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Petitioner: United Refrigeration Industries Limited and others VS Respondent: Director, Directorate JUDGMENT
Court Name: Sindh High Court Judge(s): Muhammad Junaid Ghaffar, Agha Faisal Title:United Refrigeration Industries Limited and others vs Director, Directorate
JUDGMENT
Reported As: 2021 PTD 1430, PTCL 2022 CL.98 Result: Reference allowed Judgment JUDGMENT MUHAMMAD JUNAID GHAFFAR, J.----Through these Reference Applications, the Applicants have impugned a common Judgment dated 14.05.2019 passed by the Customs Appellate Tribunal, Karachi, in Customs Appeal No. K-257 of 2017 and other connected matters. The leading Reference Application is SCRA No. 426 of 2019 wherein, on 29.08.2019 while issuing Notice to the Respondents the following Questions of Law were settled by the Court:- "G. Whether during the disputed period of July, 2013 to March, 2016 the department was bound to apply PCT Heading 3824.9091 on the imported goods, in presence of Ruling dated 27.10.2014, Board Letter dated 18.11.2016 and PCT Committee Letter dated 02.12.2016? H. Whether the National PCT heading 3824.9091 mentioned in the First Schedule to the Custom Act, 1969 passed by the Parliament, for the disputed period July, 2013 to March, 2016 can be overruled retrospectively by applying ECO Determination, which was admittedly adopted by Pakistan through Finance Act, 2017-18? I. Whether the Municipal Law will prevail over International Law if the conflict exists between Pakistan Rules (I) and (II) of General Rules of Interpretation in the light of judgment reported as 2014 PTCL CL 437? K. Whether the respondent department had power to exercise the provision of sections 19, 32(1), (2) and 79 of the Customs Act, 1969 in presence of SRO No. 486(1)2007 dated 09.06.2007?" 2. Learned Counsel[1] for the Applicants have contended that the product(s) in question (Wannate PM-2010, Wannate PM-8221, Cosmonate M-200, Millionate MR-200 and Lupranate M20S), being
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polymethylene polyphenylene isocyanates commonly referred to as Polymeric MD's (generically) was regularly being classified by the Department under HS Code 3824.9091 over a considerable period of time; that time and again issue of its Classification was raised by various Departments including the Directorate of Intelligence and Investigation and thereafter, the matter was referred to the Classification Committee of the Appraisement Collectorate at Karachi who vide its decision dated 27.12.2014 held that the goods in question are to be classified under HS Code 3824.9091; that despite this Classification decision, the Directorate of Intelligence was of the view that the goods in question are correctly classifiable HS Code 3909.3000 and once again various Collectorates, pursuant to such view of the Directorate of Intelligence and Investigation changed the Classification and thereafter importers at Lahore had to approach FBR, who vide letter dated 18.11.2016 took exception to such change of Classification without further referring the matter to the Classification Committee and directed to release the consignments under HS Code 3824.9091; that once again the Classification Committee vide Letter dated 02.12.2016 reiterated its earlier opinion that the goods are to be classified under HS Code 3824.9091; that Intelligence Directorate again approached FBR who vide its letter dated 7.3.2017 withdrew its earlier letter dated 18.11.2016 and once again directed the Classification Committee to re-examine the issue; that thereafter, the Classification Committee has issued a new Classification Ruling vide Public Notice No.9/2017 dated 12.6.2017 and has now changed its opinion by holding that the goods in question are classifiable under HS Code 3909.3000; that notwithstanding the changed stance of the Classification Committee and FBR, the said Public Notice is only applicable prospectively, whereas, all consignments in question which are subject matter of these Reference Applications, were cleared prior to issuance of this Public Notice; that in terms of Para 74 of CGO 12 of 2002 it could only be applied prospectively; that subsequently, FBR has also amended the Customs Tariff through Finance Act, 2017, and has now created a specific local heading of these goods under HS Code 3909.3000 which clearly reflects that insofar as the goods in question are concerned, they cannot be classified under the newly created heading as no retrospective effect can be given to an amendment made in the. First Schedule to the Custom Act, 1969 by way of Finance Act, 2017; that as to the prospective Classification under HS code 3909 3000 , the Applicants are not aggrieved; but their case is that the departure from a settled practice which has resulted by way of a Public Notice, can only be applied prospectively, whereas, reliance has been placed on various reported cases[2]. 3. On the other hand, Learned Counsel for the Department[3] has argued that since the Classification earlier determined was found to be incorrect, whereas, it was in respect of some other goods; hence, the Tribunal has come to a correct conclusion by holding that this is not a case of any retrospective application of the Public Notice but a case of mis-declaration of Classification by the Applicants and therefore, fine and penalty was also imposed upon the importers and their custom agents; that no exception can be drawn to the conclusion arrived at by the Tribunal; that it is otherwise a factual controversy which has been decided by the Tribunal against the Applicants; that the Explanatory Notes and the amendments to the harmonised coding system was very much in field and the product in question was always required to be classified under HS Code 3909.3000; that in view of the reported cases[4] all these Reference Applications merit dismissal. 4. We have heard all the learned Counsel and perused the record. It appears that over a number of years the Applicants had imported the product in question[5] commonly referred to as "Polymeric MDI" though having different brands, origins and suppliers; but all along was continuously being classified under HS Code 3824.9091 attracting 5% customs duty, whereas, the claimed Classification by the Respondents under HS Code 3909.3000 attracts 20% customs duty. This appears to be an admitted position. In all these Reference Applications some of the consignments
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were cleared by the customs, and thereafter show-cause notice s were issued, whereas, some of them were detained at Port by the Directorate of Intelligence; fresh samples were drawn and they were referred for chemical test to HEJ Research Institute of Chemistry, University of Karachi. Insofar as detained goods were concerned, the Applicants filed Petitions and Civil Suits before this Court, whereupon, the goods were allowed to be released against deposit of differential amount of duty and taxes, pending final adjudication of their cases. It further appears that based on the purported scrutiny of entire import data of the goods in question it was alleged that from "July, 2013 to March, 2016" the Applicants imported various consignments of the product in question and got them cleared allegedly in connivance with their customs agents under HS Code 3824.9091 instead of 3909.3000. Contravention reports were generated and matter was referred to Adjudication Collectorate(s) where after various Order-in-Original(s) were passed by the Adjudication Officers (on 09.12.2016 in SCRA No.426-2019) in favour of the Department. Some of the matters were routed through first Appeal(s) before the Collector, whereas, some of them were challenged before the Customs Appellate Tribunal directly who has by way of a consolidated order impugned herein has decided 62 Appeals against the Applicants by confirming the Orders-in-Original. Though different facts and intervals are involved as some of the consignments were already released before issuance of show-cause notices, whereas, some of them were detained at Port and were released provisionally pursuant to the above orders; however, in our considered view the following two questions are relevant to decide the controversy in hand. Accordingly, the questions of law are rephrased as under; (a) Whether in the facts and circumstances of the case the goods in question were correctly classifiable under HS code 3824.9091 during July, 2013 to March, 2016 pursuant to Classification Ruling dated 27.10.2014, read with FBR and Classification Committees Letter(s) dated 18.11.2016 and 02.12.2016 respectively? (b) Whether subsequent determination of Classification of the goods in question by the Classification Committee through Public Notice No. 9/2017 dated 12.6.2017 would apply retrospectively on the goods in question? 5. Though the Tribunal as well as the Authorities below have decided the issue of Classification on its own merits and have held that from day one the Classification of the goods in question ought to have been done under HS Code 3909.3000 and while doing so they have disregarded the earlier decision of the Classification Committee as being based on incorrect and wrong appreciation of facts and law; however, for the present purposes, we do not see it appropriate to determine the Classification by itself as according to us only the above legal questions are relevant to decide these Reference Applications. The relevant HS Codes and the Customs Tariff pre 2017 and thereafter stood as under; Pre 2017 and under dispute period 3824.9091 ---- Diphenylmthane (MDI) 3824.9092 ---- Preparations of a kind used for water purification 3909.3000---- Other amino- resins Post 2017 and after amendment in Custom Tariff 3909.3100---- Poly (methylene phenyl isocyanate)(crude MDI, polymeric MDI) 6. As would be clear from the above that prior to 2017 HS Code 3824.9091 provided classification of Diphenylmthane termed as MDI with specific mention in this heading. Though subsequently it has been held in the Order in Original as well in the Classification opinion that this MDI was a different product and the goods of the Applicants were to be classified in HS Code 3909.3000; however, based on this specific mention of MDI in heading 3824.9091, the Classification Committee gave its first opinion and to have a better understanding of the issue we would refer to such determination by the Classification Committee dated 27.12.2014 which reads as under:-
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"GOVERNMENT OF PAKISTAN MODEL CUSTOMS COLLECTORATE OF APPRAISEMENT (EAST) CUSTOM HOUSE, KARACHI C.No. MCC/Misc/493/2014- R&D(East) Dated 27.12.2014 Subject: CLASSIFICATION OF GOODS DECLARED WANNA TE 8019 Kindly referrer M/S ICI Pakistan application dated 10.12.2024 on the above subject. 2. The PCT Classification committee held its meeting on 22.12.2014. It was observed that the impugned item i.e. Wannate 8019 as per the Material safety data sheet provided by M/s ICI comprises; Diphenylmethane-diisocynate---50-40%, Polymeric MDI 40-20% and Prepolymer of MDI and Polyether polyol 10-30%. It also indicates that the product, is a mixture of MDI and Prepolymer of MDI and Polyether Polyol meaning thereby that the product does not fall within the domain of PCT Heading 3909.5000 as "Polyurethane". On the contrary the literature provided by MIS ICI indicates that the impugned item is a component of the polyurethane in its application. The HEJ Laboratory test report available on record bearing TR. No. IMAC/TR/4930 dated 20.01.2014, also supports the view of the Collectorate and is reproduced as below:- In the light of tests carried out, the given sample "Wannate 8019 (Polyurethane) was analyzed by chromatographic technique and identified by Fourier transform Infrared Spectroscopy (FTIR) and found to be a mixture of Polyol-modified Diphenyl methane Di-isocyanate and polyphenylmethane polyiscoynate. It is also called Modified MDI. The impugned item qualifies PCT heading 3824.9091, which is an indigenous four dash heading specifically created for he item / product i.e. "diphenyl methane Di-isocyanate (MDI)". 3. It is pertinent to mention that the issue cropped, up in the year 2010 and an assessment alert was also circulated vide letter No. MCC PaCCS/Misc/Gr 11/4019/09 dated 30.04.2010 by Model Custom Collectorate (PaCCS), Karachi about Classification of modified MDI. The issue again came to surface on 26.12.2013 when the Assessment group III took initiative and after detailed deliberations concluded that the product "Wannate 8019" is rightly classifiable under PCT heading 3824.9091 being Polymeric MDI and Prepolymer of MDI. Moreover, perusal of the assessment data as provide during the meeting vividly suggests that Polymeric MDI and Polyurethane Prepolymer are classifiable I PCT heading 3824.9091. It is not understand as to why the dispute over Classification arose and why there was a departure from correct practice. 4. In view of above mentioned facts, clear Classification in light of relevant chapter / Section Notes read with explanatory Notes and Rule 1 to General Rules for Interpretation, the case does not call for consideration by the Classification Committee. Sd/- (Zeba Bashir Ahmed) Additional Collector I Chairman Classification Committee 7. Perusal of the aforesaid decision of the Classification Committee[6] reflects that the product in question has been examined by the said Committee and after a threadbare scrutiny, the Classification has been determined under HS Code 3824.9091. It has been further observed that the issue first cropped up in 2010 when some assessment alert was circulated by the assessment Collectorates and then once again in 2013 after detailed deliberations it was concluded that Classification of the goods in question is to be done under HS Code 3824.9091. It was further observed that why this dispute over Classification arose once again and why there was a departure from an existing correct practice. The Detecting Agency / Directorate of Intelligence was not satisfied and kept on pursuing the matter. It further appears that some consignments arrived at Lahore Dry Port and were withheld on the complaint of Directorate of Intelligence and once again the Collectorate at Lahore wrote letter dated 27.11.2016 seeking further clarification and the
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Collectorate of Appraisement (East) once again determined the Classification of the goods in question through its letter dated 02.12.2016 under HS Code 3824.9091 which reads as under:- "GOVERNMENT OF PAKISTAN MODEL CUSTOMS COLLECTORATE OF APPRAISEMENT (EAST) CUSTOM HOUSE, KARACHI File No.C-30/KAPE/PCT/2016
Dated 02.12.2016 The Collector MCC Department Mughalpura Dryport, Lahore. Subject: CLASSIFICATION OF POLYMERIC DIPHENYMETHANE DI-ISOCYANATE (mdi) INTERVENTION OF FBR REQUIRED M/S ORIENT ELECTRRONICS (PVT) LIMITED, 26-KM, MULTAN. Please refer to your letter No. V-Cus/Misc-G-I/22/2016/127 dated 23.11.2016 on the subject cited above. ' 2. The issue of Classification of "Polymeric diphenyl methane Di-isocyanate (MDI) has been examined in the light of reference received from MCC, Lahore. The Classification under HS 3909, 3000 is based, on an amendment to the Harmonized System Explanatory Notes approved by WCO Harmonized System Committee in its 52nd Session held in September, 2013. 3. It is observed that the issue of Classification of this particular item had earlier cropped up during the years 2010 and 2014. In 2010, MCC (PaCCS), Karachi issued an Assessment alert for Classification of MDI, under PCT 3824.9091. Later on in 2014, Classification committee declared that "Wannate 8019" being MDI, is correctly classifiable under its specific national sub-heading 3824.9091 (copy enclosed). Moreover, the amendment approved by the Harmonized system committee in its 52nd Session, held in September, 2013 was circulated by WCO with the following standard advice. "Parties seeking to import or export merchandise covered by a decision are advised to verify the Implementation of the Decision by the importing or exporting country, as the case may be." 4. The WCO Convention on HS Classification allows the member countries to implement the WCO recommendations and to create further sub-headings at national level (i.e. on 7 or 8 digit level) through their respective legislations. Pakistan has implemented the harmonized system through an Act of Parliament by inserting the same to the Firs schedule to the Customs Act, 1969. The whole system of HS Classification hinges on the Rules of Interpretation of the First Schedule to the Customs Act, 1969. All headings / sub-headings as appearing in the First Schedule in vogue have, therefore, a legal sanctity and are binding. The Classification Committee is therefore, of the opinion that all polymeric MDIs are classifiable under tariff heading 3824.9091 being specified there by name which is still a valid national sub-heading. The Collector may take up the issue with Board for necessary change in the First Schedule to the Customs Act, 1969, at the time of Budget, in the light of Amendment to the EN during the 52nd Session, issued by World Customs Organization. Sd/- (Muhammad Haris Ansari) Additional Collector II Chairman Classification Committee 8. Perusal of the aforesaid letter and the decision arrived at reflects that once again it was reiterated that the Classification already determined under HS Code 3824.9091 cannot be altered or changed and the Committee also considered the amendment approved by the Harmonized System Committee of the World Customs Organization in its 52nd Session held in September, 2013, and it was observed that WCO Convention on HS Classification allows the member countries to implement the WCO recommendations and to create further sub-headings at national level (i.e. a 7 or 8 digit level heading)[7]; however, till such time the First Schedule to the Customs Act, 1969 is appropriately amended by creating a separate 8 digit national heading; the goods in question
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including all sorts of polymeric MDIs are to be classified under HS heading 3824.9091 being specified by name in the First Schedule to the Customs Act, 1969 (Customs Tariff) which is still a valid national sub-heading. The Lahore Collectorate was further advised to take up the issue with FBR for an appropriate amendment / change in the Customs Tariff, at the time of Budget, in the light of Amendment approved in the 52nd Session, issued by World Customs Organization. It appears that this was not the end of the matter, and once again the issue went to FBR who vide its letter dated 18.11.2016 issued certain directions. The said letter reads as under:- "GOVERNMENT OF PAKISTAN (REVENUE DIVISION) FEDERAL BOARD OF REVENUE" No. 3(2) Tar-I/2014-pt-I
Islamabad dated 18th November, 2016. The Collector, Model Collectorate of Customs (Appraisement), Customs House, Lahore. Subject: CLASSIFICATION OF "POLYMERIC DIPHENYLMETHANE DUSOCYANATE (MDI)"-INTERVENTION OF FBR REQUIRED--M/S ORIENT ELECTRONICS (PVT) LIMITED, 26-KM MULTAN ROAD, LAHORE. The undersigned is directed to refer to Collectorate's letter C.No.V-Cus/Misc-G-1/23/2016/743 dated 25.10.2016 on the subject above and to say that the Collectorate has changed the Classification of Diphenylmethane Di-isocyanate (MDI) from PCT code 3824.9091, a specific national heading in the Pakistan Customs Tariff since 2002-2003, to PCT code 3909.3000 without referring the issue to Classification Committee in terms of Para 2 of CGO 12/2002 dated 15.06.2002, this abrupt departure is in contradiction to the procedure prescribed for change in Classification practices vide Para 74 of AGO ibid. 2. The Collectorate, therefore, is directed to refer the matter to the Classification Committee for obtaining fresh Ruling thereon. Meanwhile import consignments of MDI are of be allowed clearance as per the existing practice under PCT code 3824.9091, if otherwise in order. Sd/- (Syed Aftab Haider) Secretary (Tariff-I) 9. Perusal of the afore said letter reflects that in response to letter of the Lahore Collectorate dated 25.10.2016, FBR was of the view that the Collectorate has changed Classification of the, goods in question from 3824.9091 which is a specified national heading in Customs Tariff since 2002-2003 to PCT Code 3909.3000, without referring the issue to the Classification Committee in terms of Para 2 of CGO 12 of 2002 dated 15.6.2002 and this abrupt departure is in contravention to the procedure prescribed for change of Classification practices vide Para 74 of the said CGO ibid. The Lahore Collectorate was further directed to refer the matter to the Classification Committee for obtaining fresh Ruling thereon, whereas, in the meantime, consignments of Polymeric MDI be allowed clearance as per existing practice under HS Code 3824.9091, if otherwise in order. It further appears that the Directorate of Intelligence was still not satisfied, and once again approached FBR, who without associating the aggrieved Importers vide its letter dated 07.03.2017 withdrew its earlier letter dated 18.11.2016 ab-initio; and once again directed the Classification Committee to re- examine the issue on merits after giving opportunity of hearing to all the stakeholders including the Directorate of Intelligence. Finally, the Classification Committee has issued Public Notice No. 9/2017 dated 12.06.2017 and has now come to the conclusion that the correct Classification of the goods in question is under HS Code 3903.3000.
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10. Now first it has to be seen that whether FBR was empowered to withdraw its letter dated 18.11.2016, which in essence was depicting the correct proposition of law that the practice of Classifying a particular product under a specific HS Code can only be changed prospectively in terms of Para 74 of CGO 12 of 2002, and that too after referral of the matter to the Classification Committee as constituted vide Para 2 thereof. In our considered view the answer would be a "No". Secondly, it is not a case of any departmental practice being followed on the basis of some personal view or assessm ents made in routine by the Appraising Officer, as in that case it can be said that it is not a binding practice, if it is patently against the law and can be changed and must not be followed as settled by this Court[8]. However, here, it is the very competent forum of Classification Committee which had determined the Classification not only once, but twice. Therefore, it cannot be accepted that the said practice of Classification was against the law. At best it could be termed as change of opinion based on the facts and circumstances now prevailing. It is not in dispute that earlier the same Classification Committee had determined the Classification of the goods in question under HS Code 3824.9091 and it continued for a number of years till early 2017 when FBR withdrew its earlier letter and referred the matter once again to the Classification Committee. In fact the letter dated 02.12.2016 addressed to the Collector of Customs Lahore and issued by the Classification Committee through its Chairman was done by the same person who has now issued the new Public Notice dated 12.06.2017 as its Chairman. This would only mean that it was a question of interpretation which required much deeper appreciation and the Classification of the goods was not per-se that easy to be determined as apparently on a number of occasions it was held that the Classification under HS Code 3824.9091 was correct. In that case, we are surprised to note that not only show-cause notices were issued for alleged mis-declaration of the classification code; but so also fine and penalties have been imposed which have been upheld by the learned Tribunal as well. How this could be a case of mis-declaration when all along until 12.06.2017 the earlier Classification Ruling and the communications were in field and it is not that these Rulings were issued, by any incompetent authority; rather it was done by the same Classification Committee through its Chairman, having appropriate authority and jurisdiction[9] as well as expertise for doing so. It is settled law that classification of goods is a question based on legal and factual determination and so also of interpretation of the HS Codes and the Customs Tariff; hence, there could always be a difference of opinion in interpreting the same. It is not that it always will be a case of mens rea and imposition of penalty if the claimed HS Code is not accepted by the Department. More specifically, in the present case it was the Customs own department as well as FBR who have determined and directed release of goods in the claimed classification code of 3824.9091. How in that case an allegation of mis-declaration and imposition of fine and penalty can be made out and sustained is beyond comprehension. The law has been settled in this regard on the contrary that in such cases no fine and penalty has to be imposed. Therefore, in our opinion sustaining the imposition of fine and penalty imposed by the Adjudicating authority would not be proper and in accordance with law. A comparison of two…
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