MUJAHID SOAP AND CHEMICAL INDUSTRIES (PVT.) LTD. VS MEMBER (JUDICIAL), CUSTOMS APPELLATE TRIBUNAL, 2016 PTD-ISLAMABAD 2515 (2016)

Customs Act (IV of 1969)---

----Ss. 179 & 196---Customs Rules, 2001, Rr. 302, 302-A, 303, 305 & 307-A---Duty and Tax Remission for Exports (DTRE)---Time barred claim---Scope---Importer was granted DTRE approval on 25-6-2008 and at the relevant time, input goods were to be consumed within 24 months which had expired on 24-6-2010---Federal Board of Revenue extended time for utilization/consumption and extended period had also lapsed on 24-12-2011 and no further extension was granted by the Board---Plea raised by importer was that transfer of balance/leftover input goods to the new DTRE approval granted by Regulatory Customs Collector on 05-3-2012 could be treated as an extension in time relating to consumption of input goods---Validity---Such approval granted by regulatory authority could not be treated as extension in time relating to consumption of input goods---No power and jurisdiction was vested in regulatory authority to extend time specified under Customs Rules, 2001---Authorities sought information from importer and the latter had voluntarily provided the same---Contravention report was not a document prescribed in Customs Act, 1969 and it was a mere information forwarded to adjudicating officer relating to some alleged violation of Customs Act, 1969 or the rules or regulations made thereunder---Officer empowered under S. 179 of Customs Act, 1969 was to consider the same and to form an opinion as to whether to proceed under S. 179 of Customs Act, 1969---Adjudicating officer could exercise powers under S. 179 of Customs Act, 1969 on the basis of information received from any source---As long as the officer issuing show cause notice and exercising powers under S. 179 of Customs Act, 1969 was empowered to act and have jurisdiction thereunder, the source of information would become irrelevant and could not affect legality of proceedings---High Court declined to interfere in the order passed by Appellate Tribunal---Reference was disposed of accordingly.

Malik Umar Aslam v. Mrs. Sumaira Malik and others 2014 SCMR 45; Maulana Nur-ul-Haq v. Ibrahim Khalil 2000 SCMR 1305; Ghulam Hassan v. Jamshaid Ali and others 2001 SCMR 1001 and Human Rights Cases Nos. 4668 of 2006, 1111 of 2007 and 15283-G of 2010 PLD 2010 SC 759 ref.

Sikandar Naeem Qazi for Appellant.

M.D. Shahzad for Respondents.

Date of hearing: 22nd February, 2016.

ORDER

ATHAR MINALLAH, J.---This Customs Reference has been filed under section 196 of the Customs Act, 1969 (hereinafter referred to as the "Act of 1969"). The applicant has proposed seven questions of law and it is claimed that they have arisen out of the order dated 02-12-2014 passed by the Customs Appellate Tribunal, Islamabad Bench-I (hereinafter referred to as the "Tribunal").

2.The facts, in brief, are that the applicant is a manufacturer and exporter of laundry soap. It has obtained registration as a manufacturer, importer and exporter under the Sales Tax Act, 1990 (hereinafter referred to as the "Act of 1990"). The applicant has been extended the benefit of Duty and Tax Remission for Exports (hereinafter referred to as the "DTRE". The DTRE approval granted under Sub-Chapter-7 of the Customs Rules, 2001 (hereinafter referred to as the "Rules of 2001") was extended from time to time i.e. vide letters dated 05-11-2010 and 17-10-2011 respectively. The applicant applied for a new DTRE approval and the same was granted and duly communicated vide notification dated 05-03-2012. A contravention report, dated 01-08-2013, was forwarded to the Adjudicating Officer. The said contravention report was forwarded by an officer of the rank of Superintendent in the office of the Director General, Intelligence and Investigation-FBR, Islamabad. The Additional Collector (Adjudication) issued a show cause notice dated 28-08-2013. It was alleged in the said show cause notice that pursuant to scrutiny of the record provided by the applicant, it was revealed that "Palm Fatty Acid" weighing 54,910 kgs. had not been consumed within the prescribed time and, therefore, under the DTRE scheme an explanation was sought from the applicant as to why an amount of Rs.711,758/- as duty and taxes may not be recovered, besides payment of surcharge and imposition of penalty under the relevant provisions of the Act of 1969. The Adjudicating Officer passed the Order-in-Original No.55 of 2014, dated 19-02-2014, whereby the applicant was ordered to pay duty and taxes as specified in the show cause notice along with the surcharge. A penalty of Rs. 25,000/- was also imposed. The applicant preferred an appeal and the same was dismissed by the learned Collector of Customs (Appeals), Islamabad vide Order-in-Appeal No.18 of 2014 dated 22-07-2014. The applicant, thereafter, preferred an appeal and the same was dismissed by the learned Tribunal vide order dated 02-12-2014. The applicant, through the instant application, has proposed seven questions of law for our consideration.

3.The learned counsel appearing on behalf of the applicant has contended that; the proceedings were initiated on the basis of a contravention report sent by an officer of the Director General, Intelligence and Investigation-FBR, Islamabad; the latter office is not vested with power or jurisdiction to conduct an audit or to send a contravention report and, therefore, the superstructure built on such a void report is illegal and also without lawful authority and jurisdiction; the Order-in-Original was barred by time in the light of the mandatory provisions of section 179 of the Act of 1969; the show cause notice was issued on 28-08-2013, while the Order-in-Original was passed on 19-02-2014 and, therefore, it was barred by time by 65 days; the case of the applicant does not fall under Rule 307 or 307A of the Rules of 2001; the competent Authority had approved the transfer of balance/leftover input goods of "Palm Fatty Acid" under Rule 302(3), vide letter dated 14-03-2012 and, therefore, impliedly the date for consumption of the said quantity had been extended; the Office of the Directorate General, Intelligence and Investigation is not vested with the power and jurisdiction to interfere in the DTRE scheme; the upholding of the penalty imposed upon the applicant was illegal and without lawful authority or jurisdiction; the permission granted by the concerned Collector for the transfer of the balance/leftover input goods to the new DTRE approval, vide letter dated 05-03-2012 read with letter dated 14-03-2012, has the effect of granting an extension for keeping the goods under the DTRE scheme without payment of duty and taxes.

4.The learned counsel appearing on behalf of the respondents has argued that; the applicant admittedly had not utilized the goods within the extended time, which had expired on 24-05-2011; the extension in time is within the exclusive power of the Board and not the Collector; the concerned Collector had not extended, nor could extend, the time for utilization of the input goods and, therefore, the letter dated 05-03-2012 read with letter dated 14-03-2012, has no relevance as far as the liability to pay duty and taxes is concerned; a contravention report or an information can be sent by any authority, or even a private person; the applicant has not challenged the power and jurisdiction of the Adjudicating Officer to issue a show cause notice; the show cause notice and the proceedings under section 179 of the Act of 1969 are lawful and in accordance with the powers vested under the Act of 1969; the permission to utilize/consume the input goods was granted by the Board and the same had expired on 24-12-2011; the questions of law proposed in the instant application do not arise out of the order of the learned Appellate Tribunal.

5.The learned counsel have been heard and the record perused with their able assistance.

6.In order to answer the proposed questions of law, it is necessary to examine the DTRE scheme in the context of the facts and circumstances of the instant case. The provisions of the Act of 1969 will also be examined in the context of the powers of adjudication under section 179 of the Act of 1969. Sub-Chapter 7 of the Rules of 2001 relates to the DTRE facility. Rule 297 describes the scope of the DTRE facility and the persons eligible to the benefits thereunder. Rule 298 prescribes the requirements for an application to be made. Rule 300 provides that on the basis of the DTRE application, a Regulatory Collector, if satisfied with the bona fides of the applicant, may grant DTRE approval. Rule 301 prescribes the procedure and powers of the Regulatory Collector in relation to the amendment, suspension or cancellation of the DTRE approval. The facilities available to a DTRE user are described in Rules 302, 302-A and 303. Rule 305 contemplates that the input goods acquired under the DTRE facility shall be utilized within the specified period from the date of approval of the DTRE application. The proviso to the said Rule empowers the Board to extend the period in cases of exceptional circumstances. Rule 307A, inter alia, provides that if a DTRE user fails to consume the acquired input goods or exports in full, except wastage, then the latter becomes liable to pay duty and taxes, including additional duties or additional tax and penalties leviable on such goods under the relevant Act or the Ordinance. Sub-rule (2) of Rule 307A starts with a non obstante clause in the context of sub-rule (1) and provides that the DTRE user, with the permission of the Regulatory Collector, may dispose of the input goods or output goods within the prescribed utilization period in the manner as described in clauses (a) to (e).

7.When the Rules are read conjunctively it makes it obvious that a time has been specified for consuming or utilizing the input goods. The Board is exclusively vested with the power to extend the specified period, and the said power is not vested in the Regulatory Collector. It is also obvious that the Regulatory Collector is not vested with the power to extend the prescribed period for consuming the input goods. Granting of a new approval for the DTRE facility or allowing the transfer of the input goods from the expired DTRE approval to a new DTRE approval can by no stretch of the imagination be treated or construed as having the effect of extending the time for consumption or utilizing the input goods. The proviso to sub-rule (1) of Rule 307-A and sub-rule (2) ibid leaves no doubt that the power of extension is exclusively vested in the Board and not in the Regulatory Collector. It is settled law that taxing provisions are to be construed strictly while the machinery and procedural provisions liberally.

8.In the instant case, the applicant was granted DTRE approval on 25-06-2008 and at the relevant time the input goods were to be consumed within twenty four months, which had expired on 24-6-2010. However, the Board had extended the time for utilization/consumption and the said extended period had also lapsed on 24-12-2011. Admittedly, after the said date no extension was granted by the Board. There is no force in the argument of the learned counsel for the applicant that the transfer of the balance/leftover input goods to the new DTRE approval granted by the Regulatory Collector on 05-03-2012, read with the letter dated 14-03-2012, may be treated as an extension in time relating to the consumption of the input goods. As already noted above, the Rules do not vest the power and jurisdiction in the Regulatory Collector to extend the time specified under the Rules of 2001.

9.Next is the question relating to the consequences of passing an order beyond the time specified in subsection (3) of section 179 of the Act of 1969. Section 179(3) provides that a case shall be decided within one hundred and twenty days of the issuance of a show cause notice, or within such period as may be extended by the Collector for which reasons shall be recorded in writing. However, the Collector can extend the period but not exceeding sixty days. The proviso was added vide the Finance Act 2009. The proviso to subsection (3) envisages the eventualities for excluding the specified period prescribed therein in the context of the period mentioned in subsection (3). The question, therefore, is whether the limitation for passing an order is mandatory or directory. It has been consistently held by the august Supreme Court that the determination of whether a provision is mandatory or directory largely depends upon the intention and language in which the provision is couched. It is, however, settled law that where the consequence of failure to comply with the provision is not mentioned the provision is directory and where the consequence is expressly mentioned the provision is mandatory. Reliance is placed on "Malik Umar Aslam v. Mrs. Sumaira Malik and others", 2014 SCMR 45, "Maulana Nur-ul-Haq v. Ibrahim Khalil", 2000 SCMR 1305 "Ghulam Hassan v. Jamshaid Ali and others" 2001 SCMR 1001, "Human Rights Cases Nos.4668 of 2006, 1111 of 2007 and 15283-G of 2010", PLD 2010 SC 759.

10.Section 179, when read as a whole, clearly shows that the provision of subsection (3) is directory in nature and not mandatory. The purpose of issuing a show cause notice is to inform and confront a taxpayer regarding a liability that may be imposed after adjudication. The time period prescribed for the issuance of a show cause notice is undoubtedly mandatory. However, once a show cause notice has been issued on time, it is followed by the adjudication proceedings in order to meet the requirements of procedural fairness and the principles of due process. Subsection (3) of section 179 is couched in such language which renders the limitation prescribed for completing the adjudication within the prescribed period as directory rather than mandatory. No consequences have been provided for the adjudication not being completed within the specified time. Even otherwise, the legislature could not have intended to render a show cause notice issued on time as redundant merely because the adjudication proceedings are not completed within the specified time. A demand raised through a show cause notice is in respect of a tax imposed by the legislature and, therefore, if it has been issued within the prescribed time then it cannot be made redundant or ineffective for the reason that the adjudication proceedings could not have been completed within time. The delay in adjudicating a case beyond the time specified in subsection (3) may be on account of several factors. However, the time specified cannot be treated as mandatory and, therefore, we declare the same as directory. Nevertheless, it is noted that in the instant case the Show Cause Notice was issued on 28-08-2013 and the proceedings were completed and the judgment was reserved on 24-12-2013 i.e. within the time specified in section 179(3). The issuance of the certified copy at a later date was, therefore, not relevant.

11.The last question for our consideration is regarding the effect of the contravention report sent by the respondent No.5. It is not the case of the applicant that the Adjudicating Officer was not vested with power or jurisdiction to initiate the proceedings under Section 179 of the Act of 1969. The case of the applicant is to the effect that the contravention report could not have been sent by the respondent No.5 and, therefore, the proceedings pursuant thereto were without lawful authority and jurisdiction. It is evident from the record that the respondent No.5 had sought information from the applicant and the latter had voluntarily provided the same. The contravention report is not a document prescribed in the Act of 1969. A contravention report is a mere information forwarded to the Adjudicating Officer relating to some alleged violation of the Act of 1969 or the rules or regulations made there under. It is for the officer empowered under section 179 to consider the same and to form an opinion as to whether to proceed under section 179 of the Act of 1969. The Adjudicating Officer may exercise powers under section 179 on the basis of information received from any source. As long as the officer issuing the show cause notice and exercising powers under section 179 of the Act of 1969 is empowered to act and has the jurisdiction there under, the source of information becomes irrelevant and cannot affect the legality of the proceedings. The learned Tribunal has taken all the relevant matters into consideration and has passed a speaking order i.e. order dated 02-12-2014.

12.In the light of the above discussion, we answer questions Nos.1, 3, 4, 5, 6 and 7 in the affirmative whereas question No.2 is answered in the negative.

13.A copy of this order shall be sent to the learned Tribunal under the seal of this Court as required under section 196 of the Act of 1969.

MH/66/Isl.Order accordingly.