(a) Income Tax Ordinance (XXXI of 1979)---

‑‑‑‑Ss. 50(5) & 86‑‑‑Customs Act (IV of 1969), Ss. 156(1) (10‑A)(14) & 202‑‑‑Evading deduction of advance income‑tax by mis‑declaration of description of imported goods‑‑‑Recovery of such evaded income‑tax from importer by Collector of Customs alongwith additional tax under S.86 of Income Tax Ordinance, 1979 and penalty under S. 156(1) (10‑A)(14) of Customs Act, 1969‑‑‑Validity‑‑‑Advance income‑tax under S.50(5) of Income Tax Ordinance, 1979 could be collected as customs duty and recovered by Collector of Customs under S.202 of Customs Act, 1969‑‑‑Such recovery would not have effect of converting income- tax into customs duty, thus, applicability of S. 156 of Customs Act would be excluded‑‑‑Section 86 of Ordinance, 1979 involved process of assessment, which power had not been conferred on Customs Authorities‑‑‑Additional tax under S.86 of Ordinance, 1979 could be imposed on deducting authority and not on importer (the payer)‑‑‑No exception could be taken to recovery of such evaded determined amount of income‑tax‑‑‑Imposition of additional tax under S.86 of the Income Tax Ordinance, 1979 and penalty under S. 156(1)(10‑A)(14) of Customs Act, 1969 were annulled being without jurisdiction.

Crescent Pak Industries (Pvt.) Limited v. Government of Pakistan 1990 PTD 29; Messrs English Biscuit Manufacturers Ltd. v. The Assistant Collector, Central Excises and Land Customs, Landhi Division Karachi 1991 PTD 178; Kohinoor Textile v. Federation of Pakistan 2002 PTD 121 and Messrs Nadeem Electronics (Pvt.) Ltd. v. Collector of Customs, Central Excise and Sales Tax PTCL 2000 CL 582 ref.

(b) Taxation‑‑‑

‑‑‑‑ Nature of tax would not be changed by merely providing the manner and time of its collection under any tax enactment.

(c) Taxation‑‑‑

‑‑‑‑ Collection and assessment of tax‑‑‑Not one and the same thing.

(d) Income Tax Ordinance (XXXI of 1979)‑‑‑

‑‑‑‑S. 86‑‑‑Additional tax, imposition of‑‑‑Scope‑‑‑Such tax could be imposed on deducting authority and not on importer (the payer).

Junaid Ghaffar for Appellant.

Ms. Masooda Siraj for Respondent.

Date of hearing: 23rd October, 2003.

JUDGMENT

MUHAMMAD MUJEEBULLAH SIDDIQUI, J.‑‑‑This appeal under section 196 of the Customs Act, 1969, is directed against the order, dated 5‑2‑2002 passed by the learned Customs, Excise and Sales Tax Appellate Tribunal Bench-III, Karachi, in Customs Appeal No.H‑115 of 2000.

The appeal has been admitted to regular hearing to consider the following question of law:‑‑

(1) Whether or not the learned Appellate Tribunal has erred in holding that the Customs Authorities have been vested with powers of Income Tax Officers and are also authorized to take action under the Customs Act, 1969, to recover the arrears, if any, of advance tax liable to be deducted under section 50(5) of the Income Tax Ordinance, 1979?

The relevant facts giving rise to the above question of law are that the appellant imported certain goods and in the bill of entry declared the same to be 100% Polyester Boiled Georgete. The appellant, produced an Exemption Certificate issued by the Commissioner of Income Tax Peshawar, whereby the import of Grey Cloth by the appellant, was allowed exemption from deduction of tax under subsection (5) of section 50 of the Income Tax Ordinance, 1979. The Customs Authorities consequently allowed release of the goods without deducting the advance tax under subsection (5) of section 50 of the Income Tax Ordinance, 1979 (hereinafter referred to as the Ordinance). Subsequently the Directorate General of Intelligence and Investigation (Customs and Excise) Karachi reported that a credible information was received that the appellants are involved in the evasion of duties and taxes by mis declaration of description, value and quantity. In pursuance of the above intimation, investigation was made in respect of the imports made by the appellants. On scrutiny of the relevant documents and investigation it transpired that the appellant declared the imported goods in the Bill of Entry as 100% Polyester Grey Cloth, which is an unfinished cloth meant for further industrial process. However, the consignment actually comprised finished cloth of marketable quality for direct consumption of the consumer and no further process was required for and use. It was further found that the Income Tax Exemption Certificate was misused and the exemption was wrongly availed. Verification was sought from the. Commissioner of Income Tax Peshawar, who informed that the appellant was allowed exemption in respect of raw material mentioned in the certificate and finished fabric cleared by the importer were not covered under the said Exemption Certificate. It was further found that by misdeclaration the appellant caused loss to the Revenue by evading the deduction of advance income tax under section 50(5) of the Ordinance at Rs.45,15,314. The Customs Authorities alleged evasion of customs duty and sales tax also but the present appeal is confined to the issue pertaining to the deduction of advance Income Tax under section 50(5) of the Ordinance, therefore, facts pertaining to the other taxes are not being narrated. The case was therefore, reopened for reassessment in terms of section 195 of the Customs Act, 1979. A show‑cause notice was served on the appellant intimating that by misdeclaration of the description of goods the appellant evaded withholding tax and were called upon to show cause as to why the evaded income‑tax should not be realized from them and penal action may not be initiated. The appellant submitted their explanation which was not found satisfactory and the Collector of Customs held that the appellants instead of Grey Cloth, imported the finished Polyester Cloth Boiled Georgette and sold the same in the market without any industrial process and therefore, was not entitled for the exemption of withholding tax. It was held as follows:‑‑

"As regards Income Tax exemption availed by the importers the Directorate's staff's findings are correct. In fact it was confirmed by the income Tax Department vide letter No. 880, dated 16‑9‑1999 that the exemption is only available to those raw material/gray cloth which has to undergo further processing. Since, as evident from the statement of the importers Haji Shahjee Gul and the investigations carried out by the Department with the local buyers it is established that the 100% Polyester Cloth/O Georgette imported in the impugned consignments had not gone through any industrial process and was sold in the local market directly after clearance from the Customs Port, thus, they were not entitled for the exemption of withholding tax. In-fact they had misused the Exemption Certificate, which his clearly an offence punishable in terms of Clauses 10‑A and 14 of section 156(1) of the Customs Act, 1969. The importers are, therefore, directed to pay advance income tax (withholding tax) in terms of section 50(5) of the Income Tax Ordinance, 1979 as per assessment already made on the bills of entry together with additional tax in terms of section 86 of the Income Tax Ordinance, 1979. For misuse of Exemption Certificate a penalty of Rs.10,00,000 (rupees ten lacs) is also imposed on the importers in terms of clauses 10‑A and 14 of section 156(1) of the Customs Act, 1969. The importers are, therefore, directed to make the payment of short levied income tax alongwith additional tax in terms of section 86 of the Income Tax Ordinance, 1979, and penalty within ten days from the date of issue of this order; failing which action will be taken under section 202 and 156(1)(99) of the Customs Act, 1969, read with Recovery Rules, 1992."

The appellants preferred appeal before the learned Customs, Excises and Sales Tax Appellate Tribunal, Karachi. A perusal of impugned order shows that a learned Division Bench of the Tribunal observed that the only issue raised before them pertains to the imposition of penalty. It was contended by the learned counsel for the appellant that the Customs Authorities have no power to impose the penalty in the case of involving the misuse of Exemption Certificate issued under the Income Tax Ordinance. The plea of the departmental representative was that so far, import of goods is concerned, the Customs Officers have been invested with the powers of Income Tax Officer and therefore, they can take action under the Customs Act.

The learned Tribunal agreed with the contention of departmental representative and held that the Customs Authorities have been invested with the powers to take action for violation of customs duty, and for misuse of the income tax exemption. They further held that the Customs Authorities have power to impose penalty under section 156(1) of the Customs Act. The appeal was ultimately dismissed.

We have heard Mr. Junaid Ghaffar, learned counsel for the appellant and Ms. Masooda Siraj, learned counsel for the respondent.

Mr. Junaid Ghaffar, learned counsel for the appellant has contended that even if there was evasion of income tax, the Customs Authorities have no jurisdiction to recover the evaded income, tax and to impose additional tax under section 86 of the Ordinance. He has further submitted that the imposition of penalty under section 156(1) is without jurisdiction and is liable to be annulled. He has submitted that merely because the customs officials are empowered to collect advance tax under section 50(5) of the Income Tax Ordinance, the income tax shall not be converted into a customs duty and the relevant provisions in the Customs Act, pertaining to mis-declaration for the purpose of customs matters shall not be attracted. In support of his contention he has placed reliance on the following judgments.

(1) Crescent Pak Industries (Pvt.) Limited v. Government of Pakistan, 1990 PTD 29 (Karachi High Court).

(2) Messrs English Biscuit Manufacturers Ltd. v. The Assistant Collector, Central Excises and Land Customs, Landhi Division Karachi, 1991 PTD 178 (Karachi High Court).

(3) Kohinoor Textile v. Federation of Pakistan, 2002 PTD 121 (Karachi High Court).

(4) Messrs Nadeem Electronics (Pvt.) Ltd. v. Collector of Customs, Central Excise and Sales Tax, PTCL 2000 Cl. 582 (Peshawar High Court).

On the other hand, Ms. Masooda Siraj, learned counsel for the respondents has submitted that under section 50(5) of the Ordinance, the Collector of Customs has been empowered to collect the advance tax from every importer at the time of import and it is further provided in the above provisions that the income‑tax shall be collected in the same manner and at the same time as the customs duty as if the imported goods were liable to customs duty and all the provisions of the Customs Act, 1969 shall so far, as may be applied accordingly. She has further submitted that under section 202 of the Customs Act, if under the Customs Act, or under any other law for the time being in force, any tax is to be collected in the same manner as customs duties are collected, the Customs Authorities are empowered to collect the same in accordance with the provisions contained in the Customs Act.

We have carefully considered the contentions raised by the learned Advocates for the parties. Before considering the judgments cited by the learned counsel for the appellant it would be appropriate to reproduce the provisions contained in subsection (5) of section 50 of the Ordinance and section 202 of the Customs Act, which read as follows:‑‑

"(5) Notwithstanding anything contained in any law for the time being in force,‑‑

(b) the tax under clause (a) shall be collected in the same manner and at the same time as the customs duty, as if such goods (even though exempt from such duty) were liable to such duty, and all the provisions of the Customs Act, 1969 (VI of 1969) shall, so far as may be, apply accordingly."

"(202) Recovery of Government dues.‑‑‑(1) When under this Act or under any other law for the time being in force, which provides for any tax, duty or other levy being collected in the same manner as customs‑duties are collected, a penalty is adjudged against, or notice or demand, is served upon, any person calling for the payment of any amount unpaid which may be payable by way of penalty or by way of duty, tax or other, levy or under any bond, guarantee or other instrument executed under this Act or such other law or the rules made thereunder, the appropriate officer‑

(a) may deduct or require any other office of Customs, Central Excise and Sales Tax to deduct such amount from any money owing to such person which may be under the control of the Customs, Central Excise or Sales Tax Authorities; or

(b) If it cannot be so recovered, may recover, or may require any other office of Customs, Central Excise or Sales Tax, to recover, such amount by detaining and selling any goods belonging to such person which are under the control of the Customs, Central Excise or Sales Tax Authorities."

In the first judgment relied upon by the learned counsel for the appellant a contention was raised, that by virtue of the provisions contained in section 2(1) of the Sales Tax Act 1951, the provisions of the Customs Act were made applicable in relation to the recoveries of Sales‑Tax Act and thereby section 31(a) of the Customs Act became operative for the levy of Sales‑Tax under the Sales Tax Act, 1951. A Division Bench of this Court held as follows:‑‑

"(4) There is little to argue on the point that the Sales Tax Act of 1951 and the Customs Act of 1969, though taxing statutes, operate in different fields. To our minds what section, 3(5) of the Sales Tax Act, 1951, achieves is the introduction of machinery, operating under the Customs Act to realizations under the Sales Tax Act, as well. There is a clear distinction between charging provisions of a stature and the machinery part thereof. It is axiomatic that mode and manner of recovery does not alter the nature of a tax nor can a tax be introduced or imposed by implication. We are clear in our minds that it is only playability which is covered by section 3(5) of the Sales Tax Act and not the imposition or levy of Sales Tax which is provided for elsewhere in the Sales Tax Act itself. Merely, because of the invocation of section 3(5) of the Sales Tax Act and the application of the Customs Act, 1969, pursuant thereto Sales Tax is not divested of its inherent attributes and does not become Customs duty and therefore, the introduction of section 31‑A in the Customs Act, cannot take away vested rights under the Sales Tax Act and does not make any difference whatever on that score."

In the second case, English Biscuit Manufacturers Ltd., the provisions contained in the Sales Tax Act, 1951 and Central Excises and Salt Act, 1944, pertaining to the collection of Sales‑Tax payable as excise duty came for consideration. In this case assessment was made by the Sales Tax Officer, which was being collected by the Assistant Collector of Central Excises and Land Customs. The Assistant Collector, Central Excises and Land Customs, subsequently issued a show‑cause notice under section 11 of the Central Excises and Salt Act, 1944, requiring to explain as to why the differential amount of Sales‑Tax may not be recovered. A contention was raised on behalf of assessee that the Central Excise Officers were merely empowered for the collection of Sales‑Tax and not chargeability of sales‑tax and therefore, the provisions contained in the Central Excises and Salt Act, 1944 pertaining to the chargeability of excise duty were not attracted for the purpose of Sales Tax. The contention was not accepted by the lower forums and therefore, the petition was filed before this Court. Proviso to sub section 3(4) of the Sales Tax Act, 1951 was referred which provided that the Sales Tax Act, where the C.B.R. so directs, be payable at the same time and in the same manner as the duty of excise duty of excise under the Central Excises and Salt Act, 1944, and the provisions of the Sales Tax Act and the rules made thereunder shall, so far may be and with the necessary modification apply for the purposes of Sales Tax Act, as they apply for the purposes of Central Excises and Salt Act, 1944. A notification was issued by the C.B.R. directing that the Sales Tax shall be paid at the same time and in the same manner as the duty of excise. It was contended on behalf of the assesses that the power so conferred was limited only to collection and not beyond, it. It was submitted that the authorities under the Central Excises and Salt Act, were not authorised to assess tax but only to recover it. The contention found favour with a Division Bench of this Court and it was held that the notification issued by the C.B.R. Executive Authorities, were empowered to collect, the Sales Tax and in that regard could exercise all powers conferred on them by the Central Excises and Salt Act, without resorting to the procedure provided for recovery under the Sales Tax Act. It was further held that the assessability and recovery are two different aspects of the taxing statute. First the assessee is assessed to tax and then comes the second step of recovery unless otherwise provided by under the law. It was held as under:--

"This provision read with section 3, subsection (4) of the Sales Tax Act, provides for the manner and method for determining the value and collection of Sales Tax. It is significant to note that by virtue of the directive of the Central Board of Revenue and section 4(1) of the Central Excises and Salt Act the Central Excise Authorities were empowered to determine the value of the goods and collect the tax but the power of assessment has not been given to them. They can only determine the value and collect the sales tax on that value and the rest is left to the Sales Tax Authorities under the Sales Tax Act. Therefore, while originally making a demand respondent No. 1 has to determine the value of the goods as discussed above and sales tax is collected on that basis. Once such step has been taken and tax paid the Excise Authorities are exhausted of the power delegated to them. They draw the source of authority from the notification of the Central Board of Revenue which does not empower them to initiate proceedings (after assessment has been made by the Sales Tax Officer), for recovery of any amount of Sales Tax which according to them has escaped assessment or assessed at a sale price not properly determined at the time of payment of tax of when the assessment was framed. Similarly circular bearing No.2 of 1982 came up for consideration in Constitution Petition No. D‑724 of 1985 Industrial Engineering Ltd. v. Assistant Collector of Customs where the Assistant Collector authorised by the circular to collect sales tax holding that sales made by the petitioner were incorrectly exempted by the Sales Tax Officer created a demand. The action was struck down as without jurisdiction and it was held that only power given to the Assistant Collector of Customs was to collect Sales Tax in the manner provided by the Central Excises and Salt Act without resorting to procedure provided for recovery by the Sales Tax Act. The direction of C.B.R. was restricted to collection and not the levy of Sales Tax. We are in full agreement with these observations."

It was also held that, a duty is payable and recoverable once it is determined. The officer authorized under section 11 of the Central Excises and Salt Act, to recover duty under section 11, cannot go behind the demand already created or determined. He cannot reopen the case and assess afresh 'creating a liability different from the one already assessed. The Assistant Collector Central Excise and Land Customs, by issuing notice reopened the case and changed the assessment made by the Sales Tax Officer. Such action is completely without jurisdiction and void.

In the third judgment, Kohinkoor Textile v. Federation of Pakistan, the same issues were considered and the earlier judgment of this Court in the case of Crescent Pak Industries (Supra) was considered and the principle was reiterated propounded in the above case.

In the last case, the petitioner did not pay the sales tax on the import of various articles on the ground of exemption under Notification No. S.R.O. 529(I)/88. Subsequently it had come to the notice of Customs Department that the same was wrongfully claimed and therefore, the tax evaded was recovered. It was assailed in the writ petition and refund was claimed for the reason that the recovery was time‑barred under section 6 of the Sales Tax Act, 1990 read with section 32 of the Customs Act, 1969. It was ultimately held that the recovery could be made under section 36 of the Sales Tax Act, 1990 and consequently, the petition was dismissed. The issue decided in the last judgment is not relevant to the issue under consideration in this appeal.

A perusal of the provisions contained in section 50(5) of the Ordinance and section 202 of the Customs Act, shows that the Collector of Customs has been empowered to collect the advance income‑tax under subsection (5) of section 50 of the Ordinance, at the time of import of goods at the rates specified in the First Schedule to the Ordinance, in the same manner and at the same time as the customs duty and tax is to be collected in the same manner as customs duty, the recovery thereof can be made under section 202 of the Customs Act. In the judgments cited above, it already stands decided that merely by providing the manner and time of collection of tax under any tax enactment, the nature of the tax shall not be changed, meaning thereby that if the advance tax under section 50(5) of the Ordinance can be collected as customs duty and can be recovered by the customs officials under section 202 of the Customs Act, it will not change the nature of tax and the income‑tax shall not become the customs duty. We fully subscribe to the views held earlier by this Court in the judgments cited above, that the collection of tax and assessment are not one and the same. The power to collect the advance income‑tax under section 50(5) of the Ordinance by the Collector of Customs, shall not have the effect of converting the income‑tax into customs duty and consequently the customs official shall be empowered by virtue of the provisions contained in the Income Tax Ordinance and the Customs Act, merely to collect the determined amount of tax and shall not have the Authority to resort to the chargeability or assessment of a tax. Likewise when the income‑tax shall not be changed into customs duty, the applicability, of section 156 of the Customs Act, shall be excluded as a logical conclusion.

Applying the above principle to the facts of the present case, it is held that the respondent was empowered under the provisions of law contained in section 50(5) of the Ordinance and section 202 of the Customs Act, to recover the amount of advance tax which is a determined amount and no exception can be taken to the recovery of such evaded determined amount of tax. However, the imposition of additional tax under section 86 involves the process of assessment which; power has not been conferred on the Customs Authorities and consequently, the imposition of additional tax under section 86, is without jurisdiction. The imposition of additional tax on the importers under section 86 of the Ordinance is not sustainable for another reason, that, it can be imposed on the deducting authority and not the importer, who is the payer. The deducting authority in this case is Collector of Customs and not the appellant. Likewise, the imposition of penalty under section 156(1) is without jurisdiction. The imposition of additional tax under section 86 of the Income Tax Ordinance and imposition of penalty under sections 156(1) (10‑A) and (14) of the Customs Act, are therefore, annulled.

The question for the consideration whereof the appeal was admitted to regular hearing is answered in the terms that the Tribunal has rightly upheld the recovery of evaded tax under section 50(5) of the Income Tax Ordinance, 1979, which is within the competence of Customs Authorities by virtue of the provisions contained in section 50(5) of the Income Tax Ordinance read with section 202 of the Customs Act, 1969. However, the Tribunal has misdirected in confirming the additional tax under section 86 of the Income Tax Ordinance, 1979 and the penalty levied under section 156(1) (10‑A) and (14) of the Customs Act, 1969. The appeal stands disposed of as above.

A copy of this judgment shall be sent under the seal of the Court to the Customs, Excise and Sales Tax Tribunal, Karachi Bench, who shall pass the orders necessary to disposed of the case conformably to the decision in this judgment.

S.A.K./A‑525/KAppeal disposed.