VENUS PAKISTAN (PVT.) LTD. VS ADDITIONAL COLLECTOR DTRE, AFU, B.B.I., AIRPORT, 2013 PTD-CUSTOMS-APPELLATE-TRIBUNAL-ISLAMABAD 1690 (2020)

(a) Customs Act (IV of 1969)---

----Ss. 18 & 209---Customs Rules, 2001, Rr. 307-A & 566---Afghan Transit Trade Agreement, 2010, Art. 28---Petroleum products acquired by exporter under DTRE approval not consumed in export due to its loss during transit to Afghanistan---Show cause notice issued to Bonded Carrier of such goods by, authorities demanding damages as well as duties and taxes in terms of R. 566 of Customs Rules, 2001---Order-in-Original passed against Carrier upheld by Appellate Authority---Validity---Liability to pay duties and taxes under law would be that of DTRE holder as importer of crude oil and exporter of finished goods to Afghanistan through licensed Bonded Carrier---Relationship of DTRE holder and Bonded Carrier would be that of Principal and Agent---Carrier as agent would be liable to pay duty only for wilful commission of wrong as provided under S. 209(3) of Customs Act, 1969---Such goods had not been removed from Bond for home consumption without payment ofduty or put to home consumption, but had been destroyed during transit to Afghanistan due to terrorist act being an unavoidable accident---Loss of such goods by terrorist attack had been reported to Police, consignor, DTRE office and Customs Officers at border---Customs Act, 1969 did not require recovery of duty and taxes on goods proved to have been destroyed in unavoidable accidents---When Principal as importer or exporter could not be held liable, then recovery of duties and taxes from Bonded Carrier could not be allowed---Impugned show-cause notice was bad in law due to non-joinder of DTRE holder---Tribunal accepted appeal and set aside impugned orders---Principles.

(b) Words and phrases---

----"Unavoidable accident"---Definition.

2002 PTD 804 ref.

(c) Words and phrases---

----"Unavoidable cause"---Definition.

2002 PTD 804 ref.

Isaac Ali Qazi for Appellant.

Bilal Afzal for Respondents.

Date of hearing: 21st May, 2013.

JUDGMENT

MUHAMMAD AKHTAR AWAN, (JUDICIAL MEMBER).---This common judgment will dispose of the aforesaid (2) two identical Appeals having similar facts and common questions of law filed by Messrs Venus Pakistan (Pvt.) Ltd., through Mr. Isaac Ali Qazi, Advocate (hereinafter called the appellants) against the Customs Order-in-Appeal Numbers 6 of 2012 dated 7-2-2012 passed by Collector Customs, (Appeals), Islamabad (hereinafter called the respondent).

2.As the facts of both the appeals are identical and common questions of law are involved in both the appeals and further the parties are same, therefore, this judgment is being written in main Appeal No.13 of 2012 titled as Messrs Venus Pakistan (Pvt.) Ltd.

3.Brief facts of the case are that during the course of audit conducted by the Deputy Collector Audit, LTU, Islamabad of Messrs Attock Petroleum Ltd., Islamabad for the DTRE approval No.STR/2636/ 211112008 dated 21-11-2008, it was observed that goods acquired under DTRE approval were not consumed in export, reason being 793,690 litters of JP-8 and HSD was lost during transit to Afghanistan. Allegedly it was the responsibility of carrier Messrs Venus Pakistan (Pvt.) Ltd. to pay damages as well as duties and taxes involved in terms of Rule 566 of Customs Rules 2001 issued vide S.R.O. 450(I)/2001 dated 18-6-2001 amended vide S.R.O. 943(I)/2007 dated 14-9-2007. It was therefore, proposed that government duties Rs.10,096,320 (sales tax amounting to Rs.5,326,172 and PDL amounting to Rs.4,770,148 along with default surcharge and penalties should be recovered from the carrier in term of rules mentioned above. In the light of above observation, a demand notice was issued to Messrs Venus Pakistan (Pvt.) Ltd. Islamabad/ Karachi by the Deputy Collector Customs (DTRE) AFU, BBI Airport, Islamabad vide C.No.ST/DTRE/APL/ 55/2008/679 dated 5-10-2010 and theyweredirectedtopaythedemanded amount of Rs.10,096,320into government treasury, but they failed to pay the said amount of duty/taxes. A show cause notice was issued to the appellants vide C.No.V-Cus/Adj/11/2010/130 dated 22-10-2010. The case was adjudicated by the Adjudicating Authority and ordered Messrs Venus Pakistan (Pvt.) Ltd., to pay government duties Rs.10,096,320 along with default surcharge to be calculated at the time of payment vide Order-in-Original No.5 of 2011 dated 12-5-2011. Being aggrieved of the Order-in-Original, the appellants filed appeal before Collector (Appeals) Islamabadwhovideimpugned Customs Order-in-Appeal No. 6of2012 dated 7-2-2012 upheld the Order-in-Original No.5 of 2012 dated 12-5-2012 and dismissed the appeal. Feeling dissatisfied of the Order-in-Appeal No.6 of 2012, the appellants have filed appeal before this Tribunal.

4.Brief facts of Appeal No.14/CU/IB/2012 according to Show Cause Notice C.No.V.Cus/Adj/12/2010/131 dated 22-10-2010 are that during the course of audit conducted by the Deputy Collector Audit, LTU, Islamabad of Messrs Attock Petroleum Ltd. Islamabad for the DTRE Approval No.STR/1856/06092007 dated 6-9-2007, it was observed that goods acquired under DTRE approval were not consumed in export, reason being 1,119,144 litters of JP-8 and HSD was lost during transit to Afghanistan. The carrier Messrs Venus Pakistan (Pvt.) Ltd. was required to pay damages as well as duties and taxes involved in terms of Rule 566 of Customs Rules, 2001 issued vide S.R.O. 450(I)/2001 dated 18-6-2001 amended vide S.R.O. 943(I)/2007 dated14-9-2007. It was proposed that government duties Rs.12,624,116 (Sales Tax amounting To Rs.9,547,337 and PDL amounting to Rs.3,076,779 along with default surcharge and penalties should be recovered from the carrier in term of rules mentioned above. The case was adjudicated by the Additional Collector Customs, AFU Building, Islamabad who vide Order-in-Original No.05 of 2011 dated 12-5-2011 ordered to recover the above mentioned amount from the appellant. Feeling aggrieved of the Order-in-Original, the appellant filed appeal before Collector (Appeals) Islamabad who vide Order-in-Appeal No.6 of 2012 dated 7-2-2012 dismissed the appeal and upheld the Order-in-Original. Feeling dissatisfied of the Order-in-Appeal, the appellants have filed instant appeal before this Tribunal.

5.Mr. Isaac Ali Qazi, Advocate learned counsel for the appellants jointly argued in both the appeals as under:-

(a)That impugned Order is erred both in law and facts, hence not sustainable in the eyes of law.

(b)That impugned order is based on conjecture and surmises, hence, liable to be set aside.

(c)That show cause notice is vague, and is bad in law, hence, liable to be vacated.

(d)That the case of accidental vehicles without any mense rea on the part ofthe appellants cannot be made as a legitimate cause for recovery as at first place is out of scope of Rule 566 ibid, secondly any attempt to bring such cause within the purview of Rule 566 ibid would hit be force majeure as vehicles are accidented and each incident has been reported to the Police and to the concerned customs officer to the DTRE.

(e)That now this principle has been recognized in the newly signed Afghan Transit Trade Agreement, 2010. He referred Article 28 ibid which deals Loss, Destruction or shortage of the cargo en-route. According to the said article "when it is established to the satisfaction of the Customs Authorities that goods specified in the Transit documents/G.D. have been destroyed or have been irretrievably lost by accident or other unforeseen events en route or that they are short by reason of their nature, payment of duties and taxes normally due, shall be waived."

(f)That the aforesaid circumstances, WITHOUT PREJUDICE have not only frustrated the obligations under the Rule 566 but also created a force majeure situation where after the appellant cannot be compelled to perform their obligation under the Rules.

(g)That the aforesaid principles of law, that is, the frustration of obligations and force majeure have been positively recognized by law, inter alia, under section 56 of the Contract Act, 1872.

(h)That as all the four consignments were being exported under DTRE by Messrs Attack Petroleum Ltd. To meet the audit observation, one of the DTRE holder Messrs Attock Petroleum Ltd, Islamabad vide letter dated 16-2-2009 approached the Federal Board of Revenue for granting special exemption under the relevant provisions of Sales Tax Act, 1990 and Federal Excise Act, 2005 and the Board vide letter dated 4-3-2009 suggested that probably the said loss can be made good from the carrier under Rule 566 of S.R.O. 943(I)/2007 which observation, humbly submitted is highly misconceived.

(i)That reading Rule 566 of S.R.O. 943(I)2007 with DTRE Rules sub-chapter-VII of Customs Rules, 2001 would suggest that no such demand can be directed towards the Carrier. May it please be noted that the concerned exporter obtained the DTRE License on furnishing Corporate Guarantee to the licensing authority and it is the DTRE exporter who is to be primarily held accounted for duty free inputs that he had obtained under the Rules.

(j)That as far as Rule 566 is concerned, instead to be read in isolation, it is to be read with Rules 567, 307 and 307A of the Customs Rules, 2001. Attention was invited to sub-rule 2(d) of Rule 307A, where such incidents have been protected as if by virtue of certain omissions and commissions and happening in natural due course, the goods as the instant case goods destroyed or lost their marketability, duties and taxes are liable to be remitted. Without Prejudice, it was submitted that Rule 566 ibid of limited application which creates a liability on the Carrier only if en-route any tampering or pilferage or theft caused any damage to the goods. Therefore, without prejudice of the fact that whether is a carrier or the exporter who is liable, the fact remain the same that on the goods destroyed with the case stated, duty and taxes cannot be demanded.

(k)That reading the Rules 565 to 569 with DTRE rules, it can be deduced that it is the exporter, holder of the DTRE, who is ultimately accountable to the competent authorities. As in the entire proceedings of exportation, it is the Collectorats of origination and clearance and the exporter have to reconcile the exports documents.

(l)That there is one instant which related to the carrier is that if in case en-route any loss due to tampering or pilferage or theft occurred only then carrier would be responsible. In the instant cases which have been duly reported to the local police, to the Collectorate of origination and so as to the exporter, no cause exist as enumerated in the Rule 566.

(m)That according to Rule 209 of Customs Act, 1969 where any duty is not levied or is short levied or erroneously refunded on account of any reasons other than wilful act, negligence or default of the agent, such duty shall not be recovered from the agent.

(n)That according to sections 108, 110 and 115 of Customs Act, 1969 the customs officers are competent to remit the duty and taxes as in the instant case is where the POL products which were being exported under Bond when were destroyed.

(o)That otherwise the loss caused by other than the specified causes in Rule 566, the loss may be made good in accordance with the DTRE.

(p)That the show cause notice is bad in law due to non-joinder of the necessary parties i.e. exporter/holder of DTRE Messrs Attock Petroleum and M/s National Refinery and is not sustainable in the eyes of law.

(q)That section quoted in the Show Cause Notice are not attracted in the instant case.

In the last it was prayed that impugned orders may please be set aside and show cause notice may also be vacated.

6.Mr.Bilal Afzal, auditor appeared on behalf of respondents submitted that the Federal Board of Revenue was also approached on the same issued by Messrs Attock Petroleum Ltd. Islamabad for granting special exemption under the relevant provisions of Sales Tax Act, 1990 and Federal Excise Act, 2005, but in response the Board also suggested that the said loss can be made good from the carrier under Rule 566 of S.R.O. 943(I)/2007. He prayed that appeal be dismissed and impugned order may please be upheld.

7.We have given due consideration to the contentions raised by the parties and also perused the record and examined the relevant provisions of law. The important factor of the damage to the impugned goods was terrorist attack and each incident has been reported to the police and the concerned Customs Officers at border as well as to consigner besides the DTRE office. This factor supports the argument of learned counsel for the appellant that aforesaid circumstances without prejudice have not only frustrated the obligation under section 566 but also created a force majeure situation where-after appellant were not able to perform their obligation under the rules. In such situation the word Lost used in show cause notice in following manner (Goods acquired under DTRE approved were not consumed in export, reason being 793,690 litters of JP 8 and HSD as "Lost" during transit) is not justified. Another important fact is that this principle has been recognized in the newly signed Afghan Transit Trade Agreement, 2010 Article 28 of the same is:-

ARTICLE 28: LOSS, DESTRUCTION, OR SHORTAGE OF THE CARGO ENROUTE:

"When it is established to the satisfaction of the Customs Authorities that goods specified in the Transit documents/G.D. have been destroyed or have been irretrievably lost by accident or other unforeseen events en-route or had they or short by reason of their nature, payment of duties and taxes normally due, shall be waived."

8.It is admitted fact the concerned exporter obtained the DTRE License on furnishing Corporate guarantee to the licensing authority and it is the DTRE exporter who is to be primarily held accountable for duty free inputs that he had obtained under the Rules and the exporter, holder of DTRE approached Federal Board of Revenue for grant of Special exemption and in response the Board suggested that the loss can be made good from the Carrier. We feel much force in the arguments of learned counsel for appellant who relied upon judgment of Hon'ble Superior Courts 2002 PTD 804 (H.C. Karachi), 2002 PTD 2169 HC (Karachi (1981) 43 Tax 1 (HC Lahore) and (1973) 28 Tax 172 (HC Lahore) argued that the word "damage" used in Rule 566 ibid cannot be taken into isolation or clothed with its natural meaning as it takes colour from its neighbourhood such as the words "tempering" or "pilferage" or "theft" therefore, it would take such damage which caused by any of the aforesaid modalities or such cognatic expression as it a trite law that meaning of doubtful words should be interpreted by reference to the meaning of the word associated with it.

9.Learned counsel for the appellant has also relied upon the judgment of Customs Appellate Tribunal, Islamabad Bench-I in Appeal No.02/CU/IB/2011 dated 31-1-2012 titled as Messrs Venus Pakistan (Pvt.) Ltd. v. Additional Collector Customs, DTRE, AFU, BBI, Airport, Islamabad and others on the same issue which was allowed.

10.From the record, it transpires that Messrs Attock Petroleum is a DTRE holder under sub-Chapter-VII (Duty and Tax Remission For Exports-Rules 296 to 307 H) of Chapter-XII and sub-Rule (5) of Rule 307 of which specially provides that "POL meant for export to Afghanistan shall only be transported through carrier licensed under Chapter VIII (Customs Agent Licensing Rules 90 to 106) of these read with Chapter XXII (Transport of POL products to Afghanistan Rules 557 to 569) thereof". Prima facie, it appears that Rule 566 is a part of the whole scheme where the DTRE holder is importer of crude oil who after importation, export it as finished product to Afghanistan through a licensed Bonded Carrier as envisaged by Rule 307A(4) ibid in accordance with the provision of Chapter XXII of Customs Rules, 2001 inserted vide S.R.O. 943(I)/2007 dated 14-9-2007. Under the rules, the bonded carrier shall be a Customs Agent, licensed under Chapter VIII of the Rules ibid. Thus, holistically the above rules put the DTRE holder and appellant Bonded Carrier into relationship of Principal and Agent, thus, under the principle of vicarious liability as embedded in section 209 read with section 18 of the Customs Act, 1969 for liability of duties and taxes it is the importer who as Principal is primarily liable, except where the agent willfully commits wrong as provided under subsection (3) of section 209 ibid.

11.From the above, it is crystal clear under the provisions of the Customs Act, 1969 without mense rea the Agent should not be exposed to the liability of duty for any wrong which he has not willfully committed though may cause losses in terms of duty and taxes to the exchequer. Thus, so far the conclusion is that Rule 566 ibid, being subordinate legislation, cannot be interpreted in a way that it may come in conflict with main provisions of the Customs Act, 1969. Now wehave to look into whether duty and taxes are absolute liability even in case of goods loss, destroyed because of any unavoidable cause or incident/accident are recoverable or remittable. It is worth to be noted that under provision of the Customs Act, 1969, the liability of duty and taxes are accrued as soon as the goods are imported into Pakistan. It remains dormant as long as the goods, subject to period of limitation envisaged under various provisions of the Act, remained in the customs area, port and bond. Liability of duty and taxes is discharged at the time of clearance for home consumption as provided under sections 79 and 80 of the Act or under section 104 at the time of ex bonding of warehoused goods. Liability of duty and taxes become obviated if the goods imported are exported out of Pakistan. In case goods removed clandestinely from the bond without payment duty and taxes, the same may be recovered on the premises that these escaped goods would have been put to human consumption. In case where duty and taxes are short levied or non levied due to inadvertence, error or misconstruction or due to some deliberate act, section 32 empower the customs officer to recover the same. However, close scrutiny of the provision of the Act provides that liability of duties on goods damaged or destroyed in customs area or port or station or customs bond is liable to be remitted.

12.Further, it is worth to mention that Customs Act, 1969 has prime Rule that duty and taxes are paid when goods are cleared for home consumption and recovery proceedings are initiated in case where goods are removed for home consumption either without payment of duty or less of leviable duty and taxes whereas in the instant case it is admitted position that goods lost have been destroyed and thus could not been put to human consumption and these have been destroyed/damaged in terrorist act and that was unavoidable accident. The expression "Unavoidable accident" is defined in Black's Law Dictionary as "An inevitable accident; one which could not have been fore-seen and prevented by using ordinary diligence, and resulting without fault. Not necessarily an accident which it was physically impossible, in the nature of things, for the person to have prevented, but one not occasioned in any degree, either remotely or directly, by the want of such care or skill as the law hold every man bound to exercise. An accident which could not be prevented by the exercise of ordinary care and prudence. A casualty which occurs without negligence of either party and when all means which common prudence suggests have been used to prevent it." The Black's Law dictionary further defines the expression "Unavoidable cause" as "A cause which reasonably prudent and careful men under like circumstances to not and would not ordinary anticipate, and whose effects, under similar circumstances, they do not and would not ordinarily avoid." As the provisions of the Customs Act, 1969 per se do not envisage to recover duty and taxes on goods proven to be destroyed in unavoidable accidents such is the case of the instant appeal or fire or act of terrorism etc. thus, under the circumstances, where in the principal importer or exporter cannot be held liable, the recovery of duties and taxes cannot be allowed from the Appellant Agent. Here, it is worth to mention that show cause notice is bad in law for non joinder of the DTRE holder for which reason, the entire proceedings become defective, however, proceedings against them have been condoned on the basis of the FBR letter C.Nos 1(6)CEB/93-Pt/33748-R dated 4-3-2009. Keeping in view the above position, we are of the considered opinion that rule 566 is not applicable in this situation. Resultantly both the orders passed by the forums below are set aside. The appeals are accepted.

13.This judgment shall also apply mutates-mutandis to another Appeal C.No.14/CU/IB/2012, as there are same parties and same questions of law and facts are involved in the said appeal.

14.After completion of necessary formalities, file be consigned to record room.

15.All concerned be informed accordingly.

SAK/105/Tax(Trib.)Appeal accepted.