WASEEM BROTHERS, KARACHI VS COLLECTOR OF CUSTOMS, KARACHI, 2018 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 1846 (2017)

Customs Act (IV of 1969)---

----Ss. 32, 32-A & 156(1)(9)(14)--- SRO No. 1125(I)/2011, dated 31-12-2011 (as amended by SRO No.504(I)/2013, dated 12-6-2013)---Mis-declaration and fiscal fraud---Five consignments were imported and accordingly goods declarations were filed---Department alleged that importers claimed and availed undue benefit of reduced rates of sales tax and income tax under SRO No.1125(I)/2011, dated 31-12-2011---Contention of importers was that they were entitled for claiming the said benefits in respect of first three goods declarations as they had fulfilled all the conditions as laid down in the SRO 1125(I)/2011, dated 31-12-2011---Importers conceded that short payment was made by them in one declaration by paying sales tax at 2% instead of 17% in the light of SRO No.504(I)/2013, dated 12-6-2013---Importers, at the same time claimed that they had paid excess amount in the case of one declaration---Importers suggested that short paid amount as per said goods declaration, could be adjusted by the department against excess amount paid against one declaration---Department, was in complete agreement with the position taken by the importers---Department was directed by the Tribunal to refund the excess amount deposited by importers against the goods declaration make adjustment accordingly---Impugned order-in-original passed by the Additional Collector of Customs (Adjudication) was not accordingly to the statutory requirements, besides being derogatory to specific provisions of law which was set aside being without lawful authority, void ab initio, in circumstances.

Muhabbat Hussain Awan and Ms. Suraiya Sarwar for Appellant.

Azhar Abbas, Appraising Officer for Respondent.

MCC of Appraisement East, Karachi: Called absent.

Date of hearing: 4th October, 2017.

JUDGMENT

MUHAMMAD NAZIM SALEEM, MEMBER (TECHNICAL-II).---This judgment disposes of Customs Appeal No.K-2297 of 2016 filed by Appellant against the Order-in-Original No.157/2015-16 dated 29.01.2016 passed by the Additional Collector of Customs (Adjudication-II), Karachi.

2.Brief facts of the case as reported in the impugned Order-in-Original are that on scrutiny/audit of import data, it has been found that the Appellant has imported "Disposable General Surgery Drape Pack, Latex Exam Powdered Gloves" and declared PCT headings 6114.9000 and 4015.1100 vide Goods Declarations bearing Nos.KAPE-HC-(81981/15.03.2014, 18193/03.09.2013, 5101/13.12.2013, 117194/ 24.06.2014) and KCSI-HC-154914 dated 08.05.2013, filed with Model Customs Collectorate of Appraisement (East), Customs House, Karachi and got their consignment released with the inadmissible benefit of sales tax and consequent income tax under S.R.O. 1125(I)/2011 dated 31.12.2011 read with amending S.R.O. 504(I)/2013 dated 12.06.2013. In the amending S.R.O. finished articles of surgical goods, textiles made-ups have been excluded from the purview of the S.R.O. 1125(I)/2011 dated 31.12.2011. The Appellant has imported "Latex Exam Powdered Gloves" which are disposable type and are called consumables which are used for multiple uses like "medical examination of the patients", therefore, these are not covered under the claimed S.R.O. The sales tax at the rate of 17% is payable on the subject item. Therefore, the concessions under the claimed S.R.O. are not admissible to the subject imports vide GDs mentioned above. Further Taxpayer Online Verification shows importers are registered as "importers/ wholesaler and not as manufacturers".

3.On further analysis it transpired that the status of the Appellant, as available online in the website NTN inquiry, is that of importers wholesaler and the importer was not registered as a manufacturer at the time of subject imports. Therefore, an amount of Rs.1,504,064/- (sales tax amounting to Rs.1,196,512/- and WH income tax amounting to Rs.307,552/-) has been short-paid evaded by the importer on account of paying concessionary rate of sales tax and withholding income tax otherwise not admissible to them. Therefore, the Appellant violated the provisions of Sections 32(1), 32(2) and 32(3A) of the Customs Act, 1969 section 3(1), sections 3, 6 and 7 read with sections 33 and 34 of the Sales Tax Act, 1990 and section 148 of the Income Tax Ordinance, 2001 punishable under clauses (1), (9) and 14 of section 156(1) of the Customs Act, 1969, section 33(5) and Section 7A of the Sales Tax Act, 1990 read with Chapter X of the Sales Tax Special Procedure Rules, 2007 (Special Procedures for payment of sales tax by the importers) and the relevant provisions of section 148 of the Income Tax Ordinance, 2001.

4.The Directorate of Post Clearance Audit (Customs), Customs House, Karachi issued an Audit Observation of even number dated 21.10.2015 to the Appellant for explaining and clarifying as to on what basis concessions were availed by them even when the item imported by them is not included/covered under the claimed S.R.O. 1125(I)/2011 read with amending S.R.O. 504(I)/2013 and further that "Latex Exam Powdered Gloves" which are disposable type and are called consumables can be used for multiple uses like "medical examination of the patients", therefore, these are not covered under the claimed S.R.O. The importer was not registered as "manufacturer" at the time when the subject consignment was imported, therefore, they were legally ineligible for concessions accorded vide S.R.O. 1125(I)/2011 dated 31.12.2011. The importer, however, failed to come up with any tangible evidence and was also unable to refute the charges levelled by the Department.

5.In view of the aforesaid, the Appellant was held to have intentionally and willfully caused loss to the Exchequer amounting to Rs.1,504,064/- (sales tax amounting to Rs.1,196,512/- and W/H income tax amounting to Rs.307,552/-) by illegally availing the benefit of S.R.O. 1125(I)/2011 dated 31.12.2011 which was evidently not admissible to them at the time of import.

6.The adjudicating officer vide Order-in-Original No.157/2015-16 dated 29.01.2016 held that the charges against the Appellant are established. The operative part of the impugned order reads as under:-

"In the light of the afore-stated facts, the charges levelled in the show-cause notice stand established. M/s. Waseem Brother (NTN # 1020659-7) Room No.228, Hoor Centre, North Napier Road, City Court, Karachi has violated the provisions of sections 32(1)(2) and (3A) of the Customs Act, 1990 and section 3(1), sections 3, 6 and 7 read with section 34 of Sales Tax Act, 1990, and section 148 of the Income Tax Ordinance, 2001 and is ordered to immediately deposited the short paid amount to the tune of Rs.1,504,064/- (Sales Tax amounting to Rs.1196512/- and W.H. Income Tax amounting to Rs.307,552/-) into government treasury in terms of the provisions of sections 32(1), 32(2) and 32(A) of the Customs Act, 1969 along with default surcharges (to be calculated at the time of deposit). A penalty of Rs.300,000/- (Rupees Three Hundred Thousand only) is also imposed under clauses (14) of section 156(1) of Customs Act, 1969 on the respondent, M/s. Waseem Brothers (NTN #1020659-7) Room No.228, Hoor Centre, North Napier Road, City Court, Karachi for availing inadmissible benefit of SRO 1125(I)/2011 dated 31.12.2011."

7.Feeling aggrieved and dissatisfied with the above order, Appellants filed an Appeal before this Tribunal on the following grounds:

1.That the appellant is a regular importer of "Disposable General Surgery Drape Pack and Latex Exam Powdered Gloves" and known as renowned importer of this product in Pakistan and his track record is neat and clean.

2.That the appellant is Registered with Sales Tax Department as "Importer and Wholesaler".

3.That the Goods were imported in the year 2013-2014 therefore, this has become past and closed transaction and as such the impugned Order-in-Original is required to be set aside.

4.That the impugned order-in-original was passed without hearing the appellant as such the ex-parte Order-in-Original is not sustainable in the eyes of law and therefore, required to be set-aside.

5.That SRO No.1125(I)/2011 dated 21.12.2011 was issued wherein conditional exemption of Sale Tax and Value added Tax on import of Textile articles and surgical items was granted. As per condition (v) of said SRO Registered importers and wholesalers on the import of goods ready for use by General Public were required to pay Sales Tax @ 5% percent and value addition tax @ 02 %. However amended SROs were also issued wherein exemption of Sales Tax and VAT was fixed as follows:-

6.As per Show-Cause Notice Sale Tax @ 17% was chargeable under S.R.O. No. 504(I)/2013 dated 12.06.2013: on goods imported and cleared vide following 05 GDs:

1.KAPE-HC- 81981 dated 15.03.2014

2.KAPE-HC- 18193 dated 03.09.2014

3.KAPE-HC- 51101 dated 13.12.2013

4.KAPE-HC- 117194 dated 24.06.2014

5.KCSI-HC- 154914 dated 08.05.2013

7.From the perusal and scrutiny of above GDs in the light of above said SROs, the GD wise detail of Sale Tax payable and paid is as follows

i.GD No. KAPE-HC- 81981 dated 15.03.2014

ImportedSurgical Drap Pack Caeserean Section Drape

(Textile made ups ready for use)

assessed under benefit of S.R.O. No. 154(I)/2013 dated 28.02.2013 chargeable to Tax @ 5% and Value added Tax @ 2% and Sale Tax was paid accordingly as per S.R.O. No. 154(I)/2013 dated 28.02.2013. Nothing was short paid therefore, this GD was processed before the issuances of S.R.O. No.504/2013 dated 16.06.2013 short recovery is illegal.

ii.GD No.KAPE-HC- 18193 dated 03.09.2014

ImportedSurgical Drape Pack and Laparoseap Pack (textile made ups ready for use)

assessed under benefit vide Srl. No.02 of Table II condition (b) of SRO. No.682(I)/2013, dated 26.07.2013 chargeable to Sale Tax @ 5% and Value added Tax @ 2% and Sales Tax was paid accordingly as per S.R.O. No. 682(I)/2013 dated 26.07.2013. Noting was short paid as the said SRO clearly allows benefit of sales tax to import of " Finished articles of textile and textile made ups"

iii.GD No. KAPE-HC- 51101 dated 13.12.2013

ImportedSurgical Drape Pack and Laparoseap Pack (textile made ups rowdy for use)

assessed under SRO No. 682(I)/2013 dated 26.07.2013 chargeable to Sale Tax @ 5% and Value added Tax @ 2% and Sale Tax was paid accordingly as per SRO No. 682(I)/2013 dated 26.07.2013. Noting was short paid as the said SRO clearly allows benefit of sales tax to import of "Finished articles of textile and textile made ups".

iv.GD No. KAPE-HC-117194 dated 24.06.2014

ImportedSurgical Drape Pack and Laparoseap Pack(textile made ups reedy for use)

Should have been assessed under SRO. No. 682(I)/2013 dated 26.07.2013 chargeable to Sale Tax @ 5% and Value added Tax @ 2%

But the sales tax was paid @ 17% wrongly. Refund is required to be claimed.

v.GD No. KCSI-HC- 154914 dated 08.05.2013

Imported:Latex Exam Powdered Gloves (surgical)

assessed under SRO. No. 154(I)/2013 dated 28.02.2013 and paid Sale Tax @ 2% and Value added Tax @ 2 %.

As a matter of fact this item should have been assessed in the light of SRO No. 504(2)/2013 dated 12.06.2013 chargeable to sales tax @ 17% as the benefit on import of finished Surgical goods other than textile goods was withdrawn. The audit observation is correct. However short recovery could be realized from overpaid amount vide GD No.KAPE-HC-117194 dated 24.06.2014 (Sales tax was over paid @ 17% instead of 5%).

8. That the declared description of imported consignments and PCT Headings with all other informations are as per legal documents and therefore, element of mens rea is not present hence there was no misdeclaration committed under section 32 of the Customs Act, 1969.

On the basis of facts and grounds pleaded hereinabove, it is prayed in the interest of justice that this Honorable Customs Appellate Tribunal may be pleased to allow this appeal, set aside the impugned Order-in-Original with show-cause notice and waive the penalty imposed on the Appellant.

8.On behalf of the Respondent Department counter-objections as per requirement of law under section 194-A(4) of the Customs Act, 1969 are not filed but on the contrary, para wise comments were filed, which are reproduced as under:--

1.That the contents of para 1 are self explanatory and are not in the knowledge of the answering respondent regarding any so called track record of the appellant and as such this para require no comments.

2.That as regard the contents of para 2 it is submitted that the appellant is registered with Sales Tax Department as importer/ wholesalers and not as manufacturers. On further analysis it transpired that the status of the appellant as available online in the FBR website's NTN inquiry is that of importers wholesalers and the appellant was not registered as a manufacturer at the time of subject imports.

3.That as regards the contents of Para 3 it is submitted that the Directorate of Post Clearance Audit (Customs) issued an audit observation dated 21.10.2015 to the appellant for explaining and clarifying as to on what basis concessions were availed by them even when the item imported by them is not included/covered under the claimed SRO 1125(I)/2011 read with amending S.R.O. 504(I)/2013 and further that "Latex Exam Powdered Gloves" which are disposable type and are called consumables can be used for therefore, these are not covered under the claimed SRO. The appellant was not registered as manufacturers at the time of subject imports. Thus legally ineligible for concessions accorded vide SRO 1125(I)/2011. The appellant however failed to come up with any tangible evidences and was also unable to refute the charges levelled by the department. In view of the aforesaid, the appellant is held to have intentionally and willfully caused loss to the government exchequer amounting to Rs.1,504,064/- by illegally availing the benefit of SRO 1125(I)/2011 dated 31.12.2011 which was evidently not admissible to them at the time of import and as such this is not the closed transaction as alleged by the appellant in para under reply and therefore, the order-in-original is very much legal, lawful and is liable to be maintained.

4.That the contents of Para 4 are absolutely false, baseless, concocted and mala fide, hence vehemently denied. The fact is that an ample opportunity of hearing was provided to the appellant and the case was, fixed for hearing on 11.01.2016, 20.01.2016 and 27.01.2016 but the appellant deliberately and intentionally neither attended the hearing nor intimated any reason in writing about their non appearing in the hearing and since the matter was not kept pending for an indefinite period, the order has been passed ex parte.

5.That as regards the contents of Paras 5, 6 and 7 it is submitted that this is the clear cut case of availing of inadmissible benefit of exemption under SRO 1125(I)/2011 and amending SRO 504(I)/2013 whereby the finished articles of surgical goods, textile and the tile made-ups have been excluded from the purview of the SRO 1125(I)/2011. The appellant has imported "Latex Exam Powdered Gloves" which are disposable type and are called consumables which are used for multiple uses like "medical examination of the patients" therefore these are not covered under the claimed SRO. The Sales Tax @ 17% is payable on the subject item. Therefore, the concessions under the claimed RO are not admissible to the subject imports vide GDs mentioned above. Further taxpayer online verification shows that the appellant are registered as "importers/wholesalers and not as manufacturers".

6.That the contents of Para 8 are also false and baseless, hence vehemently denied. The fact is that in the instant case the element of mens rea is very much available which clearly proves that the appellant has committed a willful and deliberate offence of claiming the inadmissible benefit of concession in order to evade the leviable tax thereby deprive the government from its legitimate revenue to the tune of Rs.1,605,064 and as such this offence on the part of the appellant crystal clearly comes under the ambit of misdeclaration and Section 32 of the Customs Act, 1969 is very much applicable in the instant case.

7.That as regards the contents of Para 9 it is submitted that as and when the appellant urges any further grounds, the same will be contested in accordance with merits of the case.

8.That the contents of Para 10 being formal require to comments.

It is, therefore, humbly prayed that this Honorable Tribunal may graciously be pleased to dismiss the appeal of the Appellant being devoid of merits and further been pleased to pass the order thereby up held the Order-in-Original.

9.We have heard both the contesting parties besides perusing the relevant record. The case of the Respondent Department is that the Appellant imported five consignments of "Disposable General Surgery Drape Pack, Latex Exam Powdered Gloves" and accordingly five Goods Declarations bearing Machine No.KAPE-HC-81981 dated 15.03.2014, KAPE-HC-18193 dated 03.09 2013, KAPE-HC-51101 dated 13.12.2013, KAPE-HC-117194 dated 24.06.2014 and KCSI-HC-154914 dated 08.05.2013 were filed by them. They claimed and availed undue benefit of reduced rates of sales and income tax under SRO 1125(I)/2011 dated 31.12.2011. The Appellant's contention, as given in this Memo. of Appeal, is that they were entitled for claiming the afore-stated benefits in respect of first three Goods Declarations as they fulfilled all the conditions as laid down in the SRO 1125(I)/2011 dated 31.12.2011. In the case of last Goods Declaration bearing Machine No.KCSI-HC-154914 dated 08.05.2013, they concede that short payment was made by them as instead of paying sales tax @ 17% in the light of amending S.R.O. 504(I)/2013 dated 12.06.2013, they paid sales tax @ 2%. At the same time, the Appellant claim that they paid excess amount in the case of Goods Declaration bearing Machine No.KAPE-HC-117194 dated 24.06.2014. The Appellant suggested that the short paid amount as per aforesaid Goods Declaration can be adjusted by the Respondent Department against excess amount paid against Goods Declaration No.KAPE-HC-117194 dated 24-06.2014. During the course of hearing, the learned counsel of the Appellant reiterated the aforestated position. He emphasized that they have not committed any violation of section 32-A of the Customs Act, 1969 (fiscal fraud) alleged in the show-cause notice dated 04.01.2016, as such, the said Notice is invalid. He also added that they never received the Audit Observation issued by the Directorate of Post Clearance Audit, Karachi.

10.On the other hand, stance of the Detecting Agency namely Directorate of Post Clearance Audit, Karachi is quite surprising and very unusual. The learned Departmental Representative (D.R) stated that recovery of the short-paid amount of sales tax and income tax is due only against one Goods Declaration bearing Machine No KAPE-HC-154914 dated 08.05.2013. The D.R went one step ahead as he conceded that the refund is admissible against the Goods Declaration bearing Machine No.KAPE-HC-117194 dated 24.06.2014. The aforestated position clearly leads us to conclude that the Respondent Department (Directorate of Post Clearance Audit, Karachi) is in complete agreement with the position taken by the Appellant as detailed in the preceding para. The important part is that the Appellant has made the Collector, MCC Appraisement (East), Karachi and the Additional Collector of Customs (Adjudication-II), Karachi as the Respondents in their Memo. of Appeal whereas the detecting agency viz. Directorate of Post Clearance Audit were not made the Respondent. However, on notice from this Appellate Tribunal, the Representative of the said Directorate is attending hearing since 27.01.2017. They have filed para-wise comments received by the Assistant Registrar of the Appellate Tribunal on 20.04.2017. The study of these Para-wise Comments shows that the Directorate has taken the same position as before the adjudicating authority, however, during the last hearing held on 14.09.2017, they have taken a U-Turn in their position, completely agreeing with the position taken by the Appellant. The learned Departmental Representative of the Respondent Department namely MCC Appraisement (East), Karachi remained quiet and did not raise any objection on the position taken by the Departmental Representative of the Directorate of Post Clearance Audit, Karachi as aforestated. We have studied the Show-Cause Notice dated 04.01.2016 which contradicts the stance taken by the learned Counsel of the Appellant that the provision of section 32-A has been wrongly invoked in the said Notice. The fact of the matter is that sections 32(1), 32(2) and 32(3A) of the Customs Act, 1969 have been invoked in the said Notice and there is no mention of section 32-A of the said Act.

11.In view of the above, we are constrained to order and direct the Respondent Department viz. Collector of MCC Appraisement (East), Karachi to refund the excess amount deposited by the Appellant against the Goods Declaration bearing Machine No.KAPE-HC-117194 dated 24.06.2014 after making adjustment of the short-paid amount against the Goods Declaration bearing Machine No.KCSI-HC-154914 dated 08.05.2013, if due. Here, we cannot restrain ourselves in passing comments that this is absolutely an unusual case where the detecting agency has completely conceded in favour of the Appellant that too at the Appellate stage which means the case was made out on legally and factually incorrect grounds. This case is infact manifestation of non-professionalism on the part of the detecting agency. The senior officers of the Directorate of Post Clearance Audit, Karachi are directed to get themselves involved professionally before finalizing and issuing an Audit Observation so that frivolous Audit Observations are not issued in future.

12.Considering the aforesaid arguments and observations made thereon, particularly, the interpretation of law and legal preposition in the light of prescribed law, we are of the considered view that the impugned Order-in-Original No.157/2015-16 dated 29.01.2016 passed by the Additional Collector of Customs (Adjudication-II), Karachi does not have any adherence to the statutory requirements, besides being derogatory to specific provisions of law. We hereby set aside the impugned Order-in-Original being without lawful authority, void ab initio. The Appeal is accordingly allowed on its merit.

13.The office is directed to send a copy of this Judgment to the Member (Customs), Federal Board of Revenue, Islamabad, the Director General, Post Clearance Audit, Islamabad, the Director, Post Clearance Audit, Karachi, the Collector, Model Customs Collectorate of Appraisement (East), Karachi.

HBT/4/TAX(TRIB) Appeal allowed.