KHYBER TEA AND FOOD COMPANY, KATCHERY GATE, PESHAWAR VS COLLECTOR OF CUSTOMS (APPEALS), MODEL CUSTOMS COLLECTORATE, PESHAWAR, 2018 PTD-CUSTOMS-APPELLATE-TRIBUNAL-LAHORE 726 (2017)

(a) Customs, Excise and Sales Tax Appellate Tribunal Procedure Rules, 2006---

----Rr.2(b) & 17(1)(2)(3)---Customs Act (IV of 1969), Ss. 180(c), 195(1) & 208(2)---Appearance of authorized representative in appeal---Departmental representative raised objection that authorized representatives/consultants in the appeal could not appear as authorized representatives/consultants as they were not licensed advocates---Said objection seemed to be based on some misconception, misapprehension and mis-reading of provisions of Ss.180(c), 195(1) & 208(2) of Customs Act, 1969, which did not place any embargo on appearance as an authorized representatives/consultants before the adjudicating forum and before the Collector of Customs (Appeals) provided written authority had been given by the person concerned---Rule 2(b) of Customs, Excise and Sales Tax Appellate Tribunal Procedure Rules, 2006; (issued vide Notification No. S.R.O. 897(I)/2006, dated 1-9-2006), entitled an authorized representative to appears before the Appellate Tribunal---Rule 17(1)(2) & (3) of said Rules also prescribed a procedure for authorized representative---Person affected by the orders passed by the lower forum could appear in the court of law personally or through any person, irrespective of the fact that such person was licensed advocate, provided written authority, permission was given by him to such person.

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

----S. 180---Issuance of show-cause notice---Purpose---Purpose of show-cause notice, was that accused should know about the allegation levelled against him and prepare his defence---Right of appellant/accused to defend himself and produce the evidence of legal import and lawful possession of the goods---Scope---No provision existed in the Customs Act, 1969 that accused could not produce documentary evidence or his version at any stage in appeal.

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

----Ss. 2(s), 16, 157 & 156(1)(8)(89)---Allegation of smuggling---Outright confiscation of seized goods---Truck was intercepted---Search of said truck resulted into recovery of foreign original tea in the vehicle---Occupants of the vehicle failed to produce any legal documents/lawful possession of the said goods so recovered---Customs Staff seized the foreign origin smuggled goods and the said vehicle---Deputy Collector Adjudication Customs ordered outright confiscation of the seized goods and released vehicle against 20% redemption fine---Collector Customs (Appeal) dismissed appeal of the appellant/ accused---Bill of Entries and all other documents produced by the appellant had shown that goods in question were imported by him---Department could not prove its case against the appellant regarding violation of Ss.2(s), 16 & 157 of the Customs Act, 1969---Appellant being manufacturer, could change the original packing after mixing and blending the tea---Goods, in question having been loaded on a truck were seized within the country which could not be treated as smuggled---Locally manufactured goods and imported goods purchased from the local markets, were not liable to confiscation---Once the goods were imported into the country for home consumption and issued a sales tax invoice in respect of imported goods, and goods after process or provisions of Customs Act, 1969, were not applicable to such goods assembling, cutting, mixing and preparation, were repacked---Department having failed to prove its case against appellant, appeal was allowed and department was directed to immediately work out the entire sales proceeds that were payable to the appellant accordingly, and release the vehicle unconditionally---Redemption fine imposed on the vehicle, was also ordered to be remitted.

1995 SCMR 387; 2004 PTD 791; 2012 PTD 1343; 2012 PTD 1632; 2002 MLD 700; 2001 SCMR 1376 = 2001 PTD 2097; 2001 PTD 2982; 2004 PTD 788; 2013 PTD (Trib.) 600; 2016 PTD 80 and 2012 PTD 428 ref.

Syed Pir Alam Shah Legal Consultant and Fakhr-e-Alam Paracha Managing Director for Appellant.

Naseer Khan Afridi Superintendent Customs for Respondents.

Date of hearing: 25th April, 2017.

JUDGMENT

CH. MUHAMMAD SHABBIR GUJJAR, MEMBER (JUDICIAL).---This appeal filed by M/s Khyber Tea and Food Company against the Order-in-Appeal No. 33/2014 dated 13.06.2014 passed by the Collector of Customs (Appeals), MCC, Peshawar whereby he while maintaining the Order-in-Original No. 25/2014 dated 22.02.2014 dismissed the appeal.

2.Brief facts of the case are that the Customs Mobile Squad D.I. Khan on 05.01.2014, in pursuance of prior information, a Truck bearing Registration No. P-3334 Peshawar was intercepted at DI Khan. Search of the vehicle resulted into foreign origin goods (as detailed in the recovery Memo 03/2014 dated 05.1.2014). On demand, the occupants of the vehicle namely (1) Zahid Gul son of Haji Gul R/o Peshawar (2) Naseer son of Waheed R/o Multan failed to produce any legal documents/lawful possession of the said goods so recovered. Therefore, the Customs staff seized the foreign origin smuggled goods along with the said vehicle under section 168 of the Customs Act, 1969 for violation of sections 2(s), 16 and 157 ibid read with section 3(1) of the Imports and Exports (Control) Act, 1950 punishable under section 156(1) (8), (89) of the Customs Act, 1969 read-with section 3(3) of the Imports and Exports (Control) Act, 1950.

3.Subsequently; after completion of the requisite formalities, the matter was placed before the Deputy Collector Adjudication Customs Kohat, who vide Order-in-Original No.25 of 2014 dated 22.2.2014 ordered outright confiscation of the seized goods and released the vehicle against 20% redemption fine @ Rs.100000/-

4.Appeal was filed against the Order-in-Original No. 25/2014 dated 22.2.2014 before the Collector Appeal Customs Peshawar, who dismissed the appeal vide Order-in-Appeal No. 33/2014 dated 13.6.2014.

5.Aggrieved from the Order-in-Original No. 25 of 2014 dated 22.02.2014 and Order-in-Appeal No. 33 of 2014 dated 13.06.2014, the appellant filed appeal before this Tribunal with the following grounds.

1. That the seized/confiscated goods were lawfully imported legitimately purchased and bonafidely transported duly supported with GDs, Sales Tax Invoices and Bilities. The appellant registered as manufacturer, income tax department as well as sales tax department. The seized goods after mixing, blending, cutting, processing and assembling packed in plastic bags and cartons bearing appellant's firm address and monogram. The Customs department seized the imported goods without detention under section 17 and no notice issued under section 26 of the Customs Act, 1969.

2. That respondent No. 2, never enquired from the detecting staff as to how the CIF value of the seized goods amounting to Rs.2500000/- was determined and did not bother to know the reasons of 2nd valuation and assessment in one and same case.

3. That respondent No. 2, did not bother to call for the appraiser to know as to how he evaluated the seized goods and why he did not associate the respondent (now appellant) at the time of evaluation and assessment of seized goods.

4. That the value determined by the appraiser is not a fair value having no legal sanctity as the same has not been approved by the competent authority.

5. That contents of the Affidavits given by the appellant are to be admitted as the prosecution has failed to give counter affidavits.

6. That the provisions of section 2(s) of the Customs Act, 1969 are not applicable in this case.

7. That the provisions of section 16 of the Customs Act, 1969 are not applicable in this case because;

(i)the seized/confiscated goods are freely importable.

(ii)there is no prohibition or restriction on the import of the seized/confiscated goods.

(iii)The seized/confiscated goods were supported with legal documents.

8. That the provisions of section 157 of the Customs Act, 1969 are not applicable in this case because;

(i)the owner of the vehicle was not travelling with the seized vehicle. When intercepted.

(ii)The prosecution did not bring any evidence on record which proves any criminal link or association with the owner of the seize goods.

(iii)The owner of the vehicle was never issued show-cause notice and in absence thereof no penal or punitive action can be taken against the owner of the vehicle nor any redemption fine could be imposed on the vehicle.

6.In rebuttal, the respondent-department filed their parawise comments as under:--

1. Incorrect. At the time of interception of the vehicle the owner/driver did not produce any GDs, Sales Tax invoices, Bilties to the seizing officer from the recovery memo. The seizing officer accordingly got signature from the owner/driver on recovery memo.

2. No comments

3. Incorrect. The appraiser was not under obligation to associate the accused person while assessing the duty and taxes. The Collector or Director valuation has the power to re-examine the assessment made under section 80 of the Customs Act, 1969 if he is not satisfied. Section 25D of the Customs Act, 1969 empower the Director General valuation to hear appeal if filed by an aggrieved person.

4. Incorrect.

5. Incorrect.

6. Incorrect.

(ii) Incorrect.

(iii) Incorrect.

7.During the hearing departmental representative (DR) raised objection that Mr. Syed Pir Alam Shah who are authorized representatives/consultants in the appeal could not appear as authorized representatives/consultants because they are not licensed advocate. The said objection seems to be based on some misconception, misapprehension and mis-reading of provisions of sections 180(c), 195(1) and 208(2) of the Customs Act, 1969 which do not place any embargo on his appearance as an authorized representatives/consultants before the adjudicating fora and before the Collector of Customs (Appeals) provided written authority has been given by the person concerned. In addition to the above, Rule 2(b) of Customs, Excise and Sales Tax Appellate Tribunal Procedure Rules, 2006 issued vide Notification No. S.R.O. 897(I)/2006 dated 1.9.2006 entitles an authorized representative to appear before the appellate tribunal in relation to a person who is liable to pay customs duty or sales tax or excise duty or any other tax to appear, plead and act on behalf of that person before the Appellate Tribunal. Still further, Rule 17(1), (2) and (3) of the above rules also prescribes a procedure for authorized representative as per which there is no bar for the authorized representative to appear, plead and act on behalf of the appellants provided a written authority is given by him. Nonetheless, a person affected by the orders passed by the lower forum can appear in the court of law personally or through any person irrespective of the fact that such person is a licensed advocate provided written authority/permission is given by him to such person.

8.The order-in-original didn't show that the documents produced by the appellant were found bogus. I am not agree with the plea of learned DR that the documents presented were afterthought. If the said documents were afterthought, so why the adjudication officer has issued show-cause notice and why he called upon as to penal action should not be taken against the appellant and why the seized said goods should not be confiscated. The purpose of issuance of show-cause notice is that the accused should know about the allegation leveled against him and he prepared his defense. This is the right of appellant to defend himself and produce the evidence of legal import and lawful possession of the goods. There is no provision in the Customs Act, 1969 and the other laws of land that the accused cannot produce the documentary evidence in support of his version at any stage.

9.That the black tea, black pepper, green cardamom, cassia, cloves, cumin seed, Dry Copra, Dry Kajoor, Ispaghol Husk, Dal-e-Mong, Dal-e-Masoor, Stationery paper and tissue paper entered into the country by Karachi Sea Port either by the Pakistani Importers or by the Afghan Importers for Afghanistan. The goods which are imported for Afghanistan must carries the words "via Karachi in transit to Afghanistan" under the Afghan Transit Trade Treaty already executed between Pakistan and Afghanistan in 1965. It is in the notice of Customs authorities that the goods which didn't carry the words "via Karachi in transit to Afghanistan" and those are going to Afghanistan. The customs authorities have the power to seized the same. Because it is the violation of Afghan Transit Treaty 1965. The perusal of record shows that the seized said goods in question didn't carry the words "via Karachi in transit to Afghanistan". And admittedly those goods were not seized on border belt but were seized on settled area i.e. Hawalian. This fact had also been admitted by the Departmental Representative. Then how the customs authorities declared them smuggled one. Moreover, August Supreme Court of Pakistan in its judgment reported in 1995 SCMR 387 held that "If the items alleged to be smuggled by the prosecution were freely available in the open market and import of such goods were not banned in the country presumption could arise that the goods in question were lawfully brought in the country unless the contrary was shown".

10.Moreover once the goods imported into the country for home consumption and issue a sales tax invoice under section 23 of Sales Tax Act, 1990 in respect of the import goods. The provision of Customs Act, 1969 are not applicable because after a process of assembling, mixing, cutting, or preparation of goods in any other manner the same is re-packed in other bags from the original packing.

The learned DR contended that the sales tax invoice Nos. 1 to 8 dated 05.1.2014 neither mentioned the NTN Number or CNIC Number of purchaser issued by Messrs Khyber Tea and Food Company Peshawar nor his NTN, CNIC Number or his name mentioned in the monthly sales tax return Annex-C (Summary of Sales Invoices) for the month of January, 2014 which is against the SRO 821(I)/2011 dated 06.9.2011 issued by Government of Pakistan Federal Board of Revenue Islamabad which made it mandatory that in case of registered manufacturer, importers, exporters, making taxable or dutiable supplies to unregistered person, shall issue an invoice containing "computerized National Identity Card Number or National Tax Number" of such unregistered person. Thought the FBR has issued the above mentioned SRO but the Government of Pakistan Ministry of Finance, Economic Affairs, Statistics and Revenue Islamabad rescinded the said SRO vide notification S.R.O. 880(I)/2012 dated 17.7.2012, therefore the said plea of DR is turned down.

11.The learned Departmental Representative contended that the features and contents of recovered seized goods don't tally with the bill of entry. The record has been examined which revealed that the seized goods were imported by Messrs Khyber Tea and Food Company Peshawar vide GD No. KCSI-HC-109106 dated 12.2.2013, KCSI-HC-87679 dated 2.1.2013, KCSI-HC-85500 dated 28.12.2012 and KCSI-HC-83464 dated 24.12.2012. According to available record the condition of the seized goods at import stage and after manufacturing is tabulated as under:--

12.The learned Departmental Representative pointed out that the appellant didn't pay 3% value addition tax which is chargeable on the goods mentioned in the GDs produced by the appellant and placed reliance on S.R.O. 480(I)/2007 dated 09.6.2007. According to the available record appellant is importer manufacturer and 3% of value addition tax is not applicable to the present appellant because provisio to section 58 B exempted the importer manufactures from 3% value addition tax therefore the question raised by the learned DR has no force and has been turned down.

13.The learned DR also raised a question that the appellant has made supplies of black tea, dry copra, ground nuts, peanuts, tamarind seeds, cumin seeds, cassia whole, cardamom and black pepper to unregistered person without charging/paying further tax @ 1% on the value of supplies leviable in terms of section 3(1A) of the Sales Tax Act, 1990. Therefore the appellant has violated the provisions of section 3(1A) of the Sales Tax Act, 1990. In rebuttal the AR produced S.R.O. 648(I)/2013 dated 9.7.2013 which is reproduced as under;

In exercise of the powers conferred by the proviso to subsection (1A) of section 3 of the Sales Tax Act, 1990, the Federal Government is pleased to direct that further tax @ 1% shall not be charged, levied or paid on the taxable supplies mentioned in column (2) of the Table below namely;

Serial No. 6 of the table provides that items failing in the third schedule to the Sales Tax Act, 1990 while at serial No. 14 of the third schedule tea is mentioned whereas at serial No. 18 of the said schedule spices sold in retail packing bearing brand names and trade marks is mentioned. The crux of the above mentioned is that further tax at the rate of 1% shall not be charged, levied or paid on the tea and spices etc.

14.The learned DR contended that the appellant has sold the tea and spices in huge quantity and the learned DR has also admitted that the seized goods are in retail packing of 1000 Grams and 500 Grams packets which also carries the monogram of the appellant's company, retail price and sales tax also mentioned on the packets. I have examined the S.R.O. 648(I)/2013 dated 09.7.2013 along with the 3rd schedule. It is no where mentioned in the schedule that the manufacturer will not sale the tea and spices in huge quantity. Under 3rd schedule the manufacturer is bound to sale the goods in retail packing with retail price including GST as well either in huge or less quantity. Therefore, this plea of DR has no force hence turned down.

14(sic) The learned Departmental Representative raised a question that the repacking was made un-necessarily is also a frivolous while the M/s. Khyber Tea and Food Co. Peshawar is a registered manufacturer with FBR. M/s. Khyber Tea and Food Co. Peshawar being manufacturer mixed/ blended the tea in question at Peshawar and repacked the same in bags.

The learned DR produced FBR Income Tax Circular No. 03 of 2009 dated 17.6.2009 Para No. 34 where it has clearly been defined

"Person engaged in packing and repacking have been excluded from the definition of manufacturer"

For the purpose of section 153 of Income Tax Ordinance, 2001 and as per Finance Act, 2009 the packing and repacking activities have been excluded from the definition of manufacturer. It is correct that the Finance Act and the above noted circular excluded the packing and repacking activities from the definition of manufacturer. But the provision of Finance Act, 2009 and the above mentioned circular did not exclude the activities of mixing and blending from the definition of manufacturer. The business activities of Messrs Khyber Tea and Food Company Peshawar is of mixing and blending of various tea with each other in order to create taste and flavor of tea. Thus the business activities of Messrs Khyber Tea and Food Company Peshawar falls within the scope and definition of manufacturer under section 2(16) and (17) of the Sales Tax Act, 1990 as well as under section 153(7)(iv)(b) of Income Tax Ordinance, 2001 and also section 2 (25) of Federal Excise Act, 2005. Section 153(7)(iv)(b) of Income Tax Ordinance, 2001 reproduced as under;

Section 153 (7) (iv) (b) of Income Tax Ordinance, 2001:-

"Manufacturer" for the purpose of the section means, a person who is engaged in production or manufacturer of goods, which includes:-

(a)any process in which an article singly or in combination with other articles, material, components, is either converted into other distinct article or produce is so changed, transferred, or reshaped that it becomes capable of being put to use differently or distinctly; or

(b)a process of assembling, mixing, cutting or preparation of goods in any other manner.

In the light of above provisions of law the status of Messrs Khyber Tea and Food Company is manufacturer. It is understood fact that being manufacturer M/s. Khyber Tea and Food Company Peshawar would change the original packing after mixing and blending of tea. It is the right of manufacturer to change the original import packing after mixing, blending and processing.

The grinding process of spices and their mixing, grinding of leaves of green tea, grinding of green cardamom, mixing and grinding of dry fruits i.e. almonds, peanuts, nutmeg, dry coconut etc for keer, grinding of food grains i.e. Dal-e-Channa, Dal-e-Mattar, Mung etc., cutting of paper roll and use for different purposes and the act of cutting the tin plates to size are the examples of manufacturing.

There is no prohibition on mixing, blending, cutting and preparation under any law of land. So the seizing and confiscation of the tea, spices and dry fruits in question was unlawful. Hence reliance takes placed on 2004 PTD 791 Karachi High Court, 2012 PTD 1343, 2012 PTD 1632, 2002 MLD 700; 2001 SCMR 1376 = 2001 PTD 2097; 2001 PTD 2982; 2004 PTD 788; 2013 PTD (Trib.) 600 and 2016 PTD 80.

15.That the recovered black tea, food grains, spices items, mixed dry fruits was in plastic bags bearing the monogram/ trade mark of Messrs Khyber Tea and Food Company Peshawar along with address which means that the said seized goods in question were locally manufactured. According to the Sales Tax Registration produced by the appellant shows that the appellant is a registered manufacturer. The locally manufactured goods were illegally detained, seized and confiscated. The law of land doesn't permit to detain, seize and confiscate locally manufactured/packed goods. The goods were loaded on a truck were seized within the country as such this goods could not be treated as smuggled goods. Locally manufactured goods and imported goods purchased from the local markets are not liable to confiscation. "Moreover once the goods imported into the country for home consumption and issue a sales tax invoice in respect of imported goods the provisions of Customs Act, 1969 are not applicable because after process of assembling, cutting, mixing and preparation the same is repacked".

The Messrs Khyber Tea and Food Company Peshawar is registered with Sales Tax and Income Tax Department as manufacturer; therefore the Company is bound under the law that it cannot sale out its goods in the original import shape/packing, mark, and number. The company must sale out the same after manufacturing, processing, mixing cutting and then repacked it in other bags. So the seizing and confiscation of the goods in question was unlawful.

16.The learned Department Representative raised a point that the tea doesn't fall within the ambit of manufacturing. The learned counsel for appellant produced a judgment dated 06.1.2017 passed by the Commissioner Income Tax Appeals-II Karachi wherein the Commissioner Appeal held that "apex courts have already settled the issue in case of M.M Ispahani Tea (Pvt.) Ltd., Messrs SPATCO Karachi, Kohistan Tea Company Karachi, Decent Enterprises Karachi, Muqeet Brothers Karachi and holding that the business of blending, mixing and packaging of tea is a manufacturing process". Therefore, I also hold that the appellant is a manufacturer. The Taxation Officer is directed to accept the claim of the appellant as manufacturer and issue the refund of the excess deduction of the years 2013, 2014 and 2015 under appeals".

The appellant also produced exemption/ reduced rate certificates issued by Commissioner Income Tax Peshawar from time to time and this facility is only available to manufacturer.

In other similar cases of tea the Commissioners of Income Tax of various zone including Karachi have also issued exemption certificates to the tea manufacturer.

In this connection Chief Commissioner RTO Peshawar issued a clarification to appellant regarding manufacturing order under section 122B of the Income Tax Ordinance, 2001 vide order No. CCIR.RTO (HQ)/2013/35 dated 07.8.2013 which are as under;

To 07.8.2013

Messrs Khyber Tea and Food Company

Ashraf Road, Peshawar

Subject:CLARIFICATION REGARDING "MANUFACTURER" -ORDER UNDER SECTION 122-B OF THE INCOME TAX ORDINANCE, 2001.

Please refer to your application dated 17.7.2013 filed under section 221/122B, wherein you have sought clarification "regarding treatment as "Manufacturer" in the order already passed under section 122B vide No. 463 dated 07.5.2013.

It is clarified that the undersigned agrees with the fact that keeping in view the nature of your business activities and processes, you are covered under the provision of section 153(7)(iv)(b) of the Income Tax Ordinance, 2001.

Sd/-

YUSUF GHAFFAR KHAN

Chief Commissioner

The appellant also produced order under section 122(1) read with section 122(5) of the Income Tax Ordinance, 2001 dated 6.8.2012 passed by officer of Inland Revenue RTO Karachi in favour of Messrs SPATCO'S Karachi through which the officer IR RTO Karachi issued Income Tax Refund of Rs.81258461/- for the tax year 2012 dated 06.8.2012. The said order shows that Messrs SPATCO's engaged in running the business of tea blending and mixing of black tea and green tea as well as leaf tone and spices etc.

17.It is evident from the Bill of Entries produced by the appellant that the goods in question were imported by the appellant. Furthermore all the relevant documents were produced and according to section 187 of the Customs Act, 1969 as held in 2012 PTD 428 Karachi HC, 2012 PTD 28 QHC the onus of proof lies on the shoulder of the prosecution to proof its case. For convenience of perusal, section 187 of the Customs Act, 1969 is reproduced:-

"187. Burden of proof as to lawful authority etc:- When any person is alleged to have committed an offence under this Act and any question arises whether he did any act or was in possession of anything with lawful authority or under a permit, licence or other document prescribed by or under any law for the time being in force, the burden of proving that he had such authority, permit, license or other document shall lie on him."

18.In view of the above discussions I came to the conclusion that the respondent could not prove its case against the appellants regarding violation of Sections 2(s), 16 and 157 of the Customs Act, 1969 read with section 3(3) of the Imports and Exports (Control) Act, 1950 punishable under section 156(1)(8)(89) of the Customs Act, 1969. Seized goods are notified items but don't fall in the Appendix-A and are not bended items. It is freely importable under the import policy, any presumption of its being smuggled requires direct evidence which is absent in the present case. Consequently, this appeal is allowed and the Respondents are directed to immediately work out the entire sales proceeds that are payable to the Appellant accordingly and release the vehicle unconditionally, the redemption fine imposed on the vehicle is also remitted.

HBT/53/Tax(Trib.) Appeal allowed.