DOGAR TRADERS VS The ADDITIONAL COLLECTOR OF CUSTOMS, 2018 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 2461 (2017)

Customs Act (IV of 1969)---

----Ss.32, 79, 156(1)(14) & 181---SRO No.499(I)/2009, dated 13-6-2009--Misdeclaration---Confiscation of goods---Option to importer to redeem the confiscated goods on payment of redemption fine---Importer had filed goods declaration, declaring the goods as "submersible pumps" under P.C.T. Heading 8413.7010, chargeable to customs duty at 5% and sought clearance under S.79(1) of the Customs Act, 1969---Goods declaration was selected for examination to confirm the declaration made by the importer---Examination report revealed that the goods were found to be "light vertical multistage centrifugal pump with motor", classifiable under PCT Heading 8413.7090, chargeable to customs duty at 20%---Importer, in view of said report, was found to have wilfully and deliberately misdeclared the description and PCT Heading of the goods to avail undue benefit of duty and taxes---Adjudicating Authority, ordered confiscation of the goods with option under S.181 of the Customs Act, 1969 to redeem the confiscated goods on payment of 35% redemption fine---Penalty of Rs.25,000 was also imposed on the importer---Validity---Question for determination, in the present case, was as to whether the imported goods fell under the category of "Submersible Pumps PCT Heading 8413.7010" or under "Centrifugal Pumps PCT Heading 8413.7090"---First examination report showed that the subject goods were found under the description of 'submersible pumps with motor'; another report extended the different description of consignment as "light vertical multistage centrifugal pump with motor"---Importer claimed the PCT Heading 8413.7010, but on the contrary, PCT Heading 8413.7090 was insisted by the department, without support of any evidence---Element of mens rea, had not been proved against the importer---Charge of misdeclaration under S.32 of the Customs Act, 1969, was unwarranted and penalty imposed on importer under cl.(14) of S.156(1) of Customs Act, 1969, was patently unlawful---Option provided in S.181 of the Customs Act, 1969, did not specify amount or value on the basis of which the owner of the goods could opt to pay in lieu of the confiscation of the goods---Adjudicating Officer passed impugned order with least application of judicious mind; pitch of fine and penalty, did not correspond with the gravity of offence---Fine and penalty imposed on the importer, were ordered to remitted by the Tribunal---Impugned order-in-original was modified accordingly---Department was also directed to issue delay detention certification in accordance with law.

Superior Textile Mills Ltd. v. FOP 2000 PTD 399; Collector of Sales Tax and another v. Superior Textile Mills and others PLD 2001 SC 600; Saleem Raza v. FOP and others 2012 PTD 302 and Messrs Weave and Knit (Pvt.) Ltd. v. Additional Collector of Customs, (Adjudication) Karachi and others 2004 PTD 2981 ref.

Raja Babar for Appellant.

Khalid Pervaiz A.O. and Faiz Mudassir, A.O. for Respondents.

Date of hearing: 24th October, 2016.

JUDGEMENT

MUHAMMAD NADEEM QURESHI, MEMBER (JUDICIAL-I).---This appeal has been directed under Section 194-A of the Customs Act, 1969, against Order-in-Original No. 522116-18052016, passed by the Additional Collector of Adjudication, Custom House, Karachi.

2.Brief facts of the case as per impugned Order are that, it was reported by MCC-Port Muhammad Bin Qasim Karachi that Messrs Dogar Traders imported a consignment vide IGM No.164-11/04/ 2016, Index No. 78 and filed Goods Declaration No. KPP1-HC-58069-13-04-2016, declaring the goods as 'submersible pumps', under PCT heading 8413.7010, chargeable to Customs Duty @ 5%, Sales Tax @ 0%, and Income Tax @ 0%, by availing the benefit of SRO 947(I)/2008 and 6th Schedule (serial No.113) of Income Tax Ordinance, 2001, respectively. The said importer determined his liability for payment of duty and taxes on self-basis and sought clearance under section 79(1) of the Customs Act, 1969. The GD was selected for examination to confirm the declarations made by the importer. As per the examination report endorsed by the shed staff, the impugned goods have been found to be 'Light Vertical Multi-Stage Centrifugal Pump with Motor' correctly classifiable under PCT heading 8413.7090, chargeable to Customs Duty @ 20%, Sales Tax @ 17% Additional Sales Tax @ 3%, Income Tax @, 9% and Additional Custom Duty @ 1%. In view of the above it is evident that the importer has willfully and deliberately mis-declared the description and PCT heading of the impugned goods to avail the undue benefit of duty and taxes under claimed SRO and 6th Schedule. Had this willful and deliberate offence gone undetected, the government exchequer would have suffered a loss of revenue to the tune of Rs.2,210,235/-. The act of importer constitutes an offence within the meanings of Sections 32(1)(2) and 79(1) of the Customs Act, 1969, Sections 3 and 6 of Sales Tax Act, 1990, Section 148 of the Income Tax Ordinance, 2001 and Rule 101 of the Customs Rules, 2001 notified vide S.R.O. 450(I)/2001 dated 18-06-2001. The offence is punishable under Clause (14) of Section 156(1) of the Customs Act, 1969, Sections 33 and 34 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001 read with S.R.O. 499(I)/2009 dated 13-06-2009. According a show-cause notice was issued to the appellant and the matter was adjudicated by the adjudicating officer who concluded his. observations as follows:--

"I have gone through the case record and considered written/ verbal arguments of both sides. The respondent declared the under reference goods as 'Submersible Pumps' against PCT heading 8413.7010 (chargeable to CD @ 5%, Sales Tax @ 0%, and Income Tax @ 0%, under S.R.O. 947(I)/2008 and 6th Schedule. Serial No. 113, of Income Tax Ordinance, 2001, respectively). However, physical examination by Customs revealed that the impugned goods were not `Submersible Pumps' but "Centrifugal Pumps" in view of the physical attributes of the goods such as the absence of mandatory insulation of the motor inside the housing of the pump to qualify the said goods as Submersible Pumps. Moreover, the manufacturer's original literature retrieved from inside the consignment also confirms the impugned goods as "Light Vertical Multi-stage Central Pumps with Motor" along with the installation instructions emphasizing that the pumps are not to be submerged in water. The goods so recovered are appropriately classifiable under PCT heading 8413.7090, chargeable to CD @ 20%, Sales Tax 17%, Additional Sales Tax 3%, Income Tax 9% and Additional Customs Duty 1 %, instead of the declared PCT heading 8413.7010 where only the bare CD is chargeable @ 5%. As per the scheme of Tariff the "Centrifugal Pumps" are bifurcated into two local/ national headings, i.e. 8413.7010 for "Submersible Pumps" and 8413.7090 for "Other." Based on this, the arguments put forth by the respondent that the instant goods are "Submersible Pumps falling under PCT Heading 8413.7010 and chargeable @ CD 5% is not tenable as Submersible Pumps are those Centrifugal Pumps which have electric motor in the same housing as the pump and is designed as such to operate while being submerged below surface/under water. Since the physical attributes and catalogue found along with the consignment confirm the usage and application of goods as other than "Submersible Pumps" therefore, the department has correctly classified the goods under PCT heading 8413.7090, chargeable to CD @ 20% and other taxes. From the above discussion, it is clear that the importer misdeclared the description and PCT heading of the impugned goods under self-assessment system to evade payment of legitimate government revenue. During the hearing, the respondent also raised the issue of value of impugned goods ascertained by the department. The DR, however, vide written reply mentioned above has stated that value determined by the department is as per the evidential data available with the Collectorate. In view of the above, the charges of levelled in the Show-Cause Notice stand established. I, therefore, order for confiscation of the goods under section 156 (1) clause 14, read with sections 32(1)(2) and 79(1) of the Customs Act, 1969. However, option under Section 181 of the Customs Act, 1969 is given to the importer to redeem the confiscated goods on payment of 35% Redemption Fine, i.e. Rs.1,388,018/ -(Rupees one million three hundred eighty-eight thousand and eighteen), equivalent to the value of offending goods (as determined by the department), in terms of S.R.O. 499(I)/2009 dated 13.06.2009, in addition to payment of duty and taxes chargeable thereon. I impose a penalty of Rs.25,000/ - (Rupees twenty five thousand) on the importer for violation of above-mentioned provisions of law."

3.Being aggrieved and dissatisfied with the impugned Order-in-Original, the Appellant filed the appeal before this Tribunal on the facts and grounds incorporated in the memo. of appeal.

4.On the date of hearing Mr. Raja Babar, Advocate appeared on behalf of the Appellant, reiterated the contents of the facts and grounds of the Memo. of Appeal and contended that, the first examination conducted by the shed staff confirmed declaration made by the importer as categorically defined the consignment/item is 'Submersible Pump with Motor' and not raised any objection or controversial report regarding imported consignment as such same was cleared. He further contended that, joint second examination in presence of CIU staff was conducted and prepared its report through which it was again confirmed that, earlier examination report is correct as mentioned in second examination report. No any controversial report given by the examination officials. Due to misreading of Pakistan Custom Tariff Chapter 84 in which the HS Codes of centrifugal pumps are mentioned, however, submersible pumps by name mentioned with PCT Code 8413.7010 under the heading of other centrifugal pumps and below that column other pumps relates to centrifugal pumps are mentioned with PCT Code 8413.7090. He also contended that, submersible pumps are one of centrifugal pumps as other centrifugal pumps which installed outside the fluid and submersible pump which merge in the fluid are differentiated by the Pakistan Customs Tariff under Chapter 84 as mentioned in the two different columns, despite that respondent No.2 issued the show-cause notice without any mis-declaration on the ground that the submersible pump and other centrifugal pump are same which is against codified law and amounted to harassment with mala fide intention. The imported goods item are submersible stainless steel vertical multi stage centrifugal pump and also submitted fact that `Light Vertical Multi Stage Centrifugal Pump with Motor is the function of Submersible Pump. He further contended that, all those pumps which works against the gravity, definitely vertical in direction are called Centrifugal Pumps. The respondent passed impugned Order-in-Original which is illegal and unlawful as contents of its are shocking as self made not mentioned in examination reports, such as it is mentioned on page No.7 of the Impugned Order-in-Original in para No.9 that, 'Physical examination by Customs reveal that the impugned goods were not submersible pumps but centrifugal pumps'. Although, it is false observation taken by the respondent No.1 who is also failed to appreciate that submersible pumps are light vertical multi stage centrifugal pumps which merge in the water not on the surface. It is also does not correspond, as to if the survey report was furnished by the committee or people or person carrying out the survey, the impugned order to this effect is silent. He prayed to set aside the impugned Order-in-Original and release the consignment in the interest of justice.

5.No cross objections under subsection (4) of Section 194-A of the Customs Act, 1969 have been submitted by the Respondents. However, the respondent filed para-wise comments. The representative of the respondent argued the matter and opposed the grounds of appeal and contended that appellant not imported submersible pump. As per examination report and catalogue found packed with each package the goods are 'Multi Stage Centrifugal Pumps' not having the characteristics of a submersible pump. On the basis of images in the first examination report it transpired that the goods are not submersible pumps as declared by the appellant. Hence the goods were re-examined for the confirmation of the declaration. It is denied that the second examination report confirmed the earlier examination report as correct. The second examination report states that 'the goods are examined in presence of C.I.U. staff. Found description of consignment is light vertical multistage centrifugal pump with motor of assorted models, brand and quality reported in the earlier examination report are correct. However description to the extent of submersible may be read as light vertical multistage centrifugal pump with motor. Group is requested to check all aspects in the light of catalogue being forwarded for ready reference.' The show-cause notice was issued correctly. Since the goods imported by the appellant are not `submersible pumps' therefore cannot be classified under PCT heading 8413.7010. On the basis of examination report, images and found catalogue the classification of the goods is under the heading 8413.7090, chargeable to customs duty @ 20%. It is denied that the submersible pump and centrifugal pump are same. The mandatory condition to qualify for a pump to be a submersible pump is insulation of the motor inside the housing of the pump, which is not present in the goods/pumps imported by the appellant. Moreover, the manufacturer's original literature retrieved from inside the consignment also confirms the goods are 'Light Vertical Multi-stage Centrifugal pump with motor' along with the installation instruction emphasizing that the pumps are not to be submerged in water and prayed that the order passed by the respondent No.1 may be upheld and the instant appeal be dismissed.

6.Arguments heard and concluded. Record of the case perused. After perusal of the record as well as arguments extended by both the parties, it has been noticed and observed that the only controversy in the subject case revolves around the issue whether the imported goods falls under the category of "submersible pumps (PCT heading 8413.7010) or under "centrifugal pumps (PCT heading 8413.7090). According to the 1st examination report, the subject goods are found under the description of submersible pumps with motors, having different brands and HP (Horse Power) marked with the brand JDYDEE, report is available on Page-17 as Annexure, another report is available at Page-18 about the same container which extended the different description, the report says that goods are examined in presence of CIU staff, the fund description of consignment is "light vertical Multi stage centrifugal pump with motor of assorted model, Brand and quantity, reported in the earlier examination report are correct, however, description to the extent of submersible may be read as light vertical multi stage centrifugal pump with motor". These examination reports causes the basic confusion in the description of goods specifically on the ground of additional presumptive observations that "the mandatory condition to clarify for a pump to be a submersible pump is installation of the motor inside the housing of the pump, which is not present in the goods / pumps imported by the appellant" because the said observation is neither part of the 1st Examination Report nor it has been reflected from second Examination Report which in fact originally causes the difference of opinion and show-cause notice was accordingly issued. The claim of the respondents based on the ground that original literature retrieved inside the consignment confirms the impugned goods as "light vertical Multi stage centrifugal pump with motor" and as such classifiable under PCT heading 8413.7090, chargeable to Customs Duty @ 20%, Sales Tax @ 17% Additional Sales Tax @ 3%, Income Tax @ 9% and Additional Custom Duty @ 1% instead of declared PCT heading 8413.7010 where the chargeable customs duty @ 5%. During hierarchy of the customs appellant established their ground through the evidence provided in form of literature / catalogue and tried to distinguish that, the submersible pump is one of centrifugal pump as other centrifugal pumps are installed outside the fluid and submersible pump which merge in the fluid are differentiated by the Pakistan Customs Tariff Chapter 84 under aforesaid two different PCT headings. It is evident from the record of the case that the appellant in support of their claim and to distinguish the "submersible pump" and "centrifugal pump" submitted the catalogue as Annexure available at Page 8 of the appeal. According to the catalogue the impugned product, name as "submersible centrifugal pump" supported with photographs of the original product. The main difference which they had elaborated apart from others, clearly differentiable from the photographs, category one of the pumps called horizontal centrifugal pumps and the others are been called submersible centrifugual vertical pumps. Although, these are for the different purposes and use over the water and under the water. For elebrating the characteristics and working of submersible pumps and centrifugal pumps. First of all, we prefer to place here the definition of word "Centrifugal" which means moving or tending to move away from a centre practically there should be some of the force, that force appears to cause an object travelling around a centre to fly away from the centre and off its circular path. The machine (For Liquid) having such function is called centrifugal pumps. If it is being used over the water or on the earth, it would be called centrifugal pump. When it has been used under the water it would be called submersible centrifugal pump. According to the subsequent distinctive characteristics of pumps, same falls under sub-heading 8413 of Chapter 84 of Pakistan Customs Tariff.

7.Now for clearity and description, we prefer to refer third (single dash) heading which is the basis of main conflict between the appellant and respondents, submersible pumps are specifically defined under three dash sub-heading of 8413.7010 other than submersible pumps (other dash) heading falls under sub-heading 8413.7090. It is the fundamental principle of rules of interpretation of statutes that taxing statute must be interpreted strictly. Bare reading of third (single dash) heading of sub-heading 8413.7010 reveals that machine/pump performs specific function for use under water would be classified under this category of heading only. On the contrary respondents/department failed to provide any evidence neither in the 1st examination report nor in the subsequent second examination report, about the purpose of use, specifically to verify the characteristic of impugned goods. It is clear from the second report that the distinction placed to the extent of word "submersible", may be read as light verticle multi stage centrifugal pump with motor, by doing so, word "submersible" has been alternatively added as read along with light vertical multi stage centrifugal pump and only by that reason, respondent/department assessed the impugned goods under sub-heading 8413.7090 (--- others) instead of sub-heading 8413.7010 (--- submercible pumps).

8.In our view the appellants contention carries weight on the ground that redendency cannot be attributed to the legislature and each and every word inserted in the statute has its own significance. The explanatory notes does not provide any assistance for distinguishing classification of three (--- dash) sub-headings 8413.7010 and 8413.7090. These sub-headings are distinguishable by application of General Interpretation Rules 1 to 6 of the Pakistan Customs Tariff, according to which classification is to be made according to term of heading and relevant Chapter and Section Notes. The appellants claimed the PCT heading 8413.7010, but on the contrary PCT heading 8413.7090 insisted by the department without the support of any iota of evidence provides the sufficient proof about the bona fide of the appellant. The element of mens rea has not been proved against the appellant, thus the charge of mis-declaration under Section 32 is therefore unwarranted and penalty imposed under Clause (14) of Section 156 (1) of the Customs Act, 1969 is patently unlawful.

9.Now, it is important to point out that in the subject Show-Cause Notice the element of "mens rea" and "existence of knowledge" or "reason to believe" as well as any collusion with customs officials and in support thereof no evidence substantiated the said alleged offence brought on record by the respondent. The subject impugned goods were examined under the First Appraisement System, in compliance of Section 79(1) of the Customs Act, 1969, where the said option was given, the provisions of Section 32 cannot be invoked the language of Section 32 can only be applied on the basis of documents delivered or furnished by the importer or the statement given by him before the Customs authorities, in this particular case while making the declaration the same was in support of the import documents and the description given on said documents the declaration made thereon are of same details. The language of that Section gives a very clear impression that the person who in action with any matter of customs makes or signs or causes to be made sign, or deliver causes to be delivered to an officer of customs any declaration, notice, certificate or other documents in any form or gives statement in reply to a question before the customs authorities knowingly and intentionally, having the reasons to believe that such documents and statements are falls under any material particular and he shall be guilty by an offence under this Section the question to giving the reply to an officer in this particular case in presence of the compliance of Section 79 (1) of the Customs Act, 1969 does not arise and element of "mens rea" having "fraudulent intention", "knowledge" and "reason to believe" about the declaration in a material particular has no legal warrant of charge, in absence of the subsequent and specific evidence, which constitutes a sufficient cause in favour of the appellant. It is also a settled law that if such specific particulars are not stated in the Show-Cause Notice, the notice would be vague and would not be in consonance with the requirement of subsection (2) of Section 32 of the Customs Act, 1969.

10.Now the other principle question involved in this case, whether the penal provisions of Customs Act, 1969 read with Notification vide S.R.O. 499(I)/2009 dated 13.06.2009 under the option of Section 181 of the Customs Act, 1969 are validly applicable under such circumstances as dealt in present case by the adjudicating officer.

11.The option of Section 181 of the Customs Act, 1969 does not specify the amount or value on the basis of which the owner of the goods may be given an option to pay in lieu of the confiscation of the goods such fine as the officer thinks fit. However, through 1st proviso the Board through an order can specify the goods or class of goods where such option shall not be given, whereas 2nd proviso of Section 181 refers to the amount of fine which the Board may fix through issuance of an order be imposed on any goods or class of goods imported in violation of the provisions of Section 15 or a notification issued under Section 16, or any other law for the time being in force. The 1st proviso limit the powers of the adjudicating authority in regards to certain goods or class of goods, wherein, no option for redemption of the goods be given, instead be outrightly confiscated. In 2nd proviso the Board can notify the pitch of fine through a notification on the goods imported in violation of the provision of Section 15 or notification issued under Section 16. Confirming that the Board cannot fix any pitch of fine on any goods or class of goods not falling within 1st and 2nd proviso of Section 181 of the Customs Act, 1969. The goods imported through the instant consignment by the appellant are not those of Section 15 nor of those where any notification has been issued under Section 16 of the Customs Act, 1969 or any other law for the time being in force. Instead a case of Sections 32 and 32A of the Customs Act, 1969, for which Board is not empowered to issue notification with fixation of pitch of fine under Section 181 ibid. The legislature intentionally left the imposition of fine on the discretion of the Adjudicating Authority, who has to use that sparely and in the benefit of the tax payer as held by Superior Judicial Fora in plethora of reported judgment, rendering the fixation of redemption fine on the goods or class of goods other than of Sections 15 and 16 ibid through Notification No. 499(I)/2009 dated 13.06.2009 as ultra vires to the provision of Section 181 of the Customs Act, 1969 and as such without lawful authority as held in reported judgment 2000 PTD 399 Superior Textile Mills Ltd. v. FOP, PLD 2001 SC 600 The Collector of Sales Tax and others v. Superior Textile Mills Ltd and others, 2012 MLD 302 Saleem Raza v. FOP and others. Notwithstanding to the fact, that it is for the legislature or the Board to revisit the provision of Section 181 or the Notification No.499(I)/2009 dated 13.06.2009 in the light of observation made in the instant judgment. The Tribunal also intend to resolve the bone of contention that what does the word "custom value" mean in the notification. Although this controversy already has been laid to rest by the Hon'ble Division Bench of the High Court of Sindh in reported judgment 2004 PTD 2981, Messrs Weave and Knit (Pvt.) Ltd. v. Additional Collector of Customs, (Adjudication) Karachi and others. In the said case the fine was imposed on the basis of total amount of duty and taxes of the consignment instead of the amount of duty and taxes evaded.

12.By getting the strength, what has been stated and observed herein above particularly the interpretation of law and legal prepositions in the light of prescribed law and to follow the ratio decidendi from the judgments of Superior Courts along with our additional observations made therein, the adjudicating officer passed the impugned order with least application of judicious mind, pitch of fine and penalty does not correspond with the gravity of offence, we hereby pass the order to remit the fine and penalty imposed on to the goods and the appellant respectively, the impugned Order-in-Original is modified to the extent of observations and orders made above, respondents are also directed to issue delay detention certificate in accordance with law, if so required. The appeal is accordingly disposed of in above terms.

13.Judgment passed and announced accordingly.

HBT/39/Tax(Trib.) Order accordingly.