ASIA TRADE AGENCIES, KARACHI VS SECRETARY, REVENUE DIVISION, ISLAMABAD, 2003 PTD-FEDERAL-TAX-OMBUDSMAN-PAKISTAN 111 (2002)

Customs Act (IV of 1969)‑‑‑

‑‑‑‑S.25(10)‑‑‑Customs Valuation Rules, 1999, Rr. 109 & 112‑‑‑Customs Rule, 2001, 8.119‑‑‑Establishment of Office of Federal Tax Ombudsman Ordinance' (XXXV of 2000), S.9‑‑‑Valuation of imported and exported goods‑‑‑Customs Authorities loaded the declared value by 150% on the basis of some market enquiry of the imported Vulcanized Fibre Discs from Holland‑‑‑Complainant pleaded that Customs Authorities neither accepted the transaction value nor applied the other methods of customs valuation in sequential order as provided in subsection (10) of section 25 of the Customs Act, 1969 and valuation of the goods was not determined correctly under S.25 of the Customs Act, 1969 as arbitrary loading was not allowed under the said section‑‑‑Validity‑‑‑Customs Authorities did not have any evidence to support the contention that the value applied by them for assessment was justified‑‑‑Copy of the computation sheet submitted by the Customs Authorities showed the market value of the three sizes of discs and, after deducting profit margin of retailers, wholesalers and importers, the expenses and the duty and taxes, the difference between the ascertained value and the declared value had been arrived at 114%, 130% & 100%‑‑‑Deputy Collector on such computation ordered that the declared value be loaded by 150% and such action was not justified even if the value difference was correct‑‑‑Customs Authorities had no solid evidence to ascertain the assessable value and did not refer matter to the Valuation Department for thorough scrutiny and possible audit of the records of the importers to check the genuineness or otherwise of the declared values‑‑‑Prices calculated by the Customs officials .were further loaded by the Deputy Collector arbitrarily without assigning any reason‑‑‑Customs Authorities did not confront the importer with the alleged huge difference between landing cost and the market value; the various steps of calculation and the considerable gap in the ascertained value and the declared value‑‑ Contention that the importer himself did not approach the Customs Authorities was not acceptable because it was the duty of the Customs officials to discuss the valuation dispute with him before confronting him with a fait accompli‑‑‑Customs Authorities did not act in accordance with the provisions of Customs Valuation Rules, 1999, now incorporated in Rr.109, 112 and the Explanation of the Deductive value method given under R.119 of the Customs Rules, 2001‑‑‑Federal Tax Ombudsman recommended that the Central Board of Revenue direct the Collector of Customs (Appraisement) (i) to re‑examine the valuation of Gelva brand grinding discs/sheets strictly in accordance with the principles of valuation laid down in S.25 of the Customs Act, 1969; (ii) to carry out proper market enquiries, verify the prices through the Pakistan Embassy in Holland, and also take into account the decision of the Appellate Tribunal if available soon (iii) the importer should be given the opportunity to examine the customs calculation, submit valuation evidence and represent his case in support of the declared values and (iv) determine the assessable value, in accordance, with the provisions of S. 25(7) of the Customs Act, 1969 in the manner and the procedure prescribed in the Customs Rules, within thirty days.

Revision Application No. 1(118) Cus‑App. of 1986 ref.

Syed Mahmood Alam for the Complainant.

Ashir Azeem, Deputy Collector of Customs (Appraisement) for Respondent.

FINDINGS/DECISION

The complaint has been filed against unjustified Valuation of Vulcanized Fibre Discs, imported from Holland, by the Customs Authorities. The Complainant imported a consignment of Discs and declared the value as Euro 3.62, 9.52 and 6.53, for, 100 pieces each, for the sizes of 100 mm x 16 mm, 230 mm x 22 mm and 130 mm x 22 mm.

The customs arbitrarily loaded the declared value by 150% on the bass of some market enquiry which was unlawful. According to the complainant the work‑back method applied by the customs was not same as the one applied by C.A.R. in the Revision Application No. 1(118) Cus- App. of 1986 dated 29‑6‑1987 and the loading of 150% over the declared value was devoid of legal validity. The Customs neither accepted the transaction value nor applied the other methods of customs valuation in sequential order as provided in subsection (10) of section 25 of the Customs Act.

2. The Complainant approached the Deputy Collector concerned either to show the evidence of value or accept the declared value but the request was not granted. He requested that the Customs Department be directed to assess the value of goods by work back method as suggested by the C.B.R. or release the goods pending decision of the Federal Tax Ombudsman.

3. The Collector of Customs (Appraisement) replied to the complaint that the declared value was not commensurate with the features and the quality of the imported goods. The goods were Silicone carbide/Aluminium‑oxide grinding discs of Gelva Brand from Holland used on power tools. These discs were backed by fiberglass, they were waterproof, and the `Gelva' brand was the market leader of this product. On the basis of declared value the landing cost per disc would be Rs.3.10, Rs.8.15 and Rs.5.43 whereas the wholesale market price was Rs.9, Rs.28 and Rs.20 per disc. A profit margin of around 350% did not seem plausible and it was considered essential not to accept the declared value and to scrutinize the valuation aspect. This was also necessitated by the fact that domestic manufacturers were complaining about the under‑invoicing in the import of abrasive products badly damaging the local industry.

4. The Collector stated that much inferior products i.e. sheets of Silicone‑carbide/Aluminium‑oxide, paper backed, for manual use, of Chinese and Korean origin were cleared at the average values of 5 cents and 7.4 cents. Compared to this price the "declaration of 0.0649 NLG from Holland of 'Gelva' brand, for power tools is a mockery of the law by the complainant". It was evident that the declared value could not be accepted under section 25 and resort to sequential steps under section 25 was made. After examining the values of similar products and market enquiry, fair and correct "transactional value" was arrived at. The assessment was neither arbitrary nor unlawful. The complainant had `misquoted' a particular decision of the C.B.R. out of context, comparing RADO watches with the grinding discs. He argued that the value declared by the complainant was incorrect and the assessment by the department was fair and legal.

5. In the rejoinder, the Complainant's Advocate contested the value ascertained by the customs and stated that they did not provide any bill of entry showing this value. They had shown two bills of entry of Emery paper‑sheets where the declared value of $ 7.50 and $ 5.6 had been enhanced to $ 25 and $ 37 per sheet. Emery paper imported in finished form could not be used as raw material and, in the absence of thickness, could not be relied upon as the basis of value for grinding discs. The learned Advocate also contended that grinding discs were not manufactured locally. He reiterated that valuation of the goods was not determined correctly under section 25 of the Customs Act as arbitrary loading was not allowed in this section.

6. The valuation aspect was thoroughly discussed with the learned Advocate representing the Complainant and the Deputy Collector of Customs representing the respondent. The customs maintain that the 'Gelva" brand grinding abrasive discs imported from Holland are the world leader in grinding discs. The Deputy Collector vehemently argued that when the declared value of 60 paisa per sheet of Emery paper from China has been enhanced to Rs.3 per sheet and the importers have cleared the goods on this price, how was it possible for Customs to accept the declared value of Rs.1.95, 8.3.42 and Rs.5.13 per `Gelva' disc imported from Holland.

7. The Advocate did not accept the basic price and the procedure adopted for value computation. The retail price, according to him, varied from shop to shop. He stated that the importer was not shown how the customs value were computed and what he actually received was the price arbitrarily loaded by 150% on the bill of entry. The learned Advocate argued that the declared value was the correct value and the value determined by the customs was without any basis and entirely arbitrary. In similar cases the Appellate Tribunal had recently accepted the declared value whose decision would be available shortly. The Customs Authorities did not even approach the Pakistan Embassy in Holland to verify the prices of `Gelva' products which were world famous.

8. The Customs do not have any evidence to support the contention that the value applied by them for assessment was justified. Copy of the computation sheet submitted by the customs shows the market value of the three sizes of discs and, after deducting profit margin of retailers, wholesalers and importers, the expenses and the duty and taxes, the difference between the ascertained value and the declared value has been arrived at 114%, 130% and 100%. On the basis of this computation, the Deputy Collector ordered that the declared value be loaded by 150%. This action was not justified even if the value difference was correct.

9. When the Collector had stated that "resort to sequential steps under section 25 was made", he perhaps meant that resort to the deductive value under subsection (7) of section 25 was taken. The customs had no solid evidence to ascertain the assessable value. They did not refer matter to the Valuation Department for thorough scrutiny and possible audit of the records of the importers to check the genuineness or otherwise of the declared values. The prices calculated by the Customs Officials were further loaded by the Deputy Collector arbitrarily without assigning any reason. The Customs also did not confront the importer with the alleged huge difference between landing cost and the market value, the various steps of calculation and the considerable gap in the ascertained value and the declared value. The contention that the importer himself did not approach the Customs is not acceptable because it was the duty of the Customs officials to discuss the valuation dispute with him before confronting him, with a fait accompli. They did not act in‑accordance with the provisions of Customs Valuation Rules, 1999, now incorporated in rules 109, 112 and the explanation of the Deductive value method given under rule 119 of the Customs Rules, 2001.

10. It is recommended that C.B.R. direct the Collector of Customs (Appraisement)

(i) to re‑examine the valuation of Gelva brand grinding discs/sheets strictly in accordance with the principles of valuation laid down in section 25 of the Customs Act;

(ii) to carry out proper market enquiries, verify, the prices through the Pakistan Embassy in Holland, and also take into account the decision of the Appellate Tribunal if be available soon;

(iii) the importer should be given the, opportunity to examine the customs calculation, submit valuation, evidence and represent his case in support of the declared value.

(iv) determine the assessable value, in accordance with the provisions of section 25(7) of the Customs Act in the manner and the procedure prescribed in the Customs Rules, within thirty days; and

(v) report compliance within forty‑five days.

C.M.A./480/FTOOrder accordingly.