COLLECTOR OF CUSTOMS VS MUHAMMAD ZUBAIR GHEEWALA, 2016 PTD-KARACHI-HIGH-COURT-SINDH 1913 (2016)

Customs Act (IV of 1969)---

----Ss.14, 14-A, 32(1), 79(1) & 196---Attempt to evade tax---Reference---Mis-declaration---Fraud---Dispute was with regard to declaration of goods made by importer and customs authorities alleged the same not to be a partial mis-declaration rather, a fraud---Validity---Penalties under taxing statutes were generally imposed with respect to attempts at evasion of taxes rather than the eventuality of evasion having taken place---Importer did all he could have possibly done in his ambit to willfully mislead customs authorities by mis-declaration, mis-description, undervaluation and concealment in order to avoid payment of legitimate duties---Importer was successful in having goods released and walking away quietly from the crime scene with the hope that his act would go undetected---High Court declined to give treatment prescribed under S. 79(1) of Customs Act, 1969, as the same was available to an honest and innocent importer and law had shown him door of S. 32(1) of Customs Act, 1969---Unless extenuating circumstances existed, decision of the officer merely on mercy and leniency grants without assigning any reason as if the discretion of imposing fine in lieu of confiscation was capricious, arbitrary, devoid of rules of reason or principles of natural justice or where condition precedent for such exercise was not fulfilled---Discretion exercised by the customs officer should not be interfered with---High Court decided questions in favour of customs authorities---Reference was allowed accordingly.

Pfizer Laboratories v. Federation of Pakistan and others PLD 1998 SC 64; Eastern Rice Syndicate v. Central Board of Revenue PLD 1959 SC Pak 364; Collector Customs v. Haji Ahmedullah and Co. PLD 2005 SC 461; Baba Khan v. Collector of Customs 2000 SCMR 678; Abu Bakar Siddique v. Collector Customs 2006 SCMR 705 and Rohtas Industries v. SD Agarwal AIR 1969 SC 707 ref.

Iqbal M. Khurram for Applicant.

Zia-ul-Hssan for Respondent.

Date of hearing: 1st December, 2015.

JUDGMENT

ZULFIQAR AHMAD KHAN, J.---By this common judgment we intend to dispose of Special Customs Reference Applications Nos. 332/12 and 333/12. The aggrieved Applicant has, proposed the following identical questions of law in both the references for the opinion of the Court.

a.Whether in the light of facts and circumstances of the case and considering the admitted position that the respondent importer had mis-declared the description and the PCT Heading of imported goods and evaded legitimate revenue through self-assessment while violating the provisions of Section 79(1)(b) read with sections 32, 32-A, 79(1)(a), 80(3) and clauses (14) & (14A) of Section 156(1) of the Act, 1969. The Appellate Tribunal erred in law to hold that fine and penalty are not warranted in this case and there is no illegality in the order passed by the Collector (Appeals) for waiver of fine and penalty?

b.Whether in view of the grounds of the appeal, filed by the applicant department, as contained in paragraph 2 of the impugned order of the Tribunal, the Appellate Tribunal erred in law to hold that the department has not been able to point out any illegality in the order passed by the Collector (Appeals)?

c.Whether in the light of facts and circumstances of the case and considering the provisions of section 32-A of the Act, the Appellate Tribunal erred in law to hold that no fine can be imposed after release of the goods?

d.Whether in the light of facts and circumstances of the case and considering the provisions of sections 32, 32-A and clauses (14) and (14A) of Section 156(1) of the Act, the Appellate Tribunal had erred in law to hold that no penalty can be imposed on an importer/person, who successfully made an attempt/evaded the legitimate revenue?

e.Whether in the light of facts and circumstances of the case particularly non-controverted position of payment contained at paragraph 2(D) of the impugned order of the Tribunal, the Appellate Tribunal erred in law to indulge in selective reading, mis-reading and non-reading of the record available of the instant case?

2.Brief facts of the case are that the Respondent who is an importer electronically filed goods declaration declaring to contain Semi Finished Product of Iron and non-Alloy Steel under PCT Heading 7207.2090 at total declared value of US$ 2,03,499.63. The consignment was released without physical examination by accepting the said self-assessment and declaration in terms of Section 79(1) of the Customs Act, 1969 ("the Act"). Subsequently it was discovered from the documents received from the Bank that the Respondent had deliberately filed wrong declaration in the Customs and made wrong self-assessment, Scrutiny of the documents revealed that the actual description of the imported goods was Galvanized and Cold Roll Full Hard Sheets and Coils, correctly classifiable under PCT Heading 7210.4910 chargeable to Customs duty @ 20% and sales tax @ 18.5% instead of 5% Customs duty as declared and self-assessed by the importer under PCT Heading 7207.2090. The importer was required to justify his declaration as the differential amount of duty and taxes amounting to Rs.76,25,420 were seemingly evaded. According to the re-assessment made under section 80 of the Act, a further amount of Rs.39,00,000 was determined to be payable for final settlement of the amount of Customs duty, sales tax and other charges. Subsequently, for the violation of Sections 32(1), 32(2), 79(1) and 156(1) of the Act, read with allied provisions of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001, the Respondent was served with show cause notice. In reply, the Respondent attributed the deliberate mis-declaration and evasion as an act of error and inadvertence and submitted that the goods had already been released and that the required liability has been cleared by submitting a pay-order. The said assertion of the Respondent was not accepted and vide Order-in-Original, the Respondent was directed to pay fine of Rs.1,02,69,548 and penalty of Rs.12,00,000 along with payment of balance re-assessed amount of duty and taxes.

3.Being aggrieved with the aforesaid Order-in-Original, the Respondent filed an appeal where the Collector (Appeals) ordered to remit the fine and penalty on the ground that the goods were not available for the confiscation and the Respondent has already paid the duty and taxes so demanded, therefore adjudication proceedings are not warranted. The Order provided "since the matter had come to the notice of the department on post importation check and the goods were not available for confiscation, imposition or redemption fine in lieu of confiscation in respect of the same is not backed by any provisions of law and not maintainable in law as such. The same is accordingly ordered to, be remitted. As for the penalty, I am inclined to take a lenient view and remit the same in view of the fact that the applicants have voluntarily paid the duty/taxes chargeable on the cleared goods when the same were demanded by the department, much before issuance of the show cause notice. Therefore initiating adjudication proceedings at a time when no recovery due was involved should have been avoided".

4.On appeal, the Tribunal refused to interfere with the orders passed by Collector (Appeal) and held that "the order-in-appeal reveals that the same has been passed after giving due consideration to the arguments advanced by both the parties. The Department has not been able to point out any illegality in the said order and no new ground has been taken at this stage too. In these circumstances, we do not find any reason to interfere with the order passed by the learned Collector of Customs (Appeal)".

5.We have heard lqbal M. Khurram, Advocate for Applicant and Mr. Zia-ul-Hssan, Advocate for Respondent. Mr. Khurram, the learned Counsel for the Applicant initially took us to section 32 arguing that fraud has been committed for which punishment is provided under Section 156(1) Item 14 and 14(A) of the Act, 1969. He vehemently argued that the impugned order is an outcome of selective and misreading of law and the records available to the Tribunal. He argued that the Tribunal has made gross error of law by holding that (a) fine and penalty are not warranted in this case and that there was no illegality in the order-in-original, (b) the department has not been able to point out any illegality in the order-in-original, (c) no fine can be imposed after goods have been released, and (d) no penalty can be imposed on an importer who has successfully made an attempt to evade the legitimate revenue. The learned counsel for the Respondent on the other had submitted that since the matter came to the notice of the Applicant department on post-importation check, the view that the goods were not available for confiscation, imposition of redemption fine in lieu of confiscation, is fully backed by provisions of law; therefore the fine was rightly remitted. As far as penalty was concerned, the counsel submitted that it was perfectly in accordance with law that the Collector (Appeals) and the Tribunal took a lenient view as the importer had voluntarily paid duty and taxes chargeable on the cleared goods as and when the same was demanded by the department, much before the issuance of the show cause notice, Therefore the earlier decisions regarding non-initiation of adjudication proceedings at a time when no recovery of Government due was involved is correct understanding of the law and the established practices. He also submitted that after release of goods the matter became a past and closed transaction and the vested right favour the general person, rather than the Department. In response thereto, the learned counsel for the Applicant submitted that since there was categorical evidence on record in the form of bank documents and carrier's declaration to the effect that the goods actually imported in this case were Galvanized and Cold Rolled Full Hard Sheets and Coils, correctly classifiable under PCT Heading 7210.4910 chargeable to customs duty @ 20% and sales tax @ 18.5% instead of declared semi furnished products of iron or non-Alloy Steel classifiable under PCT Heading 7207.2090 attracting customs duty @ 5% of sales tax and 16% therefore, in the presence of clear cut and established case of deliberate mis-declaration and evasion of revenue how the Respondent could be saved from the penal action warranted for violations of Sections 32(1), 32(2), 156(1) and 79(1) of the Act, read with S.R.O. 487(I)/2007 dated 09.06.2007?

6.The learned counsel objected to the impugned order by submitting arguments that even upon recognition of facts that the importer intentionally made a mis-declaration, the order passed by the Tribunal of remitting the redemption fine merely on presumption and technicalities without consulting the admitted facts/record and legal provisions of Section 32(2) read with clause (14) of Section 156(1) of the Act is clearly illegal. On the plea taken by the Respondent that the goods are not available for confiscation, hence, fine is remitted the counsel drew attention towards subsection (2) of Section 32 of the Act, which clearly provides that "any duty or charge has not been levied or short levied", thus the recovery of fine is fully covered for subsequent recovery, he submitted that the observation about availability of goods for imposition of fine is also negated by the provisions of subsection (2) of Section 32-A of the Act, which also clearly says that the payable amount of fine can be recovered after release of such goods which were liable for confiscation. In the light of foregoing provisions of law, the counsel submitted that a fine can be recovered after clearance of goods from the person who made evasion and not paid due revenue and fine for the goods which were otherwise liable for that much revenue and fine. He also submitted that considering the provisions of S.R.O. 487(I)/2007 read with principle of equity it would be prejudice and discrimination with all other similarly place importers who paid fine and penalty for similar kind of situation. The learned counsel was of the view that taking a lenient view and remitting the penalty is also incorrect as there is no provision under the law for taking lenient view in a case of established mis-declaration and revenue evasion and in fact the impugned judgment shall open a flood gate for the unscrupulous importers to get license for deliberate tax evasion and mis-declarations without any fear and deterrence for payment of fine and penalty.

7.We are of the view that it would be prudent that we start with answering the technical question raised by Mr. Zia-ul-Hssan that since the goods were released after examination and assessment of duties and taxes by Customs, the act became a past and closed transaction, therefore the issuance of show cause notice was ab initio illegal and had no merit. To answer this assertion, we revert to section 32(2) which provides that where any duty or charge has not been levied or has been short levied, the person liable to pay an amount on that account shall be served with a notice within five years of the relevant date. Also section 32(3) provides where, by reason of any inadvertence, error or misconstruction, any duty, taxes or charge has not been levied or has been short-levied or has been erroneously refunded, the person liable to pay any amount on that account shall be served with a notice within three years of the relevant date requiring him to show cause why he should not pay the amount specified in the notice requiring him to show cause why he should not pay the amount specified in the notice. In this case, goods declaration was filed on 10 November 2008 and the show-cause was sent on 29 May 2009, the case therefore clearly falls well within the time limit provided under law. We are of the view that in the presence of provisions of section 32, read with the apex Court's judgment in the case of Pfizer Laboratories v. Federation of Pakistan and others reported as PLD 1998 SC 64, the said goods declaration cannot be termed as past and closed transaction. We would rather wish to go a step further as to us it appears to be a case which is a classic example of the importer knowingly and deliberately trying to achieve the evasion of customs duty. It must be noted that it is not a case of any partial mis-declaration but it is a case of fraud which by no stretch of imagination, can be equated with that of a bona fide mistake or an inadvertent omission. We are conscious of the fact that "in the application of laws which may culminate in the imposition of these enormous penalties, the authorities in question should act with complete fairness and the utmost circumspection if their actions are not to have effects detrimental to the maintenance and development of trade and to the wider interests of the public and the country" (as held in the case of Eastern Rice Syndicate v. Central Board of Revenue, reported as PLD 1959 SC-Pak 364), but such a naked fraud must be checked with strictness so that such menace qua evasion of customs duties should be eliminated. As held in the case of Collector of Customs v. Haji Ahmedullah & Co. reported as PLD 2005 Supreme Court 461, we are of the view that it hardly needs any elaboration that section 32 deals with the case where by reasons of any inadvertence, error or misconstruction, any duty or tax has not been levied or has been short and cannot be made applicable where some fraud has been committed knowingly, intentionally and deliberately, as has been done in the present case.

8.Now we come to the question about imposition of fine on goods having been released by the customs authorities subsequent to misdeclaration by the importer. Under section 79(1) of the Act, it is duty of the importer to file a true declaration of goods by giving correct particulars. A dishonest declaration immediately sets a course away from the scheme provided under section 79 towards the Act's penal provisions prescribed by section 32(1). Similar outcome was also reached in the case of Baba Khan v. Collector of Customs reported as 2000 SCMR 678, where the Hon'ble Supreme Court while perusing section 32(1) along with section 79 came to the conclusion that "if any person in connection with any matter of customs makes any declaration or statement which is untrue in any material particulars, he is guilty of an offence under section 32(1)". As it can be seen, the very intent of the law is to make a distinction and part ways amongst the importer who trade honestly, from those who indulge in mis-declaration, mis-description, under valuation or concealment Fine, penalty, personal penalty and/or warning out to be imposed on such importers since in all fairness importers who are innocent cannot be equated with the importers who violate the law and be given the same treatment. Consequences under section 32(1) are not dependent on whether the goods have been released or not. The section makes it mandatory to hold such perpetrators guilty and punishable under clauses (14) and 14(A) of section 156(1).

9.As to the question of the imposition of penalty on an importer who has successfully made an attempt to evade the legitimate revenue. Before we answer this question, we must remind ourselves of the legal principle regarding penalties imposed under taxing statutes. The principle is that in taxing statutes, penalties are generally imposed with respect to attempts at evasion of taxes rather than the eventuality of evasion having taken place. In the instant case, the importer did all he could have possibly done in his ambit to willfully mislead the customs authorities by mis-declaration, mis-description, under valuation and concealment in order to avoid payment of legitimate duties. He actually was successful in having the goods released and walking away quietly from the crime scene, with the hope that his act will go un-detected. Therefore he cannot be given the treatment prescribed under section 79(1) available to an honest and innocent importer and the law shows him door of section 32(1).

10.With regards to the Tribunal and Collector (Appeals) contentions that since goods were not available for confiscation, imposition or redemption fine in lieu of confiscation was not maintainable. We tend to differ with this argument. We are of the view that imposition of a fine in lieu of confiscation is discretionary with the officer as per section 181 of the Act. Unless proven arbitrary, capricious or devoid of any principles or not in accordance with the rules of reason and justice, the discretion exercised by the officer should not be interfered with by the superior forums. This view finds support from the cases of Abu Bakar Siddique v. Collector of Customs reported as 2006 SCMR 705 and Rohtas Industries v. SD Agarwal (AIR 1969 SC 707) that only superior courts in exercise of their constitutional jurisdiction can interfere with the manner of exercise of discretion where it is exercised to do an act which is ultra vires of the statute that conferred the discretion or it was a mala fide exercise or in contravention of the principles of natural justice or where a condition precedent for such exercise was not fulfilled. Option to pay fine in lieu of confiscation embodied in section 181 of the Act, corresponds with section 183 of the Sea Customs Act, 1878 which merely provided that "whenever confiscation is authorised by this Act, the officer adjudging it shall give the owner of the goods an option to pay in lieu of confiscation such fine as the officer thinks fit". In construing the said provision the courts have categorically held that section 183 confers discretion on the officer to determine what fine should be imposed in lieu of confiscation and in doing so, he will undoubtedly take into account all relevant and material circumstances, including the extenuating factors on which the owners may reply. While the officer in the said sections does not have an absolute unfettered discretion not to be interfered with in appeal by superior courts, we however are of the view that unless extenuating circumstances exist, decision of the officer merely on mercy and leniency grounds (as taken by the superior forums of the Collector (Appeals) and the Tribunal) without assigning any reason as if the discretion of imposing fine in lieu of confiscation was capricious, arbitrary, devoid of rules of reason or any principles of natural justice or where a condition precedent for such exercise was not fulfilled, or not in accordance with the principles of justice, the discretion exercised by the officer should not be interfered with.

11.For the reasons recorded above, the questions referred to this court for opinion are answered in favour of the Applicant and against the Respondent. References are accordingly answered.

12.The references are allowed accordingly and the office is directed to send copies of this judgment under seal of this Court to the Tribunal in respect of the above reference applications pursuant to section 196(5) of the Customs Act, 1969.

MH/C-3/SindhReference allowed.