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Petitioner: Messrs PHILIP MORRIS (PAKISTAN) LTD., KARACHI VS Respondent: The ADDITIONAL
Court Name: Customs Appellate Tribunal Judge(s): Muhammad Nadeem Qureshi, Muhammad Yahya Title:Messrs PHILIP MORRIS (PAKISTAN) LTD., KARACHI vs The ADDITIONAL
JUDGMENT
Reported As: 2016 PTD (Trib.) 1008 Result: Appeals accepted Judgment JUDGMENT MUHAMMAD NADEEM QURESHI, MEMBER (JUDICIAL-I):-Through this common order, we intend to dispose of three (03) Appeals bearing Nos. K-554/2014, K-555/2014 and K-556/2014, filed by M/s. Philip Morris (Pakistan) Limited, against Order-in-Original Nos. 196/ 2012 dated 16.10.2012, No.07/2012 dated 20.06.2012 and No.113/2012 dated 16.06.2012, passed by Additional Collector of Customs, MCC of Preventive, AFU MCC of PaCCS, Collector of Customs, MCC of Appraisement and Additional Collector of Customs, MCC PaCCS, respectively (here-in-after to be referred as respondent No. 1). These appeals have identical issue of law and facts, therefore, being heard dealt with and disposed of simultaneously though this common order in the light of the judgment of the Honorable High Court of Sindh in Customs Reference No.157 of 2008, S.M. Naqi son of Syed Muhammad Hussain, Karachi v. Collector of Customs (Adj-I) and others. 2. Since, these 03 appeals are based on similar facts and questions of law, therefore it is needless to reproduce facts of each case separately, hence for reference the facts of Appeal No. K-556/2014 is taken into consideration. Brief facts of the case are that, the Directorate of Post Clearance Audit (PCA), Karachi vide Contravention Report C.No. PCA/2245/2011/Audit dated 28-10-2011 that the Post Clearance Audit of M/s. Philip Morris (Pakistan) Limited (Formerly Lakson Tobacco Company Limited), 4th Floor, Bahria Complex, M.T. Khan Road, Karachi was conducted. The Audit revealed that the respondent had imported three (03) consignments of Malboro King size Cigarettes, falling under PCT Heading HS Code 2402, vide home consumption Goods Declarations (GDs) Nos. (i) HC 43754 dated 15.12.2009, IGM No. 6536 dated 13.12.2009, Index No. 376 (1140 Boxes), (ii) HC 78032
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dated 16.05.2009, IGM No. 5509 dated 10.05.2009, Index No. 752 (26 Boxes) and (iii) HC 65517 dated 01.04.2009 IGM No. 5258 dated 29.03.2009 Index No. 293 (502 Boxes). As per declaration of the respondent, the goods were classifiable under PCT Heading 2402.2000 chargeable to Federal Excise Duty (FED) @ 65% (approximately) of the retail Price under Section 3(I)(b) read with Section 12(4) and S. No. 8 of Table-I of the First Schedule to the Federal Excise Act, 2005. Whereas, the import data retrieved from the system, revealed that the respondents in contravention of afore- stated provisions of the Federal Excise Act, 2005, had not paid the Federal Excise Duty on Retail Price on import of these three consignments. They had paid Federal Excise Duty on Customs Duty paid value (i.e. Import value + Customs Duty), without including Regulatory Duty, 2% Sales Tax on value Addition, Special excise Duty, post importation charges, profits and Federal Excise Duty itself as defined under subsection (4) of Section 12 of the Federal Excise Act, 2005, which states as under:- "Where any goods are chargeable to a duty on the basis of retail price; duty thereon shall be paid on the retail price fixed by the manufacturer, inclusive of all duties, charges and taxes, other than sales tax levied and collected under section 3 of the Sales Tax Act, 1990, at which any particular brand or variety of such goods should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest of such price and such retail price shall, unless or directed by the Board, be legibly, prominently and indelibly indicated on each goods, packet, container, package, cover or label of such goods:" The data obtained from the system revealed that Messrs Philip Morris (Pakistan) Limited, imported three consignments as mentioned above having retail price of Rs. 7,854,116/- and have short paid amount of Rs. 3,394,762/- Federal Excise Duty (FED) along with corresponding short payment of Sales Tax amounting to Rs. 624,727/, Rs. 157082/- as less Sales Tax payable in terms of 2% value addition Sales Tax and Withholding Tax amounting to Rs. 141,678/- (Total Rs. 4,318,249/-). Thus, M/s. Philip Morris (Pakistan) Limited, had violated the provisions of Section 3(1)(b) and Section 12(4) read with Table-I of the First Schedule to the Federal Excise Act, 2005. The aforesaid amount of Federal Excise Duty is recoverable under Section 14 together with default surcharge under Section 8 and penalty under Section 19 of the Federal Excise Act, 2005.. The above mentioned short paid amount of Sales Tax and value addition sales tax are recoverable under Section 36 together with default surcharge under Section 34 and penalty under Section 33 of the Sales Tax Act, 1990. Similarly the corresponding amount of Withholding Income Tax is recoverable under Section 148 of the Income Ordinance, 2001. Accordingly, the importer, Messrs Philip Morris (Pakistan) Limited (Formerly Lakson-Tobacco Company Limited), 4th Floor, Bahria Complex, M. T. Khan Road, Karachi were called upon to show cause under Section 32(3A) of the Customs Act, 1969, Section 3(1) (b) and Section 12(4) read with Table I of the First Schedule to the Federal Excise Act, 2005 and Section 3 of the Sales Tax Act, 1990 as to why the evaded of Rs.3,394,762/- Federal Excise Duty along with corresponding short payment of Sales Tax amounting to Rs. 624,727/-, Rs. 157,082/- as less Sales Tax payable in terms of 2% value addition Sales Tax and withholding Tax amounting to Rs.141,678/- Total= Rs. 4,318,249/-) may not be recovered from them and penal action may not be taken under Section 14 together with Default Surcharge under Section 8 and penalty under Section 19 of the Federal Excise Act, 2005, Clause 14 of Section 156(1) of the Customs Act, 1969, Sections 33(5), 36 and Default Surcharges under Section 34 of the Sales Tax Act, 1990 and Section 148 of the Income Ordinance, 2001. 3. The respondent No. 2 conducted audit of the Goods Declaration referred in para supra on the strength of data available in the system and observed that the appellant has short paid Federal Excise Duty (F.E.D) @ 63% (64% and 65% in different periods) on the Retail Price under Section 3(i) (b)(s) read with Section 12(4) and S. No. 8 of Table I of 1st Schedule to the Federal Excise Act, 2005, which has to be paid on Customs Duty paid value (i.e. Import value + Customs duty), without
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including Regulatory duty, Value Addition Sales Tax, Special Excise Duty, Post Importation Charges, Profits and Federal Excise Duty as defined under subsection (4) of Section 12 of the Federal Excise Act, 2005 which read as:-- Where any goods are chargeable to duty on the basis of retail price; duty thereon shall be paid on the retail price fixed by manufacturer, inclusive of all duties, charges and taxes, other than sales tax levied and collected under Section 3 of the Sales Tax Act, 1990 at which any particular brand or variety of such goods should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest of such price and such retail price shall, unless otherwise directed by the Board, legibly, prominently and indelibly indicated on each goods, packets, containers, package, cover or label of such goods". The respondent No. 2 on the basis of the said opinion forwarded an audit observation dated 29.06.2011 to the appellant for justification, which was replied by the appellant vide letter 19.09.2011, to which the respondent No. 2 disagreed and framed contravention report dated 28.10.2011 and forwarded the same to respondent No. 2, who on the basis of the formed opinion of respondent No. 2 issued show cause notice dated 25.11.2011 based on the allegation contained in Audit Observation, which is contravention of Section 32(3)(a) of the Customs Act, 1969, Section 3(1)(b) and Section 12(4) read with Table [ of 1st Schedule to the Federal Excise and Section 3 of the Sales Tax Act, 1990 and as to why the evaded /short paid amount of Rs. 287,177,494/- i.e. Federal Excise Duty Rs. 226,759,121.00, Sales Tax Rs.33068157.00, Value Addition Sales Tax 16790275.00 and Withholding Income Tax 10559941.00 may not be recovered from them and penal action may not be taken under Section 14 together with Default Surcharge under Section 8 and penalty under Section 19 of the Federal Excise Act, 2005, Sections 161(1), 14 of the Custom Act, 1969, Sections 33(5), 36 and Default Surcharge under Section 34 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001. The appellant Chartered Accountant replied to the show cause notice vide multiple letter dated 19.01.2012, 13.03.2012, 04.06.2012 and 14.06.2012.The replies failed to impress the respondent No. 2 and he passed order dated 16.06.2012, paras 10 to 13 are relevant and which are reproduced herein below for easement. "10 - I have examined the record of the case, written replies submitted by the respondents comments submitted by the department and carefully heard arguments of both parties. It has been alleged that the respondents imported consignment of cigarette, and got them cleared under PCT Heading 2402. Under the aforesaid PCT Heading, Federal Excise Duty (FED)) at the rate of 63% (64% and 65%) in different periods) is changeable at the "Retail Price" under provision of Section 3 (gone through the fact)(b) read with Section 12(4) and S. No. 8 of Table-1 of the First Schedule to the Federal Excise Act, 2005. Scrutiny of the import data, retrieved from the system revealed that the respondents had not paid Federal Excise Duty on Retail Price. The respondents had paid Federal Excise Duty @ 63% (64% and 65% in different periods) is chargeable at the "retail price" under provision of Section 3(1)(b) read with Section 12(4) and Serial No. 8 of Table 1 of the 1st Schedule to the Federal Excise Act, 2005. Scrutiny of the import data retrieved from the system, revealed that the respondent had not paid Federal Excise duty on Retail price. The respondent had paid Federal excise duty on Customs Duty paid value (import value + custom duty), without including regulatory duty, Value addition sales tax, Special Excise Duty, Post Importation Charges, profit etc. Sub-Section (4) of Section 12 of the Federal Excise Act, 2005 is reproduced as under:-- "12 Determination of value for the purpose of duty. (4) "Where any goods are chargeable to duty on the basis. Of retail price; duty thereon shall be paid on the retail price fixed by manufacturer, inclusive of all duties, charges and taxes, other than sales tax levied and collected under Section 3 of the Sales Tax Act, 1990 at which any particular brand or variety of such goods should be sold to the general body of consumers or, if more than one such price is so fixed for the same brand or variety, the highest of such price and such retail
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price shall, unless otherwise directed by the Board, legibly, prominently and indelibly indicated on each goods, packets, containers, package, cover or label of such goods". Provided that where so and as so specified by the Board, any goods or class of goods liable to duty on local production as percentage of retail price, the provision of these subsection shall mutatis mutandi applied in case such goods are imported from Abroad. 11. The respondent have denied the allegations. They have contended that they have paid Federal Excise Duty as per provision of Section 12(4) of the Federal Excise Act, 2005 Under aforesaid law, the respondent pointed out, the price fixed as retail price by the importer at which the product is available by the general body of consumer, is the basis of levy of federal excise duty. The "Retail Price" so fixed by the importer is not dependent on the landed cost of the product, it only requires that such price shall include all duty and taxes. In these case, the matter is not in dispute as "Retail Price" fixed is higher than aggregate of all duties and taxes. The respondent has also posed "whether or not the company is required to pay federal excise duty for imported cigarettes under proviso to Section 12(4) of the Federal Excise Act, 2005 on the retail price fixed by the importer at a value necessarily equal of above the landed cost of such product including duties and levies. "Respondent argued that there is a specialize situation where the "Retail price has been fixed at an amount that included all duties, taxes and charges and a portion of landed cost of the product. They contended that there is not caveats in Section 12(4) that entitles that such price is to be related to the post of the importer or manufacturer, as the case may be, or any other basis. Accordingly, to the respondent condition under Section 12(4), are (I) Retail price shall be fixed by the importer; (ii) Such price shall be printed on the Packs at which it is available to the General Body of consumer (iii) Price printed shall be inclusive of all duty charges and taxes. Therefore, is no other condition specially in relation to landed cost. 12. The Departmental representative (DR) argued that the 'respondent, contention of not including cost in the "retail Price" has no legal standing. The cost is included while calculating leviable taxes. "Retail Price" is a price on which a product is offered for sale to end consumer. No price can be determined without including actual cost in any business in the World. The Departmental Representative that Section 12(4) of Federal Excise Act, 2005 envisaged that all duties, taxes, and charges excluding sales tax shall be included while calculating "Retail Price". The respondents should read provisions of SROs 545(1)12006 with Section 12(4) of the Federal Excise Act, 2005, and Section 2(27) of Sales Tax Act, 1990. "Retail Price" being a price on which a product is offers for sale to end consumer; therefore, no such price can be determined without including cost of goods, landing charges and duty and taxes plus profit margin. As per law Federal Excise Duty is to be charged on the basis of "Retail Price" therefore, "Retail Price" fixed by the respondents cannot be arbitrarily determined ignoring legal provision of Section 12(4) of the Federal Excise Act, 2005. The contention of the respondents that they can sell their product at a loss, is not correct particularly in case of sales of cigarettes. Factually, the respondents are not selling their goods at a loss but they are offering discount in the market. Their aforesaid act is in violation of instructions of Ministry of Health, contained in S.R.O. 53(Ke) 2009 dated 18.07.2009, which states that "discount on goods below the market value shall not be 'given or offered for the purpose of advertisement of tobacco or tobacco product to consumers of tobacco products to generate sale or promote smoking". He vehemently argued that the respondent cannot fixed retail price arbitrarily. 13. On the basis of foregoing discussion, it is held that arguments of the learned Departmental Representative are taniable under law. The respondent should have paid Federal Excise Duty on the retail price under Section 3 (1)(b) read with Section 12(4) and serial No. 8 of Table 1 of the First Schedule to the Federal Excise Act, 2005, which they failed. The charges leveled in the show cause
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notice stand established Messrs Philip Morris (Pakistan) Ltd., formely Lakson Tobacco Company Ltd., 4th Floor, Bahria Complex, M. T. Khan Road, Karachi are ordered to pay Rs. 287177494/- (wherein short paid amount of Federal Excise Duty is calculated as Rs. 226759121/- and Sales Tax of Rs. 33068157/-, Value Addition Sales Tax Rs.16790275/- and Withholding Income tax Rs. 10559941/-). A penalty of Rs. 5,000,000/- (Rs. 5 million only) also imposed on the respondent in terms of clause 14 of Section 156(1) of the Customs Act, 1969." 4. Being aggrieved and dis-satisfied with the impugned orders-inoriginal the Appellant filed the these appeals before this Tribunal on the ground incorporated in the Memo. Of Appeal on the date of hearing Mr. Ijaz Ahmed Advocate appeared on behalf of the Appellant reiterated the fact and contents and argued strictly in accordance with the grounds mentioned in the Memo of Appeal and further contended that for the referred in above appeals that:-- (i) That the respondent No. 1 (Directorate General of Post Clearance Audit) is not designated as Officer of Inland Revenue under the provision of Section 29 of the Federal Excise Act, 2005. Irrespective of this, the Board delegated power to respondent No. 2 vide Notification No. 165(1)/2011 dated 03.03.2011 under Section 29 of the Act, without realizing that under subsection (3) of Section 29 powers have to be delegated to the person/authority listed at clauses (a) to (d). In these Deputy Director figures no where, rendering the notification delegating the powers being in conflict with the provision of Section 29 and as such ultra vires and of no legal effect. Thus the whole exercise conducted by the respondent No. 2 under the provision of Section 46 of the Federal Excise Act, 2005 is coram non judice. Hence, void and ab-initio. (ii) That similarly, the respondent No. 2 is not designated as officer of Inland Revenue under Section 228 or any other Section of the Income Tax Ordinance, 2001 and as such is not empowered to carry out audit in respect of Section 177 of the Income Tax Ordinance, 2001, rendering the exercise conducted by him in the case of appellant as of no legal effect instead coram non judice, hence void ab-initio. (iii) That the respondent No. 2 is indeed designated as Officer of Inland Revenue under Section 30DD of Sales Tax Act, 1990 and has been delegated with the powers through notification No. SR. 0. 42(1)12010 dated 23.01.2010, subject to exercise those in the capacity of Deputy Commissioner Inland Revenue under the provision of the Sales Tax Act, 1990 listed in column (4) of the notification but not in the capacity of Deputy Director. In the instant case of the appellant the respondent No. 2 exercised the power under the provision of Sales Tax Act, 1990 in the capacity of Deputy Director, rendering his act nullity to the provision of Section 30DD and Notification No. S.R.O. 42(1)/2010 dated 23.01.2010, therefore, without power/jurisdiction, hence void ab-ihitio as held in the reported judgments PLD 1971 SC 197 Chittaranjan Cotton Mills Ltd. v. Staff Union, Raunaq Ali 'S PLD 1973 SC 236, 2002 PTD (Trib.) 889 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. (iv) That the respondent No.1 is also not designated an Officer of Inland Revenue under the provision of Section 14 of the Federal Excise Act, 2005, Clause (c) of subsection (3) of Section 25 of the Sales Tax Act, 1990 and Section 207 of the Income Tax Ordinance, 2001 and as such is not empowered to issue show cause notice and pass order in original in respect of matter relating to Federal Excise Duty, Sales Tax and Income Tax under the provision of Section 19 of the Federal Excise Act, 2005, Section 36 of the Sales Tax Act, 1990 and Section 162(1) of Income Tax Ordinance, 2001. Hence, by issuing show cause notice and passing order-in-original the respondent No. 2
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usurped the power of officer of Inland Revenue to which he is not vested, rendering the show cause notice and subsequent passed order-in-original without power/jurisdiction, hence void ab- initio. Rendering the issuance of show cause notice and order-in-original being in-flagrant violation of law and as such coram non-judice. (v) That wherein any action is taken in the absence of availability of powers or show cause notice or order-in-original has been passed without jurisdiction/power, such order and so the subsequent order are of no legal effect as held by their Lordship of Supreme Court of Pakistan that "it is an element to principle that if a mandatory condition for the exercise of jurisdiction by Court, Tribunal or Authority is not fulfilled then the entire proceeding which follows become illegal and suffer from want of jurisdiction/powers. Any order passed in continuation of these proceedings in appeals or revisions equally suffers from illegality and are without jurisdiction" 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 514 Ali Muhammad v. Hussain Buksh and others and PLD 2001 Supreme Court 514 Land Acquisition Collector, Noshehra and others v. Sarfraz Khan and others, STA 444/03, STA 465/07, 2010 PTD (Trib.) 1636 and 2010 PTD 465, 2010 PTD (Trib.) 2158, 2011 PTD (Trib.) 1010, 2011 PTD (Trib.) 1680, 2011 PTD (Trib.) 2086, (vi) That it is well settled principle of law that, 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 L.,:!Pctives of petformi4 or doing of a thing in a manner other than 1,,evided by law would not be permitted as declared in the landmark judgment of Director, Directorate General of Intelligence and Investigations and others v. Messrs Al-Faiz Industries (Pvt.) Ltd and others reported as 2006 SCMR 129, wherein their lordship of the Supreme Court had observed as under: "INTERPRETATION OF STATUTE" "Each and every word appearing in a Section is to be given effect to and no word is to be rendered as redundant or surplus. When the Legislature requires the doing of a thing in a particular manner then it is to be done in that manner and all other manners or modes of doing or performing that thing are barred if the doing of a thing is made lawful in a particular manner then doing of that thing in conflict with the manner prescribed will be unlawful as per maxim "expressum facit cessare taciturn" (vii) That action of issuance of show cause notice was ab-initio wrong as much as that the built- in automated authority in the software of PaCCS/the adjudicating authority defined in Section 2(a) of the Customs Act, 1969, who passed the assessment/clearance orders in the Goods Declaration of the appellant under Sections 80 and 83 of the Customs Act, 1969 and Rules 438 and 442 of Sub-Chapter (III) of Chapter XXI of Customs Rules, 2001 were satisfied in respect of appellant declaration of the imported goods and so the respective Collector of MCC of PaCCS, who never reopened the assessment order under Section 195 of the Customs Act, 1969. Contrary, in order to defeat the legal mechanism, the respondent No. 2 framed contravention report and respondent No. 1 issued the show cause notice on the strength of the contravention report and subsequently passed order-in-original No. 113/2012 (Manual one case) dated 16.06.2012 were not competent to reopen a past and closed transactions within the framework of Customs Law. (viii) In order to appreciate the proposition, it would be appropriate to reproduce here-in-below the provisions of Section 195 of the Customs Act, 1969: 195 Powers of Board or Collector [***] to pass certain order:--(1) The Board or the Collector of Customs [or the Collector of Customs (Adjudication) may, within his jurisdiction, call for and examine the records of any proceedings under this Act for the purpose of satisfying itself, or, as
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the case may be, himself as to the legality or propriety of any decision or order passed by a subordinate officer and may pass such order as it or he may think fit: Provided that no order confiscating goods of greater value or enhancing any fine in lieu of confiscation, or imposing or enhancing any penalty, or requiring payment of any duty not levied or short-levied shall be passed unless the person affected thereby has been given an opportunity of showing cause against it and of being heard in person or through a counselor other person duly authorized by him. (2) No record of any proceedings relating to any decision or order passed by an officer or customs hall be called for or examined under subsection (1) after the expiry of two years from the date of such decision or order. (ix) As per the said provisions of the section, any proceedings under the Customs Act,…
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