Customs Act (IV of 1969)---

----Ss. 25, 205, 32 & 156(14)---Establishment of Office of Federal Tax Ombudsman Ordinance. (XXXV of 2000), S.9---Customs General Order No.25 of 1973---Standing Orders Nos.6 of 1991, dated 9-2-1991 and 17 of 1991, dated 15-5-1991---S.R.O. 412(I)/1, dated 18-6-2001-- Value of imported and exported goods---Duty drawback ---Only five pieces out of total consignment were weighed---Examination Officer observed that weight of consignment was less by 20% and copy of shipping bill was detained for action on weight variation---Validity---Samples for possible valuation check could be drawn if total/composite rate of rebate was 10% or more---Normally samples could not be drawn on 44e pretext of mis-declaration of value from goods consigned to high tariff countries but these could be drawn in cases of indirect export on suspicion---According to Customs General Order No-5 of 1994, where total rebate on items did not exceed 10 % such items would not be ordinarily subjected to valuation check and the declared value would be accepted---Customs .General Order No.6 of 1991, dated 2-9-1991 laid. down that in cases involving valuation dispute' a sample could be forwarded to the Price Control Committee for determination. of normal value but where valuation was, objected to there had to be an evidential data on record for perusal of the aggrieved party---Department would be justified in drawing samples if the composite rate of rebate was 10% or more and the goods were not consigned to a high tariff country and if there was sufficient evidence of comparable, price to .draw samples for submission to the Price Control Committee for a price check-- Department needed to demonstrate whether or not the goods of the complainant were exported to a high tariff country, whether or not the composite rate of rebate duty drawback was 10% or more, whether the Department had sufficient evidence on the basis of which the samples were drawn and sent to Price Control Committee and whether Price Control Committee was legally empowered to determine values in cases referred to them; it was only after doing such exercise that a clear picture of the case would emerge---If on the basis of such parameters, the Department succeeded in showing that the samples were justifiably drawn for valuation check by Price Control Committee and that price was determined in accordance with S.25 of the Customs Act, 1969 and that there was wilful and false declaration of value, deliberate over invoicing to get undue payment of rebate, then Department would have a prima facie evidence to finalize the contravention case for initiating adjudication proceedings---Federal Tax Ombudsman recommended that Revenue Division to direct the concerned custom Authority, not to institute a case of contravention against the complainant in respect of weight variation, which was determined by the Department in violation of and contrary to the manner prescribed in rules and procedures and to re-examine the valuation aspects of the case on the lines as indicated through an enquiry, with which the complainant should also be associated, to determine whether the complainant had indeed indulged in over-invoicing and whether the actions of the Department to draw valuation samples. and the subsequent determination of value by the Price Control Committee were lawful and then proceed in the matter on its merits for taking action in accordance with provisions of law.

Nadeem Ahmad Mirza for the Complainant.

Feroze A Junejo, D.C., Customs. (Export), Karachi for Respondent.

FINDINGS/ORDERS

The complainant, an exporter of Textile and allied products, presented to the Customs his export goods comprising 174 packages as against 175 packages originally declared by him. Weighing only five pieces (weight 1327 grams) out of the total consignment comprising 133192 pieces (weight 11402 kgs) the Examining Officer observed on the bill of export that the weight of consignment was less by 20 %. The clearing agent of the Complainant agreed to (i) the examination report due to last loading of day, (ii) detention of 4th copy of the shipping bill for action on weight variation and (iii) drawl of samples for valuation check by the Price Check Committee (PCC). The shipment was allowed. The complainant vide their letter, dated 18-4-2002 addressed to the concerned Assistant Collector disputed, the method and manner of weighment and the drawl of samples for value check, the same being violative of the provisions of section 25 of the Customs Act, 1969,. CGO 25/73, Standing Order 6 of 1991 and 17 of 1991 and requested the release of 4th copy of shipping bill, condonation of variation in weight and pressed for withdrawal of objection to to the declared value. The Assistant Collector vide his letter, dated 19-6-2002 turned down his request. The complainant vide letter, dated 22-6-2002 asked for information/documents/notifications/orders under which the respondents had drawn samples from the consignment for a valuation check, especially in a case where the notified duty drawback rate was less than 10 % , as per CGO 25/73 read with Standing Orders 6 of 1991 and 17 of 1991, dated 5-5-1991. He also asked the respondents to supply him the orders under which the Price Check Committee was constituted, showing its purview and powers and also the orders that allowed the respondents to determine per piece weight etc. Since no reply was received he again wrote a letter, dated 6-9-2002 requesting for release of bill of export and seeking condonation of weight discrepancy/amendment in weight in terms of section 205 of the Customs Act, 1969, especially when the discrepancy had not occurred due to any deliberate and false declaration. In various cases of identical nature the parties request for condonation of weight variation or amendment in terms, of section 205 of Act was allowed. The complainant has, therefore, stated that the detention of 4^th copy of bill of export is illegal. The determination of weight is required to be done only in cases of export where duty, drawback is linked to the weight and that too involving weightment of 5 % of the consignment, weighing only insignificant portion of the consignment cannot he made the basis for determination of total weight. In the cases of Messrs Rahimia Garments, Karachi and Messrs Coseyco Karachi the weight was found less by 21% and 22% yet amendments in weight were allowed. In a decision in Complaint No.310-K/2000 (Messrs Towellers Limited) the Honourable FTO had ruled that there was no justification to institute a contravention case against the exporter if the quality, quantity and value was correctly declared and the shipment of goods was allowed. The rate of customs duty drawback in the complainant's case was 5.71 %. No sample could be drawn as the rate was less than 10% in terms of Standing Order No.17 of 1991. The value declared by the complainant should have been accepted in terms of section 25(15) of the Act, being the correct transaction value. The respondents did not disclose the grounds on which the declared value was not accepted nor did they disclose the precise basis on which the declared value was suspected. The respondents are accepting supplementary claim of other exporters in cases where the original claims for rebate were reduced on account of variation in value but the same facility is being-denied to him. The complainant, therefore, pleads that the FTO may declare the detention of bill of export as illegal, direct the respondents to release the same after condonation of variation in weight or allow post-facto amendment in 4 terms of section 205 of the Act, accept the value as declared or, alternatively, direct them to supply him the orders/notifications/ law/authority under which they had acted to draw samples from an export consignment: involving less than 10% rate of duty drawback and to disclose to him the constitution, composition and powers of the Price Check Committee to determine whether the Committee was competent to determine the value. Action may also be taken against those responsible for causing harassment.

2. In the written reply the Collector Customs (Export) has stated that the declared weight was found less by 20%. The consignment was overvalued. The samples were drawn and forwarded to the PC for price check. The weightment of 5% of the total consignment was proposed to the complainant but the complainant's clearing agent agreed with the one conduct by the examiner as is evident from his remarks on the shipping bill. Mis declaration of weight and value is an offence under section 32 read with clause 14 of section' 156 of the Customs Act, 1969. Had the discrepancy been riot detected, it would have caused .a less to the exchequer in the form of payment of inadmissible rebate. The complainant has already retained the bill of export for 25 days. His plea for condo nation of variation in weight is not acceptable. The Plea could be considered if it had been made before the detection of irregularity. The Price Valuation Committee reduced the value of two items saving Rs.23232 of duty drawback. The misdeclaration of weight attracts the penal provisions of the Customs Act and the Quality Control Act, 1973. The Price Check Committee has been established to discourage the tendency to over-invoice the goods. The amendment could not be allowed as the complainant had committed an offence involving loss to the Revenue. The quadruplicate copy of the export bill is required by the Customs for pending adjudication proceedings. The contravention report has been prepared. They may be allowed to adjudicate the case rather than allowing amendment being sought at a belated stage.

3. During the hearing the complainant reiterated the same arguments as were advanced by him in his written complaint. He, however, reiterated that insignificant variation in weight could have been ignored and amendment allowed under section 205 of the Customs Act. 1969 just as it was allowed in identical cases. They could not draw samples for valuation check when the rate of duty drawback was less than 10%. In. FTO's orders. in Complaint No.310-K/2002 the proceedings were quashed in the case involving less weight. In another decision given in Complaint No.1013-K, the refusal to allow. amendment was declared an act of maladministration. The Appellate Tribunal in Appeal No.548 of 2002 also ruled that a small quantity of goods cannot be made the basis of misdeclaration and set aside the department's orders. The rate of duty drawback in the case of the complainant was less than 10%. It was 5.71%. The database was abolished by the C.B.R.'s and, therefore, the value should have been determined in accordance with the provisions of the Customs Act, 1969. According to Standing Order 17 of 1991 the samples could be drawn only on reasonable suspicion. The Standing Order 6 of 1991 lays down that the basis' of action should be disclosed. CGO 25 of 1997 required the disclosure of precise grounds on which value changed. The goods were being exported to a high tariff country. In such cases no valuation check is allowed. Customs House's own files show that supplementary claims are being allowed. The High Court of Sindh in its judgment reported as 1985 CMLA 1610 has ruled that the value of export goods is normal price of those goods in the open market of the country to which the goods were consigned.

4. The respondents contended that all the complaints filed by the different complainants before the FTO namely Complaints Nos.1356, 1357, 1358 and ,1359 related only to variation in weight. In those cases the 4th copy of the' shipping bill was released as none of the cases involved misdeclaration of value. The clearing agent of the complainant had agreed to the detention of 4th copy, variation in weight and drawl of samples for price check. Five per cent of. the consignment was not check-weighed because of exporter's convenience. However, on. the basis of five pieces the total shortage in weight was ascertained to which the clearing agent had agreed. The contention of the complainant that rebate was not linked to weight is not correct because the Sale Tax Refund on account of. export is allowed on weight basis. The 4th copy of the shipping bill was detained because of over-valuation with the intent to get more rebate than was actually due. The Price Committee decided vide its Findings, dated 20-4-2000 that there was over-valuation in respect of two items which, if not detected, would have caused loss of Revenue. As per appraiser's manual a consignment can be weighed. PCC has a Chairman and representation from Trade Bodies. The Committee also calls the exporter. to explain his case. The complainant, however, contended that the Committee did not calf him. The respondents stated that in the Committee there are experts who decide and determine the values. Section 205 of the Act does not allow amendment after detection of discrepancy. Other shipping bills quoted by the complainant involved weight only. The Standing Order 17 of 1991 lays down that the samples cannot be drawn for valuation check where the composite rate of rebate/refund (Customs, Excise and Sales Tax) is 10% or less. In the case of the complainant the rate of rebate for customs duty alone is 5.71 % and if to that is also added the rate of rebate/refund on account of sales tax etc. it exceeds 10%. According to the Standing Order 6/91 4^th copy can be retained. for contravention purposes. Since a contravention case has been made out, the case will be sent for adjudication and decision. The complainant, however, stated that CGO 10 of 19.99 lays down that it is only when there is a motive that contravention of section 32 of the Customs Act, 1969 can be alleged. There was no motive on the part of the complainant.

5. The arguments of the parties and the record of the case have been examined and considered. No doubt, the bill of export shows that . the clearing agent had agreed to the examination report showing variation in weight and to detention of 4th copy of the export bill as well as the decision to draw samples for submission to the PCC to determine the price. However, it appears that he had agreed to all this under compulsion, pressed as he was, for shipment of goods to meet the export deadline. According to para 3 of the Appraiser's Manual a minimum of 10% of each consignment entered for export can be examined. In cases where duty is chargeable on weight or the value is determined on such basis, 5% of the consignment is required to be check-weighed. In the instant case the goods were moving under claim of duty drawback fixed on the FOB value of the goods. It was not a case of assessment of duty on weight nor was the value to be determined on weight basis. Even if the weight factor was relevant to payment of rebate/refund on account of sales. tax etc. as contended by the respondent, the quantity drawn for determining the weight should not have been less than 5 %. In the case of the complaint only five pieces representing a very small quantity, in fact a mere fraction of the consignment, was drawn and it was on that basis that the difference in weight was worked out to be less by 20%, which is violative of the procedure in force. The variation in weight determined on the basis of just five pieces was a negligible and ignorable. To term it as a misdeclaration of quantity for initiating penal action, especially when the prescribed rules and procedure was not adhered to is tantamount to over-stretching the issue. If one examines this issue in terms of Standing Order No.2 of 1995 then the respondents were required to check the actual weight of the, consignment to determine the extent of variation. It is not believable that an exporter exporting a large quantity of goods will run the risk of mis declaring the weight by few grams (1327 grams out of 133192' pieces/sets). Thus the determination of the weight in the manner in which it was conducted by the respondents way contrary to the prescribed rules and procedures. The plea that 5 % was not weighed because of the convenience of the exporter is not acceptable because the clearing agent of the complainant appeared to have acted under pressure to meet export schedule. The conjectural estimation of weight on the basis of just five pieces of the total consignment violates the spirit of the Appraiser's Manual.

6. In regard to the valuation aspect of the case the complainant has raised various issues- the value was not determined in accordance with section 25 of the Customs Act, 1969, rebate rate was less than 10% and, therefore, the samples could not be drawn for valuation check, he was not called by the Committee to explain his position, small variation in weight could not be made the basis for taking penal action. samples could not be drawn for valuation check in respect of exports to high tariff countries and no penal action could be initiated if there was no deliberate or false declaration of value. Subsequent to the hearing the complainant has vide his letter, dated 29-1-2003 explained that he had during the hearing mistakenly given the impression that his goods were consigned to Saudi Arabia (a high tariff country) whereas the goods were actually exported to Apapa-Logos, Niger, East Africa, which to is high tariff country. He has further explained that the rate of rebate in his case ranged from 5.03% to 5.71% vide Notification S.R.O. 412(I)/01, dated 18-6-2001.

7. The above mentioned contentions of the complainant and the action of the respondents to draw the samples for valuation check by the Price Valuation Committee can be examined in the light of the parameters laid down in various standing orders/general orders. Standing Order No. 17 of -1991, dated 15-5-1991 lays down that (i) samples shall not be drawn from export consignment regardless of destination on the pretext of valuation misdeclaration if the composite rate of duty drawback was 10% or less, (ii) there was no need to draw samples from export consignments consigned to high tariff countries such as USA, Canada, Australia, Europe and Japan. However, in case of indirect exports to the same countries via free ports samples could be drawn on reasonable ground but. with the approval of Assistant Collector subject to the provisions of Standing Order No.6 of 1991, dated 9-2-1991. Standing Order No.6 of 1991 lays down that only the Assistant Collector could dispute the value and that too on the basis of solid evidence drawn samples and send them to the Deputy Collector for determination of value in the Export Price Check Committee. Thus in the case of valuation disputes the samples could be sent to the Export Price Check Committee in terms of Standing Order No. 6. of 1991. The complainant's contention is that the rate of duty drawback in his case was 5.7 %. The respondents stated that the standing order mentioned the composite rate of 10% or less which also included the element of refund/rebate of Sales Tax and Excise duty on export in addition to the customs duty drawback. The respondents alleged that the complainant had shown only the rate of customs duty drawback as 5.7 % and if the incidence of refund/rebate on account of sales tax etc. is also added it exceeds 10%. The respondents, however, did not show the exact incidence of composite rate. Merely saying that it worked out to more than 10% does not make a very convincing case. In the instant case the samples of value were drawn and submitted to the Price Check Committee and for doing that the Assistant Collector as per the existing instructions was to have sound evidence of comparable price. However, in the case of group invoicing he could draw and sent the samples to the Valuation Committee for price check even without evidence for guidance. Thus valuation samples. could be drawn subject to duty drawback rate being 10% or more of the (sic) value and the case could be referred to the Price Check Committee for verification. General Order No.25 of 1973, dated 1-3-1973 also lays down that in cases involving mis declaration of value the precise basis on which declared value was not accepted should be supplied to the aggrieved party. Thus there should have been some basis for drawing and sending the samples to the PCC for valuation check. In the complainant's case the declared value of two items was reduced, in one case the declared price was reduced from $ 9.36 per set to $ 7.7 per set and the declared price of the other item was reduced from $ 7.77 per set to 2-30.

8. Based on the above discussion the picture of the case that emerges is that samples for possible valuation check could be, drawn if total/composite rate of rebate was 10% or more. Normally the samples could not be drawn on the pretext of misdeclaration of value from goods consigned to high tariff countries but these could be drawn in cases of indirect export on suspicion. CGO No.5 of 1994 also laid down that where the total rebate on items did not exceed 10% such items would not be ordinarily subjected to valuation check and the declared value would be accepted. Furthermore General Order No.6 of 1991, dated 2-9-1991 lays down that in cases involving valuation dispute a sample could be forwarded to the PCC for determination of normal value but where valuation was objected to there had to be an evidential data on record for perusal of the aggrieved party. The respondents would have been justified in drawing samples if the composite rate of rebate was 10% or were not consigned to a high tariff country and if there was sufficient evidence of comparable price to draw samples for submission to the PCC for a price check. The respondents, therefore need to demonstrate whether or not the goods of the complainant were exported to a high tariff country, whether or not the composite rate of rebate duty drawback was 10% or more, whether the respondents had sufficient evidence on the basis of which the samples were drawn and. sent to the PCC and whether the PCC was legally empowered to determine values in cases referred to them. It is only then that a clear picture of the case would emerge. If on the basis of the above mentioned parameters the respondents succeed in showing that the samples were A Justifiably drawn for valuation check by Committee and that the price was determined in accordance with section 25 of the Customs Act, 1969 and that there was wilful and false declaration of value---a case of deliberate over-invoicing by the complainant---to get undue payment of rebate they would have a prima facie evidence to finalize the contravention case for initiating adjudication proceedings.

9. Accordingly it is recommended that the Revenue Division:---

(i)Direct the concerned Custom House Authority, Karachi not to institute a case of contravention against the complainant in respect of weight variation, which was determined by the department in violation of and contrary to the manner prescribed in rules and procedures, and

(ii)To re-examine the valuation aspects of the case on the lines as indicated in para 8 supra through an enquiry, with which the complainant should also be associated, to determine whether the complainant had indeed indulged in over-invoicing and whether the actions of the department to draw valuation samples and the subsequent determination of value by the PCC were lawful and then proceed in the matter on its merits for taking action in accordance with provisions of law.

10. Compliance report to be submitted within 30 days of the receipt of this order.

C.M.A./710/FTOOrder accordingly.