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Petitioner: Messrs TARIQ AUTO TRADERS, KARACHI VS Respondent: ASSISTANT DIRECTOR DIRECTORATE
Court Name: Customs Appellate Tribunal Judge(s): Tahir Zia Title:Messrs TARIQ AUTO TRADERS, KARACHI vs ASSISTANT DIRECTOR DIRECTORATE
JUDGMENT
Reported As: 2018 PTD (Trib.) 2132 Result: Appeal allowed Judgment JUDGMENT TAHIR ZIA, MEMBER (JUDICIAL-II).---Through this order, I intend to dispose off Appeal bearing No. K-24/2016 directed against Order-in-Original No. 324/2016 dated 17.11.2016 passed by Additional Collector of Customs, Adjudication-I, Customs House, Karachi. 2. Briefly facts are the appellant imported 06 consignment of Spray Paint falling under PCT 3208.9090 from China, Goods Declaration (here-in-after to be referred as GD) were filed by his clearing agent upon receipt of the goods at KICT with the MCC of Appraisement-West, which were numbered KAPW-HC-1244 dated 09.07.2013, KAPW-HC-A 56186-06.11.2013, KAPW-HC-86030- 08.01.2014, KAPW-HC-131442- 10.04.2014, KAPW-HC-63496-09.10.2015 and KAPW-HC-115720- 26.12.2015. Prior to completing assessment, the GD's were referred for examination as expressed in Section 198 of the Customs Act, 1969 (here-in-after to be referred as Act) and Rule 435 of Sub- Chapter (III) of Chapter XXI of Customs Rules, 2001 (here-in-after to be referred as Rules). The declarations were confirmed by the Custom Official posted at KICT, on the strength of pasted examination report in the reservoir of the GD's, the competent authority as defined in Section .2(a) passed assessm ent orders under the provision of Section 80 and Rule 438 of the Act/Rules' with the application of determined value of Spray paint by the Director, Directorate General of Valuation in terms of Section 25A of the Act, vide Ruling No. 649/2014 dated 26.03.2014 and view messages were transmitted to the appellant payment of additional amount of duty and taxes for obtaining clearance the appellant paid those and the inbuilt mechanism of WeBOC passed clearance order as per the expression of Section 83 and Rule 442 of the Act/Rules. Consequent to which the delivery of the consignment were obtained by the clearing agent from KICT were delivered at the
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warehouse of the appellant. The Assistant Director, Directorate of PCA (here-in-after to be referred as respondent No. 1) purportedly conducted audit of the GD's of the appellant in terms of Section 26A of the Act, wherein it was observed that the goods imported by the appellant infact falls under PCT 3208.2090 and the benefit of Free Trade Agreement with China (here-in-after to be referred as FTA) under S.R.O. 659(1)/2007 dated 03.06.2007 is not admissible and the goods so cleared should had been after payment of 20% Custom Duty, 17% Sales Tax, 3% Additional Sales Tax & 6% Income Tax as against paid on the basis of declaration/assessment order i.e. Custom Duty 12.5%, 17% Sales Tax, 3% Additional Sales Tax and 6% Income Tax. The variation in percentage of duty and taxes resulted in short payment of Rs. 1,014,907.00. Based on the said opinion audit observation dated 04.04.2016 was issued to the appellant, which was replied by vide letter dated 13.05.2016, through which arrived opinion was disputed and request was made for with-drawl of audit observation. The respondent No. 1 disagreed and framed contravention report and presented that to Director PCA, who after approving referred that to Collector of Customs, Adjudication 1, who marked that to the respondent No.3, who issued show-cause notice dated 28.07.2016 with the allegation that the appellant obtained the clearance of the goods under erroneous PCT, on which benefit of FTA was available as against actual PCT 3208.2090, on which no benefit of FTA is available and Customs Duty has to be paid @ 20%, Sales Tax @ 17% Additional Sales Tax a 3% and Income Tax @ 6%, This cause short payment/revenue loss of Rs.1,014,907.00 to the exchequer. The said act of the appellant falls within the ambit of Sections 32(1), (2) and 3(A) of the Act Sections 3, 6, 7, 33 and 34 of the Sales Tax Act, 1990 and Section 148 of the Income tax Ordinance, 2001, punishable under clause 14 of Section 156(1) of the Act, Sections 7A, 33(5) of the Sales Tax Act, 1990 read with Chapter X of the Sales Tax Special Procedure Rules, 2007 special Procedure for payment of Sales tax by the importer) and Sections 148 and 182 of the Income Tax Ordinance, 2001. The show cause was replied vide letter dated 17.08.2016 on which respondent No. 3 sought comments from respondent No. 1, which were submitted vide dated 17.08.2016, the appellant consultant rebutted those vide letter dated 13.10.2016, the respondent No. 3 disagreed with the line of argument of the appellant and passed order dated 17.11.2016, through which he held the charges as levelled in the show-cause notice under Section 32(2) of the Act, Section 33(5) of the Sales Tax Act, 1990 and Sections 148 and 182 of the Income Tax Ordinance, 2001. Para 6 of the Order is relevant and as such reproduced here-in-under:-- "6 I have examined the case record and considered written/verbal argument put forth by the both side. The department claimed that the respondent cleared six consignments of Aerosol Spray Paint under PCT 3208.9090 after paying Customs Duty at 12.5% in terms of concessionary S.R.O. 659(1)/2007 dated 03.06.2007, whereas the imported goods are actually classifiable under PCT 3208.2090 attracting Custom Duty @ 20%, Sales tax @ 17, Additional Sales Tax @ 3% and Income tax @ 6%. The images uploaded in the WeBOC System clearly shows "that the Aerosol Spray Paints" are acrylic based hence, not covered under declared PCT Heading 3208.9090 or SRO No. 659(I)/dated 03.06.2007. The evaded amount of duty and taxes are recoverable from the respondent. On the other hand the respondent argues that the impugned goods were examined and out of charged by the Clearance Collectorate under the declared PCT and concessionary SRO, while Custom Officer cannot effect recovery of Sales Tax and Income tax once clearance has been allowed moreover, the GD out of charged under Sections 80 and 83 of the Customs Act, 1969 was not reopened under Section 195 of the Act ibid before proceeding for recovery of allegedly evaded amount the contention of the respondent are not tenable under law and without merit. The DR's statement that images of the goods taken at examination stage shows the Aerosol Spray Paint to be acrylic based." Is not denied by the respondent. As per the Customs Tariff Acrylic based paint are classifiable under PCT heading 3208.2090. therefore, I uphold the contention of the department regarding misdeclaration of PCT on the basis of Customs Tariff which provides specific PCT
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heading for impugned goods instead of general heading declared by the importer/respondent. As regard the argument regarding power of the customs officer for recovery of Sales Tax amount it is evident that under Section 6 of the Sales Tax Act, 1990'sales tax on imported goods shall be charged and paid in the same manner and at the same time as it were a duty of customs payable under Customs Act, 1969 and the provision of the said Act shall apply in so far as they relates to collection payment and enforcement including recovery thereof. Furthermore, Section 179 of the Customs Act, 1969 read with SRO 232(I)/1991 dated 10.03.91 issued under Sections 30 and 31 of the Sales Tax Act, 1990 empowers the appropriate officer of Customs to order recovery of duty and taxes not levied short levied or erroneously refunded, when read in conjunction with Section 32 of the Customs Act, 1969. Similarly, Custom Officer are empowered to take cognizance of all cases of duty taxes evasion as per Boards letter C.No. 3(32) TAR-I/90 dated 06.08.2012. regarding the issue of reopening of cases under Section 195 of the Customs Act, 1969. It is clear that provision of Sections 32 and 32A of the Customs Act, 1969 are independent and exclusive in jurisdiction from Section 195 ibid, thus, for recovery of lost revenue in terms of Sections 32, 32(A) ibid. the question of re-opening under Section 195 of the Customs Act, 1969 does not arrives. Hence in view of the factual position presented by the Department viz a viz correct PCT heading and in the absence of any substantive material provided by the respondent. The charged levelled in the show-cause notice stands established. The importer is directed to deposit the evaded amount of duty and taxes amounting to Rs. 1,014907.00 in the Government Treasury along with default surcharge to be calculated by the department at the time of payment under Section 32(2) of the Customs Act, 1969 read with sections 33(5) and 34 of the Sales Tax Act, 1990 and Sections 148 and 182 of the Income Tax Ordinance, 2001 failing to which action may be initiated against to respondent under Section 202 of the Customs Act, 1969 notified vide SRO 450(I)/ 2001 dated 18.06.2001. A penalty of Rs. 200,000/- (Rupees, Two hundred thousand) is also imposed on the importer for violation of aforesaid provision of law. 3. Being aggrieved and dissatisfied with the Order-in-Original, the appellant filed the instant appeal before this Tribunal on the grounds incorporated in the memo of appeal. The appellant's counsel's further argued that on the basis of grounds of appeal and facts, the instant appeal may kindly be accepted and the Order passed by the adjudicating authority may kindly be set aside in the interest of justice. 4. No cross objection under subsection (3) of Section 194A of the Act have been submitted by either of the respondent within the stipulated period prescribed therein. Instead the respondent No. 1 submitted comments on the grounds of memo of appeal, which are placed on record of the case for consideration and perusal at the time of authoring judgment. The representative of the respondent No. 2, adopted the arguments of the representative of respondent No. 1. They further argued that the order passed by the authority below is correct in facts and law. Therefore, need not to be disturbed and be maintained while dismissing the appeal. 5. Heard and perused the record and the relied upon documents/ judgments by the appellant's. Prior to dilating upon other factual and legal aspect of the case, it is of vital importance for me to deliberate on the mechanism/procedure outlined by the legislature in the provision of Section 26A of the Act for conduction of audit of record of importer and on the jurisdiction/powers of Directorate General of Post Clearance Audit (PCA) or respondent No. 1 in conduction of audit under Section 25 of the Sales Tax Act, 1990 and Section 177 of the Income Tax Ordinance, 2001 of the Sales Tax/Income Tax collected at import stage by the Clearance Collectorate/respondent No. 2 or his subordinate as per the enunciation made in Section 6 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001 in the absence of their appointments as Officer of Inland Revenue under Section 30 of the Sales Tax Act, 1990 and any Section of the Income Tax Ordinance, 2001. 6. For obtaining answer to the first part of my observation in regards to mechanism/devised
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procedure of audit, reproduction of Section 26A is of vital importance:-- 26A. Conducting the Audit:--(1) the appropriate officer of Customs conducting any audit under this Act shall proceed in the manner as the Board may by rules prescribe. (2) Where any audit or inquiry or investigation is to be conducted for the purpose of ascertaining the correctness of any declaration or documents or statements for determining the liability of any declaration or document or statement, for determining the liability of any person for duty, taxes fees surcharge fines and penalties, or for ensuring compliance with all other laws administered by the Customs, an appropriate officer of Customs may;- (a) Examine, or cause to be examined upon reasonable notice, any record or any statement or declaration or document described in the notice with reasonable specificity, which may be relevant to such audit, inquiry or investigation: (b) Summon, by giving a notice and reasonable time,- (i) The person who imported, or exported or transported or stored or held under customs bond, or filed a goods declaration, drawback or refund claim, (ii) Any officer, employee or agent of any person described in clause (a); and (iii) Any person having possession custody or care of records and documents required to be kept under the Act and any other person, as deemed proper, to appear before him at a reasonable time and to produce such records and documents as specified in. From bare reading of the provision of Section 26A of the Act, it is abundantly clear that the appropriate designated Officer of Customs empowered by the Board for conducting audit of the record of the importer in the manner prescribed by the Board in Rules. Todate no Rules are framed /issued by the Board despite insertion of Section 26A in the Act through Finance Act, 2006, resultant, the audit of an importer accounts/record maintained by him under the provision of Section 211 and Chapter XI of Act/Rules, has to be conducted by the Officials of Directorate of Post Clearance Audit or respondent No. 1 as per the mechanism provided in the Section itself, wherein appropriate officer of Customs is empowered to conduct audit or inquiry or investigation of an importer for the purpose of ascertaining the correctness of any declaration or documents or statement, for determining the liability of any declaration or document or statement, for determining the liability of any person for duty, taxes, fees, surcharge, fines and penalties, or for ensuring compliance with-all other laws. However, prior to proceeding with the said exercise, the appropriate officer appointed under Section 3DD of the Act for the said purpose and empowered through SRO 500(I)/2009 dated 13.06.2009, which respondent No. 1 have to either summon or give a notice and reasonable time to an importer for the conduction of audit and for the said purpose production of accounts and record as per the expression of clause (b) of subsection (2). The first ground of the appellant in memo of appeal is that the respondent No. 1 has not either issued to him any notice or served a summon for the purported exercise of audit despite mandated under law and this lapse renders the order so conducted which is the root cause of the impugned show- cause notice as of no legal effect. Since, no notice is annexed with the memo. of appeal, the representative of respondent No. 1 was asked to place the copy of the notice/summon forwarded/served to the appellant, as the copy of the same would had been available with him in the case file. The query was replied in negative, which flabbergasted me and. another query was put to him that how the audit was conducted, without asking for the accounts and record of the import, the answer was on the basis of GD's available in the data reservoir maintained by PRAL under, Rule 110 of Rules, upon this the representative of respondent No. 1 was asked to read out the passage available in Section 26A, wherein audit of any importer is permitted on the basis of the record available in the WeBOC Module, to this the answer was given in negative confirming that audit of the importer accounts/book could only be conducted upon presentation of those after receiving notice/summon to do so. In the absence of that conduction of audit on the basis of the
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record available on the WeBOC Reservoir is not permitted as it is settled proposition of law that a thing has to be done as it has been prescribed to be done, in case of doing the same in any other manner render it illegal and as such void and ab initio and this have been held in countless reported judgments, reference is 2002 PTD 2457 that "the thing should be done as they are required to be done, or not at all". The Apex Court held in judgment PLD 1971 Supreme Court 61 "neglect of plane requirement of an absolute statutory enactment prescribing how something is to be done, would invalidate thing being done in some other manner" and in PLD 1973 Supreme Court 236 "it is now well established that where an inferior Tribunal or Court has acted wholly without jurisdiction or taken any action "beyond the sphere allotted to the Tribunal by law and therefore outside the area within which to law recognizes a privilege to err" then such action amounts to a "usurpation of power warranted by law" and as such an act is a nullity that is to say the result of a purported exercise of authority which has no legal effect whatsoever" in such a case, it is well established that a Superior Court is not bound to give effect to it." The said ratio was maintained, in the case of E.A. Avans reported as PLD 1964 SC 536 "where it has been unambiguously and categorically held that if the doing of a thing is made lawful in a manner than doing of that thing in conflict with the manner prescribed will be unlawful." The Hon'ble Apex Court in 2001 SCMR 838 and 2003 SCMR 1505 held that "while considering the impact of violation or non-observance of the method prescribed by law for doing an act in a particular manner or mode, such provision of law is to be followed in letter and spirit and achieving or attaining the objective of performing or doing of a thing in a manner other than provided by law would not be. permitted. The same observation has been made by the Hon'ble Supreme Court of Pakistan in the Civil Petition filed by Director General of Intelligence and Investigation and others v. Messrs Al-Faiz Industries (Pvt.) Ltd. and others reported as 2006 SCMR 129 "if the law had prescribed method for doing of a thing in a particular manner, such provision of law is to be followed in letter and spirit and achieving or attaining the objective of performing or doing of a thing in a manner other than provided by law would not be permitted.". The super structure built on such foundation namely audit observation, show-cause notice and order-in-original no matter how strong those may be have to fall, reference is made to PLD 1996 Karachi 68 which laid down that " where the initial order or notice was void all subsequent preceding, orders or super structure built on it were also void. In reported judgment 2006 PTD 978 it is held that "the entire proceeding initiated by the Adjudicating authority and further super structure thereon including the order passed by the learned Tribunal are without jurisdiction void and in-operative." The Apex Court in PLD 1971 Supreme Court 184 held that "order of a Tribunal found to be without jurisdiction ---all successive orders based upon it illegal and liable to be quashed". 7. That in regards to the second part of my observation available in para 5 supra, I have perused Section 228 of the Income Tax Ordinance and found that the respondent No. 1 has not been appointed/designated as Officer of Inland Revenue by the legislature, instead as per Section 29(2) (b) of Federal Excise Act, 2005 and Section 228 of the Income Tax Ordinance, 2001, the Directorate General of Internal Audit has been appointed/designated as officer of Inland Revenue and for overseeing the collection of withholding Tax, Directorate General of Withholding Taxes has been established under Section 230A of the Income Tax Ordinance, 2001, meaning thereby that the respondent No. 1 is not at all appointed/ designated as Officer of Inland Revenue. Resultant neither Directorate General of PCA nor respondent No. 1 are empowered to exercise the powers of an Officer of Inland Revenue under Section 207 for conducting audit under Section 177 of the Income Tax Ordinance, 2001. Rendering the entire act of audit in the matter of Federal Excise and Income Tax by the respondent No. 2 without powers/jurisdiction and as such coram non judice. Our opinion stood vindicated from the latest reported judgment 2014 PTD 1733 Waseem Ahmed and others v. FOP and another, where it has been held in clear terms that "unless the officer of DGI&1)-FBR are not appointed and an officer of Inland Revenue, powers under the different subsection of the Sales Tax
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Act, 1990 can not be delegated through any S.R.O. with that the Hon'ble High Court of Sindh declared Notification No. 775(1)/2011 ultra vires to the Sales Tax Act, 1990". However, the respondent No. 1 is indeed appointed as Officer of Inland Revenue under Section 30DD of the Sales Tax Act, 1990 and thereafter Board delegated powers through Notification No. 42(I)/2010 under different Sections of the Sales Tax Act, 1990 in column (4) of notification, subject to exercise of those under the designation of authorities given in column (3), which are (i) Chief Commissioner/ Commissioner Inland Revenue (ii) Additional Commissioner of Inland Revenue (ii) Deputy Commissioner Inland Revenue and (iv) Assistant Commissioner Inland Revenue and not in the capacity or designation of (i) Director General /Director -PCA (ii) Additional Director-PCA (iii) Deputy Director-PCA and (iv) Assistant Director-PCA. In the instant case the entire communication including the audit observations and contravention reports were prepared and served in the capacity of either Additional Director or Deputy Director of PCA, which are non existent in column No. (3) of Notification No. 42(1)/2010 dated 23.01.2010, rendering the same without power/jurisdiction. Hence ab initio void and coram non judice. Therefore, entire proceeding right from Audit, Audit observations, contravention reports are of no legal effect. Any super structure built thereon no matter how strong it may be had to fall as held by Superior Judicial Fora in umpteenth reported judgment PLD 1971 SC 197 Chittaranjan Cotton Mills Ltd v. Staff Union, Raunaq Ali's PLD 1973 SC 236, SBLR 2002 Karachi 5 in Messrs Unitex Tower Factory v. The Collector of Customs (Appeals) ) and others, K-106/03 in Messrs. Silver Corporation v. The Additional Collector of Sales Tax (Adjudication), Karachi III, Major Syed Walayat Shah v. Muzaffar Khan and 2 others (PLD 1971 SC 184), Omer and Company v. Controller of Customs, (Valuation): (1992 ALD 449 (1) Karachi AAA Steel Mills Ltd. v. Collector of Sales Tax and Central Excise Collectorate of Sales Tax (2004 PTD 624), PLD 1976 Supreme Court 37 Ali Muhammad v. Hussain Buksh and others and PLD 2001 Supreme Court 514 Land Acquisition Collector, Noshehra and others v. Sarfraz Khan and others. 8. The Section 179 of the Act expresses that the powers of adjudication has to be determined by the authority adjudicating the case on the basis of "amount of duty and taxes involved excluding the conveyance. In the instant case the amount of duty and taxes involved are Rs. 5,652,175.00 (paid upfront duty and taxes of Rs. 4637274 + Rs. 1,014,907.00 shown short paid amount of duty and taxes. Case of such amount falls within the powers of Collector of Customs as per clause (i) of subsection (1) of Section 179 of the Act. To the contrary, the respondent No. 3 issued show-cause notice and passed order-inoriginal by usurping the powers of Collector, which is not permitted under law. Nobody is allowed to usurp the powers of the defined Adjudicating Authority. Rendering the act of issuance of show-cause notice and passing of order-in-original in the instant case without power/jurisdiction, hence ab initio, null and void and coram non judice. It is also settled principle that the exercise of jurisdiction by an authority is mandatory requirement and its non fulfillment would entail the entire E proceeding to be coram non judice. Ref: PLD 1963 SC 663, PLD 1971 SC 184, PLD 1976 Supreme Court 514, 1983 SCMR 1232, 1984 CLC 1517, PLD 1995 Kar. 587, PLD 1992 SC 486, 2001 SCMR 103, 2004 CLD 373, PLD 2004 Supreme Court 600, PLD 2005 Supreme Court 842, 2009 PTD (Trib.) 1996, 2009 PTD 1112, 2010 PTD (Trib.) 832, 2010 PTD 465, 2010 PTD (Trib.) 1636, 2011 PTD (Trib.) 2114, 2011 PTD (Trib.) 2557, 2010 PTD 465 and 2014 Supreme Court 514. (Emphasis supplied) 9. I have also noticed with great concern that the respondent No. 3 in the show-cause notice have 3, 6, 7, 33 and 34 of the STA, 1990 and Section 148 of the ITO, 2001 without realizing that Section 3 while indeed being a charging section cannot be invoked by anyone other than an Officer of Inland Revenue whereas Section 6 is a machinery section that lays down the procedure relating to collection of Sales Tax at the import stage by the customs authorities hence cannot be used to charge anyone for an offence. Section 7 speaks about the determination of tax liability at the time of filing tax returns meaning it is also a machinery section. Section 33 contains penal clauses and Section 34 explains the default surcharge to be paid upon contravention and establishment of the
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charge under the charging section; these sections are independent and cannot be used to invoke a charge. Since, these sections are irrelevant in the matter of customs and no show-cause notice can be issued by a custom officer under these section, render…
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