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Petitioner: Salman Enterprises, Karachi VS Respondent: The Deputy Director, Directorate General Of
Court Name: Customs Appellate Tribunal Judge(s): Jehanzaib Wahlah Title:Salman Enterprises, Karachi vs The Deputy Director, Directorate General Of
JUDGMENT
Reported As: 2022 PTD (Trib.) 144 Result: Appeal allowed Judgment JUDGMENT JAHANZAIB WAHLAH, MEMBER JUDIC IAL-III .----Through this order , I intend to dispose off Appeal bearing No. K-776/2019 directed against Order-in-Orig inal No. 370/2018-19 dated 21.05.2019 passed by Collector of Customs (Adjudication-II), Karachi. 2. Brief facts of the case are, appellant during the course of his business activities imported 13 consignments of "Cheese" of PCT heading 0406.1010 on different dates through Goods Declarati on (GD) Nos. KAPE-HC-10184- 07.08.2013, KAPE-HC-38521-051 12013, KAPE-HC-43996-231 12013, KAPE-HC-55492-27122013. KAPE-HC- 65457- 25012014, KAPE-HC-79709-10032014, KAPE-HC-91972-15042014, KAPE-HC-101830-13052014, KAPE- HC-1 17800-25062014, KAPE-HC-4355-12072014,KAPE-HC-42646-20102014,KAPE-HC-64048-05122014 and KAPE-HC-1 15365-20032015, while claiming benefit/exemption under SRO 501(I)/2013 dated 12.06.2013 and Serial No.79 of Sixth Schedule to the Sales Tax Act, 1990 (STA). The nominated Appraising Officers upon appearance of GDs on their workstations instead of assessing the goods on the strength of transmitted declarations opted to get the goods examined, wherein goods were found as per declaration. On the strength of which the competent authorities defined in Section 2(a) of the Customs Act, 1969 (Act) in exercise of the power vested upon them through SRO 371(1)/2 002 dated 15.06.2002 passed assessment/clearance orders under the provision of Sections 80 and 83 of the Act, and Rules 438 and 442 of Sub-Chapter (III) of Chapter XXI of Customs Rules, 2001 (Rules) and the appellant's clearing agent obtained the deliveries from the terminals. After lapse of about 4 to 5 years of the clearance of the consignments, the Deputy Directo r, Directorate General of Post Clearance Audit, Karachi (respondent No.1) issued an audit observation dated 12.01.2017 with the opinion that the appellant imported 13 consignments from MCC of Appraisement-East of Cheese were actually grated and shredded filling under PCT 0406.2000 on which sales tax is payable at 17% in addition to 6% income tax as
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against declared PCT Heading 0406.1010. The said act was construed to be mis-declaration, instrumental in short payment/evasion of taxes to the tune of Rs.7,266,505/-. Which was replied.by the consultant vide letter dated 27.02.2017 through which legality of conduction of audit under section 26(2) of the Act and subsequent proceeding, inclusive of jurisdiction/powers of conduction of audit tinder section 25 of the STA and Section 177 of the Income Tax Ordinance, 2001 ITO) in the absence of availability of lawful authority and the respondent No.1 was further abreast that the claimed benefit/exemption under serial No.79 of the Sixth Schedule to the STA being admissible was rightly allowed/extended by the respondent No.2 and his subordinates. Hence, the formed opinion contrary to the intention of legislature is absurd and requested him to withdraw the audit observation. The reply was ignored and respondent No.1 framed contravention report and forwarded that to respondent No.3, who on the strength of which issued show-cause notice dated 04.12.2019 with the allegation that the appellant obtained the clearance of the goods consignments under the benefit under serial No.79 of the Sixth Schedule of the STA, which was otherwise not available and as such has short paid/evaded amount of Rs.7,266,505/-. Hence, contravened the provision of Sections 32(1), (2), 32(3A), 32(5) of the Act and Sections 3, 6, 7 and 34 of the STA and Section 148 of the ITO, punishable under clauses (1) and (14) of Section 156(1) of the Act and Section 33(5) of the STA and Sections 148 and 182 of the ITO. The advocate of the appellant submitted reply dated 18.02.2019 to the show- cause notice through which he challeng ed the mode and manner of conduction of audit and the authority of respondents Nos.1 and 3 in the matter of sales tax and income tax and ignoring the proposition of law enunciated in Section 193 of the Act and denying the benefit of the Sales Tax despite admissible under Serial No.79 of the Sixth Schedule to the STA and requested the respondent No.3 to vacate the show-cause notice as of no substance and of legal effect. The respondent No.3 without rebutting the arguments submitted in the reply passed order dated 21.05.2019 holding the charges levelled in the show-cause notice stand establishe d and ordered payment of short paid/alleged evaded amount of taxes of Rs.7,266,505/- along with imposed penalty of Rs.1.000,000/, Paras 9 to 18 are relevant, which read as follows: 9. I have examined the case record and considered written/verbal arguments put forth by both sides. It has been alleged by the Directorate of Post Clearance Audit (Customs), Karachi that respondent importer imported (13) consignments of "Shredded/Grated Cheese" and got cleared from the Model Customs Collectorate of Appraisement-East, Custom House Kara chi through their clearing agent by mis-declaring the classification under PCT Heading 0406.3000 in order to avail inadmissible benefit/exemption of Sales Tax under 6th Schedule of the Sales Tax Act, 1990. The impugned goods are appropriately classifiable under PCT 0406.2000 and are chargeable to sales tax @ 17% and corresponding income tax 0.6% hence, Messrs Rotech Enterprises, Karachi has evaded the amount of taxes Rs.7.266,505/- (sales tax Rs.6740,524/- income tax Rs.525,981/-). 10. During the course of proceedings before the undersigned, the respondents agitated power of adjudicating authority being the officer of Sales Tax. He asserted that the Custom Officers although are empowered to collect sales Tax and Income Tax at import stage but have no jurisdiction/powers for the recovery of short levied sales tax and income tax at import stage and in this regard he has relied on a judgment of Sindh High Court in the Case of M/s. Lucy Cement, Karachi, the Hon'ble Sindh High Court however , on the same matter had decided that the Customs Officer are empowered to recove r short levied income tax and sale tax. This judgment is given in the case of Messr Al-Haj Industrial Corporation Ltd. Alam Gujra Road, Dara Khyber Agency , Peshawar , N.W.F.P., wherein it is said as under: "The question for the consideration whereof the appeal was admitted to regular hearing is answered in terms that a Tribunal has rightly upheld the recovery of evaded tax under section 50(5) of the Income Tax Ordinance, 1979. Which is within the competence of Customs Authorities by virtue of provision contained in Section 50(5) of the Income T ax Ordinance, read with section 202 of the Customs Act, 1969" 11. Not only that, the specialized law, the Customs Act, 1969, in its section 32 very clearly lays down that short levy "of any duty, taxes or charge has to be paid by the liable person" and in this regard show-cause notice has to be issued to him by the competent authorities of the Customs. Actually , this is payment of short paid amount which was required to be paid at the import stage and this is a kind of collection of tax which was not collected at the time of import. Attention is invited to other sections of the Customs Act, 1969 such as section 179 which clearly lays
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down power of adjudication for recovery of "duty and other taxes not levied short levied or erroneously refunded". Another section 02 of the Customs Act, 1969, which also empowers customs officers "to recover any tax duty or other levy being collected in the same manner as the customs duty are collected. "If the same is due against liable person. The section 6 of the Sales T ax Act, 1990 read as under . "Time and manner of payment: - (i) The tax in respect of goods imported into Pakistan shall be charged and paid in the same manner and at the same time as if it were a duty of customs payable under Customs Act, 1969 and the provisions of the said Act including section 31A thereof, shall so far as they relates to Collection, payment and enforcement of the tax under this Act on such goods where no specific provisions exist in this Act, apply . 12- Similarly , section 148 subsections (5) and (6) also clearly laid down as under: (5) Advanced tax shall be collected in the same manner and at the same time as the custom duty payable in respect of the import or if the goods are exempt from custom-duty at the time custom duty would be payable if the goods were dutiable. (6) The provision of Customs Act, 1969 (IV of 1969) in so far as relevant, shall apply to the collection of the tax under this section. 13- Beside, Federal Board of Revenue vide its clarification C.No. 3(32) Tax--I/90 dated 06082012 has circulated the legal opinion of Ministry of Law vide letter No. F.242/2012-Law-I, dated 11.07.2012 and on the basis of which it has been clarified that: - "the relevant officer of Customs may, therefore, continue the adjudication proceeding already' initiated and take cognizance of all case of FED, Sales T ax and withholding tax" 14. It is further added that Hon'ble Lahor e High Court in Writ Petition No. 67182 of 2017 as held that by virtue of Sections 32 and 179 of the Customs Act, 1969 or competent to Act as officer of Sales and Income Tax. For case of reference the relevant paragraph are reproduced below:- 22. As adumbrated, there is a chronology of event which clearly depict a conscience attempt on the part of the legislature to add the word "taxes" in the scheme and structure of the Act, 1969. For instance, section 179 prior to its amendment by Finance Act, 2012 so far as relevant did not conferred jurisdiction on the Officer of Customs, in respect of recovery of duty and other taxes not levied, short levied and erroneously refunded. Thus by the amendment brought about in the year 2012 the jurisdiction of officer of Customs was expanded to include adjudication of cases relating to recovery of duty and other taxes and did not remains confined to cases involved in confiscation of goods and imposition of penalty "under this Act or the Rules made there under" (underlining supplied). Thus, the power of Adjudication was materially expanded not only to include the power of recovery of duty but also other taws. At that rime section 2 did not time well with the amended section 179. This was realized by the legislature and through Finance Act, 2014 Section 32 was amended in such a way that the word "taxes" was added so as to conferred jurisdiction on the officers of Customs for making adjudication in respect of taxes which had been levied or had been short levied. It cannot be urged by the petitioners that this was without any purpose or done throughtlessly by the legislature. If by over sight section 179 had been amended to include the word "taxes" the legislature ought to have become wider by excluding the word "taxes" from Section 179 rather than making its intention clear to the contrary by adding the word section 32 as well for, it is futile to conferred the power of adjudication on the officer of customs while failing to make and corresponding change in the substantive provision and which also prescribes the procedure for carrying out the adjudication proceeding by the officials of Customs. Thus there is not doubt that the word "taxes" was included in the scheme of the Act, 1969 with the purpose and deliberately . It is admitted on all hands that no taxes are levied under the provisions of the Act, 1969 and only charged which has been imposed is the duty of customs under section 18 of the Act, 1969, which prescribed the goods are liable to imposition of Custom Duty prescribed in the first schedule. The provision of section 18 also envisaged the levy of regulatory duty as well as additional custom duty. However , the entire Customs Act, 1969 does not referred to levy of taxes to which a reference could be made or a relation could be established vis a vis section 32 and sectio n 179. As stated above, in the preceding paragraph not only the Income Tax Ordinance, 2001 but also Sales Tax Act, 1990 required the levy and recove ry of withholding tax as well as
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sales tax imposed on the imported goods and for their recovery to be effected at the time of imposition by the Officer of Customs. The officers of customs, therefore, act as the collecting agent for the income tax as well as sales tax authority from every importer of the goods on the value of the goods of the rates specified. It was perhaps though anomalous by the legislature that the recovery if any effected or short levied be recovered by the adjudicative process in the Act, 1990 or the Ordinance, 2001. Rather than the one prescribed in the Act, 1969. In my opinion the amended which have been brought about merely served to reconcile the powers or the officer of Customs and not only conferred the power to recovery , the importation stage but also conferred the power of adjudication under section 32 of the Act, 1969". 15. In view of the above judgment, unambiguous provision of section Act, 1969, the Sales Tax Act, 1990 and Income Tax Ordinance, 2001 and classification/legal opinion of Federal Board of Revenue and Ministry of Law it is clear that the Customs Officers are empowered to collect short paid amount of Income tax actually payable at the time of import. 16. Coining to the core issue of contravention, it is imperative to look into the definition of term "Grated and Shreded". The concise Oxford English Dictionary , 12th Edition (2012 print), define the verb grate as "reduced food to small shred by rubbing it on a grater" the term shred as noun is defined strip of material that has been torn, cut are scrapped from something larger; while shred as a verb is to tear or cut into shred. Reading above definitions together , it is abundantly clear anything shredded also cover same thing grated as well. The complete case record including description of the goods as well as the examination report supported images available in the system clearly shows that the imported case was in the from of shred, regarding classification of cheese Pakistan Customs Tariff both for 2013-2014 as well as 2014-2015 provide following HS Code for cheese product. 04.06 Cheeses and Curd (Fresh unripened or uncured cheese, including Whey cheese card) 0406.1010 Cheese 0406.1020 ...... Curd 0406.1090 others 0406.2000 Grated or powdered cheese of all kinds 0406.3000 processed cheese not grated or powdered 17. The above clarification is ambiguous in suggesting that grated cheese-which by the definition given above also cover shredded--is classifiable under HS Code 0406.2000 therefore it is held that the department has correctly classified the shreded cheese imported under impugned GDs as mentioned at serial number "e" the table given in paragraph-1 of this order . The contention of the respondent regarding available exemption sales tax has been examined on critical perusal of SRO 501(1)/2013 dated 22.06.2013 (Entries at S.# 8 and 9 of the table said SRO) as well as entries at serial Nos. 79 and 80 of the 6th Schedule of Sales Tax Act, 1990 it is manifest that HS Code 0406.2000 is not exempt from sales tax as claimed by the respondent meaning thereby shredded cheese is classifiable under HS Code 0406.2000 attracting sales tax as pointed out by the department. Hence, the contention of the respondent is not tenable. 18. In the light of foregone, I am convinced that the charge of mis-declaration' and commission of offence under sections 32(1), 32(2) 32(3A) of the Customs Act, 1969 stand established. According ly, I do hereby order recovery of sales tax of Rs.6,740,524/- and Withhold ing Tax of Rs.525,981/- (totaling to Rs.7266,505/-) from Messrs Salman Enterprises NTN-3786675-3) G-1, Arfat Arcade, Block-7/8. CP and Berar Housin g Society , Karachi. Beside the default surcharge to be calculated, is also to be recovered in terms of section 34 of the Sales Tax Act, 1990 for committing offence as concluded above a penalty of Rs.1,000,000/- (Rupees One million only) is also imposed on the importer . Messrs Salman Enterprises NTN-3786675-3) G-1, Arfat Arcade, Block-7/8, CP and Berar Housing Society , Karachi in terms of clause 14 of section 156(1) of the Custom Act, 1969. 3. The appellant filed the appeal on the basis of grounds enumerated therein, the consultant of the appellant argued the case strictly in accordance with the ground enumerated therein. No cross objections under Section 194A(4) of the Act have been submitted within the stipulated period of 30 days by the respondent No.1, resultant, lost right of cross appeal within the contemplation of section 194A(3) ibid. However , comments were submitted by
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respondent No.1, which does not qualify as cross objection, instead are to be construed as opinion having no warrant of law. Hence, kept in record of the case for perusal. Likewise, respondent No.2 has also not submitted cross objection supported by affidavits. Non submission of counter affidavit whether by will or default forfeit the respondent No.2 right to deny assertion made in the affidavit as has been held by the Superior Judicial Fora reported at (1974) 94 ITR-I, 1980 PLC (C.S.) 350, 1982 PLC (C.S.) 757, 1986 CLC 745 KAR., (1984) 146 ITR 140, (1985)53 Taxation-I (Trib.), 1986 CLC 1119, 1986 CLC 1408 KAR, AIR, 1991 MLD 1243 , 992 SC 317 (sic), 1993 SCMR 662, PLD 1996 Karachi 68, 1986 PLC (C.S.) 560, 2003 PTD 2118. However , on the date of hearing the representative of respondent No.1 supported the orders passed by the responde nt No.3 stating inter-alia that is correct in fact and law . Hence, same may be maintained and appeal be dismissed being devoid of merit/substance. 4. Heard and case record perused and the relied upon documents/judgments by the appellant's. Prior to dilating upon other factual and legal aspect of the case, it is noted that no online procedure for conducting audit under the provision of Section 26(2) and Section 155M of the Act of the consignment cleared through CCS through Rules as contemplated in Section 26A (1) ibid. in the framed Rules, incorporated in Chapter XXI of Rules. Resultant, any audit desired to be conducted should and ought to be as per the enunciation made in Chapter XVIA inserted in the Act with the caption reading as "Provision relating to the Customs Computerized System and Audit and access to documents". Section 155M(1) expresses that a notice in writing to be served on the importer . The emphasis is in writing, which means that it should be in writing, section 26A further validate the said mechanism of conducting audit under section 26(2), verbatim of which is reproduced here-in-under: 26.A. 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 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 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,- (c) The person who imported, or exported or transported or stored or held under customs bond, or file the goods declaration, drawback or refund claim, (d) Any officer , employee or agent of any person described in clause (a); and (e) 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. 5. 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, which are officials of Directorate General of PCA /respondent No.1 for conducting audit of the record of the importer under Section 26(2) is in the manner prescribed by the Board in Rules. Since, no rules to this date 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(1)/2009 dated 13.06.2009. Respondent No.1 has 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
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record as per the expression of clause (b) of subsection (2) of Section 26A of the Act. The first ground taken by the appellant in memo. of appeal is that the respondent No.1 has not either issued any notice or served summon to/upon him for the purported exercise of audit despite mandated under law. This lapse renders the audit 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 Section 155G and Rule 110 of the Act/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 perm itted on the basis of the record available in the CCS 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/surtun on to do so. In the absence of that conduction of audit on the basis of the record available on the CCS Reservoir is not permitted as it is settle d 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 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…
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