD for perusal of the Assessing Officers. Who upon appearance of GD on his desktop with the posted examination reports, perused those and if found the goods as per declaration passed the assessment order under Section 80 and Rule 438 in case of any doubt transmitted view messages under Rule 437 to the appellants for scanning of additional documents e.g. catalogue/ literature. Appellant No. 1 either on his own or through appellants Nos. 2 and 3 scanned/uploaded the requisite in the reservoir of the GD's. After perusal of those the assessing Officer passed the valid assessment order under the respective provisions of the Act/Rules and in case of enhancement of value as against declared transmitted view messages for payment of additional amount of duty and taxes, which were paid by the appellant No. 1, consequent to which the inbuilt authority of the WeBOC passed Clearance Orders as per the enunciation of Section 83 and Rule 442 of the Act/Rules. Thereafter the concerned appellant i.e. either 2 or 3 obtained delivery orders from the shipping company and after paying the dues of the terminals obtained the deliveries of the goods and transported those to the warehouse of appellant No. 1. 3. After post clearance purportedly an information was received by the Office of Collector of Customs, MCC of Appraisement-West (here-in-after to be referred as respondent No. 2 that certain unscrupulous importer are obtaining clearance of Internal Combustion Petrol Engines, classifiable under PCT 8407.9090 on which the leviable amount of duty and taxes are @ 20% Customs Duty, 17% Sales Tax, 3% Additional Sales Tax & 6% Income Tax, under the garb of Marine Engine of PCT heading 8407.2100 or 8407.2900 attracting rate of Customs Duty @ 5% and 0% under FTA regime, 17% Sales Tax , 3% Additional Sales Tax and 6% Income Tax. Resultant, scrutiny of the import clearance through the MCC of Appraisement-West was made, which transpired that appellant No. 1 imported 14 consignments against the GDs referred in para 2 supra of Marine Engine under PCT 8407.2100 and 8407.2900. Hence, audit of the GDs and uploaded documents/literature available in there reservoir were conducted, upon scrupulous perusal of the examination report and uploaded images the official of respondent No. 2 reached at the conclusion that the engine so imported by appellant are not Marine Engine as features of marine engine are quite different and specific in contrast to the engine meant for vehicle/ other such as Gear Box, Propeller and Steering Device which constitute a single indevisable unit and have low RPM. Similarly, other Marine Engine of heading 8407.2900 are also combined with a block holding a Steering and Propeller fixed to it etc. as against an Internal Combustion Piston Engine which only merit classification under the PCT specified for Marine Engine 8407.2000. If it has certain technical pre-requisite of a Marine Engine and is manufactured as purposed bill. These Gasoline Engine fitted with Petrol Tank were for General purpose. Further the literature of the impugned imported engine as available on internet (at the manufacture's Website) clearly indicates that these engine are general purpose engine and at the best suitable for use in Generator Set, Water Pump, Lawn Movers etc. It was further revealed that these engine were originally being used by the manufacturer Loncin Industries in their Generators and Water Pumps. It is further pointed out that the appellant is also importing Loncin Brand Generators and Water Pumps fixed with similar/identical engine, which he import separately under the garb of Marine Engine e.g. in GD No. KAPW-HC-156568-27052014, he imported aluminum Die-Cast Water Pumps and Petrol Engine, Engines were mis-declared and misclassified as Marine Engine Propulsion and cleared by paying "NIL" or 0% custom duty. On the basis of the said finding the Official of MCC of Appraisement-West opined that the appellant No. 1 in connivance and collusion of appellants Nos. 2 and 3 mis-declared the description of the engine and caused loss to the exchequer to the tune of Rs. 4703807.00 in the shape of short payment of duty and taxes and the said act of the appellant falls within the ambit of violation of Sections 32(1), (2), 32(A), 79 and 80 of the Act, Section 6 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001 punishable under clauses (1), (14) & 14(A) of Section 156 of the Act and framed contravention report No. SI/ MISC/2016/2005/VI dated 06.07.2015 and forwarded to respondent No. 2 for approval, who after approving forwarded that to respondent No. 1, who issued show-cause notice dated 10.08.2015 containing narrated facts and invoked provision of the Act/Ordinance in the contravention report and appellant were asked to submit reply to the allegation levelled therein. The appellant No. 1 through letter dated 25.08.2015 requested the respondent No. 1 to supply certain documents listed in para 2, enabling him to submit a comprehensive reply to the show-cause notice, the respondent No. 1 instead of complying with the request forwarded yet another hearing notice dated 10.08.2015 intimating the date of hearing as 04.09.2015, against which the Advocate forwarded letter through which request was renewed for supply of the documents, which was supplied thereafter, on the strength of which appellant's advocate submitted reply to the show-cause notice, which failed to get the acceptance of respondent No. 1 and he passed order-in-original dated 10.12.2015 , through which he held the charges levelled in the show-cause notice as established against the appellants and ordered appellant No. 1 to deposit Rs. 4,703,087.00 against evaded amount of duty and taxes along with imposed penalty of Rs. 500,000.00. The appellants Nos. 2 and 3 were also slapped with the penalty of Rs.100,000.00 each paras 6 to 13 of the order are relevant , which are reproduced here-in-under:-- "6. I have examined the case record and considered written/verbal arguments of the advocate for the respondent and representative of the departments. At the outset the advocate contended that SRO 886(I)/2012 does not empowers the undersigned the jurisdiction of the Appraisement Collectorate is based on wrong assumption. The SRO clearly empowers the Collector Adjudication to decide the cases of Appraisement West as being adjudicated since long and many apex fora have decided appeals of this Collectorate in original jurisdiction without objection on the jurisdiction of Collectorate. 7. It has been alleged by the detecting MCC that respondents Messrs Sikander and Co., Karachi In association with Clearing Agents Messrs Quick Shipping and Messrs Bilal International have indulged in misdeclaration of description and PCT to avoid correct levy of duty/taxes and in the process have evaded less payment of duty/taxes amounting to Rs. 4703807/-. Scrutiny of import data of the subject consignments revealed that the examination reports images of consignments examined at the time of import/clearance do not render the engines as "Marine Engines" in respect of their physical characteristics. The features of marine engines are quite different and specific in contrast to the engines meant for vehicles/others such as Gearbox , Propeller and Steering Devices, whole constituting a single individual unit and have low RPM (less than 1500 RPM). Similarly, other marine engines are also combined with a block holding a steering and propeller fixed to it etc. On the other hand these Gasoline Engines fitted with Petrol Tanks were for general purposes. Further the literature of impugned imported engines as available on Internet (at the manufacturer's Websites), clearly indicated that these engines are general purpose engine and at the best suitable for use in generators sets water pumps, lawn movers. These engines were originally being used by the manufactures M/s. Loncin Industries in their Generators and water pumps. As per internet information these are general purpose engines having wide range of application like garden, engineering agriculture animal husbandry, fishery, generator, water pumps, mini tiller cleaning machine road cutting machine, tamping machine, chipping machine, pressure washer etc. 8. Even for the sake of arguments if the contention of the importer is considered that these engine can be used as marine/boat engine, the classification would be done in terms of rule 3(c) for of rules for general interpretation of the harmonized system which is reproduced as : 9. When by application of Rule 2(b) or for any other reason , goods are, prima facie classifiable under two or more headings, classification shall be affected as follows:-- a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the material or substances contained in mixed or composite goods or to part only of the items in set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. b) Mixture, composite goods consisting of different material or made up of different components and goods put up in sets for components which gives them their essential character, insofar as this criterion is applicable. c) When goods cannot be classified by reference to 3(a) or 3(b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration. 10. As per arrangement of heading 8407, marine engine are covered under heading 8407.2100 and 8407.2900 and other engine are classifiable under PCT 8404.9090. As the imported goods are general purpose engine having wide range of application and are appropriately classifiable under PCT heading 8404.9090 which also occurs last in numerical order after the heading of boat/marine engine. 11. The features of a Marine Engine are quite different and specific such as Motor, Transmission, Gearbox, Propeller and Steering Device, Low RMP (less than 1500 RMP). Internet Combustion Petrol Engines, classifiable under PCT 8407.9090 (CD % 20%) were imported under the garb of marine engines of heading 8407.2100 and 8407.2900 attracting rate of Customs duty and 5% and 0% under Pak China FTA Regime. The subject case does not fall under the category of past practice as contended by the counsel of the respondent. 12. This is a case of misdeclaration of actual description. The importer cleared his goods by mis-declaring the actual description/classification of the goods. The importer has misused the facility of green chanel under WeBOC system. The WeBOC system is an online real tine basis process where correct declaration is essential for any declaration, any material or descriptive declaration which is incorrect or its omission is liable for legal action provided in the act. It is also important to mention that any mis-declaration in context of declaration will link with Risk Management System (RMS) which works on certain predefined parameters at the back end and hood winking it also distract the whole scheme of things in the automated process. 13. Accordingly based on the aforegoing deliberations, the stance of the respondent is not tenable and not maintainable in the light of evidence and material available on record. In view of the above, it is concluded that the charges as mentioned in the Show-Cause Notice stand established against the respondents. I hereby order as under: a) The evaded amount of duty and taxes to the tune of Rs.4703087.00 is adjudged against the respondents for violation of the provisions of Sections 32(1), (2) and 79(1) of the Customs Act, 1969 Messrs Sikander and Co., Karachi are directed to deposit the aforesaid amount in the Government Treasury failing which action may be initiated against respondents under section 202 of the Customs Act, 1969 read with Chapter XI (Recovery Rules) of the Customs Rules, 2001 notified vide S.R.O. No. 450(I)/2001 dated 18.06.2001. b) A penalty of Rs. 500,000/- (Rupees five hundred thousand) is also imposed upon M/s. Sikander and Co., Karachi in terms of clause (14) of Section 156 (1) of the Customs Act, 1969. c) A penalty of Rs. 100,000/- (Rupees one hundred thousand) is also imposed upon each of the Clearing Agents M/s. Quick Shippers (CHAL No. 435) and M/s. Bilal International (CHAL No. 2156) in terms of clause (14) of Section 156 (1) of the Customs Act, 1969 as they have also been fault guilty of committing offence in terms of relevant provision of law referred to above read with Customs Agent Licensing Rules, 2001. Collectorate is also advised to carryout audit of other identical imports to ascertain mis-declaration or otherwise . 4. Being aggrieved and dissatisfied with the Order-in-Original, the appellant filed the instant appeal before this Tribunal on the grounds incorporated in the memo. of appeal and the counsel of the appellant Advocate on the date of hearing argued strictly in accordance with those and stated further that: a) The Federal Government has inserted section 3DD in the Customs Act, 1969 through which Directorate General of Post Clearance Audit was created for conducting audit of the accounts/books of an importer in terms of Section 26A ibid by its officials, to whom the Board empowered vide S.R.O. 500(I)/2009 dated 13.06.2009. That while scrutinizing the data of the GD of the appellant No. 1, by the subordinate of respondent No. 2, infact committed an act of conduction of audit, which does not falls under their jurisdiction/pars while posted at the Clearance Collectorate. Resultant, they usurped the powers of the Officials of Post Clearance Audit without any lawful authority, this is not permitted under any circumstances/law. Hence, scrutinizing/conduction of audit with the usurpation of powers of the officials of PCA is without power/jurisdiction, therefore null and void and as such of no legal effect. b) The respondent No. 1 while issuing show-cause notice has invoked the provision of Section (sic) of the Sales Tax Act, 1990, whereas Section 6 is a machinery section that lays down the procedure relating to collection of Sales Tax at the import stage by the customs authorities hence cannot be used to charge anyone for an offence. Similarly, Section 148 of the Income Tax Ordinance, 2001 is also a machinery Section synonymous to Section 6 of the Sales Tax Act, 1990 and Section 3 of Federal Excise Ordinance, 2005. Therefore, no show-cause notice can be issued on the basis of these sections. Issuance of show-cause notice on the basis of irrelevant/erroneous sections render it void, ab-initio and of no legal effect. c) That even otherwise the respondent No. 1 is not designated as an Officer of Inland Revenue under Section 30 of the Sales Tax Act, 1990 and under any Section of the ITO, 2001. Therefore, is not empowered to exercise powers as defined therein and Section 207 of the ITO, 2001. Meaning thereby that Respondent No 3 is not empowered to exercise power in terms of section 11 of the STA, 1990 and Section 162(1) of ITO 2001 under which order for recovery of the short paid or evaded amount of duty and taxes have to be passed by the authority defined therein namely Officer of Inland Revenue/Commissioner of Income Tax, issuance of show-cause notice for the recovery of Sales Tax/Income Tax not collected at the time of clearance as per the expression of Sections 6 and 148 of the Income Tax Ordinance, 2001 by respondent No. 1 is without lawful authority being without jurisdiction /powers Rendering the Show-Cause Notice and Order-in-original without power/jurisdiction, hence void and ab-initio and coram non judice. d) That on conclusion of the transaction, under the provision of Sections 80 and 83 of the Act and 438 and 442 of Rules, the order so passed becomes an appealable order under Section 193 of the Act before the Collector of Customs (Appeals) and Respondent No. 2 is empowered to do so. If he had any reservations against the passed assessment orders, the proper course of action was to assail the said orders before the Collector of Customs Appeals. This has not been done within the stipulated period and orders so passed by the competent authority defined in Section 2(a) under Section 80 of the C.A. 1969 became final and that cannot be disturbed by any authority. e) That in the light of the law laid down by the Hon'ble High Court of Sindh referred to in para supra, Assessment Orders in the subject case had been passed by the competent authorities and the appeal against which could have been filed by either Respondent No. 2 or his subordinates . Failure to do so led to the assessment orders attaining finality and becoming a past and closed transaction which cannot be disturbed or reopened by any authority or court. Despite the settled principal of law the subordinate of respondent No. 2 prepared contravention report and he approved that, on the basis of which Respondent No. 1 issued show-cause notice and passed impugned order-in-original subsequently. Rendering the whole exercise nullity in the eyes of law in the light of what has been discussed in the above paras. Beside said act is also tantamount…

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