SPATCO'S, KARACHI VS DEPUTY COLLECTOR OF CUSTOMS (R&D), 2018 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 2475 (2018)

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

----S. 32(2)--- Mis-declaration--- Show-cause notice mentioning irrelevant sections of law---Effect---Show-cause notice being a basic document, was to be prepared with utmost care after going through the provisions of Customs Act, 1969---Cosmetic show-cause notice was not a legal document---Show-cause notice issuing authority was supposed to carefully go through the facts of the case and applicable provisions of Customs Act, 1969, alleged by contravened and the penal clauses so attracted for penalizing after establishing the charges---Decision on any fresh ground which was not spelled out in the show-cause notice, was not permitted---Any provisions of law which were not applicable and were invoked or irrelevant sections were invoked, same would render the show-cause notice palpably illegal---Collector of Customs, transmitted the show-cause notice to importer without going through its contents containing penal clauses of the Sales Tax Act, 1990 and Income Tax Ordinance, 2001---Issuance of such show-cause notice on the basis of irrelevant sections had rendered the show-cause notice void ab initio and of no legal effect.

Sadia Jabbar v. Director, Directorate General of Valuation 2012 SCMR 617 = 2012 PTD 898; Danish Jehangir and others v. The FOP and others 2016 PTD 702; Messrs Zeb Traders v. Federation of Pakistan 2004 PTD 369; Assistant Collector v. Khyber Elec. Lamps 2003 PTD 1275; D.G. Khan Cement v. Collector of Customs 2005 PTD 480; Caltex v. Collector (2003) 88 Taxation 128 (Lah.); Union Playing Card Company v. Collector of Customs 2002 MLD 130; Atlas Tyres v. Addl. Collector 2002 MLD 180; State Cement v. Collector PTCL 2001 CL 558; Kashmir Sugar v. Collector 1992 SCMR 1898 and Rose Color v. Chairman, CBR 2013 PTD 813 ref.

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

----S. 32---Mis-declaration of description of goods---Importer could not be charged for mis-declaration under S.32 of the Customs Act, 1969 (i) where an importer made correct declaration on bill of entry or opted for first appraisement for determination of correct description, PCT heading of quantity of goods; (ii) when a consignment was found to contain goods of description other than the one declared falling under separate PCT heading, but chargeable to same rate of duty and (iii) where the description of goods was as per declaration, but incorrect PCT heading had been mentioned in the bill of entry, no case of mis-declaration under S.32 of the Customs Act, 1969 was made out, provided there was no change in the rate of customs duty as a result of ascertained PCT heading---Test report of Customs Laboratory, was conclusive in regard to the actual description of the goods, which could have been determined to the extent of zero error after obtaining instrumental analysis from any renowned Food Laboratory or from Pakistan Standard and Quality Control Authority, which was not obtained---Contravention was framed for issuance of show-cause notice for mis-declaration of description under the provisions of S.32 of the Customs Act, 1969 by Deputy Collector of Customs (R & D) and while doing so vital fact was ignored in the present case---Nothing categorical in regard to imported goods was available for discarding the declaration of the importer; in such like situation, neither framing of contravention was warranted nor issuance of show-cause notice and passing of order-in-original by Deputy Collector of Customs (R & D) or Deputy Collector of Customs---Framing of contravention report and subsequent proceedings in the case being void ab initio were not sustainable under the law.

Syed Muhammad Razi v. Collector of Customs, (Appraisement), Karachi and 2 others 2003 PTD 2821 and Muhammad Waheed v. Customs Appellate Tribunal 2016 PTD 35 ref.

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

----Ss. 25-A & 32---Customs Rules, 2001, Rr.107(a) & 110---Mis-declaration---Overruling of Valuation Ruling---Issue for determination was as to whether charge of mis-declaration of value could be invoked on the basis of Valuation Ruling issued by the Director, Directorate General of Valuation---Application of Valuation Ruling could only be overruled when evidence of higher value was available; because proving of charge of mis-declaration of value needed high standard of proof, a direct evidence not the Valuation Ruling or the value of identical/similar goods available in the data reservoir maintained by PRAL under R.110 of the period given in R.107(a) of Customs Rules, 2001---In absence of direct evidence of higher value levelling charge of mis-declaration on the basis of Valuation ruling was without substance and in contravention of the provisions of Customs Act, 1969 and Customs Rules, 2001 and Regulations framed thereunder---Issue was answered in the negative.

Sadia Jabbar v. FOP PTCL 2014 CL 537 and Danish Jehangir v. FOP and 2 others 2016 PTD 702 ref.

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

----Ss. 25 & 25-A---Customs Rules, 2001, R.107(a)---Assessment on the basis of Valuation Ruling---Limitation---Issue the determination was, whether assessment could be made on the basis of Valuation Ruling after lapse of 90 days---Validity of any Valuation Ruling issued by the Director, Directorate General of Valuation under provisions of S.25-A of the Customs Act, 1969 was to the extent of 90 days i.e. the period expressed in R.107(a) of Customs Rules, 2001---Any assessment made for the levy of duty and taxes of either a consignment of any importer beyond said period with the application of a Valuation Ruling would lose its enforcement being in derogation of R.107(a) of Customs Rules, 2001---Proceedings in the case were declared to be infested with inherent legal infirmities and substantive illegalities, tantamounting to patent violations of prescribed law and in utter disregard of principles of natural justice---Impugned orders were set aside.

Nadeem Ahmed Mirza for Appellant.

Raja Shakeel Ahmed, A.O. for Respondents.

Date of hearing: 19th September, 2017.

JUDGMENT

MUHAMMAD NADEEM QURESHI, MEMBER (JUDICIAL-I).--Through this order, we intend to dispose off Appeal No. K-1072/2016 directed against the Order-in-Original No. 496879 dated 22.03.2016 passed by Collector of Customs, Adjudication-I ( here-in-after to be referred as respondent No. 3).

2.Brief, facts of the case are that the appellant imported a consignment comprising 56.625 MT Whey Powder of German origin from UAE @ US$. 620/MT, upon receipt of relevant documents from the shipper he delivered those to his clearing agent Messrs Bilal Custom Agency, Karachi for transmitting Goods Declaration (here-in-after to be referred as GD) with the MCC of Appraisement-West under the provision of Section 79(1) of the Customs Act, 1969 (here-in-after to be referred as Act ) and Rule 433 of Sub-Chapter III of Chapter XXI of Customs Rules, 2001 (here-in-after to be referred as Rules), which he did and as per pre-requisite deposited upfront duty and taxes with the National Bank of Pakistan, consequent to which GD was numbered as KAPW-HC-142170-28012016 which was selected for examination as per the expression of Section 198 and Rule 435 of the Act/Rules. The officials posted at KICT confirmed the declaration, fitness for human consumption and to the fact that the goods are obtained from the milk of Halal animal, however, for further verification of the description sample was forwarded to Customs Laboratory, which confirmed through an inconclusive report that the "goods are skimmed milk powder on the basis of general testing method (GMT) and advised that for further confirmation, verification should be sought through instrumental analysis" before terming the goods as "Skimmed Milk Powder". The Deputy Collector of Customs R&D, MCC of Appraisement-West (here-in-after to be referred as respondent No. 1) instead of obtaining verification of the description of the goods through instrumental analysis, termed those as skimmed milk powder and framed contravention report with the allegation that the found goods through test fall under PCT 0402.1000 as against declared 0404.1010 and are assessable @ US$. 2.60/kg C&F under Serial No. 1 of Valuation Ruling No. 780/2015 dated 09.12.2015 meant for the goods of New Zealand, Australia, West Europe, Canada and USA origin as against whey powder assessable @ US$:0.62/kg C&F vide Serial No. 4 of Valuation Ruling No. 689/2016 dated 08.01.2016 meant for the goods of Poland origin. This act of appellant was construed as an act of misdeclaration of description and PCT for avoiding application of correct valuation ruling, instrumental in causing loss of Rs. 7,344,216.00 to the exchequer. Therefore, his act falls within the ambit of the provision of Sections 32(1), (2) 32A and 79(1) of the Act, Section 33 of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001, punishable under clauses 14, 14A and 45 of Section 156(1) of the Act, clause 11(c) of Section 33 of the Sales Tax Act, 1990 and Section 148 of Income Tax Ordinance, 2001 and forwarded that to the Additional Collector (Law), MCC of Appraisement-West for approval, who gave his assent and transmitted the report to respondent No. 3. The appellant sensing the gravity of the situation and for avoiding him from accumulation of container detention/rental and terminal demurrage/storage charges approached the Hon'ble High Court of Sindh vide C.P. No. D-872/2016, which ordered release of the goods after securing pay order of differential amount of duty and taxes between the declared/ascertained description and PCT and C&F value arrived for levy of duty and taxes with the application of valuation ruling No. 780/2015 dated 09.12.2015 as against 689/2016 dated 08.01.2016 and post dated cheques against anticipated imposed amount of fine and penalty. The appellant in compliance to the order of the Hon'ble High Court of Sindh dated 13.02.2016 submitted pay order of Rs. 3,370,231.00 towards the differential amount of duty and taxes and post dated cheque of Rs. 7,449,048.00 in lieu of fine and penalty as security, subject to encashment or return upon decision by the Customs Appellate Tribunal. The respondent No. 1 after receipt of those intimated that to the Deputy Collector of Customs, Group-I, MCC of Appraisement-West (here-in-after to be referred as respondent No. 2) to complete the assessment under the provision of Section 81, which he did under Section 80 and Rule 438, consequent to which the inbuilt authority of the WeBOC passed clearance order under Section 83 and Rule 442 of the Act/Rules and the appellant after paying the charges of the shipping company and terminal obtained the delivery. Thereafter, respondent No. 3 transmitted show-cause notice dated 08.03.2016 to the appellant with the incorporation of the facts and the contravening provisions of Act/Ordinance and applicable penal clauses as narrated/invoked by the respondent No. 1 in the contravention report, without any slightest change of comma and full stop. The advocate of the appellant submitted reply vide dated 14.03.2016 through which he denied the charges of misdeclaration of description and PCT in the light of clear direction/ order of the Board given in Sub-Para B(ii) of para 101 of CGO 12/2002 dated 15.06.2002 . The respondent No. 3 ignored the submission in totality and so the direction contained in aforesaid sub-para and passed order dated 22.03.2016 through which he held the charges levelled in the show-cause notice as established and order confiscation of the goods subject to redemption of those upon payment of 35% redemption fine of Rs. 5,449,048.00, penalty of Rs. 1,500,000.00 on appellant and Rs. 500,000.00 on the clearing agent in addition to payment of duty and taxes chargeable thereon.

3.The appellant filed the appeal on the basis of grounds enumerated therein. No cross objection under subsection (4) of Section 194A has been filed within the stipulated period of 30 days by the respondent No.1 himself or through his subordinate, instead comments were filed by respondent No. 2 which are placed on record of the case for consideration and perusal.

4.Arguments heard and perused the case record and the relied upon documents/judgments by the appellant's and frames the following issues for decision:--

(i)Whether invoking of irrelevant Sections in the show-cause notice is of dire consequences and render it invalid and as such ab-initio void as held by the superior judicial fora in umpteenth reported judgments?

(ii) Whether Section 32(1) and (2) of the Act can be invoked in a case, wherein rates of duty and taxes on declared and ascertained description/ PCT are one and the same if read in conjunction with the direction contain in Sub-Para B(ii) of para 101 of CGO 12/2002 dated 15.06.2002, having binding force under the provision of Section 223 of the Act?

(iii)Whether charge of mis-declaration of value can be invoked on the basis of valuation ruling issued by the Director, Directorate General of Valuation for the goods or the category of the goods under the provision of Section 25A of the Act?

(iv)Whether assessment can be made on the basis of stale Valuation Ruling after lapse of 90 days from the date of issuance as per the expression of Rule 107(a) of Chapter IX of the Rules and law laid down by the Hon'ble High Court of Sindh in reported judgments 2012 SCMR 617 = 2012 PTD 898 Sadia Jabbar v. Director, Directorate General of Valuation and 2016 PTD 702 Danish Jehangir and others v. The FOP and others?

5.That in regards to issue No. (i), we inscribe that the show-cause notice is a vital basic document, which should be prepared with utmost care after going through the provision of the Act, cosmetic show-cause notice is never been considered a legal document and for that reason the FBR and Superior Judicial Fora through direction/instruction issued from time to time or reported judgments made mandated for the show-cause issuing authority to carefully go through the facts of the case and applicable provision of the Act alleged to be contravened and so the penal clauses so attracted for penalizing after establishing of the charges. Decision on any fresh ground, which was not spelled out in the show-cause notice is not permitted. Similarly, any provisions of the Act/Ordinance, which are not applicable and were invoked or irrelevant Section are invoked, renders the show-cause notice palpably illegal. Judgment of High Court of Sindh reported at 2004 PTD 369 in the case of Messrs Zeb Traders v. Federation of Pakistan is relevant, wherein, it has been held that "The proceeding before Adjudicating Officer, under the Customs Act, 1969 are in the nature of quasi judicial proceedings and issuance of notice under section 180 of the Customs Act, is very important documents. The decision to issue show-cause notice is to be taken by the Collector, Adjudication, by application of independent mind and not merely signing the draft show-cause notice submitted by the investigation agency separate from the Adjudication Department and each category of officers are required to perform their respective functions/duties under the law. The practice to submit draft show-cause notice by the Director General of Intelligence and Investigation to the Collector Adjudication is depreciated." Upon examination of the show-cause notice, it has been observed that the respondent No. 3 transmitted the show-cause notice to the appellant, draft of which was received by him from respondent No. 1 without going through its contents containing penal clauses of the Sales Tax Act, 1990 and Income Tax Ordinance, 2001. This lapse on his part bears serious consequences, because Section 11(3) of the Sales Tax Act, 1990 and Section 148 of the Income Tax Ordinance, 2001, which were referred/invoked in the show-cause notice are not relevant by virtue of the fact that these are not penal clauses instead charging and machinery Section respectively, charge under Section 11(3) can be made by the authority referred therein and Section 148 contains the procedure for collection of Income Tax at import stage by the authorities referred therein. Meaning thereby that these sections are independent and have no nexus with the penal clauses of Section 33 of the Sales Tax Act, 1990 and Section 162(1) of the Income Tax Ordinance, 2001. The Officer of Customs is not empowered to invoke these Sections in the show-cause notice under any circumstances, he has to remain within the ambit of the Act. No show-cause notice can be issued under these sections. Issuance of show-cause notice on the basis of irrelevant sections renders the show-cause notice void and ab-initio and of no legal effect as held in reported judgments Asst. Collector v. Khyber Elec. Lamps 2003 PTD 1275, D.G. Khan Cement v. Collector of Customs 2005 PTD 480, Caltex v. Collector (2003) 88 Taxation 128 (Lah.), Union Playing Card Company v. Collector of Customs 2002 MLD 130, Atlas Tyres v. Addl. Collector 2002 MLD 180, State Cement v. Collector PTCL 2001 CL 558, Kashmir Sugar v. Collector 1992 SCMR 1898, Rose Color v. Chairman, CBR and 2013 PTD 813 Sarwar International v. Addl. Collector of Customs. Hence, we answer the issue No. (i) in affirmative.

6.That as regard to issue No. (ii), we have perused the test report of Customs Laboratory, reading as "The sample on test by general method of testing is found to consist of skimmed milk powder, it is in the form of creamish color powder. "Note:- Report may however be verified by instrumental analysis before applying. The said report is inconclusive in regards to the actual description of the goods, which could had been determined to the extent of zero error after obtaining instrumental analysis from any renowned Food Laboratory or from Pakistan Standard and Quality Control Authority (PSQCA), which was not obtained and contravention was framed for issuance of show-cause notice for mis-declaration of description under the provision of Section 32 of the Customs Act, 1969 by the respondent No. 1, while doing so vital fact was ignored that skimmed milk is the powder/dried form of skim milk which is obtained from simply removing the fats from whole milk. It contains everything that whole milk does except fat and Vitamin A. Whereas Whey Protein Powder is the powdered/dried from of whey which is a waste/by product of cheese production. It is primarily comprised of whey protein. Nothing categorical in regards to imported powder is available for discarding the declaration of the importer. Notwithstanding, both falls under Chapter of First Schedule to the Act, i.e. Whey under Sub-heading of HS Code 0404.1010 and skimmed milk powder under HS Code 0404.1000, both are chargeable to same rate of duty i.e. Customs Duty 20%, Sales Tax 17% and Income Tax 6%. When rates of duty and taxes are one and the same the charge of misdeclaration cannot be levelled as ordered by the Board in Sub-para B(ii) of para 101 of CGO 12/2002 dated 15.06.2002 reading as "an importer may not be charged for mis-declaration under section 32 of the Customs Act, 1969, in the following situation":

(i)Where an importer makes a correct declaration on bill of entry or opts for 1st appraisement for determination of correct description, PCT heading of quantity of goods.

(ii)When a consignment is found to contain goods of description other than the one declared falling under separate PCT heading but chargeable to same rate of duty.

(iii)Where the description of goods is as per declaration but incorrect PCT heading has been mentioned in the bill of entry no mis-declaration case under section 32 of the Customs Act, 1969, be made out provided there is no change in the rate of customs duty as a result of ascertained PCT heading.

7.From perusal of the order of the Board, it has been observed that the case of the appellant falls within the ambit of clause (ii) of the aforesaid sub-para, in such like situation neither framing of contravention was warranted nor issuance of show-cause notice and passing of Order-in-Original by either respondent No. 1 or 2. The rationale behind issuing of the said order by the Board was human err and every error cannot be considered to be an act of misdeclaration rather it can be due to inadvertence, if the inadvertence or error is being construed as misdeclaration, it will create hardship for the importers and even for the officer of customs, who shall be over burdened with the litigation proceedings as against actual job of generating revenue through passing of assessment orders against the filed GD's for the imported goods for levy of duty and taxes. The said rationale is invariably adopted by the Officials of Customs in the course of their prescribed duty on daily basis without any exception, it seems that the appellant has been given differential treatment and his case has been dealt exceptionally, which is not permitted under Articles 4 and 25 of the Constitution of Islamic Republic of Pakistan, in derogation of order of the Board despite binding under the provision of Section 223 of the Customs Act, 1969 on the respondent No. 1 and the Officer of Customs and even the respondent No. 2, being beneficial in nature and every importer/tax payer are entitled to the said benefit, acting contrary to the direction is illegal and without lawful authority and this has been held by the Hon'ble High Court of Sindh in 2003 PTD 2821 Syed Muhammad Razi v. Collector of Customs, (Appraisement), Karachi and 02 others that "in the wake of clear instruction contained in Customs General Order No. 12/2002, the importer may not be charged for misdeclaration under Section 32 of the Customs Act, 1969, the impugned action on the part of Customs Officials is not sustainable in law and liable to be struck down as illegal and without lawful authority" and in 2016 PTD 35 Muhammad Waheed v. Customs Appellate Tribunal, it was observed that "Direction contained in Customs General Order 12 of 2002 though not binding upon Field Officer of the Department in terms of section 223 of the Customs Act, 1969 .. Field Officer were required to follow such direction or guideline before making any contravention report/case against an importer---any act of Field officer in violation of such direction would be of no legal consequences." In the light of the aforesaid, we have reached at irresistible conclusion that framing of contravention report and the connected subsequent proceeding in the case of the appellant are not sustainable under law and as such ab-initio void. The issue No. (ii) is answered in negative.

8.That as regard to issue No. (iii), it is settled practice and law that the application of Valuation Ruling can only be over ruled when there is an evidence of higher value is available because proving of charge of mis-declaration of value needs high standard of proof, a direct evidence not the valuation ruling, or the value of identical/similar goods available in the data reservoir maintained by PRAL under Rule 110 of the period given in Rule 107 (a) of Chapter IX of the Rules. Even otherwise, in case of levelling charges of mis-declaration of value on each importer based on valuation ruling or identical/similar assessed value (instead of import) in the data, not a single consignment would had been cleared by any field formation in Pakistan and their job would had been only to frame contravention reports, whereas the adjudicating authorities would had been piled with the cases and the port/dry port would had been chocked to their capacity due to non timely clearance of consignments. The Tribunal failed to digest the wisdom of respondents of levelling charge of mis-declaration on the basis of valuation ruling in derogation of provision of Section 32 of the Act and para 78 and Sub-para (3) of para 101 of CGO 12/2002 dated 15.06.2002 and clause (d) of Notification No S.R.O.466(I)/2009 dated 15.06.2009. In the absence of direct evidence of higher value levelling charge of mis-declaration on the basis of valuation ruling is without substance and nullity to the provision of Act and Rules and Regulation framed there-under, as such, the issue No. (iii) is accordingly answered in negative.

9.That as regard to issue No. (iv), we have examined the Valuation Ruling No. 780/2015 dated 09.12.2015, reliance on which has been made by the respondents for the purpose of assessment of the values determined there under. It is well settled law that the validity of Valuation Ruling issued by the Director, Directorate General of Valuation under the provision of Section 25A of the Custom Act, 1969 is to the extent of 90 days i.e. the period expressed in Rule 107 (a) of Chapter IX of Custom Rules, 2001 and this has been held time and again by the Hon'ble High Court and this Tribunal. In PTCL 2014 CL 537 Sadia Jabbar v. FOP and 2016 PTD 702 Danish Jehangir v. FOP and 2 others that "a valuation ruling issued under Section 25A can, in our view, only apply for a certain period and no more. The reason for this lies in the fact that the valuation ruling must be determined using one of the methods of Section 25 /the Valuation Agreement. Now at least three of those methods, the identical goods method, the similar goods method and the deductive value method, require the value to be determined "at or about the same time" as the goods being valued. This expression has been defined in Chapter IX of the Rules (in Rule 107) meaning "within ninety days prior to the importation or within ninety days after the importation of the goods being valued" in the same judgment the Hon'ble High Court nullified para 5 invariably available in all ruling that "in cases where declared/ transaction value are higher than the Custom values determined in the ruling, the assessing officer shall apply those value in terms of subsection (1) of Section 25 of the Custom Act, 1969," while holding "that any valuation ruling issued with the said direction is ultra virus to Section 25A because it contemplates and permits a predetermination of Custom Value. It is impermissible to apply Transaction value in terms of Section 25A". We therefore, hold that any assessment made for the levy of duty and taxes of either a consignment of any importer or appellant beyond 10.12.2015 with the application of Valuation Ruling No. 780/2015 dated 09.12.2015 may lost its enforcement in derogation of Rule 107(a) of the Rules and the aforesaid judgments. Accordingly, the issue No. (iv) is answered in negative.

10.In the light of above deliberation and adhering the ratio decidendi set-forth by the judicial fora, we are of the considered view that, the proceeding in the subject case are infested with inherent legal infirmities and substantive illegalities, tantamount to patent violations of prescribed law, and that, too, in utter disregard of principle of natural justice, hence the impugned orders passed during the hierarchy of customs are hereby declared null and void, ab-initio, therefore, set-aside. Appeal is accordingly allowed with no order as to cost.

11.Judgment passed and announced accordingly.

HBT/38/Tax(Trib.) Appeal allowed.