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Petitioner: ENGRO ELENGY TERMINAL (PVT.) LTD. through Authorized Representative VS Respondent: FEDERATION OF PAKISTAN through Secretary Revenue Division and 6 others
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar Title:ENGRO ELENGY TERMINAL (PVT.) LTD. through Authorized Representative vs
FEDERATION OF PAKISTAN through Secretary Revenue Division and 6 others Case No.: Suit No,1084 of 2015 Date of Judgment:2016-05-26 Reported As: 2017 PTD 959 Result: Case remanded Judgment ' MUHAMMAD JUNAID GHAFFAR, J.---This is a Suit for Declaration and Permanent Injunction, wherein, the plaintiff has sought the following relief(s):-- i)Declare the levy of customs duty and advance income tax on the import of the FSRU by the plaintiff is illegal and of no legal effect. ii)Declare that no customs duty, sales tax or advance income tax is payable on the import of the FSRU. iii)Declare that the Impugned Assessment and impugned order are illegal, void ab-initio and of no legal effect. iv)Permanently restrain the defendants, their officers and assigns, from jointly and severally and directly or indirectly, taking any adverse action against the plaintiff or the FSRU pursuant to the Impugned Assessm ent (Annex T), including but not limited to seizing or detaining the FSRU or from impending, hampering or interfering with its operations in any manner whatsoever, or from disconnecting it from the on land facilities or preventing it from sailing away from or returning to Karachi as an LNG carrier or from receiving LNG ships and unloading LNG or supplying regasified gas to Suit Southern Gas Company Limited, 2. Briefly the facts as stated are that the plaintiff is a 100% owned subsidiary of Messrs Elengy Terminal Pakistan Limited incorporated to establish and operate a terminal for the handling, regasification, storage, treatment and processing of Liquefied Natural Gas ("LNG") and Re-gasified Liquefied Natural Gas ("RLNG") for which the plaintiff has obtained license from Oil and Gas Regulator Authority. It is further stated that in order to overcome the gas shortage in the country the Federal Government through its designated coordination entity namely Interstate Gas Systems
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(Pvt.) Limited ("ISGS") issued a tender notice for a Fast Track LNG Import Terminal on 7.8.2013 wherein, one of the key conditions of the tender was fast track nature of the project, whereby, a very short period of 335 days was provided from the date of Terminal Services Agreement to the date of first delivery of Gas. ' According to the plaintiff the only feasible solution for supply of gas in such a short period of time was to arrange a floating storage regasification unit ("FSRU"), whereas, this was also acknowledged in the presentation made by ISGS to the potential bidders. The plaintiff accordingly submitted a bid for setting up an LNG terminal based on utilization of FSRU as an integral part of such terminal and the bid of the plaintiff was accepted and a letter of intent dated 26.11.2013 was issued by Sui Southern Gas Company Limited ("SSGC") on behalf of the Federal Government. On acceptance of the bid, the plaintiff entered into an Operation and Services Agreement dated 30.4.2014 with SSGC and a Time Charter. Party and LNG Storage and Regasification Agreement dated 18.6.2014 as novated by the Deed of Novation dated 26.1.2015 with Messrs Excelerate Energy Development DMC, a company incorporated under the laws of Dubai. It is further stated that earlier the Federal Government through Ministry of Petroleum and Natural Resources moved a summary before the Economic Coordination Committee of the Federal Cabinet ("ECC") dated 4.4.2012 for providing a level playing field to LNG Terminal Operation and pursuant to decision of ECC, S.R.O. No, 678(1)12004 dated 7.8.2004 ("678") as amended by S.R.O. No, 571(1)12005 dated 6.6.2005 ("571") were issued. The plaintiff thereafter chartered the FSRU.for a period for 15 years under the Time Charter Party Agreement, by relying on the exemption approved by ECC and completed the project within the time permitted under the agreement, however, a letter dated 21.3.2015 was issued by Deputy Collector of Customs to the plaintiff informing that the ,import of FSRU will be treated as a regular import for which a goods declaration should be filed. 3. It is further .stated that in terms of the services agreement, the plaintiff was supposed to be provided LNG for regasification, however, the Federal Government had not been able to reach an agreement on the price of LNG to be imported from Qatar, and therefore, no LNG was imported, where after, Pakistan State Oil on behalf of the Federal Government requested for the FSRU in question to be used as LNG carrier for five consignments of LNG and the first consignment of LNG birthed on 26.3.2015 at the plaintiff's terminal at Port Qasim. The FSRU went back to bring back more consignments and completed its last voyage for import of LNG on 14.6.2015. In response to the defendants letter dated 21.3.2015, explanation was given by the plaintiff through its letter(s) dated 22.3.2015, 9.4.2015 and 10.4.2015. It is further stated that though the FSRU was used as an LNG carrier at the request of Federal Government through PSO, however, the Customs Authorities refused to allow the FSRU to leave the Country and forced the plaintiff into providing an indemnity bond, corporate guarantee and an undertaking for the release of FSRU. In the meantime, on 3.4.2015 the Ministry of Petroleum and Natural Resources moved another summary to ECC by seeking further exemptions for LNG terminal operators and after approval of the summary another S.R.O. No, 337(1)/2015 was issued on 22.4.2015, ("337") whereby, SRO 678 was amended. It is the case of the plaintiff that pursuant to such amendment as well as in terms of SRO 678 as un-amended, the plaintiff is entitled for exemption from the whole of the customs duty and sales tax. Insofar as the exemption from advance income tax payable at the import stage is concerned, it is the case of the plaintiff that in view of S.R.O. 947(1)/2008 dated 5-9-2008, ("947") the plaintiff on 19.2.2015 applied to the Commissioner, Inland Revenue, for issuance of exemption certificate in respect of payment of advance income tax under section 148 of the Income Tax Ordinance, 2001 ("Ordinance, 2001") and the request of the plaintiff was rejected vide order dated 24.3.2015. Being aggrieved, the plaintiff preferred a revision application under section 122B of the Ordinance, 2001 to the Chief Commissioner Inland Revenue, on 31.3.2015, however, on 19.6.2015 the Chief Commissioner Inland Revenue also dismissed the revision application by upholding the order of Commissioner Inland
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Revenue. Such order has been impugned through instant Suit as well. It is further stated that on 26.6.2015 plaintiff once again received instruction from the Federal Government through PSO that since no agreement has been reached for the import of LNG from Qatar till date, therefore, the FSRU is further required to transport LNG from Qatar. Thereafter the plaintiff approached the Collector of Customs seeking no objection but such request was not entertained and the plaintiff was verbally directed to file a goods declaration, whereafter, the Plaintiff filed Goods Declaration claiming exemption from payment of customs duty and sales tax under SRO 678 by providing a corporate guarantee valid for two years for exempt duties and taxes as required under Condition (vii) and also claimed exemption from payment of any advance income tax under. SRO 947 and so also under Finance Act, 2015. However, Such claim of the plaintiff was rejected and the plaintiff was called upon to pay 5% customs duty and 5.5% as advance, income tax, whereas, the exemption from sales tax was accepted and accordingly granted. Such demand of asking for payment of duties and advance income tax has been impugned through instant Suit. 4. Learned Counsel for the plaintiff has contended that insofar as FSRU is concerned, it has been procured by the plaintiff on a time charter agreement for 15 years, whereas, the agreement itself in Clause 17.3(d) provides that FSRU must sail out twice during the "Term" for dry-docking as according to the learned Counsel, FSRU is not a permanent and fixed vessel on ground, but it requires movement for repairs and inspection. Per learned Counsel this for all purposes is a temporary import which is covered under SRO 678 [condition (vii)] and is exempt from the levy of customs duties, sales tax and advance income tax. He has further submitted that various clauses of the agreement of time charter provides that in case of movement of FSRU, its inability to work further, it can also be replaced by another FSRU and for such purposes it may have to sail out of Karachi several times. He has further submitted that demand/levy of 5% duty and 5.5. % advance income tax by the defendants under clauses (2) and 2(a) of SRO 678 is without any lawful authority and jurisdiction, whereas, the FSRU imported by the plaintiff is covered under the definition of machinery and equipment and since it is on a temporary import basis, the same is entitled for exemption under condition (vii) of SRO 678, whereas, a period of two years of the temporary import has not yet materialized, and therefore, any demand of customs duties and or advance income tax by the defendants is without jurisdiction besides being unjustified. He has further submitted without prejudice that even the period of two years for temporary import is extendable by the Collector of Customs from time to time, if the importer has a definite contract, whereas, the plaintiff has a definite contract of charter party as referred to hereinabove. Learned Counsel has further contended that even if the Collector of Customs refuses to extend the corporate guarantee after two years, it will not immediately lead to any demand of duties and taxes as the dispute would arise under condition (vi) of SRO 678 and would have to be resolved accordingly. He has further submitted that insertion of clause 2(a) -through, amendment vide SRO 337 was only clarificatory in nature and its object was not to curtail or limit the exemption already available under SRO 678. In nutshell per learned Counsel, insofar as exemption from customs duty is concerned, even otherwise and in absence of clause 2(a) the plaintiff is entitled to exemption from the whole of customs duty under clause 2 read with condition (vii) of SRO 678, whereas, in the alternative and without prejudice, he has further submitted that in the event of a dispute the defendants were obligated to clear the goods and refer the matter for decision by the Collector of Customs as provided in condition (iv) of SRO 678, and therefore, the demand by the Customs authorities at this stage of the proceedings is premature. 5. As to the issue of exemption from advance income tax, learned Counsel has contended that S.R.O. 947 has exempted the plaintiff from advance income tax on imports upon fulfilling the conditions, whereas, the claim of such exemption under S.R.O. 947 became an academic exercise, when the budgetary proposals came in the public domain through Finance Bill, 2015, whereby, it
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was provided that there would be a five years Income Tax holiday, through insertion of item No, (141) in Part I of the Second Schedule to the Ordinance, 2001 and such proposed amendment was passed and was incorporated in the Ordinance, 2001 w,e,f, 1.7.2015, which provides that profits gained by LNG Terminal Operators would be exempt for a period of 5 years beginning from the date when commercial production commences. Per learned Counsel Finance Act for any year, which comes into effect on 1st July is applicable to the tax year that has just ended on 30th June of the same year, and therefore, the Finance Act, 2015 and its provision would be applicable to the plaintiff's tax year for 2015 which ended on 30.6.2015. He has further contended that admittedly no income tax is due for tax year 2015 on the plaintiff's income as the liability for that year is zero and therefore, the plaintiff is not required to pay any advance income tax for that year as demanded by the defendants, as otherwise if such tax is collected it would become repayable and refundable to the plaintiff and would only lead and subject the plaintiff to the bureaucratic hassle to deposit the tax and then seek refund of the same. Per learned Counsel even in terms of SRO 947 the defendants had unlawfully denied the issuance of exemption certificate by misinterpreting clause (v) of the said SRO and therefore, the plaintiff is not liable to pay any advance tax. As to the bar of jurisdiction under section 217 of the Customs Act, 1969, the learned Counsel submitted that such bar cannot protect an action which is without jurisdiction, illegal or mala fide as in such situation the Suit is always maintainable before a Civil Court under section 9, C.P.C. He has further contended that even the plaintiff has no alternate remedy as neither any proper assessment order was passed against the plaintiff nor any reasons were assigned while refusing the exemption being claimed by the plaintiff, and therefore, the plaintiff was never in a position to avail any alternate remedy under the hierarchy of Customs department as contended by the learned Counsel for the defendants. In support of his contentions he has relied upon the cases reported as Collector of Customs (Appraisement) Karachi v. Fauji Fertilizer Co. Ltd. (PLD 2005 SC 577), Moro Textile Mills Ltd. v. CBR (2007 PTD 60), D.G. Khan Cement Company Ltd v. Customs Appraisement, Customs House Karachi (2003 PTD 986), Muhammad Amin Muhammad Bashir Limited v. Government of Pakistan (2015 SCMR 637), Secretary Ministry of Health, Government of Pakistan v. Dr. Rehana Hameed and others (2010 SCM R 511), Star Textile Mills Ltd. v. Pakistan (1999 M LD 3001), Pad Field and others v. Minister of Agriculture, Fisheries and Food and others (1968) 1 All E.R. 694, Collector of Sales Tax and Central Excise (Enforcement) and another v. Mega Tech (Pvt.) Ltd. (2005 SCM R 1166), Master Foam (Pvt.) Ltd. v. Government of Pakistan and others (PLD 2005 SC 373), Abdul Hamid v. The State (PLD 1963 Karachi 363), Dreamland Cinema, Multan v. Commissioner of Income Tax, Lahore (PLD 1977 Lahore 292), Rehman Corporation, Hyderabad v. The Income Tax Officer, Mirpurkhas (1985 PTD 787), CIR Zone-II Chief Tax Office, Multan v. Mrs. Ambreen Fawad Co. Pak Arab Fertilizer Ltd. Multan (2014 PTD 320), Bennion on Statutory Interpretation, Fifth Edition at page 188, Government of Pakistan v. Saif Textile Mills Ltd. (2003 PTD 355), Ihsan-ur-Rehman v. Najma Parveen (PLD 1986 SC 14), Excise and Taxation Officer Karachi v. Burmah Shell Storage and Distribution Company of Pakistan Ltd. (1993 SCM R 338), Muhammad Javed v. The State (1993 SCM R 1619), Shahnawaz (Pvt.) Ltd. v. Pakistan (2011 PTD 1558), Radhashyam Agarwala v. The Commissioner of Income Tax East Pakistan (1960 PTD 371), Evershine Paints (Eastern) Ltd. v. Commissioner of Income Tax (1995 PTD 614), Lone Cold Storage v. Revenue Officer, LEPCO (2010 PTD 2502), Commissioner Income Tax v. Habib Sugar Mills Ltd. (1993 PTD 343), Indus Jute Mills v. Government of Pakistan (2009 PTD 1473), Nishat Dairy v. Commissioner Inland Revenue (2013 PTD 1883), Riaz Bottlers (Pvt.) Ltd. v. Lahore Electric Supply Company (2010 PTD 1295), Union Bank Ltd. v. Federation of Pakistan (1998 PTD 2116), Pakistan International Airlines Corporation v. Pakistan and others (2015 PTD 245), Shujabad Agro Industries v. Collector of Customs (2014 PTD 1963), Karachi Electric Supply Corporation v. Federal Board of Revenue (2013 PTD 851), Shell Pakistan Ltd. v. Federation of Pakistan (1999 YLR 166), Central Board of Revenue v. Saleem Impex (1999 YLR 190), Saleem Impex v. Central Board of Revenue (1999 M LD
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1728), Asia Petroleum Limited v. Federation of Pakistan (1999 PTD 1313), Tri-Star Industries v. The Commissioner of Income Tax (1998 PTD 3923), K.G. Traders v. Deputy Collector of Customs (PLD 1997 Karachi 541), Abbasia Cooperative Bank v. Hakeem Hafiz Muhammad Ghous (PLD 1997 SC 3), Usman Panjwani v. Government of Sindh (1996 CLC 311); Samiullah v. Fazle Malik (PLD 1996 SC 827), Syed Raunaq Raza v. Province of Sindh (1994 CLC 317), Hyderabad Municipal Corporation v. Fateh Jeans (1991 M LD 284), Karim Dad v. Arif All (PLD 1978 Lahore 679), Hamid Hussain v. Government of West Pakistan (1974 SCM R 356), Muhammad Jamil Asghar v. The Improvement Trust (PLD 1965 SC 698), Abdul Rauf v. Abdul Hamid Khan (PLD 1965 SC 671) and Fecto Cement Limited v. The Collector of Customs Appraisement and another (1994 M LD 1136). 6. On the other hand the learned Counsel appearing on behalf of defendants Nos. 3, 4 and 5 (Collector of Customs, Port Qasim) has at the very outset raised an objection as to maintainability of this Suit by contending that there is a complete bar under section 217 of the Customs Act, 1969, whereas, even otherwise the plaintiff ought to have availed the alternate remedy as contemplated under Sections 193 and 194(A) of the Customs Act, 1969. As to the merits of the case, learned Counsel has contended that FSRU is in fact a vessel classifiable under HS Code 8901.2000 attracting statutory customs duty @ 10%, sales tax @ 17% and Income Tax @ 5.5%, whereas, the plaintiff on arrival of its vessel never filed a goods declaration until the plaintiff was compelled to do so. Per learned Counsel the plaintiff filed a goods declaration on 27.6.2015 by claiming full exemption from duties and taxes under condition (vii) of SRO 678, and such exemption being inadmissible was denied as condition (vii) very clearly states that only goods falling under clauses 1, 2 and 3 of SRO 678 qualify for benefit under this condition, while clause 2(a) which is more appropriately attracted to the case of the Plaintiff, is nowhere mentioned in this condition, and resultantly the import of FSRU is subject to customs duty @ 5% and advance income tax at 5.5. % whereas, the whole of sales tax is exempted. He has further contended that the goods declaration was accordingly assessed by the defendants under section 80 of the Customs Act, 1969 and the plaintiff was directed to pay the assessed duties against which the plaintiff ought to have filed an appeal under section 193 of the Customs Act instead of filing the present Suit. He has further submitted that the import in question is not of a temporary nature and the plaintiff has itself stated that it has an agreement for 15 years and therefore, even if FSRU is to be sent for repairs, its import for the purposes of exemption cannot be treated as on temporary basis. Insofar as denial of exemption from advance income tax is concerned, learned Counsel has contended that the plaintiff was required to provide an exemption certificate issued by the Inland Revenue Authorities which the plaintiff has failed to do so, and therefore, the Customs department has assessed the advance tax under section 148 of the Ordinance, 2001. In support of his contention he has relied upon the cases reported as Ghani and Tayub (Pvt.) Ltd. Karachi v. Federation of Pakistan and 2 others (2010 PTD 817), Messrs Shadman Cotton Mills Ltd. v. Federation of Pakistan and another (2009 PTD 193), Government of Balochistan, CWPP&H Department and others v. Nawabzada Mir Tariq Hussain Khan Maqsi and others (2010 SCM R 115), West Pakistan Tanks Terminal (Pvt.) Ltd. v. Collector (Appraisement) (2007 SCM R 1318), Messrs Abdul Wahid Abdul Majid v. Government of Pakistan and others (1993 SCM R 17), Abbasia Cooperative Bank (Now Punjab Provincial Cooperative Bank Ltd. and another v. Hakeem Hafiz Muhammad Ghaus and 5 others (PLD 1997 SC 3), Messrs Paramount Spinning Mills Ltd. v. Customs, Sales Tax and Central Excise Appellate Tribunal and another (2012 SCM R 1860), Collector of Customs Karachi and others v. Messrs Haji Ismail Co. and others (2015 SCM R 1383) and order dated 25.1.2012, of the Honble Supreme Court in the case of Ghani and Tayyub (Private) Limited v. Federation of Pakistan and others (Civil Petitions Nos. 832-K and 833-K of 2011). 7. On 18.1.2016 at the joint request of both the learned Counsel, the following legal issues were framed as they had submitted that parties do not wish to lead any evidence as the legal
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controversy can be decided on the basis of documents available on record, whereas, defendants Nos.6 and 7 have chosen to remain absent despite service. 1)Whether the Suit is maintainable? 2)Whether a remedy was available to the plaintiff under section 193 of the Customs Act, 1969 in the form of an appeal before the Collector (Appeals)? 3)Whether the plaintiff is exempt from payment of any customs duty on the import of the Floating Storage Regasification Unit under Clause (2a) read with condition (vii) of S.R.O. 678(I) of 2004? 4)Whether the plaintiff was exempt from payment of any advance income tax on the import of the Floating Storage Regasification Unit in view of the instruction of Clause (141) in Para 1 to the 2nd Schedule to the Income Tax Ordinance, 2001 through the Finance Act, 2015? 5)Whether the plaintiff was exempt from payment of any advance tax on the import of the Floating Storage Regasification Unit under S.R.O. 947(I) of 2008? 6)What should the decree be? Issues Nos.1 and 2: 8. Insofar as these two issues are concerned, there are two aspects of the matter and therefore both these issues have been taken up together. First is that whether the Suit is maintainable and not barred under section 217 of Customs Act, 1969 and second, as to whether the plaintiff ought to have availed the alternate remedy as provided under the Customs Act, 1969. Insofar as the question of alternate remedy is concerned, by now it is a settled proposition that normally a party is not allowed to seek relief directly either through the Civil Court or the Court exercising Constitutional jurisdiction and must avail the alternate remedy as provided in law. This is a matter under the special law i,e, Customs Act, 1969 which provides a complete mechanism for assessm ent of goods declaration by the officers of the Customs (See S.80), as well as adjudication of the cases by quasi-judicial officers (See S.179) and appellate authority i,e, Collector of Customs (Appeals) (See S.193) and thereafter a further appeal before the Customs Apellate Tribunal (See S.194A) and finally a reference application before the High Court (See S.196) . The relevant provision governing the assessm ent proceedings are Sections 79 and 80 Of the Customs Act, whereas, the appeal (1st appeal) is provided under section 193 of the Customs Act, 1969. It would be advantageous to refer to the provisions of Sections 79, 80 and 193 of the Customs Act which reads as under:-- "79. Declaration and assessm ent for home consumption or warehousing:---(1) The owner of any imported goods shall make entry of such goods for home consumption or warehousing or for any other approved purposes, within fifteen days of the arrival of the goods, by; (a)filing a true declaration of goods, giving therein complete and correct particulars of such goods, duly supported by commercial invoice, bill of lading or airway bill, packing list or any other document required for clearance of such goods in such form and manner as the Board may prescribe; and (b)assessing and paying his liability of duty, taxes and other charges thereon, in case of a registered user of the Customs Computerized System; ' Provided that if, in case of used goods, before filing of goods declaration, the owner makes a request to an officer of customs not below the rank of an Additional Collector that he is unable, for want of full information, to make a correct and complete declaration of the goods, then such officer subject to such conditions as he may deem fit, may permit the owner to examine the goods and thereafter make entry of such goods by filing a goods declaration after having assessed and paid his liabilities of duties, taxes and other charges: ' Provided further that no goods declaration shall be filed prior to ten days of the expected time of arrival of the vessel. (2)If an officer, not below the rank of Additional Collector of Customs, is satisfied that the rate of customs duty is not adversely affected and that there was no intention to defraud, he may, in
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exceptional circumstances and for reasons to be recorded in writing, permit, substitution of a goods declaration for home consumption for a goods declaration for warehousing or vice versa. (3)An officer of Customs, not below the rank of Assistant Collector of Customs, may in case of goods requiring immediate release allow release thereof prior to presentation of a goods declaration subject to such conditions and restrictions as may be prescribed by the Board. <u>80. Checking of goods declaration by the </u>Customs:---(1) On the receipt of goods declaration under section 79, an officer of Customs shall satisfy himself regarding the…
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