Establishment of Office of Federal Tax Ombudsman Ordinance (XXXV of 2000)‑‑‑

‑‑‑S.2(3)‑‑‑Customs Act (IV of 1969), S.21‑‑‑Maladministration‑‑Export‑‑‑Claim of duty draw hack‑‑‑Undertaken through Bank guarantee that import documents duly attested by a Notary Public of the importing country shall be furnished and failing which the Bank guarantees would be surrendered in favour of the Collectorate‑‑‑Department encashed such Bank guarantee and stopped payment of rebate on the ground that complainant/exporter attempted to export 100% cotton yarn in garb of blended yarn and intended to defraud the public exchequer‑‑‑Demand of notarized import documents, encashment of Bank guarantee and stoppage of payment of rebate was alleged to be maladministration ‑‑‑Validity‑‑ Department alleged that the claim of rebate was not genuine but fraudulent‑‑‑Question should he considered and decided because mere encashment of the Bank guarantee did not lead to the conclusion that action taken by the Department withholding the claim of rebate and releasing same on condition of furnishing Bank guarantee was in pursuance of a conclusive finding given about the fraud allegedly committed by the complainant/assessee‑‑‑Maladministration existed in withholding the rebate without deciding the question of fraud and appropriating the Bank guarantee in final settlement of the charges‑‑‑If there would have been no allegation of fraud the rebate would have been paid which could be refused if the allegations of fraud were proved according to law which was not done‑‑‑Federal Tax Ombudsman recommended that the Collector of Customs should decide the question of fraudulent transaction as alleged against the complainants after notice to them and in the light of the decision the question of encashment of guarantees be also decided.

Mirza Muhammad Awais for the Complainant.

Feroze Junejo, Deputy Collector of Customs (Exports).

Ali Zaman Gardezi, Assistant Collector.

Ajaz Ahmad, Principal Appraiser.

FINDINGS/DECISION

Messrs Khoinoor Industries Limited, Faisalabad, have filed this complaint having felt highly aggrieved due to illegal, mala fide attitude of the Exports Collectorate who allegedly forced them to furnish bank, guarantees against duty drawback claims of 39 shipments made in 1997 and not releasing the same on whimsical and capricious grounds. The complainants pleaded that they were well‑known exporters and had beers exporting their products to Europe for the last one and a half decade. In 1997 a consignment being sent to Portugal was detained (confiscated) by the customs and it was redeemed on payment of fine of Rs.5 lacs and penalty of Rs.15 lacs in compliance with the (adjudication) order dated 19‑1‑1998. While issuing the adjudication order, the Adjudicating Officer arbitrarily directed that the duty drawback claims filed by them for exports made in 1997 from PMBQ be stopped. This order was unlawful as the claims filed against legitimate exports had no relevance with the case in which the order was passed. This action was mala fide, arbitrary and amounted to maladministration.

The complainants stated that they were compelled to submit hank guarantees for Rs.10.3 millions and made to insert an illegal clause in the guarantees that they would produce the import document from the importing country attested by a Notary Public. However, out of 39 duty drawback claims, payment against 37 claims for Rs.7,300,365 was made. The remaining two claims for Rs.10,002,798 were still pending since 1998 for which bank guarantees were secured in 1998.

3. The department approached the Pakistani Ambassador and the Ministry of Foreign Affairs to probe info the matter and dig out any illegality and fraud. The complainants on their own also made efforts to collect documents from the importing country and managed to collect the photocopies of a few sealed and signed invoices which were submitted but the case remained undecided. A number of requests were made to the Collectorate as well as to the C.B.R. for release of the bank guarantees. C.B.R. also repeatedly directed (the Customs) for disposal of the matter but these directives were ignored. The Ambassador in Portugal wrote a letter to the Collector that he was unduly shifting his burden to the Embassy "for investigation in the matter, although you know that the matter is intractably complex and hinges on the willing cooperation of more than one legal agency". The Ministry of Foreign Affairs addressed a letter dated 22‑10‑1998 to the Member (Customs), the Member (Exports), and the Collector of Customs, Port Qasim, that they had advised the Embassy not to pursue the matter and recommended release of the bank guarantees. C.B.R. directed the Collector vide letter dated 29‑6‑1999 to finalize the case on merits but it was not disposed of in order to harass the exporter and drive him out the (field of) export w goods.

4. While the issue remained pending, the Assistant Collector, Bank guarantee Section, asked the bank, vide letter dated 11‑5‑2002, to encash the bank guarantees. This act was arbitrary, illegal, mala fide and ultra vires as the action had been taken without issuing show‑cause notice. The complainants approached the Member (Customs) vide letter dated 23‑5‑2002 for release of the bank guarantees on the basis of the merits of the case. C.B.R. asked the Collector, vide letter dated 29‑5‑2002, to examine the issue and send a report. The complainants also approached the Collector, vide letters dated 30‑5‑2002, 5‑6‑2002, 14‑6‑2002, 19‑6‑2002 and 29‑6‑2002 and followed up the case, and pointed out maladministration for not finalizing the release of bank guarantees. The Assistant Collector sent a letter dated 6‑7‑2002 to the Counsel for the complainants that encashment proceedings had been initiated as the complainants had failed to provide the import documents as envisaged in the bank guarantees.

5. The complainants submitted that if the respondents could not collect evidence from the importing country through the Government missions, how could they collect the documents attested by the notary public. The demand of these documents under duress amounted to mal administration. They requested that the direction contained in order‑in original for stoppage of payment of rebate claims be declared as mal administration and abuse of law, and all actions relating to obtaining conditional bank guarantees, non‑release of the bank guarantees, the attitude of the C.B.R. and the Collector for not considering the merits of the case, the encashment of the bank guarantees etc. be declared illegal and all the proceedings/actions based on irrelevant grounds be considered as sheer maladministration on the part of the Customs Department.

6. The Collector of Customs (Exports), Karachi, replied to the allegations that when a case of gross mis-declaration in the description of goods, net weight and mode of packing was detected, it was found that Messrs Kohinoor Industries Limited intended to defraud the public exchequer of Rs.4,84,907 as customs rebate and Rs.37,80,736 in sales tax refund. They had attempted to export 100% cotton yarn valued at Rs.1,99,18,721 in the garb of blended yarn. The case was adjudicated vide order dated 17‑1‑1998 and the goods were released an payment of fine Rs.5,00,000 and penalty of Rs.15,00,000. Prior to this attempted shipment, 39 duty drawback claims had been filed against exported goods. The Pakistan Embassy in Portugal was requested to obtain detail of the description of exported goods. In the meanwhile, the exporter requested for sanction of withheld duty drawback claims against bank guarantees. They undertook to furnish import documents duly attested by a Notary Public of the importing country failing which the bank guarantees would be surrendered in favour of the Collectorate. When they failed to fulfil the obligation, the encashment proceedings were initiated and the bank was asked vide notice dated 11‑5‑2002 to make the payment of the guaranteed amounts; a final notice was issued on 18‑7‑2002.

7. The Collector stated that the counsel had now raised objection to the written agreement made more than four years ago. The General Manager of Kohinoor Industries had requested, vide letter dated 10‑5‑2002, for one month's time to furnish the relevant details. Even the counsel of the exporters, vide letter dated 30‑5‑2002, had offered to submit an undertaking for the complainants in lieu of the bank guarantee. Since the complainants have failed to fulfil the condition of bank guarantees, the Collectorate had issued notices to the exporters and the bank for encashment and recovery of dues amounting to Rs.10,302 millions with mark‑up.

8. The department asserted that the issue of stoppage of duty drawback claims 4 years ago could not be raised now. Messrs Kohinoor Industries themselves requested for sanction of rebate of Rs.93,65,946 against bank, guarantees containing the disputed clause. The exporters have failed to fulfil their obligation and have been regularly revalidating the bank guarantees. Only 8 photocopies of invoices out of 39 shipments furnished by the exporters are no substitute to the notarized import documents. The allegation that the guarantees have remained pending for several years in order to harass the complainants is baseless, without any foundation, and malicious.

9. Complainant's main contention is that the bank guarantees were obtained under duress. The bank guarantees were furnished about four years back but during this period the complainant did not protest or challenge their legality. The record shows that complainants had as recently as in May, 2002 by letter dated 10‑5‑2002 requested the department for one more month time to furnish the details and even offered to submit undertakings in lieu of the bank guarantees.

10. However, it cannot be ignored that the complainants were placed in a situation where it was difficult for them to get out of it without making commitment that came in the form of bank guarantees and consequently huge amount of rebate was sanctioned. The department has its own reservation about the claim of rebate in respect of which they were seeking proof from the complainant. The efforts made through the Embassy of Pakistan also did not succeed. No doubt the complainants had undertaken to produce the import documents from the importing country duly showing the complete details/quantity and other particulars of the consignment duly attested by the Notary Public of the importing country within 180 days of sanction of the claims failing which the bank guarantees would be surrendered in favour of the Collector of Customs Port Muhammad Bin Qasim. The complainant has not succeeded in producing such documents, which it had undertaken to do.

11. In these circumstances on the basis of the guarantees the department could take steps to encash them. But the main controversy remains unresolved. According to the department the claim of rebate is not genuine and fraudulent. This question should be considered and decided because mere enforcement of the bank guarantee does not lead to the conclusion that action taken by the department withholding the claim of rebate and releasing it on condition of furnishing bank guarantee was in pursuance of a conclusive finding given about the fraud allegedly committed by the complainants. The maladministration exists in withholding the rebate without deciding the question of fraud and appropriating the bank guarantee in final settlement of the charges. If there would have been no charge of fraud the rebate would have been paid. It can be refused if the charges of fraud are proved according to law. So far it has not happened.

12. In these circumstances, it is recommended that:

(i) The Collector of Customs decide the question of fraudulent transaction as alleged against the complainants after notice to them. In the light of such decision the question of encashment of guarantees be also decided.

(ii) Compliance be made within 30 days.

C.M.A./588/FTOOrder accordingly.