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Petitioner: Messrs CHINA INTERNATIONAL WATER AND ELECTRIC CORPORATION, ISLAMABAD and another VS Respondent: DEPUTY COLLECTOR OF CUSTOMS, MODEL CUSTOMS COLLECTORATE OF APPRAISEMENT, KARACHI and others
Court Name: Customs, Excise and Sales Tax Appellate Tribunal Judge(s): Muhammad Arshad, Muhammad Arif Moton Title:Messrs CHINA INTERNATIONAL WATER AND ELECTRIC CORPORATION,
ISLAMABAD and another vs DEPUTY COLLECTOR OF CUSTOMS, MODEL CUSTOMS COLLECTORATE OF APPRAISEMENT, KARACHI and others Case No.: Customs Appeals Nos.K-680, K-683 and K-684 of 2010 Date of Judgment:2011-01-19 Reported As: 2011 PTD (Trib.) 2725 Result: Appeals allowed Judgment ORDER ' MUHAMMAD ARIF MOTON (MEMBER (JUDICIAL-III)).--This order will dispose of aforesaid (3) Customs Appeals filed by the appellants against common Order-in-Appeals Nos.3750 to 3752/2010 dated 4- 5-2010 passed by the Collector of Customs (Appeals), Karachi. These appeals have identical issues of law and fact and are, therefore, being heard, dealt with and disposed off simultaneously thorough this common order. 2. Brief facts of the case are that the appellant imported consignment consisting of the following:- (i) Used Dredger (Tomimaru 22GD). One Unit. (ii) Used Dredger Pontoon (Zhong Guo Shuidian B03). One Unit (iii) Used Dredger Pontoon (Zhong. Guo Shuidian B04). One Unit (iv) Used Dredger Pontoon (Zhong Guo Shuidian Z02). One Unit (v) Used Tug Boat (Zhong Guo Shui T03). One Unit ' The appellant filed Goods Declaration No, KAPR-HC-87886 dated 19-6-2009 for release thereof at the declared value of the whole consignment at US$ 19,463,059 and furnished invoices Nos. CWE- PKGH0903 and CWE-PK-GH0903A both dated 22-5-2009 purportedly issued by the China International Water and Electric Corporation in China. Since the appellant had already got cleared a consignment of dredger that (sic).Boat, anchor boat and pontoons at a very high value under IGM No,2024/08 dated 12-11-2008 Index No, 01 the department, had reason to doubt the accuracy of the import documents submitted by the appellant. Therefore a notice under section 26 of the
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Customs Act, 1969 dated 30-6-2009 was issued to the appellant for submitting the following documents:-- (i) Proforma Invoice. (ii) Contract. (iii) Letter of Credit if any. (iv) Details of Proof of Transaction (v) Name and Account Number through which the Transaction taken place. (vi) Lloyd certificate/Survey certificate showing price of the dredger. (vii) Registry price i,e, (a) Dredger Price on 17-5-2006. (viii) LP.C. Certificate (ix) Insurance Certificate with all related documents. (x) Any other documents relating to the import of subject goods. ' In response the appellant provided the following documents vide his letter dated 1-7-2009:- (i) Last Port Declaration Documents. (ii) Insurance Trade Invoice. (iii) Special Invoice for International Shipping. (iv) Commercial Invoice of TOMI MARU 22G0. (v) Detail of Proof of Transaction. (vi) Name and Account Number through which Transaction took place. (vii) Purchasing Contract. (viii) Registration Certificate. ' The documents provided by the appellant were not sufficient to ascertain correctness of the declared transaction value. Therefore, the goods were provisionally assessed under section 81 of the Customs Act, 1969 read with Rule 217 of S.R.O. 450(1)/01 dated 18-6-2001 being the temporary import for the project namely Pakistan Deep Water Container Port Dredging and Reclamation Works on 27-7-2009 by enhancing the declared value of the whole consignment up to US$ 41,082,893 by securing the differential amount of duty and taxes between the declared value and assessed value in the form of bank guarantees. The case was referred to the Directorate General for determination of fair value of the consignment so as to finalize the assessment. However, the Directorate General vide letter No, 1/15/2009-VIA/2115 dated 23-7-2009 had already regretted its inability to determine the value of impugned goods in similar cases of the same importers and advised the Collectorate to finalize the assessment at its own end and not to refer the cases of valuation of dredgers to the Directorate General in future. In the light of the documents, registration/inspection certificates submitted by the importers as well as the examination report, the particulars and specification of each item were checked. The following discrepancies were noted: (i) Used grab dredger (Zhone Guo Shui Dian Z02) gross tonnage 954, net tonnage 803, built in Japan in the year, 1994 as per registration certificate of Ship No, 020009000062, ship inspection certificate No, 200905000090 and certificate of ship nationality No, 020009000062 (mis-declared as China origin). (ii) Used Tug Boat (Zong Guo Shui T03) gross tonnage 185, net tonnage 55, built in Japan in the year, 1991 as per registration certificate of ship No, 02000900006 I, coast boat inspection certificate No, 20090500089 and certificate of ship nationality No, 020009000061 (mis-declared as China origin). ' Certificate of Origin No, CEPT 093200927 dated 9-6-2009 provided pay the appellant showed Chinese origin of aforementioned two items whereas factually the origin of goods was that of Japan as given in the other documents provided by the appellant prima facie, this was done with a motive to declare lower value to evade import levies. Since, the appellant mis-declared the origin
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of the goods resulting in lower declaration of value a show cause notice was issued and the case adjudicated vide Order-in-Original No, 0312009 dated 6-8-2009 passed by the Additional Collector (MCC) Appraisement while imposing fine equal to 20% of the customs value in lieu of confiscation. The order-in-original was challenged before the Collector of Customs (Appeals) which was upheld by him vide Order-in-Appeal No, 3135 of 2009 dated 4-1-2010. Since the matter of finalization of value under section 81 of the Customs Act, 1969 could not be kept pending for indefinite period, the past records of the appellant available with the Collectorate were examined. An internet based inquiry was also conducted to go through the prices or dredgers, pontoons and tug boats available for sale in the international market. The declared value of the impugned dredgers was compared with the two dredgers of China origin previously imported by the same importer and got cleared vide IGM No, 2024/08 dated 12-11-2008 Index No, 01. Vis-a-Vis the above values of dredgers of similar sizes and specifications, the values declared in the instant consignment against each item appeared extremely low, It was further noted that dredger imported vide IGM No, 2024/08 dated 12-11-2008 Index No,01 was of Chinese origin whereas the dredger, pontoon and tug boat imported in this case are of Japan origin which must be of high value keeping in view the quality of material used, the precision in manufacturing process and the technology. Therefore, the appellant was issued show cause notice for mis-declaration of origin. 3. Adjudication proceedings were initiated against the appellant and the Deputy Collector (Appraisement) passed the Order-in-Original No,1 of 2010 dated 12-1-2010. The relevant extract is as under:-- "I have carefully gone through the record of the case, written and verbal submissions of the importer and their legal counsel and given due consideration to them. It is observed that there is an elaborate system of valuation of goods under section 25 the Customs Act, 1969. In case the declared value is not acceptable to the assessing officer and a further inquiry is required, the goods are assessed to duty and taxes provisionally under section 81 of the Customs Act, 1969 and the assessm ent is finalized within six months or the extended period of three months in addition to the original period. Therefore, the citation given by the importer and their Legal Counsel (PLD 1992 SC 485) is not attracted in the instant case. Since the documents provided by the importer are not sufficient to arrive at the transaction value and the information available could not be relied upon to verify the same, the One-Customs database was consulted to check the value of identical or similar goods.. But no precedent was found out which could verify or confirm the value or impugned dredger. The deductive value method has also been gone through but the same cannot ~be applied due to the reason that dredgers are not sold in Pakistan in aggregate quantity. Therefore the value of the impugned goods cannot be derived on the basis of unit price out of identical or similar goods sold in the greatest aggregate quantity as prescribed under the deductive value method. The computed value method has also been found inapplicable because there is a lot of variety in the quality of materials and enormous variation in the quantity of the materials used in the manufacture of dredgers of various sizes and specifications. As a result the fall back method has been relied upon to arrive at the fair value of the impugned goods with the help of reference prices of dredger of China origin on the internet of similar sizes and weight besides the erstwhile transaction value of the consignment of dredgers and other items of China origin as indicated at para 3 above. I therefore, finalize the value of the impugned consignment as given below. Customs duty and taxes shall be adjusted accordingly by the appraising group." 4. The order was challenged before Collector (Appeals) who also rejected the appeal and passed order-in-appeal. Hence the instant appeal on the following grounds incorporated in the memo of appeal:-- (i) That respondent No,2 has passed a perfunctory Order without disclosing the evidence to the appellants which he relied upon while passing 'his orders. His orders are hence void and required to
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be quashed. (ii) That respondent No, 1 had determined the prices of dredgers and other imported equipment without disclosing the basis thereof in the form of a Show-Cause Notice, which is against the norms of natural justice, therefore, all Orders passed in such a case are void ab initio without any legal authority. (iii) That the learned respondents have not taken into account the documents submitted by the appellants including commercial invoice, port clearance certificate, insurance trade policy and invoice, special invoice for international shipping, details/proof of transaction including the name and account number through which the transaction took place, purchasing contract, registration certificate and the evaluation report of Mausea Marine and Undersea Consultants (Pvt.) Limited. The impugned orders are absolutely silent about the factual evidence stated hereinbefore and placed reliance on some so called internet indicated prices which were never disclosed to us. Any inquiry conducted on the back of the concerned party is a nullity in the eyes of law as held by the superior courts in numerous cases. Reliance is placed is 1985 CLC 1781. (iv) That respondent No,2 in Para-6 of the order-in-appeal states that evidence in terms of the main methods of valuation, as laid down in section 25 of the Customs Act, 1969 namely Identical Goods Method, Similar Goods Method, Deductive Method and Computed Value Method was not available, therefore, the Fall Back Method of Valuation was used to determine value of the impugned goods. However, he has not given any basis for applying this method of valuation. It would be useful to refer to the provisions of section 25(9) and Rule 121 of the Customs Rules. ' Clearly the Customs law on application of fall back method stipulates that no independent method of valuation has been prescribed therein and it only allows flexible interpretation/ application of the main methods of valuation mentioned above. A careful perusal of the operative part of the order-in-original viz. Paras. 13 and 14 would reveal that no such exercise had been undertaken by the respondent No, 1. Thus value determined in violation of the provisions of section 25 read with the Customs Rules is unlawful, void and illegal and the order-in-original accordingly liable to be set aside. (v) That neither the order-in-original nor the order-in-appeal mention the internet values pressed into service for determining the value of impugned goods. In any case values, if any, indicated on a website accessible through internet are only indicative prices and unless some transaction actually takes place in respect of goods, the same cannot be relied upon as an evidence of value. All such prices are subject to negotiation. Besides these values differ depending upon various specifications of dredging equipment including the type of dredgers, their specifications, model capacity, size etc. None of, these factors were either discussed in the order-in-original while applying some mysterious evidence of value available on the internet. Moreover the order-in- appeal mentions presentation of certain worksheets before Collector (Appeals). Strangely such worksheets were never presented in our presence before the worthy Collector during hearings and such evidence cannot be made the basis of an order. There is this whole mystery about the evidence relied upon, which is never disclosed to-us nor discussed in the orders. That in similar circumstances where a matter relating to the reliability of internet prices came before an Indian Appellate Tribunal in the case quoted as Aggarwal Distributors (Pvt.) Limited [2000 (117) E.L.T. 49] the Tribunal held that there was no evidence of contemporary importation of higher value and reliance on internet prices was totally misplaced and hence ordered acceptance of the transaction value in that case. This decision was later on upheld by the Indian Supreme Court. (vi) That the appellants have reasons to believe that no meaningful inquiry was at all carried out after the provisional release of goods in question. In fact, the provisional value ascertained at the time of provisional assessm ent viz. US$ 41,082,893.57 was finally applied to the last digit. It is not understandable as to' why more than five months were consumed if the same provisional value
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had to be applied without placing on record anything substantive by way of 'an inquiry' by the Customs authorities. Needless to mention that the specialized wing of Valuation Department had informed the customs authorities at the very beginning that they were not in a position to advise about the values of dredgers perhaps on account of the fact that no two used dredgers were alike for the purposes of valuation and hence, their values cannot be established through a guess work. Nevertheless the Customs authorities chose to just complete the formalities by passing a perfunctory order to formalize the provisional assessment and the learned Collector (Appeals) has tried to protect the order-in-original in a very clumsy manner. That the Supreme Court of Pakistan and High Courts have on more than one occasion laid down elaborate principles for the determination of Customs value which have been utterly disregarded in the instant case. (vii) The advocate referred to the judgments reported as 2007 PTD 2623 Collector of Customs Port Muhammad Bin Qasim v. Messrs Zymotic Diagnostic International and Rehan Umar v. Collector of Customs, Karachi and 2 others reported as 2006 PTD 909. (viii) Lastly the appellants prayed to set-aside the order-in-original as well as the impugned order- in-appeal. Grounds in Customs Appeals Nos.683-684 of 2010 (i) That the impugned order passed by the respondent No,1 is illegal and bad in the eyes of law as such it is not maintainable in law and is liable to be set aside. (ii) That firstly the respondent No,2 and then respondent No,1 in the absence of any lawful and cogent reasons and on the basis of assumptions and conjectures considered the documents which were irrelevant and could not have been relied upon for the purposes of determination of value of the Temporarily Imported Consignment and also having failed to collect any evidence in relation to the similar consignment having been temporarily imported in Pakistan for approved project in Pakistan and illegally without due process of law and contrary to the Customs Act, 1969 and Customs Rules, determined the value of the consignment on the exaggerated value. (iii) That the respondent No,1 has failed to substantiate and share the computing method and/or the documents relied upon in order to finalize the value of temporarily imported consignment of the appellant prior to passing the impugned order. (iv) That respondent No,1 without appreciating the merits of the case has upheld the decision of the respondent No,2. (v) That although it was clearly described in the Goods Declaration that the appellant's consignment is imported on temporary basis and is to be re-exported after completion of project, besides that ' the consignment was secondhand and was not purchased in the recent past by the appellant for the purposes of sale in Pakistan, even then the respondent No,1 without any lawful reasons upheld the value of the consignment on a higher side and in fanciful manner treating the same as a normal import. (vi) That as provided in the Customs Act the respondent No,2 for reasons best known did not provide any proof for assessm ent of the similar nature of consignment. In the letter dated February 11, 2009 the respondent No,2 specifically referred to the consignment of similar nature from same origin on much higher value and has determined the value of the appellant's consignment on that basis. That the respondent No,1 also failed to provide any proof, evidence and/or details such as the specification of the similar Dredgers and or Anchor Boats to substantiate the allegation of misdeclaration, by appellant, consequently the onus to prove the allegation of misdeclaration, if any, lies upon the respondent No,2 and simultaneously upon respondent No,1 and as such the impugned order is not maintainable in law. (vii) That the appellant's consignment is of China origin and not of Japan as discussed in the impugned order-in-appeal and without considering the documents as filed in the appeal before
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the respondent No,1 has passed the impugned order. (viii) That the proceedings before the respondent No,2 was also not maintainable in law in so far as::- (i) Since the consignment was temporarily imported for the purposes of execution of works in terms of the contract dated October 27, 2008 with KPT and is to be re-exported as declared in the Goods Declaration, therefore, provisions of section 25 of the Customs Act could not have been attracted. (ii) The value declared by appellant was strictly in accordance with the provisions of Customs Laws and supported by the documents furnished by appellant as and when required by the respondent No,2 therefore, the value assessed by the respondent No, 2 in excess to the same is in violation of the relevant provisions and proceedings. (ix) Lastly they prayed to set-aside the impugned order-in-appeal. 5. The respondent filed para wise comments which reads as under:-- (i) No comments can be offered on this para because the same does not relate to Customs Act, 1969. (ii) Admitted to the extent that the said goods were imported. (iii) Contents of this para are admitted. (iv) The declared value was not considered due to misdeclaration of origin. The origin of goods is Japan whereas, they had declared origin as China. Hence, true value was not declared. (v) Same comment as per Para-4. (vi) Contents of this para are not correct. In fact goods were assessed provisionally under section 81 of the Customs Act, 1969 pending final determination of the value. (vii) The appellant has tried to differentiate and convince about functioning of dredgers. However, reply to this para is same as for para (4) that value was assessed provisionally under section 81 pending final determination. (viii) The contents of this para are not correct. It is stated that issuance of show cause notice is not necessary in cases assessed provisionally and subsequently final determination is made under sections 81(3) and (4) which provides for adjustment between provisional and final determination. The provisions of section 81 are very clear and do not require issuance of show-cause notice. Yet opportunity of personal hearing was afforded to them to represent their arguments if any. Simple procedure is laid down in section 81 i,e, on final determination of value adjustment has to be made for payment of mount payable by or to importer. For this purpose assessment order vide Order-in- Original appealed against was issued. (ix) This a new point added in this appeal. The appellant is fully aware that information technology has become fast tracking. Every kind of information is available on Internet. Collector (Appeal) has discussed about this in Order-in-Appeal and upheld the orders of respondent as the same were legal, correct and maintainable under the law. There is no force in this argument which does not deserve consideration. GROUNDS OF APPEAL (x) Contents of this para are not admitted because the action was taken strictly as provided under the law. (xi) Contents of this para are not admitted. As stated in comments on facts of the case, assessm ent was made under section 81 of the Customs, Act, 1969. Section 81 does not provide for issuance of show-cause notice. It lays down for adjustment on final determination of provisional determination: The argument is uncalled for. (xii) The contents of this para have been embodied in the order-in-appeal and duly considered. It is, however, submitted that all aspects were duly considered for final determination. (xiii) Same comments as per para (iii) above.
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(xiv) The arguments in this para cannot be accepted. Access on Internet is available to all. They could check the 'Internet. This argument is not tenable and liable to be struck down. (xv) In the absence of evidence cited in this para, no comments can be offered. (xvi) It is submitted that if any person is aggrieved by determination of value by Custom House or Directorate of Valuation, he is at liberty to file review application under section 25-D before the Directorate General of Customs Valuation. It is not understood why they did not do so. (xvii) It is submitted that while final determination of value, all aspects were duly considered. (xviii) Same comments as per para (VIII) above. (xix) Lastly he prayed to reject appeals. 6. Rival submissions heard. Case record examined. Following issues are framed by this Tribunal for consideration:-- (i) Whether issuance of show-cause notice is a mandatory prerequisite for conducting adjudication proceedings in terms of various judgments of the honorable Supreme Court? (ii) Whether provisions enumerated in subsection (1) of section 25 of the Customs Act, 1969 read with Rule 107(a) of Customs Rules 2001 have been followed while determining the assessed value of the subject goods by the respondents? (iii) Whether appellant or their representatives were associated by the Collectorate of Custom House (Appraisement) during the exercise undertaken for finalizing customs assessed values in these cases? (iv) Whether the values of the currently imported grab type Dredgers can be compared with previously imported cutter suction type Dredgers? (v) Whether Fall Back Method as incorporated in subsection (9) of section 25 of the Customs Act, 1969 has been followed by the respondent as per provisions enumerated therein and read with relevant Rule 121 of Customs Rules, 2001? (vi) Whether the prices of similar goods procured by the respondent on Internet are a valid piece of evidence for determination of Customs assessed value in terms of section 25 of the Customs Act, 1969? (vii) Whether comparison of old and used secondhand machinery is permissible with non-identical old and used secondhand machinery for valuation purposes? (viii)Whether the legal or ultimate burden of proof lies on the Customs Administration in terms of section 25(11) of the Customs Act, 1969? (ix) Whether the order-in-original and order-in-appeal are nonspeaking, non-judicial and perfunctory orders based on non-reading/miss-reading of the documents on record? 7. As regards Issue No,(i), the Order-in-Original No,1 of 2010. Dated 12-1-2010 has been passed by Deputy Collector of Customs MCC (Appraisement) without issuance of any show cause notice to the appellant. A scrutiny of the case record revealed that no show-cause notice has been issued to the appellant by the Adjudicating Authority while finalizing their declared values in terms of section 25 of the Customs Act, 1969. Issuance of show-cause notice is a mandatory requirement for the adjudicating officers while adjudicating issues before them. This is also in violation of the principle of natural justice since the appellants were not afforded any opportunity to put any meaningful defence at the time of hearing. In this respect it is also observed that:-- (i) It is the first principle of natural justice to issue .a show-cause notice to the person concerned. It is…
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