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Petitioner: Messrs STAR ENTERPRISES, KARACHI VS Respondent: The DEPUTY DIRECTOR, DIRECTORATE GENERAL OF P.C.A., KARACHI and 2 others
Court Name: Customs Appellate Tribunal Judge(s): Jehanzaib Wahlah Title:Messrs STAR ENTERPRISES, KARACHI vs The DEPUTY DIRECTOR, DIRECTORATE
GENERAL OF P.C.A., KARACHI and 2 others Case No.: Custom Appeal No. K-1269 of 2017 Date of Judgment:2018-12-15 Reported As: 2019 PCTLR 1304, 2019 PTD (Trib.) 1567 Result: Appeal allowed Judgment ORDER JEHANZAIB WAHLAH (MEMBER JUDICIAL-III).--- Through this order , I intend to dispose off Appeal No, K- 1269/2017 directed against the Order-in-Original No, 234/2017-18 dated 02.10.2017 passed by Additional Collector of Customs, Adjudication-I, Karachi (Respondent No,3). 2. Briefly facts of the case are that the appellant imported 03 consignments of textile fabric and viscose dyed fabric of PCT heading 5407.4200, 5516.1200 and 6301.4000 from China, upon receipt of shipping documents, appellant transmitted Goods Declaration (GD) defined in Section 2(la) under the provision of Section 79(1) of the Customs Act, 1969 (Act) and Rule 433 of Sub-Chapter III of Chapter XXI of Customs Rules, 2001 (Rules), with the MCC of PMBQ, upfront duty and taxes against those on the strength of declarations were deposited in NBP, consequent to which GDs was numbered as KPPI-HC-41740-29122016, KPPI-HC-49996-30012017 and KPPI-HC-5186- 04022017. Upon appearance of these on the work station of the nominating assessing officer, instead of passing assessment orders out-rightly on the strength of the declaration, opted to get the consignments examined by the appropriate authority defined in Section 2(b) under the provision of Section 198 and Rule 435 of the Act/Rules. The assessing officer after adducing his opinion/apprehension referred the GD to the Deputy Collector of Customs, Group-IV (respondent No, 2), who assented that and routed the GDs to the Deputy Collector of Customs, Examination, QICT who marked those to the examiner of his choice on the selection basis. The consignment upon examination were found to be in accordance with the declaration in all aspects and report so prepared by him after approval of the Deputy Collector , QICT were uploaded in the reservoir of the GDs, thereafter the nominating Assessing Officer in the capacity of authority defined in Section 2(a) passed assessment orders in each GDs under the provision of Section 80 and Rule 438 of the Act for levy of duty and taxes while adducing remarks in the assessment note reading as "ER/VR " and "assessed as per ER/VR 784/2015 " on 02.01.2017, 01.02.2017 and
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06.02.2017 and transmitted view messages for payment of additional amount of duty and taxes, which were paid by the appellant on the same dates, consequent to which the inbuilt authority of Customs Computerized System (CCS) passed clearance order as per the contemplation of Section 83 and Rule 442 of the Act/Rules and appellant's represented obtained the delivery from the terminal. After lapse of about four months from the date of clearance of the first consignment, the Deputy Director , Directorate General of PCA, (respondent No, 1) issued order audit observation on the basis of formed opinion that the consignment imported by the appellant's were infact of polyester falling under the PCT 5407.5200 as against declared 5407.4200, upon which benefit under Serial No, 2186 of the Free .Trade Agreement (FTA) of SRO 659(1)/2007 dated 23.06.2017 is not admissible, this act of appellant resulted in short payment/evasion of Rs, 1,590,701.00. This audit observation was not served on the appellant as per the contemplation of Section 215 of the Act, resultant, no reply whatsoever was submitted by the appellant's. The respondent No, 1 subsequently framed contravention report with the allegation that the appellant mis-declared the description and PCT heading of the goods, which is tantamount to contravention of the provision of Section 32(1), (2) and 3(A) of the Act, Sections 3, 6,7,7A and 34 of the Sales Tax Act, 1990 (S.T.A.), Chapter X of the Sales Tax Special Procedure Rules, 2007 (STSPR, 2007) and Section 148 of the Income Tax Ordinance, 2001 (ITO), punishable under clause 14 of Section 156(1) of the Act and Section 33(5) of the S.T.A. and Sections 148 and 182 of the I.T.O. and submitted the same with the Director , PCA, who forward ed that to the respondent No, 3, who issued show-cause notice dated 24.05.2015 containing the same facts and contravening provision of the Act, S.T.A. and I.T.O. as were narrated in the contravention report by the respondent No, 1. Ironically the said show- cause notice was also not served on the appellant's despite mandated under the provision of Section 215 of the Act. The respondent No, 3 subsequently passed an ex-parte order . dated 02.10.2017 through which he held the charges as levelled in the show-cause notice established and ordered payment of short paid amount of Rs, 1,590,701.00 in addition to imposed penalty of Rs, 150,000.00. Operative part of the order is reproduced here-in- under:- "I have gone through the case record and considered the arguments of the representative of the department. The department's case is that the respondents imported 03 consignments of Polyester Dyed Ladies Suiting Shirting Fabric /Polyester Dyed Fabric by misdeclaring PCT heading as 5407.4200 and cleared the same on payment of Custom Duty @ 12% by availing inadmissible benefit of reduced rates of Custom Duty under SRO 659(1)/2007 dated 30.06.2007. The imported goods are correctly classifiable under PCT 5407.5200 chargeable to Custom Duty @ 15% , where the benefit of FTA is not admissible. The identical/same imports have been declared and assessed by the importers and the Collectorates under PCT 5407.5200. Therefore, the respondents were charged for the violation of Section 32(1) , (2) and (3A) of the Customs Act, 1969, Sections 3, 6 and 7 read with Section 34 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001. Durin g the hearing, the departmental representative (DR) defended the stance of the detective agency and stated that the respondents wrongly avail the benefit of FTA and evaded ligtimate amount of duty and taxes to the tune of Rs. 1590,701/- despite hearing notices neither any body appeared for hearing on behalf of the respondent nor any written reply of the Show-Cause Notice was received in this office. It is evident that the respondent have nothing to say in their defense with respect to the charges of misdeclaration and availing the inadmissible benefit of SRO 659(1)/2007 dated 30.06.2007. Hence, the charges levelled in the Show-Cause Notice stand established. The respondents are directed to pay evaded/short paid amount of duty and taxes immediately (along with the default surcharge to be calculated by the department). I also impose a penalty of Rs, 150,000/- (Rupees one hundred and fifty thousand only) on Messrs Star Enterprises, Karachi in terms of Section 156(1), (14) of the Customs Act, 1969 for violation of above mentioned provision of law." 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, instead comments, which are not in any manner qualify memo. of cross objection, deemed to be termed as cross appeal filed under Sub-section (3) by the department as expressed in aforesaid section. Therefore, these are to be
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considered merely as opinion, having no binding force, however , are placed on record of the case for perusal and consideration. 4. Heard and 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 Sales Tax Act, 1990 (S.T.A.) and Section 177 of the Income Tax Ordinance, 2001 (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 S.T.A. and Section 148 of the I.T.O. in the absence of their appointments as Officer of Inland Revenue under Section 30 of the S.T .A. and Section 228 of the I.T .O. 5. For obtaining answer to the first part of my observation in regards to mechanism/devised procedure of conduction of audit under Section 26(2) of the Act is in Section 26A, reproduction of 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, - The person who imported, or exported or transported or stored or held under customs bond, or filed a goods declaration, drawback or refund claim, Any officer , employee or agent of any person described in clause (a); and Any person having possession custody 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. 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 by him 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 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. 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(1)/2009 dated 13.06.2009, which respondent No, 1 have 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
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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's 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 net 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. M/s. Al-Fait 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 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 I.T.O. and found that the respondent No, 1 has not been appointed/designated as Officer of Inland Revenue by the legislature, instead as per Section 29(2) (b) of Federal Excise Act, 2005 and Section 228 of the I.T.O., 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 I.T.O., 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 I.T.O. 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
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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". Whereas, the respondent No, 1 is indeed appointed as Officer of Inland Revenue under Section 30DD of the S.T.A. and thereafter Board delegated powers through SRO. 42(1)/2010 dated 23.01.2010 under different Sections of the S.T.A. in column (4) of SRO, subject to exercise of those under the design ation of authorities given in colum n (3), which are (i) Chief Commissioner/Commissioner 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 includin g the audit observations and contravention reports were prepared and served in the capacity of either Additional Director or Deputy Director of PCA , which are non existent in column No, (3) of SRO. 42(1)/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 butt 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, SBLR 2002 Karachi 5 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. Muzaffar 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. Collector 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 involv ed are Rs. 8,141,152.00 (paid upfront duty and taxes of Rs. 2,800,930.00 + paid additional amount of duty and taxes upon passing of assessment order under Section 80 and Rule 438 Rs.3,749,521.00 + evaded/short paid amount of duty and taxes shown in show-cause notice Rs. 1590701.00. Case of such amount falls within the powers of Collector of Customs in terms of clause (i) 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 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 in the instant case without power/jurisdiction, 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, PU 2003 (sic) 1660, 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 2014 Supreme Court 514. (Emphasis supplied) 9. I have also noticed with great concern that the respondent No. 3 in the show-ca use notice have 3, 6, 7, 33 and 34 of the S.T.A. and Section 148 of the I.T.O. 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 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 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 Section 26 of S.T.A., 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 confirmation of the charges levelled in the show-cause notice issued by the officer of the Inland Revenue under the
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respective Section-of the S.T.A., again this is not a charging section; aforesaid sections are independent and cannot be used to invoke a charge. Since, these sections are irrelevant in the matter of customs and no show- cause notice can be issued by a custom officer under these section, render the issued show-cause notice and passed order-in-original palpably illegal and as such void and ab-initio as held in the following reported judgments: Asst. Collector v. Khyber Elec. Lam 2003 PTD 1275, D.G. Khan Cement v. Collector of Customs 2005 PTD 480, Caltex v. Collector 2003 PTD 1593, Union Playing Card Company v. Collecto r of Customs 2002 MLD 130, Atlas Tyres v. Addl. Collector 2002 MLD 180, State Cement v. Collector PTCL 2001 CL 558, Kashmir Sugar v. Collector 1992 SCMR 1898 , Rose Color v . Chairman, CBR and 2013 PTD 813 International v . Addl. Collection of Customs. 10. In order to further crystallize, the issue relating to recovery of short paid sales tax and income tax, I was indebted to peruse Section 30 of S.T.A. and Section 228 of the I.T.O. and have observed that the legislature appoints under the said Sections differen t organs of the FBR as Officer of Inland Revenue for exercising powers under the respective Sections of the Act/Ordinance, delegated through statutory notifications or under Section 207 of the I.T.O. In these Sections neither respondent No. I nor respondent No. 3 figures anywhere nor in charging section 11 of the S.T.A. or Section 162(1) of the I.T.O. Therefore, the respondent No. 3 under no circumstances was empowered to lay hands on the matter falling within the ambit of Sections 3, 6, 7A and 11 of the S.T.A. and Section 162(1) of the I.T.O. These sections least empowers the Officers of Customs including the respondent No. 3 to initiate adjudication/ recovery proceeding for the short collected/paid Sales Tax and Income Tax either due to collusion or connivance or inadvertent, error or misconstruction. For proceeding for these type of recovery a show- cause notice has to be issued under the Provision of Section 11 of the S.T.A. and Section 162(1) of the I.T.O., the authority to issue show-cause…
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