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Petitioner: SADIA JABBAR VS Respondent: FEDERATION OF PAKISTAN and others
Court Name: Sindh High Court Judge(s): Munib Akhtar, Muhammad Ather Saeed Title: SADIA JABBAR vs FEDERATION OF PAKISTAN and others Case No.: Constitutional Petition No, 2673 of 2009 Date of Judgment:2011-02-28 Reported As: 2018 PTD 1746 Result: Petitions allowed
JUDGMENT
JUDGMENT MUNIB AKHTAR, J.---By this common judgment, we intend disposing off a number of connected constitutional petitions, which raise important questions as to the proper interpretation, application and interaction of sections 25 and 25A of the Customs Act, 1969 ("the Act"). The petitioners are all importers, who have imported goods on which customs duty is payable ad valorem, and the question is how the value of the goods is to be determined for purposes of the Act. In each case, the appropriate officer has sought to apply a determination made under section 25A by the concerned Collector of Customs or the Director Valuation. (It may be noted that determinations under section 25A are commonly referred to as "valuation rulings", and are so referred in this judgment.) The petitioners challenge the valuation rulings and seek declarations to the effect that the said rulings are ultra vires the powers conferred by section 25A. Although different goods, which are subject to different valuation rulings, are involved in the various petitions, the petitioners raise the same or similar questions, and therefore the petitions were taken up and heard together. 2. Mr. Amer Raza Naqvi, appearing on behalf of some of the petitioners, submitted that section 25A enabled a "determination" of the customs value which, according to him, was different from the power to "fix" such value. A determination had to be on a case-by-case basis, whereas a fixation could be in general terms, i,e,, relate to goods in general. He pointed out that the word "imported" was used in both sections 25 and 25A, and contended that there was no power under section 25A to predetermine the customs value. Thus, his case was that the power under section 25A could only be exercised in respect of goods actually imported. Learned counsel relied on Rehan Umar v. Collector of Customs and others 2006 PTD 909, a Division Bench decision of this Court, to contend that the valuation methods laid down in section 25 had to be applied in strict sequential order and
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in the manner as therein specified, and in the corresponding provisions of Chapter IX of the Customs Rules, 2001. He submitted that section 25A also made the methods laid down in section 25 applicable, and contended that the valuation ruling in the cases in which he appeared was issued without properly following the applicable method. Thus, the ruling was noncompliant with section 25A, and hence liable to be quashed. As regards the maintainability of the petitions, he placed reliance on Collector of Customs (Valuation) and another v. Karachi Bulk Storage Terminal Ltd. 2007 SCM R 1357 = 2007 PTD 1858. Mr. Aziz A Shaikh, also appearing for the petitioners, contended that a valuation ruling under section 25A could not have retrospective effect. His submission was that the goods in the cases in which he appeared had already been imported into Pakistan and the ruling was issued in relation thereto with purported retrospective effect. He submitted that the ruling was therefore liable to be set aside. Mrs. Ismat Mehdi, learned counsel for some of the petitioners, also emphasized the distinction between "determination" and "fixation", and submitted that a proper ruling under section 25A required the former and not the latter. She further submitted that the power under section 25A could only be exercised in respect of goods actually imported and not in relation to goods yet to be imported. In fact, her case was that the exercise under section 25 had first to be completed before section 25A could be resorted to. She also submitted that in the cases in which she appeared, the valuation ruling actually applied purported to be a "revision" of an earlier ruling. She contended that such a power could only be exercised by the Director General Valuation under section 25D. 3. Mr. Zain Jatoi, learned counsel who also appeared for some of the petitioners, contended that the valuation methods set forth in section 25 had to be followed in the exercise of powers under section 25A. He however, unlike other learned counsel for the petitioners, accepted that section 25A did not apply only in relation to goods actually imported, but the customs value in terms thereof could be determined even in relation to goods yet to be imported. He submitted that the valuation ruling applied in the cases in which he appeared did, on the face of it, seem to consider the various valuation methods in the proper sequential order, but he contended that the exercise of applying the actual method adopted in his case had not been properly carried out, and hence the ruling was unlawful, Mr. Khalid Jawaid Khan, appearing with Court permission, submitted that sections 25 and 25A had to be read in conjunction with sections 79 and 80, and contended that the words "imported goods" and "imported into Pakistan" had the same meaning, and thus, the power under section 25A could only be exercised in relation to goods actually imported. He however, submitted that the various valuation methods of section 25 required to be applied by section 25A did not need to be applied in the sequential order laid down in the former provision. This, according to him, was the result of statutory changes made to sections 25 and 25A by the Finance Act, 2007. He also referred to Toyo International Motorcycle v. Federation of Pakistan and others 2008 PTD 1494; a decision of the Lahore High Court, with regard to the proper interpretation and application of section 25A. 4. Mr. Raja Muhammad Iqbal opened the case for the Respondents. He and other learned counsel appearing for the Department were ably assisted by the departmental officers, Dr. Iftikhar, Additional Collector, Mr. Fayyaz Rasool, Deputy Collector, Syed Imran Bukhari, Deputy Collector and Mr. Ilyas Ahsan, departmental representative. We would like to place on record our appreciation of the skill and professionalism with which these officers apprised the Court of the departmental perspective on sections 25 and 25A, including, especially, the reasons why, and manner in which, valuation rulings were issued under the latter provision. Learned counsel for the Department submitted that the words used in section 25A, "goods imported into Pakistan", were different from those used in section 25, "imported goods". He submitted that the words in section 25A were the same as those used in section 18, the charging section of the Act. His case therefore was that the words used in section 25A did not apply only to goods actually imported, but also to goods yet to
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be imported, i,e,, to future consignments. Learned counsel further submitted that the purpose of section 25 was to establish the "customs value" of the goods, and this was also the purpose of section 25A. In this regard, he referred to subsection (2) of the latter provision. His case was that once a determination had been made under section 25A(1), that applied (under subsection (2)) as the "customs value" to the goods in relation to which the ruling was issued, when those goods were imported into Pakistan. As regards the expression "category of goods" used in section 25A, he submitted that the proper determination of the "category" required reference to the relevant PCT heading of the goods under the First Schedule to the Act. As regards the "applicable methods" of section 25 to which reference was made in section 25A, learned counsel submitted that any of the methods could be applied in terms of the latter section, and there was no need for the methods to be considered or applied in sequential order. In this context, he emphasized that section 25A opened with a non-obstante clause, which had the effect of overriding the provisions of section 25. Learned counsel also contended that section 25A did not violate any WTO agreement, especially the provisions of the agreement generally referred to as the Valuation Agreement, which is reflected in section 25. As part of his submissions to explain section 25 as it now stands, and also section 25A, learned counsel also referred to the historical background, in particular the form in which section 25 had earlier been enacted. The other learned counsel for the Respondents adopted the submissions of Mr. Raja Muhammad Iqbal, while emphasizing particular aspects of matter to which they wished to draw attention. 5. The departmental officers explained the need for the introduction of section 25A. They submitted that after the adoption of the WTO system of valuation from 2000 onwards, many developing countries (including Pakistan) faced a growing problem of under-invoicing, which resulted in a shortfall of customs revenues. The officers explained that under-invoicing could be of two types: individual or group. Individual under-invoicing occurred when a, particular importer misdeclared the transaction value of the goods imported by him. Group under-invoicing occurred when a group of dominant importers in a particular industry or trade sector engaged (either in concert or otherwise) in under-invoicing the goods being imported. The officers explained that the latter problem was particularly pernicious since in such a situation, it was not possible to ascertain the correct value by a comparative approach: essentially, all the relevant importers were under- invoicing their goods. According to the officers, the problem of group under-invoicing had been recognized at the international level, both by the WTO and the World Customs Organization (WCO). It was these considerations which had led to the introduction of section 25A. They emphasized that the valuation rulings under section 25A applied also to future importations and although the concerned officer was free to use any of the methods of section 25, in practice an attempt was made to apply the methods sequentially. In any case, the valuation rulings were not issued arbitrarily or whimsically and without any basis. Great care was taken to ensure that the relevant data was gathered and properly analyzed and utilized in terms of the method being actually applied. Consultations were held with the relevant trade bodies and associations so that the points of view of all the stakeholders were taken into consideration. Their case therefore was that section 25A was being properly interpreted and applied, and the valuation rulings impugned in the various petitions had been issued in accordance with law. 6. We have heard learned counsel for the parties, examined the record with their assistance, and considered the case law and other material relied upon by them. In order to place the matter in its proper context, it will be necessary to examine how section 25 had stood earlier, and how this section, and section 25A, subsequently evolved. Section 25 is of course, one of the most important provisions of the Act. It lays down the general manner in which the customs value of imported goods is to be determined. The customs value determined under the Act is also used in relation to the levy of sales tax, income tax and excise duty in respect of imported goods. A proper
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determination of the customs value is therefore absolutely essential. As originally enacted, section 25 had provided that the customs value of imported goods was to be the "normal price" of the goods. The "normal price" was a legal construct. Subsection (1) provided that it was the price that the goods would fetch on the date mentioned in section 30 "on a sale in open market between a buyer and a seller independent of each other". The subsequent subsections then set forth in detail the rules by which the normal price was to be determined. The date mentioned in section 30 was the date on which the bill of entry for home consumption or ex-bonding (as the case may be) for the goods was filed. It will be seen that the actual price of the goods was not, as such, determinative of the normal price, since (e.g.) the date specified in section 30 was later (perhaps even much later) than the date on which the contract between the foreign seller and Pakistani buyer came about. In principle therefore, the normal price could be higher or lower than the actual price of the goods. It is also important to keep in mind that since the normal price was a statutory construct, it was to be determined by the appropriate officer of customs in the manner specified in section 25. In practice, the Central Board of Revenue, through various Customs General Orders and other instructions did make the actual price relevant. It is not necessary however, to consider this latter aspect in any detail. 7. In 1988, a new section 25B was added to the Act. By a nonobstante clause, it overrode the provisions of section 25, and empowered the relevant officer (invariably the Director Valuation), to fix, by notification in the official Gazette, the value of imported goods for purposes of the Act. A number of notifications were issued (and/or revised/substituted, as the case may be) from time to time in terms of section 25B, and the goods included in the notifications were charged to duty in terms of the specific values so fixed for them. We are informed that once the WTO valuation system was in place, the powers conferred by this section were not exercised. 8. The advent of the WTO system completely upended the previous position. It will be recalled that the Uruguay round, which culminated in the World Trade Organization, resulted in the member states entering into a whole series of agreements relating to different aspects of international trade. One such agreement was the "Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994" (herein after the "Valuation Agreement"). This agreement set forth what was (at least for Pakistan) an entirely new system of how the customs value of imported goods was to be determined. The concept of normal price was abolished, and a different conceptual framework introduced in its stead. Although the WTO system came into effect from 01.01.1995, developing countries like Pakistan were given five years to bring their laws in conformity With the Valuation Agreement, and accordingly, the new system was enforced in this country with effect from 01.01.2000. The Valuation Agreement can, for present purposes, be regarded as falling into two parts. One part comprises of the main articles, which contain the substantive rules for determining the customs value of goods. The second part comprises of interpretative notes to the various articles, contained in an annex, to the agreement. Of course, the Valuation Agreement has to be construed as a whole, and Article 14 expressly provides that the notes in Annex I form an integral part of the Agreement and that "the Articles of this Agreement are to be read and applied in conjunction with their respective notes". The system enforced in Pakistan since 01.01.2000 in the main reflects this divide. Section 25 was substituted in its entirety, and its various provisions primarily embody the main articles of the Valuation Agreement. Rules framed by the Central (now Federal) Board of Revenue ("FBR") primarily contain, in what is now Chapter IX of the Customs Rules, 2001 ("the Rules"), the interpretative notes of Annex I of the Valuation Agreement. (Henceforth, unless otherwise expressly stated, all references to section 25 are to its post-WTO form.) 9. The first point to note about section 25 and Chapter IX of the Rules is that for the most part they reproduce the very language of the Valuation Agreement itself. Of course, there are certain differences, some of which are important for present purposes, and these differences have been
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brought about by, amendments made to the section from time to time. However, there cannot be any doubt that section 25 and Chapter IX are intended to comply with Pakistan's obligations under the Valuation Agreement; paragraph 1 of Article 22 expressly provides that [e]ach Member shall ensure... the conformity of its laws, regulations and administrative procedures with the provisions of this Agreement". In order to understand the full significance of the obligations undertaken by member states under the WTO system, it must also be kept in mind that the WTO provides for a detailed formal mechanism for dispute resolution, to which any member state can resort if it is of the view that another member state is not fulfilling its WTO obligations. This mechanism is contained in a separate agreement known as the "Understanding on Rules and Procedures governing the Settlement of Disputes" (generally referred to as the "Dispute Settlement Understanding" or "DSU"). Article 19 of the Valuation Agreement expressly provides that the DSU applies to disputes arising under it. The DSU provides for an adjudicaiory mechanism by which binding rulings can be made by "panels" and, on appeal, by appellate bodies. If the defaulting state fails to abide by its obligations, and the relevant panel and/or appellate body find against it, then the aggrieved member state may, if certain conditions are met, impose sanctions (known as "measures") against the former. Thus, the WTO system has a lot of bite in it, and member states must be, and generally are, careful to ensure that they are compliant with their obligations under its various agreements. 10. In our view, the foregoing position must be reflected in the interpretation of any statute or statutory provision which embodies a WTO agreement. It is of course, well settled as a general principle that if two interpretations of a provision are possible, then the one consistent with international law or Pakistan's treaty obligations will be preferred. And it is equally well settled that if the meaning of the municipal law is clear then it must be given effect to, even though it may conflict with Pakistan's obligations under international law. Reference in this regard may be made to Hanover Fire Insurance Company v. Muralidhar Banechand PLD 1958 SC 138, 142 and Marine Engineers' Association of Pakistan v. Shipping Office, Government of Pakistan and another 1989 CLC 588 (SHC: DB). In our view, a gloss should be placed on these principles in their application to the special case of the WTO system and its component agreemehts. If it is clear that a statute or statutory provision embodies a WTO agreement, and especially where the statutory language essentially reproduces or closely follows the text of the agreement, then the interpretation should invariably be that which is consistent with the agreement and obligations thereunder. In other words, the threshold for concluding that a meaning inconsistent with the WTO agreement was intended must be regarded as higher than would be the situation in the general case. To the maximum extent possible, the relevant provision should be understood and applied in its WTO context. This applies equally to an amendment. If the statutory provision, as originally enacted (whether for the first time or by way of substitution of an existing provision), clearly conforms to a WTO agreement, and is then amended, the amendment must be regarded in the same light. Amendments are usually intended (and therefore generally presumed by courts) to change the law. In the special case now under consideration, even if it is concluded that the amendment has changed the law, the amendment should, if at all possible, be interpreted and applied in a manner which remains consistent, or minimizes any difference or conflict, with the WTO agreement. Of course, if the relevant statutory provision, or any amendment thereto, is clear, and admits to only one meaning, then the courts must give effect to that meaning even if inconsistent with international law or a treaty obligation. But Parliament is presumed to know and keep in mind the country's international treaty obligations, and the consequences that could flow from any noncompliance with such obligations. The courts should therefore, to the maximum extent possible, avoid an interpretation that conflicts with the WTO agreement concerned, and thereby has the potential of exposing Pakistan to the possibility of retaliatory measures being adopted by
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other member states under the WTO system. At the same time, it must also be remembered that, in the final analysis, principles of statutory interpretation are but aids to discovering and giving effect to the legislative intent, and if that intent is clear, then it must be recognized and given effect to. In our view, the foregoing principles must be kept in mind while considering, interpreting and applying sections 25 and 25A. 11. Since section 25 embodies an entire WTO agreement, it is, not surprisingly, one of the longest sections in the Act. It is not however, necessary for present purposes to reproduce the entire section. What is important is to appreciate one of the fundamental principles underpinning the Valuation Agreement, and how (and to what extent) this principle is embodied in section 25. This is the principle of sequential application. In order to properly appreciate this principle, the relevant extracts from section 25 and the Valuation Agreement need to be listed in tabular form as follows: Subsection of section 25Article of Valuation AgreementValuation Method (1) The customs value of imported goods subject to the provisions of this section and the rules, shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to Pakistan....(1) The customs value of imported goods shall be the transaction value, that is the price actually paid or payable for the goods when sold for export to the country of importation..Transaction Value (5) If the customs value of the imported goods cannot be determined under the provisions of sub- section (1), it shall subject to rules, be the transaction value of identical goods sold for export to Pakistan and exported at or about the same time as the goods being valued...(2) If the customs value of the imported goods cannot be determined under the provisions of Article 1 the customs value shall be the transaction value of identical goods sold for export to the same country of importation and exported at of about the same time as The goods being valued.Identical Goods (6) If the customs value of the imported goods cannot be determined under the(3) If the customs value of the imported goods cannot be determined underSimilar Goods
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provisions of sub- section (5), it shall... be the transaction value of similar goods sold for export to Pakistan and exported at or about the same time as the goods being valued....the provisions of Articles 1 and 2, the customs value shall be the transaction value of similar goods sold for export to the same country of importation and exported at or about the same time as the goods being valued (7) If the customs value of the imported goods cannot be determined under sub-section (6), it shall, subject to rules, be determined as follows(4) & (5) If the customs value of the imported goods cannot be determined under The provisions of Articles 1, 2 and 3, the customs value shall be determined Under the provisions of Article 5....Deductive Value (8) If the customs value of the imported goods cannot be determined under sub- section (7), it shall, subject to rules, be based on computed value..,(4) & (6) If the customs value of the imported goods cannot be determined under the provisions of Articles 1, 2 and 3, the customs value Shall be determined under the provisions of...Article 6.... [Article 6:1 The customs value of imported goods under the provisions of this Article shall be based on a computed value....Computed Value (9) If the customs value of the imported goods cannot be determined under(7) If the customs value of the imported goods cannot be determined underFall-back Method
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sub-section (1), (5), (6) (7) and (8), it shall subject to the rules, be determined on the basis of a value derived from among the methods of valuation set out in sub-sections (1), (5), (6), (7) and (8), that, when applied in a flexible manner to the extent necessary to arrive at a customs value.the provisions of Articles 1 through 6, inclusive, the customs value shall be determined using reasonable means consistent with the principles and general provisions of this Agreement and of Article VII of GATT 1994 and on the basis of data available in the country of imporation. 12. The principle of sequential application is expressly set forth as follows in the interpretative notes contained in Annex I to the Valuation Agreement (emphasis supplied): "Sequential Application of Valuation Methods I.…
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