Full Judgment Text & Judicial Ruling

2018 P T D (Trib.) 1685 [Customs Appellate Tribunal] Before Tahir Zia, Member Judicial-II and Muhammad Nazim Saleem, Member Technical-II Messrs SHAHEEN AERO TRADERS AVIONIC ENGINEERING, RAWALPINDI and another Versus DEPUTY COLLECTOR OF CUSTOMS, GROUP-III, MCC OF APPRAISEMENT WEST, KARACHI and another Customs Appeals Nos. K-2204 and K-2217 of 2016, decided on 13th July, 2017. (a) Customs Act (IV of 1969)--- ----Ss. 25, 25-A, 32 & 79---SRO No.499(I)/2009, dated 13-6-2009---Mis-declaration---Importer, submitted goods declaration---Said declaration was confirmed in all aspects---Assessing Officer passed the assessment order on declared value against quantity of each item---Principal Appraiser framed contravention report in respect of one of the imported items, with the allegation that the importer in connivance with the other importer had committed an act of mis-declaration of weight which was found excess and tried to evade the duty and contravene the provisions of Ss.32 & 79 of the Customs Act, 1969, S.33 of the Sales Tax Act, 1990 and S.148 of Income Tax Ordinance, 2001, punishable under S.156(1)(14) of the Customs Act, 1969---Collector of Customs, ordered confiscation of goods, subject to redemption of 20% fine by invoking S.33 of the Sales Tax Act, 1990 and S.148 of the Income Tax Ordinance, 2001---Section 33 of the Sales Tax Act, 1990 was a penal section and contained penal clauses, which were to be invoked on the contravention of charging/respective sections of the Sales Tax Act, 1990---Said section was synonymous with S.156(1) of the Customs Act, 1969---Section 33 of the Sales Tax Act, 1990 could not be invoked unless charging/relevant sections were invoked by the authority empowered under the respective provisions of Sales Tax Act, 1990---Section 148 of the Income Tax Ordinance, 2001, contained procedure for collection of income tax at import stage by the authorities referred therein---Said sections were independent under which no charge could be invoked---No show-cause notice could be issued under said sections---Issuance of show-cause notice on the basis of irrelevant sections, rendered show-cause notice and order-in-original void ab initio and of no legal effect---Collectorate of Customs was not empowered to lay hands on the matter falling within ambit of S.11 of the Sales Tax Act, 1990 and S.162 of Income Tax Ordinance, 2001---Said sections empowered the Officers of Inland Revenue/Commissioner of Income Tax to initiate adjudication/recovery proceedings for the short collected/paid sales tax and income tax---Clearance Collectorates, did have the authority to collect sales tax and income tax at import stage in the capacity of collecting agent and could recover escaped/short payment paid customs duty and regulatory duty levied on imported goods, after process of law, but had no powers to adjudicate the cases of short recovery/evaded amount of sales tax and income tax---Exercise of jurisdiction on that point by Collector of Customs Adjudication, was without lawful authority---Issuance of show-cause notice and passing of order-in-original were held to be ab initio void, coram non judice on that point. [Case-law referred] (b) Words and phrases--- ----Declaration---Meanings.

[Case-law referred] (c) Customs Act (IV of 1969)--- ----S. 32---False statement or misdeclaration---Declaration of importer, could only be termed as 'misdeclared', if during the course of examination, his given description, quality, quantity or weight was found contrary or any document delivered to Customs Officer was found to be false, forged or tampered; or a statement given in answer to any question put to him, was found to be false---Prior to leveling allegation under S.32 of the Customs Act, 1969, Authority had to determine that whether the importer had given declaration or submitted document/statement knowingly or having reason to believe that such documents and statement was false in material particular---Importers had been dragged needlessly, in the litigation in the absence of any wrong-doing or misdeclaration within the meanings of S.32 of the Customs Act, 1969---Show-cause notice was vacated and impugned order-in-original, was set aside, in circumstances. [Case-law referred] (d) Customs Act (IV of 1969)--- ----Ss. 25, 25-A, 32 & 156---Charging of duty and taxes on the imported goods---Duty and taxes, to be charged on goods, actually imported for use/consumption of the general public---No provision of Customs Act, 1969 had empowered the officer of Customs to add the weight of essential/non-essential packing---Vital element was its cost not weight and that was validated from the provisions of S.25 of the Customs Act, 1969 which provided about "goods" and "class of goods". [Case-law referred] Nadeem Ahmed Mirza (Consultant) present for Appellant. Adnan Rafiq, Deputy Collector and Asad Masood Principal Appraiser present for Respondents. Date of hearing: 6th July, 2017. JUDGMENT TAHIR ZIA, MEMBER (JUDICIAL-II).---Through this common order, we intend to dispose off two (2) Appeals bearing Nos. K-2204/2016 and K-2217/2016 directed against Order-in-Original No. 603236 dated 25.11.2016, passed by Collector of Customs, Adjudication-I, Customs House, Karachi. 2. Since, these 02 appeals are based on similar facts and questions of law, therefore, it is needless to reproduce facts of each case separately. Hence, being heard and dealt with and disposed off simultaneously though this common order for reference, facts of Appeal No. K-2204/2016, which are M/s. Shaheen Aerotraders Avionic Engineering, Rawalpindi (here-in-after to be referred as appellant No. 1) are taken and which are that M/s. Shaheen Aerotraders Avionic Engineering, Rawalpindi is a Welfare Trust of Shaheen Foundation owned by Pakistan Air Force, appellant participated in a tender floated by Government of Pakistan General Headquarter (Logistics Staff Branch), Directorate General of Procurement (Army) for supply of Latex Surgical Powder Gloves for use in Combined Military Hospitals (CMH), upon bidding succeeded in award of the contract for supply of 2,700,000 pieces of PV -05345 Gloves Operation Sterilized Rough Size 7 and 4,743,333 pieces of PV -05346 Gloves operation Sterilized Rough Size 8 vide No. 28-1827 dated 06.11.2015 i.e. 50% by 01.12.2016 and 50% on or before 01.12.2017.1n pursuance of the contract contacted M/s. TG. Medical SDN -BHD Malaysia with the specification of the gloves and after approving the samples, forwarded by them, by the Directorate General of Procurement (Army), entered into an agreement for procurement and were asked to forward proforma invoice for establishing letter of credit. M/s. TG. Medical SDN -BHD Malaysia forwarded proforma invoice No. 2000029721 dated 28.06.2016. The Appellant No. 1 against the said proforma invoice established irrevocable letter of credit vide No. ILC27300612916 dated 12.07.2016 favouring M/s. TG. Medical SDN --BHD Malaysia. Which after producing of the goods and shipped a partial shipment, prior to under scrutiny consignments, against which GD was transmitted by the clearing agent namely M/s. Arshad Suleh Corporation, Karachi (here-in-after to be referred as appellant No. 2), which was allowed clearance by the respondent department with the acceptance of declaration in totality, which include the declared quantity of the goods (Latex Surgical Powdered Gloves). Subsequently, the shipper consigned the balance quantity vide Invoice No.90072827 dated 13.10.2016 for 5414400 pieces weighing to 49825.48 kgs, gloves, each piece of which was packed in airtight medicated container and one dozen in a box akin to tissue and those boxes were packed in 6768 cartons weighing to 30564.52 kgs, containing specification Latex Surgical Powdered Gloves (280mm) Palm Texture Embosed Outside Natural, no flavor sterilized, (FG), Gnrl Formation Brand TG Medical @ USS. 0.162/pair C&F of each size i.e. US$ 438,566.40. shipped and B/L No. MYPKG0000011677 dated 14.10.2016, the Appellant No. 1 after retiring the documents from the bank, delivered those to appellant No. 2 for transmitting Goods Declaration (here-in-after to be referred as GD) with the MCC of Appraisement-West under the provision of Section 79(1) of the Customs Act, 1969 (here-in-after to be referred as Act) and Rule 433 of Sub-Chapter III of Chapter XXI of the Customs Rules, 2001 (here-in-after to be referred as Rules). Who accordingly transmitted the GD on the basis of the documents i.e. for 5414400 pieces gloves weighing to 49825.40 kgs being the imported goods, no declaration whatsoever was transmitted for 30564.52 kgs i.e. weight of material used for essential/non essential packing. He as per pre-requisite for availing the regime of WeBOC deposited upfront duty and taxes of Rs. 24,865,143.00 vide cash No. C-KAPW-18949-31.10.2016 after obtaining pay orders from the Appellant No. 1, consequent to which GD was allotted No.KAPW-HC-83903-31.10.2016. Upon appearance of the GD on the desktop the Appraiser concerned opted to get the goods examined first under the provision of Section 198 and Rule 433 of the Act/Rules and to proceed with after adducing his opinion for conduction of examination transmitted the GD to Deputy Collector of Customs, Group-III, MCC of Appraisement-West, (here-in-after to be referred as respondent No.1), who gave his assent and routed the GD to the Deputy Collector KICT, who onward marked it to the examiner for conduction of physical examination of the goods. Who accordingly complied to the order and confirmed the declaration in all aspects (no observation in regards to excess weight was adduced with the exception that the weight of goods given in report of each container is inclusive of the weight of retail packing). The reports of 06 containers were thereafter posted by him in the reservoir of the GD. Upon receipt of which on his desktop, the assessing officer passed the assessment orders on declared value against quantity of each item i.e. Gloves of different sizes. Ironically as against imported 04 items, he created fifth item on the strength of weight of essential/non essential packing i.e. 23,120 kgs, in the absence of availability of gloves and assessed those at the value declared by the Appellant No. 1 on which duty and taxes were calculated to the extent of Rs.11,537,868.00 and transmitted the GD to Principal Appraiser, who on the strength of assessment order/note for the fifth created item framed contravention report with the allegation that the appellant No. 1 in connivance with the appellant No. 2 committed an act of misdeclaration of weight, which is found excess by 46.39%, on which the duty and taxes of Rs. 11,537,868.00 are payable by the appellant No.1, which they tried to evade and as such contravened the provisions of sections 79(1), 32(1), 32(2) of the Act, Section 33 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001, punishable under clauses (1) & (14) of section 156 of the Customs Act, 1969 read with SRO 499(I)/2009 dated 13.06.2016 and transmitted the GD to Additional Collector, Law, who approved that and routed the GD to Respondent No.2, who transmitted show-cause notice dated 10.11.2016 containing the reported fact and invoked provision of the Acts/Ordinance by the Respondent No. 1 with the direction to the Appellants to reply to the allegation levelled therein. The Appellant No. 1 pasted the reply dated 14.09.2016 online, whereas appellant No. 2 submitted written reply as no space is available in the WeBOC module for him to paste that. Through the replies appellants challenged the jurisdiction of Respondent No.2 under the provision of Section 11 of the Sales Tax Act, 1990 and section 162(1) of the Income Tax Ordinance, 2001 and so the veracity of the found excess weight and charges of misdeclaration. The Respondent No.2 without dilating upon the advanced arguments passed order dated 25.11.2016 holding that the charges levelled in the show-cause notice stand established against the appellant and ordered confiscation of the goods of the appellant No. 1 subject to redemption of those upon payment of 20% fine of Rs.4,338,687.00, penalty of Rs. 300,000,00 in addition to duty and taxes leviable on the weight of essential non essential packing of the Gloves amounting to Rs.11,537,868.00, a penalty of Rs. 100,000.00 was also imposed on the appellant No. 2, verbatim of the relevant portion of the order is reproduced here-in-below: Record of the case has been examined and written as well as verbal arguments/ contention of all the sides been considered carefully. Perusal of the show-cause notice shows that the basic allegation against the importer is misdeclaration of weight by way of deliberately concealing that weight of the imported goods in order to get the same assessed on suppressed value and payment of less duty /taxes top the tune of Rs. 11537868/-. The act of the importer attracts the provision of sections 32(1), (2), 79(1) of the Customs Act, 1969 and Section 33 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001, punishable under clauses (1) (14) of section 156(l) of the Customs Act, 1969 read with SRO 499(I)/2009 dated 13.06.2009 as amended from time to time. Contention behalf of the importer challenging jurisdiction and power of adjudicating authority to issue show-cause notice under provision of Sales Tax Act, 1990 and Income Tax Ordinance, 2001 has not legal force. The relevant law doses not provide any such restriction or bar on the adjudicating authority. The matter has further been clarified by Federal Board of Revenue vide letter No. 3(32) TAR-1/90 dated 06.08.2012 after obtaining a legal opinion from the Ministry of Law and Justice. According to the said clarification, the relevant officers of Customs may, therefore continue the adjudication proceedings already initiated and take cognizance of all cases of FED, Sales Tax and withholding Tax pertaining to import stage in future as well. Therefore, the contention of importer consultant is nothing but to divert the attention from the actual issue. The importer has failed to give any solid explanation to justify misdeclaration of weight in the imported goods as a result of the examination. The case making agency on the other end has been successful in proving its case in view of the arguments forwarded by them as explained above 3. In view of above stated, the charge of misdeclaration of weight against the importer is established the consignment/ impugned goods are, therefore confiscated for violation of the provision of the relevant law as mentioned in the show-cause cotice. However, an auction under Section 181 of the Customs Act, 1969 is given to the importer to redeem the same on payment of 20% redemption Fine of Rs. 4338687/- (Rupees four million three hundred thirty eight thousand six hundred and eighty seven only). Equivalent to the value of offending goods and mentioned by the department (i.e. 20% of Rs. 21693430/-) in terms of SRO 499(I)/2009 dated 13.06.2009 in addition to payment of leviable duty and taxes chargeable thereon. Penalty of Rs.300,000/- (Rupees three lacs only) is also imposed on the importer and Rs.100,000/- (Rupees one hundred thousand) on clearing agent for violation above mentioned provision of law. 3. Being aggrieved and dissatisfied with the Order-in-Original, the appellant filed the appeals before this Tribunal on the grounds incorporated in the memo. of appeal. The appellant's counsel argued strictly in consonance with those and prayed for acceptance of appeal 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. However, on the date of hearing the representative of the respondent forcefully defended the order passed by respondent No. 2 being correct in facts and law. Therefore, need not to be disturbed and be maintained while dismissing the appeals. 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 us to dilate upon the invoking of Section 33 of the Sales Tax and Section 148 of the Income Tax Ordinance, 2001 and jurisdiction of Collectorate of Customs Adjudication and power of respondent No.2 in the matter pertaining to Sales Tax and Income Tax, falling under the ambit of the provision of section 11 and section 162 of the Sales Tax Act, 1990 and Income Tax Ordinance, 2001, which respondent No. 2 assumed on the strength of letter of clarification issued by the Federal Board of Revenue vide letter No. 3(32) TAR-1/90 dated 06.08.2012 after obtaining a legal opinion from the Ministry of Law and Justice, legality of Which has been challenged by the consultants with the submission that neither Board nor Ministry of Law have any mandate to interpret the provision of statute passed by the legislature for obtaining the desired results of their choice as the job of interpretation of statute rest with the High/Supreme Courts of Pakistan and in support of their stance relied upon reported judgments 1996 SCMR 1232 Central Insurance Company v. CBR and 2005 PTD 2462 M/s. Lever Brothers Pakistan Ltd. v. Customs Sales Tax and Central Excise Appellate Tribunal and in regards to the jurisdiction and powers of the Officer of Clearance Collectorate and Adjudication relied upon several reported judgments of this Tribunal and High Courts. 6. upon perusal of the show-cause notice, we have noticed with great concern that the respondent No.2 has invoked section 33 of the Sales Tax Act, 1990 and section 148 Income Tax Ordinance, 2001 without going through section 33 of the Sales Tax Act, 1990 despite being mandatory upon him as it is settled proposition of law that a judge should wear all the laws of the land under his sleeves, section 33 of the Sales Tax Act, 1990 is a penal section and contains penal clauses, which are to be invoked on the contravention of charging/respective Sections of the Sales Tax Act, 1990, this Section is synonymous to section 156(1) of the Customs Act, 1969. Meaning thereby, that the clauses of section 33 cannot be invoked unless charging /relevant sections are invoked by the authority empowered under the respective provision of Sales Tax, 1990. Similarly, section 148 of the Income Tax Ordinance, 2001 contains procedure for collection of Income Tax at import stage by the authorities referred therein. Meaning thereby that the said sections are independent under which no charge can be invoked. No show-cause notice can be issued under these sections. Issuance of show-cause notice on the basis of irrelevant sections renders it and the order-in-original is void and ab-initio and of no legal effect as held in reported judgment judgments Asst. Collector v. Khyber Elec. Lamps 2003 PTD 1275, D G Khan Cement v. Collector of Customs 2005 PTD 480, Caltex v. Collector (2003) 88 Taxation 128 (Lah), Union Playing Card Company v. Collector of Customs 2002 MLD 130, Atlas Tyres v. Addl. Collector 2002 MLD 180, State Cement v. Collector PTCL 2001 CL 558, Kashmir Sugar v. Collector 1992 SCMR 1898, Rose Color v. Chairman, CBR and 2013 PTD 813 Sarwar International v. Addl. Collector of Customs. 7. For further crystallizing, the issue relating to recovery of short paid sales tax and income tax. We are indebted to peruse section 30 of Sales Tax Act, 1990 and section 228 of the Income Tax Ordinance, 2001 and have observed that the legislature appoints under the said Sections different organs of the FBR as Officer of Inland Revenue for exercising powers under the respective Sections of the Act/Ordinance, delegated through statutory notifications or under Section 207 of the Income Tax Ordinance, 2001. In these Sections neither Officers of Clearance Collectorate nor respondent No. 2 figures anywhere nor in charging section 11 of the Sales Tax Act, 1990 or section 162(1) of the Income Tax Ordinance, 2001. Therefore, the respondents Collectorate under no circumstances assume jurisdiction in the matter of Sales Tax/Income Tax. Therefore, neither respondent collectorate nor respondent No. 2 are empowered to lay hands on the matter falling within the ambit of section 11 of the Sales Tax Act, 1990 and section 162(1) of the Income Tax Ordinance, 2001. These sections empowers the Officers of Inland Revenue/ Commissioner of Income Tax to initiate adjudication / recovery proceeding for the short collected/paid Sales Tax and Income Tax either due to collusion or connivance or inadvertent, error or misconstruction. For proceeding for these type of recovery proceeding have to be carried out under the aforesaid provision of the Sales Tax Act, 1990 and Income Tax Ordinance, 2001. The assumption of jurisdiction and powers on the strength of Boards letter C.No. 3(32) TAR-I/90 dated 06.08.2012 by respondent No. 2 is patently based on misconception and lend no help to him as Board have no mandate to interpret the provision of the Act or amend the provision. It can only give opinion it is for the judicial fora to interpret the provision of statute and our opinion stood validated from the reported judgment 1993 SCMR 1232 in the case of Central Insurance Co. v. Central Board of Revenue the Hon'ble Supreme Court of Pakistan held that "Board's view as to the interpretation of law do not have the force of law and the exception would be, where a fiscal statute is involved, that should be implemented with strict impartiality" and 2005 PTD 2462 M/s. Lever Brother Pakistan Ltd. v. Customs Sales Tax and Central Excise Appellate Tribunal, Karachi that "CBR has no place to in the Scheme of Law, conferred with the jurisdiction to interpret any law, statutory or in exercise of any deliberate authority i.e. subordinate legislation" whereas, in 2016 PTD (Trib.) 107 Qazi CNG Station, Gujrat and another v. Directorate General of Intelligence and Investigation-FBR, Karachi and 02 others, this Tribunal held that "statute can be amended by the Parliament and a notification through a notification not through any communication. In the absence of amendment of notification, clarification issued by the department could only be termed as opinion and it would not at all amend the notification". Therefore, assuming powers on the strength of letter of the Board is palpably illegal beside fatal for the health of the case. Even otherwise, the letter's speaks about collection of Federal Excise Duty at import stage in the same manner and at the same time, as if it is a duty of customs payable under the Customs Act, 1969 (IV of 1969) and for collection of the same the provision of section 31A also apply. Reference of section 7 of the Federal Excise Act, 2005 has also been given simply for clarification that for collection of import duty provision of Sales Tax 1990 is applicable. In order to lend clarity expression of Section 11 of the Sales Tax Act, 1990 and Section 162(1) of the Income Tax Ordinance, 2001 are referred, which empowered the Officer of Inland Revenue and Commission of Income Tax and none else, which includes also respondent No. 2 . He assumed the power not vested with him under the provision of sections 11 and 162(1) of the Sales Tax Act, 1990 and Income Tax Ordinance, 2001. Therefore, we hold without any reservation that the Customs Collectorates does have powers to collect and enforce payment of Sales Tax and Income Tax at the time of clearance. The plea that the Customs is empowered to recover the short paid amount of sales tax and income tax at the import stage under section 202 of the Customs Act, 1969 is also based on mistaken belief. The fact of matter is Customs Collectorate could recover the amount of Sales Tax and Income Tax only upon receipt of notice from the Officer of Inland Revenue and Commissioner of Income Tax in terms Section 48 of The Sales Tax Act, 1990 and section 140 of the Income Tax Ordinance for recovery of the adjudged amount of Sales Tax and Income Tax after due process of law. Therefore, it is our considered opinion that the Clearance Collectorates does have the authority to collect Sales Tax and Income Tax at import stage in the capacity of collecting agent and can recover escaped/short payment paid Custom Duty and Regulatory Duty levied on the imported goods under Sections 18, 18A and 18C of the Act under section 202 ibid., after due process of law, but have no powers to adjudicate the cases of short recovery/evaded amount of Sales Tax and Income Tax falling within the ambit of Section 11 of the Sales Tax Act, 1990 and Section 162(1) of the Income Tax Ordinance, 2001, our opinion stands fortified from the reported/unreported judgment of the superior Judicial Fora namely 2011 PTD (Trib.) 110, 2010 PTD (Trib) 2086, SCRA No. 01/2010, 2004 PTD 801 , C.P. No. D 216/2013, 2015 PTD 702, 2016 PTD (Trib.)…

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