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Petitioner: PAKISTAN STATE OIL COMPANY LTD., KARACHI VS Respondent: COLLECTOR OF CUSTOMS, EXCISE AND SALES TAXHonorable Justice Adnan AhmedTaha Ali Zia,G.A. Khan
2015 P T D (Trib.) 2146
[Customs Appellate Tribunal]
Before Adnan Ahmed, Member (Judicial-II) and Khalid Mahmood, Member (Technical-I), Islamabad
Messrs PAKISTAN STATE OIL COMPANY LTD., KARACHI
versus
COLLECTOR OF CUSTOMS, EXCISE AND SALES TAX and another
Custom Appeals Nos.K-688 and 689 of 2005, decided on 4th August, 2014.
(a) Customs Act (IV of 1969)---
----Ss. 85, 12, 13, 80, 81, 86, 87, 88, 89, 94, 104 & 105---Application for warehousing---Warehousing of goods---Procedure---Goods were either warehoused in Public Bonded Warehouse under S. 12 of Customs Act, 1969 or Private Bonded Warehouse under S. 13 of Customs Act, 1969 goods declaration, for warehousing, had to be filed under S. 85 of Customs Act, 1969 in the format of prescribed goods declaration for warehousing---In case of liquid items like oils, petroleum, molasses etc., which were stored in tanks, tanks were declared as warehouses---Upon filing of application, assessment was made for duty and taxes under S. 80 or 81 of Customs Act, 1969 in all aspects for levy of duty and taxes to be paid at the time of clearance as defined in S. 84 of Customs Act, 1969---Importer had to submit a post-dated cheque and indemnity equivalent to amount of duty and taxes---In case of change of duty, goods declaration was re-assessed on basis of altered duty and a new indemnity bond would be executed in accordance with S. 86 of Customs Act, 1969---Goods once assessed for duty and taxes, were forwarded to warehouse in terms of S. 87 and upon receipt, the same were examined by warehouse-keeper and then had to be returned to appropriate officer under S. 88(1) of Customs Act, 1969---Goods were to be warehoused in manner prescribed in S.89 with exception given in S. 94 of Customs Act, 1969---Importer could obtain clearance of warehouse goods after filing ex-bond goods declaration under S. 104 of Customs Act, 1969 for home consumption after payment of assessed duty and taxes---In case of clearance of warehouse goods for export, warehouse owner had to file goods declaration for export under S. 105 of Customs Act, 1969 without payment of duty and taxes but subject to payment of all rent or other charges.
(b) Customs Act (IV of 1969)---
----Ss. 131, 104, 105 & 106---Clearance of warehoused goods for export---Importer filed several Goods Declarations for export under S.131 of Customs Act, 1969 and not under Ss.105 & 106 of the Act---Contention of importer was that supplies made were duty-paid, for consumption of Pakistan Navy's vessels---Importer also adjusted local sale through Form AR-3 on plea that sale to Pakistan Navy was for their ships proceeding for foreign destinations as "provision/stores"---Validity---Importer devised a mechanism for avoiding payment of development surcharge which he had not paid at time of obtaining clearance under S. 104 of Customs Act, 1969---No evidence was produced by importer to controvert allegation levelled through incriminating valid evidence e.g. certification from Pakistan Navy to the effect that they had purchased the goods exclusively for ship leaving for foreign voyage or Goods Declaration filed under S. 105 or 106 of Customs Act, 1969 or Petroleum Surcharge paid by Pakistan Navy on supply to importer had been refunded to them.
(c) Taxation---
---"Tax avoidance" and "Tax evasion"---Distinction--Distinction between "tax avoidance" and "tax evasion" lay in legality of a transaction and that a deliberate attempt to avoid payment of leviable tax through colorable exercise tantamount to an illegal act resulting in "tax evasion" or "illegal avoidance", which was not permitted.
(d) Interpretation of statutes ---
----Fiscal statute---No equity about a tax; there was no presumption as to tax--Nothing was to be read in, nothing was to be implied.
(e) Administration of justice ----
----Neither fair nor desirable to expect legislature to intervene and take care of every devise and scheme to avoid taxation ----Court was to take stock to determine nature of new and sophisticated legal devises to avoid tax and consider whether situation created by devises related to existing legislation with aid of its emerging techniques of interpretation.
Mc Dowell and Co. Ltd. case v. Commercial Tax Officer 1985 1154 ITR 148(SC) rel.
(f) Taxation ---
----Avoidance of---Avoidance of tax by legal method may not amount to evasion but the moment avoidance was sought by illegal contrivance deceitful method and adopting a course not permissible by law, the same turned into "evasion".
Regional Commissioner Income Tax Company-II Karachi v. Sultan Ali Jeoffrey 1993 SCMR 266 rel.
(g) Words and phrases ---
----"Evasion"---Meaning---Underhand dealing---Nothing more than intentional avoidance of something disagreeable.
Stroud's Judicial Dictionary, 4th Edition.
(h) Administration of justice---
----Party was to act within parameters of law and if the party at its own indulged in some unlawful act and took shelter that it was precedent and law that should be construed in accordance with its whims and whishes was not correct as said construction was not based on law and precedent instead, the party considered its act as correct---Action of the party to be within ambit of precedent was absurd---Existing practice had to be supported by provision of law---If any practice was in deroga-tion of law that had to be discontinued forthwith.
Nazir Ahmed v. Pakistan and 11 others PLD 1970 SC 453; Union Sports Play Cards Company v. Collector of Customs and another 2002 MLD 130 and Radhika Corporation and others v. Collector of Customs 1989 SCMR 353 distinguished.
(i) Customs Act (IV of 1969)---
----Ss. 32(3), 32(2) & 32(1)(a)(b)---Issuance of Show-cause notice---Limitation---Contention of importer was that his case fell within the ambit of S. 32(3) of Customs Act, 1969, thus, show-cause notice issued was barred by time and recovery of non-paid PDL stood abated---Validity---Section 32(2) of Customs Act, 1969 was to be read in conjunction with S. 32(1)(a)(b) which dealt with matter where by reason of some collusion any duty or charge had not been levied or had been short levied or had been erroneously refunded---Period of limitation prescribed under said section was five years while in S. 32(3) of Customs Act, 1969 period of limitation prescribed was three years and it covered those matters where by reason of any inadvertence, error or misconception any duty or charge had not been levied or had been short levied or had been erroneously refunded---Section 32(3) of Customs Act, 1969 speaks about inadvertence, error or misconstruction--Said act of importer of non payment of PDL, least fell within the ambit of any of the words of the section---Case of importer did not fall under the ambit of S. 32(3) of Customs Act, 1969---Perusal of show-cause notice showed that it contained Ss. 32(1) & 32(2) of Customs Act, 1969; it was on basis of such allegation that show-cause notices were issued to importer under S. 32(2) of Customs Act, 1969 providing a period of limitation of five years at relevant time---If the disputed supplies were duty-free provisions and admissible for store under S.106 of Customs Act, 1969, importer should have filed goods declaration for export under S. 106 of Customs Act, 1969---Appeal was dismissed.
FOP v. Ibrahim Textile Mills 1992 SCMR 1898 distinguished.
(j) Customs Act (IV of 1969)---
----Ss. 32(1) & 32(2)---Show-cause notice---Determination of nature of notice---For determining nature of show-cause notice if the same was issued under Ss. 32(1) & 32(2) of Customs Act, 1969 or S. 32(3) of Customs Act, 1969, its contents were to be read as a whole and on basis of its substance, it was to be judged that whether it was a show-cause notice under Ss. 32(1) & 32(2) of Customs Act, 1969 or otherwise.
(k) Words and phrases---
----"Evade"---Meaning---Action to escape from or to avoid specifically by bulling, trickling or eluding.
Oxford Dictionary of English Language ref.
(l) Words and phrases ---
----"Tax evasion"---Meaning---Wilful attempt to defeat or circumvent tax law in order to illegally reduce one's tax liability---Tax evasion was punishable by both civil and criminal penalties and it was also termed as tax fraud.
Black Law Dictionary, 7th Edition ref.
(m) Penalty---
----Imposition of---Scope---Imposition of penalty may not always be dictated under protection/shelter of a legal umbrella---Imposition of penalty to perform a statutory obligation or to indulge into glaring, blatant and grave violation of statutory provision was exercised under relevant provision of law and under doctrine of detoriant punishment---Imposition of penalty needed to be exercised judicially keeping in view all relevant circumstances entailing a particular case.
Taha Ali Zia for Appellant.
G.A. Khan for Respondents.
Date of hearing: 16th July, 2014.
JUDGMENT
ADNAN AHMED, MEMBER, (JUDICIAL-II).---Through this order, we intend to dispose off two Customs Appeals Nos.K-688/2005 and 689/2005 filed under Section 194-A of the Customs Act 1969 against Order-in-Original Nos. 98/2005 and 99/2005 dated 30-6-2005 passed by respondent No. 1.
2. Since these two appeals are identical in all material respects as they are against identical facts but through 02 separate orders of the respondent, for that reason these appeals are heard and decided together, but for reference the facts/grounds of Appeal No. 688/2005 are taken for decision, which are as follows.
3. Brief facts of the case as reported by the Assistant Collector of Customs (Preventive) Oil Section, Keamari, Karachi vide Contravention Report C.No.S-5/Misc/048/06/2002 Oil dated 17-3-2003 that Messrs Pakistan State Oil Company Limited had supplied POL product (High Speed Diesel Oil) to Pakistan Navy vessel detail as per Annex "A" and declared the goods as "duty paid" on relevant Shipping Bill Cargo and charged the rate of local sale price "other then foreign Voyage" as fixed by the Ministry of Petroleum and Natural Resources. Later on they have adjusted this local sale price cargo on form AR-3 being a local manufactures goods and claimed exemption of Government levies under the umbrella of S.R.O. 455(I)/96 dated 13-6-1996. The S.R.O. 455(I)/96 dated 13-6-1996 provide the exemption of Central Excise Duty in case only. "If the goods are supplied to Pakistan Navy for consumption in is vessels". However Development Surcharge Ordinance, 1961 sates "subject to the provision of this Ordinance, every refinery and every Company shall pay to the (Federal Government) a Development surcharge equal to the differential margin in respect of petroleum's products produced or as the case may be purchased by it for resale except for export. Therefore, exemption from payment of Development surcharge on such supplies of POL products to Pakistan Navy vessels are not covered, as the price charged by Messrs Pakistan State Oil Company Limited from Pakistan navy as local sale price "other than foreign voyage" as fixed by the Ministry of Petroleum from time to time wherein element of taxes is included. Therefore under reference supplies of POL product made by Messrs Pakistan State Oil Company Limited to Pakistan Navy vessel can not be treated as export but it in fact domestic/local supplies for which Messrs Pakistan State Oil Company Limited is liable to make the payment of Development Surcharge on such supplies. Thus clearance of POL products (H.S.D.O) by Messrs Pakistan State Oil Company Limited without payment of Development surcharge to Pakistan navy vessels has no legal authority and Messrs Pakistan State Oil Company Limited have evaded a sum of Rs.107788749 as Development levy falsely by claiming exemption under S.R.O. 333(I)/2002 dated 15-6-2002. Messrs Pakistan State Oil Company Limited are therefore, held to have committed an offence under sections 32(1) & (2) read with sections 97 and 111 (C) of the Customs Act, 1969, read with clause of 3(1) of Development Surcharge Ordinance, 1961 punishable under clauses 1 and 14 of section 156(1) ibid. Messrs Pakistan State Oil Company Limited, Karachi are called to show cause as to why the amount of Petroleum Development levy indicated above may not be recovered and penal action under the aforesaid provision of law may not be taken against them. Their written reply to the show-cause notice should reach the undersigned on or before 31-5-2004.
4. On the strength of above facts appellant was called upon to show cause vide No. S-5/Misc/048/06/2006-Oil dated 30-4-2003. The advocate replied to the show-cause notice vide dated 10-7-2003 and synopsis dated 4-4-2005, through which he controverted the allegation levelled in the show-cause notice and prayed for the vacation of the show-cause notice. The respondent No. 1 after consideration of the submissions, disagreed and passed Order-in-Original No. 98/2005 dated 3-6-2005.
I have gone through the record of the case and also considered the written and verbal arguments put forth by the respondent as well as by the departmental representative. My findings/observations on the points raised in the show-cause notice and the replies thereof, are as under:--
(i) That on the face of shipping bills filed by the respondents words "duty payable" (Local use) have been clearly mentioned by them.
(ii) The Ministry of Petroleum and Natural Resources, Government of Pakistan fixes the price of POL products and the price so fixed is inclusive of all taxes and other surcharges, etc. Messrs PSO have charged the price including the element of all taxes and surcharges, etc. but have not deposited the POL with customs in respect of the subject supplies.
(iii) That Messrs PSO had previously paid duties and taxes amounting to Rs.153.59 millions on identical supplies which were declared duty payable/duty paid "Local use."
(iv) That the contention of the prosecution is further strengthened on account of the fact that Messrs PSO had paid POL amounting to Rs.12.09 million on the identical supplies to Pakistan Navy.
(v) Messrs PSO have miserably failed to produce any documentary evidence of payment of the POL. They have also not come up with any cogent reason for not depositing the POL for the period 25-1-2001 to 24-5-2002 though Messrs PSO have paid Rs.12.09 millions as development surcharge in respect of 15 consignments of bunker supplies to Messrs Pakistan Navy. It is crystal clear that the subject supplies to Pakistan Navy are also not exempt from payment of PDL. In view of the above referred facts, I am led to conclude that the charges levelled in the show-cause notice have been fully established. I, therefore, order Messrs PSO to pay an amount of Rs.7,97,14,028, as sated in the show-cause notice, into the Government treasury within 30 days of the receipt of this order. I also impose a penalty of Rs.25 million (Twenty Five Million) upon Messrs PSO under clause 14 of subsection (1) of section 156 of Customs Act, 1969. This order shall also be applicable to case No.71(II)Adj-II/2004-P-S1/Misc/048/08/2003-Oil, being of identical nature.
5. The appellant has now challenged the above order by way of this appeal. Mr. Taha Ali Zia Advocate, appeared on behalf of the appellant and submitted that:--
(a) That the Impugned Order is liable to be set aside as the respondent No.1 has erred inasmuch as he has not appreciated that the appellant is exempt from payment of development surcharge under Section 3 of the 1961 Ordinance as the supplies to Pakistan Navy are considered as "export". In fact, the respondent No.1 failed to give any finding on this issue in the Impugned Order.
(b) That the Impugned Order passed by the respondent No. 1 is erroneous, bad in law, without lawful authority and based on an incorrect interpretation of Section 106 of the Custom Act (previously Section 112 of the Sea Customs Act, 1878) inasmuch as the respondent has failed to appreciate that the said supplies were made for use on board the Naval Ships which due to security reasons do not indicate their destination although they invariably go on voyages to foreign territories.
(c) That the Impugned Order passed by the respondent is in disregard of the established practice followed by the Department, for over 30 years and never before had any such duty or taxes been demanded by the Department and as such the respondents are estopped from demanding payment of development surcharge on the supplies made by the appellant of POL products to the Pakistan Naval Ships.
(d) That the Show-cause notice was defective and case was wrongly instituted under the provision of the Customs Act, since the supplies made to Pakistan Navy were from local excisable products, and without prejudice to the appellant's contention, that no case is made out, the Show-cause notice and case should have been instituted under the relevant provision of the CE Act.
(e) That the Impugned Order is erroneous and misconceived inasmuch as the respondent No.1 failed to appreciate that duties (namely CED and development surcharge) had been paid by the appellant on those supplies made from imported excisable products, on which at the material time there was no exemption. The respondents failed to appreciate that (i) customs duties are not payable due to the exemption under Section 106 of the Customs Act; (ii) development surcharge is not payable due to the exemption under Section 3 of the 1961 Ordinance and (iii) CED is not payable in light of the exemption under S.R.O. 455(I)/96.
(f) That the Impugned Order is liable to be set aside as the respondent No.1 failed to appreciate that the machinery for collection of development surcharge is provided for under the provisions of the Customs Act and the CE Act and given that supplies to Pakistan Navy are exempt from payment of both these duties, it belies logic that development surcharge is separately claimed to be payable, especially given the exemption under Section 3 of the 1961 Ordinance. Further, it is absurd to suggest that supplies to Pakistan Navy would be exempt from payment of all duties but development surcharge would be levied on same.
(g) That the respondent No.1 erred by upholding that the appellant had falsely sought exemption under S.R.O. 455(I)/96.
(h) That the respondent No.1 erred in holding in Paragraph 8(v) of the Impugned Order that "Messrs PSO have miserably failed to produce documentary evidence of payment of POL". On the contrary, the respondent Department was unable to produce any evidence to this effect as no such document was ever provided to the appellant for rebutting the contents of same.
(i) That the respondent No.1 erred by imposing a penalty under Section 156 of the Customs Act as the alleged demand is for development surcharge and there is no provision under the 1961 Ordinance which empowers the Department to impose additional duties and/or penalties. In fact, Section 3(A)(3) 1961 Ordinance and Rule 8 of the 1967 Rules do not provide for the imposition of penalty and additional duties/taxes but only provide that the provisions of the Customs Act, 1969 or as the case may be the Central Excise Act, 1944 apply "to the levy, collection and refund of the development surcharge". Hence, since there is no concept of additional development surcharge/penalty in the relevant law and hence no question of paying the same can arise. Moreover, if indeed the case has been made out under the Customs Act, then the exemption in relation to supplies to Pakistan Navy under Section 106 is fully applicable.
(ii) That without prejudice to the foregoing, the Impugned Order is erroneous, and without lawful authority as the respondent No.1 in imposing penalty therein has not exercised his discretion to do so judicially and/or reasonably in that he has failed to examine whether the appellant's alleged failure to make the alleged payment of the development surcharge was wilful or intentional especially in light of the established practice of seeking an exemption under Section 106 of the Customs Act and Section 3 of the 1961 Ordinance. There is dicta of the Superior Courts to the effect that where a failure in payment is not due to any wilful act on the part of the person liable to do so, no penalty and additional duty may be levied. Therefore, unless there was a willful failure on the part of the appellant, which is not the case, the respondent cannot exercise his discretion so as to impose a penalty. Even if the contentions of the respondent Department are correct (which are denied) that the appellant is liable to pay the development surcharge as demanded, no penalty is leviable in as much as any said failure to do so would at best be as a result of a misinterpretation of law and not a wilful failure to pay.
(k) That the contention of the Customs Department that duty is payable is also incorrect in that in terms of S.R.O. 455(I)/96 dated 13-6-1996 the Federal Government has exempted supplies of goods produced and manufactured in Pakistan as specified therein. This notification clearly provides that supplies of POL products to Pakistan Navy which if locally manufactured are exempt from payment of CED. (Photocopy of S.R.O. 455(I)/96 is annexed hereto and marked as Annexure "K").
(l) That the appellant craves leave to urge any further or additional grounds at the time of hearing of the appeal.
(m) That the Impugned Order passed by the respondent No. 1 is even otherwise erroneous, unwarranted and not maintainable in law.
(n) The appellant desires to be heard though the counsel.
(o) The appellant has paid the requisite Court fee of Rs.1,000.
6. The advocate of the appellant also submitted additional arguments dated 7-11-2013, along with copies of relied upon judgments of the Superior Judicial Fora:--
(a) That as the cases have been wrongly instituted under the Customs Act, 1969 ("Customs Act") whereas they should have instituted under the Central Excise Act, 1944 ("CE") since the supplies were made from petroleum products produced in Pakistan and not imported products (please see section 3-A(2)(b) and (3) of the Petroleum Products (Development Surcharge/ Petroleum Development Levy) Ordinance, 1961. Hence, the two show-cause notices have been wrongly issued under section 32 of the Customs Act whereas they should have been issued under Rule 10 of the Central Excise Rules, 1944 ("1944 Rules"). Accordingly, the show-cause notices being patently defective the entire proceedings are liable to be dismissed since the Show-Cause Notices are void.
(b) Without prejudice to (i) above, it is respectfully submitted that even otherwise no mention is made of the relevant shipping bills and/or time periods in the two Show-Cause Notices but in fact charts have been annexed to the said Notices setting out, inter alia, the dates of the shipping bills etc. In terms of the Show-Cause Notice dated 30-4-2003 (In Appeal K-688 of 2005) the chart annexed to same shows that of the 48 shipping bills referred therein, 44 are time barred with reference to Rule 10(1) of the 1944 Rules since the same has been issued beyond a period of one year being the maximum period at the relevant time. Similarly in relation to the Appeal K-689 of 2005 i.e. the chart annexed to the Show-Cause Notice dated 19-5-2004, makes reference to 49 shipping bills. Of these, at least are time barred with reference to Rule 10 (1) of the 1944 Rules having been issued beyond the maximum period at the relevant time.
(c) That in terms of an earlier Order of the Appellate Tribunal, specifically Order dated 13-3-2008 (hearing date 17-1-2008), the Tribunal recognized that in similar matters, a factual enquiry was necessary to ascertain the role of the Department and that evidence should be led in that context This has not been done to date despite the appellant's repeated requests to do so. Hence, the Tribunal being duly empowered under the relevant provisions of the law to record evidence, in this regard, the appellant submits that the concerned official of the Department i.e. one Mr. M. Raees who had initiated all these cases (and also was the same official who had issued orders for clearance of the products) should be directed to appear to have his testimony recorded and the appellant be given an opportunity to cross examine him. This is all the more so given that the appellant has already suffered tremendous losses and is being severely prejudiced due to not being provided this opportunity in violation of the principles of natural justice.
7. No cross objection under subsection (4) of Section 194-A of the Customs Act, 1969 were submitted by the department, however Mr. G.A. Khan Advocate appeared on behalf of the respondent and supported the orders as correct in facts and prayed for dismissal of the appeal as of no substance.
8. Rival parties heard and case records perused, before analyzing the merit of the case, it is befitting to adduce here that the person/ company who does not desires to filed good declaration for home consumption under the provision of…
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