Al Wakeelo
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Your Digital Lawyer, Always on Duty
Initializing Secure Chambers
Official Citation: 2025 IHC 1
Court / Jurisdiction: Islamabad High Court
Year of Decision: 2024
Decision Date: 2024-12-31
Parties: M/s Raz Textiles through its Authorized Attorney vs The Federation of JUDGMENT
Ruling Summary: This decision was rendered by the Islamabad High Court on 2024-12-31, officially reported as 2025 IHC 1. In this matter between M/s Raz Textiles through its Authorized Attorney and The Federation of JUDGMENT, the court adjudicated key questions of statutory construction, procedural regularity, and legal precedent under Pakistani law.
Core Holding: The honorable bench evaluated governing statutory provisions and judicial authorities to establish the rights of the parties, delivering the binding reasoning set out below.
Case cited as 2025IHC1
Court Name: Islamabad High Court Judge(s): Babar Sattar Title:M/s Raz Textiles through its Authorized Attorney vs The Federation of
JUDGMENT
Reported As: 2025 IHC 1 Result: Petition Allowed Judgment
JUDGMENT Babar Sattar, J:- The petitioner is aggrieved by show cause notice ("SCN") dated 20.01.2022 under Section 168(1) and 157 of the Customs Act, 1969 ("Customs Act"). 2. Learned counsel for the petitioner submitted that the SCN is without jurisdiction. The goods were imported by the petitioner and a declaration was filed on 22.01.2021 before the Customs Collector in Karachi. On 04.01.2022, the Directorate General, Intelligence and Investigation, Karachi ("DG I&I") took cognizance of the matter and held that in view of the weight of the consignment, the duty declared by the petitioner was short and asked the Collector of Customs, Karachi to assess the consignment. This was done on 07.01.2022 and the consignment was released after payment of the assessed duty. He submitted that on 11.01.2022 the consignment was seized by respondent No.2 in Islamabad who had no jurisdiction to do so. The impugned SCN suffers from jurisdictional defect because it is rooted in unlawful seizure under Section 17 of the Customs Act, as respondent No.2 was vested with no authority to seize the consignment. He further submitted that it is now settled law that DG I&I cannot undertake or order reassessment of customs duty on the basis of a valuation ruling. He further submitted that it is also settled law that no collection may be ordered by customs authorities for payments in lieu of withholding tax as recovery of such tax falls within the domain of the Inland Revenue Circle and is to be undertaken once income tax and/or sales tax returns are filed by the taxpayer. He submitted that the seizure itself was without jurisdiction and the impugned SCN, which essentially replicates the seizure report, is also without jurisdiction as
---
## Page 2
respondents have no power or authority to sit in appeal over the assessment already undertaken by Collector of Customs, Karachi. He submitted that the DG I&I was vested with authority pursuant to SRO 486(I)/2007 dated 09.06.2007 ("SRO 486") and was not vested with any authority pursuant to section 32 of the Customs Act. Further, DG I&I was vested with no authority to reassess customs duties and could only exercise powers to seize and confiscate goods pursuant to section 17 of the Customs Act where such goods fell within the prohibition provided under sections 15 and 16 of the Customs Act being smuggled goods. He relied on M/s Meerab Enterprises Vs. The Federation of Pakistan (2021 PTD 1764), Saadat Khan Vs. Federation of Pakistan (2014 PTD 1615) and Shahzad Ahmed Corporation Vs. Federation of Pakistan (2005 PTD 23) for this proposition. He further submitted that no offence under section 32 of the Customs Act was made out on the basis of non- application of valuation ruling and that valuation ruling was valid only for a period of 90 days and therefore valuation ruling from the year 2020 could not be made applicable to the goods of the petitioner that were imported in 2021 for which the Goods Declaration ("GD") was filed on 13.12.2021. He submitted that the seizure report dated 14.01.2022 was therefore illegal. He further submitted that the SCN dated 20.01.2022 issued by Additional Collector (Adjudication) was also illegal and liable to be set aside as it sought to reassess goods that had been cleared by the Collector in Karachi and such reassessm ent could have been undertaken only in terms of section 80(3) of the Customs Act, while the goods were still at the port and not after they had been released and were out of charge. He submitted that the impugned SCN was also illegal and liable to be set aside as the Additional Collector (Adjudication), Islamabad was vested with no authority to assess any short payment of sales tax or income tax that he was seeking pursuant to such SCN. 3. Learned counsel for the customs department assisted by Mr. Nadeem Ahsan, Director I&I at the time when the seizure report was issued, submitted that Director I&I was vested with authority to detain, seize and confiscate goods under section 17 of the Customs Act. The power to detain and seize was in relation to goods that were liable to be confiscated. The petitioner had filed a false declaration in terms of section 32 of the Customs Act by stating that the goods imported were for in house consumption, which was not true as the goods were for industrial use and were sold to one Saida Gull of Nowshera and were seized while they were enroute to Nowshera. The offence under section 32(1) attracted a penalty under Clause (14) of the Table provided under section 156(1) of the Customs Act and the penalty prescribed included confiscation of goods. It was in this context that DG I&I authorized the detention and seizure of goods as they were liable to be confiscated. He further submitted that as the intended purpose or use of the goods had been misstated, it had an impact on the amount of sales tax and income tax chargeable in relation to the goods, which could be assessed by custom authorities in terms of section 179(1) read with section 32(2) of the Customs Act. He submitted that the goods had initially been seized as they were liable to be valued on the basis of valuation ruling 1449/2020 dated 04.06.2020, pursuant to which the goods were to be valued at US Dollar 4.90 per kg but had been declared and cleared on the basis of a value of US Dollar 3.90 per kg. It was due to non-application of the relevant valuation ruling that customs duties were underpaid. And it was due to mis-declaration of the intended use of the goods, resulting in sales tax and income tax being short levied, that the goods were seized and the impugned SCN dated 20.01.2022 was issued, which suffered from no infirmity. 4. Three questions that arise for purposes of adjudication of the instant petition are the following: (i) Was DG I&I vested with authority to seize and detain the goods of the petitioner on the basis that the goods had not been properly valued due to non application of a certain valuation ruling and or short payment of sales tax and income tax due to goods being cleared on the basis that they were meant for in house use as opposed to industrial use? (ii) Can Collector Customs (Adjudication) order confiscation of goods under section 180 read with section 32(1) of the Customs Act, where confiscation is conceived as the punishment for offences
---
## Page 3
under the table provided under section 156(1) of the Customs Act, or whether such adjudication is to be undertaken by the Special Judge appointed in terms of section 185 of the Customs Act? (iii) Is Collector Customs (Adjudication) vested with authority in terms of section 179 read with section 32(2) to assess sales tax and income tax in relation to the goods that were out of charge on the basis that there had been short payment of such taxes due to mis-declaration of their intended use? 5. The DG I&I was established pursuant to section 3A of the Customs Act and powers conferred on its officials is done in exercise of authority under section 4 of the Customs Act through notifications issued by the Federal Board of Revenue ("FBR"). The relevant notification for our purposes is SRO 486. Subsequently, SRO 1814(I)/2024 ("SRO 1814") and SRO 1815(I)/2024 ("SRO 1815"), both dated 15.11.2024, have been issued, which are illustrative of the approach of FBR to the role conceived for DG I&I, but are not applicable to the case at hand that precedes them. The scope of the powers vested in DG I&I have been enumerated by the courts in a few cases. In Shahzad Ahmed Corporation the Sindh High Court considered the powers vested in DG I&I under SRO 388(I)/82 dated 22.04.1982. While the powers vested in DG I&I have to be examined in view of SRO 486, the discussion in Shahzad Ahmed Corporation remains relevant wherein it was noted that, "the Directorate General of Intelligence and Investigation, has been established mainly for prevention of smuggling and for preventive operations in this behalf", and that DG I&I is not empowered, "to detain or seize or reexamine the goods already examined and assessed by the appropriate officers of the Appraisement Department...Directorate General of Intelligence and Investigation, has been established mainly for the prevention of smuggling and performance of preventive operations relating to smuggling and evasion of Federal taxes through clandestine removal of dutiable goods, mis-declaration, valuation frauds, fraudulent claims of refund and rebate etc. However, such powers conferred on them have no overriding effect on the powers conferred on other officers/officials of the Custom Department. The officers in each category under the Customs Department are required to act within the specified sphere and parameters without encroaching upon the powers of the officers of the other departments such as Appraisement Department and to the determent of the importers whose consignment are out of charge after due process specified in law." The scope of DG I&I's authority under SRO 486 was delineated by the Sindh High Court in Saadat Khan, in which the aforementioned comments from Shahzad Ahmed Corporation were reiterated and it was held that officers of DG I&I were not authorized "to act as a supervisory body over and above the officers of respective Collectorate of Customs." It was held that: "They can only intercept goods upon any credible information in respect of such goods outside the port area and within the domain of their respective jurisdiction. It must be appreciated that they have to act as an intelligence agency, supposed to be fully equipped with the related machinery intelligence network and know how required for such specialized agency. They cannot enter into a roving or fishing expedition. In fact this is what they had attempted to do in Shahzad Corporation supra and was accordingly disapproved by this Court. It should also be noted that such interception could only be done once there is a prima facie material available with the officers of respondent No.2 that the goods which are being intercepted, are such, that they are liable to confiscation and not otherwise. This is so, because the officers of respondent No.2 have been conferred with powers under section 168 of the Customs Act and therefore there is a clear intention that they can seize any such goods which are liable to confiscation and liable to confiscation would only mean that either there is an apparent mis-declaration of description of goods or mis-declaration in respect of quality and quantity of goods, resulting in a definite loss of revenue. It would not mean and include any alternate or contrary interpretation of an exemption notification or an interpretation regarding classification of goods and/or non- application or
---
## Page 4
wrong application of Valuation Ruling, as firstly this is not within their domain and jurisdiction, and for which specialized departments and/or bodies have been established by FBR, and secondly, it is settled proposition of law that an interpretation of a notification as well as the classification of goods does not fall within the definition of mis-declaration." 6. The scope of powers of DG I&I also came before the Balochistan High Court in M/s Meraab Enterprises wherein it was held that, "in pursuance of notification under SRO 486(I)/2007 dated 09.06.2007, the officers of Directorate of Intelligence and Investigation Customs can intercept the goods which were liable to confiscation due to mis-declaration of description of goods or mis- declaration in respect of quality or quantity of the goods resulting in loss of revenue but they could not intercept the goods due to non-application or wrong application of a Valuation Ruling as it was not within their domain and jurisdiction." 7. The question of whether non-application of valuation ruling can invite penal action under section 32 of the Customs Act was considered by the Lahore High Court in S.T. Enterprises Vs. Federation of Pakistan (PTCL 2009 CL. 330). The Lahore High Court held that provisions of section 32 could not be invoked on the basis a valuation ruling. The Lahore High Court held that valuation ruling was issued under section 25 and 25A of the Customs Act and could not be used subsequently after a consignment was out of charge for purposes of section 32 of the Customs Act. It was held that, "section 32 does not speak of ignorance of the applicable value at all. It is totally in relation to the document furnished by the importer as well as the statement given by him." It accordingly held that as valuation ruling was not a statement or document furnished by an importer, penal action under section 32 could not be brought against the importer on the basis of a valuation ruling. It concluded that, "before invoking the provisions of section 32 the prime responsibility of the competent authority is to establish that the document furnished and the statement given by the importer or his representative are wrong and that it was well within his knowledge. The application of section 32 directly without establishing incorrectness of the document available on the record with evidence is beyond the scope and power of the concerned authorities." 8. The applicability of a valuation ruling issued in 2020 to an import undertaken a year and a half after the issuance of such ruling is also misconceived as the value estimate in such ruling cannot be deemed current or applicable after the passage of such extended time. It was held by the Sindh High Court in Sadia labbar Vs Federation of Pakistan (2018 PTD 1746) that, "valuation ruling issued under section 25A can, in our view, only applies for a certain period and no more. The reason for this lies in the fact that the valuation ruling must be determined using one of the methods of section 25/the Valuation Agreement. Now at least three of those methods, the identical goods method, the similar goods method and the deductive value method, require the value to be determined "at or about the same time" as the goods being valued. This expression has been defined in Chapter IX of the Rules (in Rule 107) as meaning "within ninety days prior to the importation or within ninety days after the importation of goods being valued." In our view, a valuation ruling must therefore ordinarily be regarded as valid for a period of ninety days from the date of issuance." The law laid down in Sadia labbar was also relied on by the Lahore High Court in Messrs Ayesha Impex Vs. Federation of Pakistan (2012 PTD 1). 9. What emerges from the above is that section 32 of the Customs Act is not attracted merely because the customs department finds that certain valuation ruling was not applied while assessing the value of an import, which ought to have been applied, as the valuation ruling issued under section 25A of the Customs Act is an estimate of the value of goods imported into Pakistan made by Collector of Customs or Directorate of Customs Valuation. Such valuation is neither a document submitted by an importer nor a statement made by such importer in terms of section 32 of the Customs Act. Consequently, non-application of a valuation ruling cannot be made the basis for initiating penal action against the importer. In the facts of the present case the impugned
---
## Page 5
seizure report dated 14.01.2022 states that valuation ruling dated 04.06.2020 ought to have been applied in relation to the goods imported by the petitioner through GD No.KAPW-HC-94309 dated 23.12.2021. This was one of the bases for DG I&I directing that the consignment be seized and detained, as non-application of the valuation ruling purportedly deprived the exchequer of revenue in lieu of custom duties. Other than the fact that non-application of valuation ruling cannot be the basis for initiating penal action under section 32(1) of the Customs Act (in the absence of which the goods could not have been deemed to be liable to confiscation in terms of section 168 of the Customs Act), the valuation ruling dated 04.06.2020 was not otherwise applicable for assessm ent of value of goods re a GD filed on 23.12.2021 due to the valuation ruling being dated in terms of the law laid down by the Sindh High Court in Sadia labbar. Consequently, Director I&I was vested with no authority to seize the goods-in-question for purposes of section 168(1) of the Customs Act on such basis and such seizure was illegal. The seizure report itself reflects that Director I&I sought to invoke sections 32, 79, 157 and 178 of the Customs Act, punishable under Clauses 14 and 46 of section 156(1) read with sections 3, 6, 33 and 34 of Sales Tax Act, 1990 ("STA"), and First Schedule Part II of the Income Tax Ordinance, 2001 ("ITO") read with section 148 of the ITO. In doing so Director I&I should have been cognizant that DG I&I was not vested with authority under section 32 of the Customs Act or any of the other aforementioned sections. As has been held by the Sindh High Court in Shahzad Ahmed Corporation and Saadat Khan, and by the Balochistan High Court in Meraab Enterprises, DG I&I has been established essentially for purposes of preventing smuggling and has been vested authority to detain, seize and confiscate goods imported in violation of section 15 and 16 of the Customs Act. SRO 486 also reflects that the power of DG I&I includes power pursuant to section 17, which refers to detention, seizure and confiscation of goods that are either prohibited under section 15 of the Customs Act or in relation to which the Federal Government has issued a notification under section 16 of the Customs Act. That it is in the context of section 17 that the power of DG I&I in relation to section 168 of the Customs Act is to be understood has become further evident from SROs 1814 and 1815 dated 15.11.2024. SRO 1815 highlights the responsibility of DG I&I to collect intelligence in relation to smuggling and share the same with FBR and other field formations and provides in Clause 2(e) of SRO 1815 that DG I&I shall "sparingly carry out targeted operations duly authorized by Member Customs (Operations) and where due to exigencies of time, prior approval by Member Customs (Operations) is not possible. The Director General of Intelligence & Investigation (Customs) shall authorize such operations and seek post-facto approval of Member Customs (Operations) within three days". SRO 1815 read together with provisions of the Customs Act as enumerated in the judgments referred to above makes it evident that DG I&I is conceived as an intelligence outfit and not as an enterprise carrying out fishing expeditions or second guessing the manner in which valuation of goods has been undertaken by the appraisement officials. In appreciating the scope of authority to be exercised by DG I&I under section 168 of the Customs Act, it is helpful to take note of the fact that the provision falls within Chapter XVIII of the Customs Act that deals with the prevention of smuggling and the power of search, seizure, arrest and adjudication of offences. In the instant case it is not the case of Director I&I that the goods seized qualify as smuggled goods. The basis of seizure was that the goods had been valued not in accordance with a valuation ruling that the Director I&I deemed relevant for valuing the consignment-in-question, and due to the petitioner claiming reduced rate application of withholding taxes on the ground that the goods were meant for in house use. The second ground for confiscation will be dealt with while addressing question No.2 later in this judgment. But in relation to question No.1 framed above, it is evident that Director I&I was vested with no jurisdiction to detain and seize goods on the basis that goods had not been valued in accordance with the valuation ruling dated 04.06.2020. And to the extent that on the basis of such seizure report dated 14.01.2022 a SCN dated 20.01.2022 was issued, the same is also not sustainable
---
## Page 6
in the eyes of law. As has been discussed above, no penal proceedings in terms of section 32(1) of the Customs Act can be undertaken on the basis that goods were assessed and released by custom officials without applying a certain valuation ruling. Consequently, show cause proceedings in terms of section 180 read with section 32 cannot be undertaken on the basis that the value of goods assessed and released in term of section 79 of the Customs Act was not in accordance with the valuation ruling dated 04.06.2020. 10. Let us now consider question No.2 as articulated in para 4 above, as to whether Collector Customs (Adjudication) is vested with authority in terms of section 179 read with section 32(2) to assess sales tax and income tax in relation to goods that were out of charge on the basis that there had been short payment of such taxes due to mis-declaration of their intended use. In the instant case the goods declaration for purposes of section 79 of the Customs Act was filed on 13.12.2021 and the goods were declared to be out of charge on 08.01.2022. In terms of factual background, after valuation of the consignment in terms of section 79 of the Customs Act, DG I&I sought to weigh the consignment and found that on the basis of actual weight an additional customs duty and taxes in the amount of Rs.101,442/- were payable in relation to the said consignment. The amount was accordingly paid by the petitioner. The present case is therefore not one involving lack of scrutiny by appraisement officials or DG I&I's officials in Karachi. To the extent that appraisement officials were of the view that the consignment was not correctly valued, there was ample opportunity to exercise reassessment powers under section 80 of the Customs Act. This was never done. Consequently, once the goods were out of charge after payment of customs duties and taxes as assessed pursuant to section 79 of the Customs Act, there was no occasion for Director I&I in Islamabad to seize and detain the goods on the basis that there was an underpayment of customs duties and taxes due to non-application of a valuation ruling. 11. The question that arises with regard to the legality of the impugned seizure report and show cause notice is whether actions in terms of section 180 of the Customs Act read together with sections 32(1) and 156(1) of the Customs Act can be undertaken by Additional Collector (Adjudication) Islamabad, without there being prior adjudication of the duty and taxes that have not been levied or have been short levied in terms of section 179 of the Customs Act. It is to be borne in mind that the case of customs authorities is not that the goods in question are liable to confiscation for violation of section 15 and 16 of the Customs Act. Instead, liability is being conceived for breach of section 32(1) of the Customs Act constituting an offence in terms of section 156 of the Customs Act. 12. The case built by Director I&I in the seizure report is that the petitioner did not state the intended purpose of the import as being industrial use and claimed exemption under the First Schedule Part-II of the ITO as well as Serial No. 2(i) of the Twelfth Schedule of the STA. This constituted mis- declaration in terms of section 32 of the Customs Act, as the exemptions were applicable only where the import was meant for inhouse use as opposed to industrial use or resale in the open market. Sections 32(1) and (2) of the Customs Act are reproduced below for convenience: 32. False statement, error, etc.- (1) If any person, in connection with any matter of customs,- (a) makes or signs or causes to be made or signed, or delivers or causes to be delivered to an officer of customs any declaration, notice, certificate or other document whatsoever, or (b) makes any statement in answer to any question put to him by an officer of customs which he is required by or under this Act to answer, or (c) submits any false statement or document electronically through automated clearance system regarding any matter of Customs. knowing or having reason to believe that such document or statement is false in any material particular, he shall be guilty of an offence under this section.
---
## Page 7
(2) Where, by reason of any such document or statement as aforesaid or by reason of some collusion, any duty, taxes or charge has not been levied or has been short-levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within five years of the relevant date, requiring him to show cause why he should not pay the amount specified in the notice. 13. Where the charge brought against a person is in terms of section 32(1), goods can only be confiscated to the extent that the person is found to have committed an offence punishable in terms of section 156(1) read…
Read the unabridged text and precedent citation network on Al Wakeelo Legal Research Platform.