COLLECTOR OF CUSTOMS, E. & S.T. AND SALES TAX VS PAKISTAN STATE OIL COMPANY LTD., 2005 PTD-SUPREME-COURT 2446 (2005)

(On appeal from the judgment dated 3rd August, 2004 of High Court of Sindh, Karachi passed in Special Customs. Appeals Nos.210 of 2001, 170 to 254 of 2002 and 118 to 161 of 2003).

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

----Ss. 196 & 194-B---Appeal to High Court---Scope---Question of limitation---High Court could exercise its jurisdiction only in respect of questions of law arising out of order under S.194-B, Customs Act, 1969---Where the plea of limitation was not raised before the Customs hierarchy, High Court was not competent to consider said plea as same was neither raised before Collector, Customs nor before the Tribunal, and no discussion was found in orders of both the forums on the point of limitation and it could be assumed that such question never arose from the order passed by the Tribunal---Question of limitation was a mixed question of law and fact and unless it was raised before the forum below, same could not straightaway be agitated before the High Court---Factual controversy was sorted out upto the level of the Tribunal---Remedy under S.196, Customs Act, 1969 was restricted to legal points only, which was not available before the High Court in the present case.

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

----S. 106---Clearance of warehoused goods for export as provision on a conveyance proceeding to foreign destination---Supply of oil by the supplier Company to Pakistan Navy for ships was made at the rate which was applicable for supply to Pakistani ships other than on foreign voyage, which rate included the element of duty and taxes---Supplier Company in fact, had charged the same rate from Pakistan Navy, which was charged from other Pakistani ships not going abroad---Exemption to Pakistan Navy, thus, remained useless for them and the amount of claimed exemption went in the pocket of supplier Company, which was itself, a planned evasion---Provision of 5.106, Customs Act, 1969, in circumstances, was not available to the supplier company .to Pakistan Navy---Supplier Company, however, had started making payments of duty/taxes on the supplies from 1st September, 2000, which furnished sufficient basis to hold that the demand of Customs Authorities was correct and according to law and it was proved that the supplier Company had withheld Government revenue since long without any justification---Supreme Court, converted the petitions into appeal, allowed the same, and set aside the impugned judgment of the High Court and restored that of the Tribunal.

Sohail Muzaffar Advocate Supreme Court and Akhlaq Ahmed Siddiqui, Advocate-on-Record (absent) for Petitioners.

Sajid Zahid, Advocate Supreme Court and Shabbir Ghouri, Advocate-on-Record for Respondent.

Date of hearing: 25th April, 2005.

JUDGMENT

NAZIM HUSSAIN SIDDIQUI, C.J.---This judgment will dispose of above titled petitions in which coimnon questions of facts and law are involved.

2. The Collector of Customs, Excise and Sales Tax and the Assistant Collector of Customs (Preventive), Karachi are petitioners while Messrs Pakistan State Oil Co. Ltd. (hereinafter referred to as the respondent-Company) and Customs, Excise and Sales Tax Appellate Tribunal are the respondents. The latter one is only a pro forma respondent. The petitioners have impugned the order dated 3rd August, 2004 of a learned Division Bench, High Court of Sindh whereby above matters were finally disposed of. Earlier, the appeals filed by respondent-Company were allowed by a short order.

3. The facts relevant for the decision of these matters are that the respondent-Company has been supplying POL products to Pakistan Navy for a number of years at a price fixed by the Ministry of Petroleum and Natural Resources in terms of the notifications issued from time to time. The respondent-Company claimed that these supplies were exempt from payment of customs duty and other taxes under section 106 of the Customs Act, 1969 (hereinafter referred to as the Act), which reads as under:-

"Section 106. Clearance of warehoused goods for export as provisions, on a conveyance proceedings to foreign 'destination.--- Any warehoused provisions and stores may be exported within the period of their warehousing under section 98 without payment of import duty for use on board any conveyance proceeding to a foreign territory."

4. In the year 2001, a show-cause notice was issued to the respondent, which reads as under:--

"No.355(2)/Adj-II/2001(P)S5/Misc/

048/45/2001/Oildated 6-6-2001

Show-Cause Notice

It has been reported by the Deputy Collector of Customs (Preventive), Oil Section, Keamari, Karachi vide Contravention Report C.No.S-5/Misc/048(45)/2001-Oil, dated 23-4-2001 that Messrs PSO had supplied in-bounded warehoused POL products (High Speed Diesel Oil in Quantity 83.70 M.T. = 1,00,000 litres) to Pakistan Navy against Shipping Bill No.45010 dated 2-6-1997 for their ships without payment of Customs Duty, surcharges and other Taxes by, making wrong interpretation of provisions of section 106 of the Customs Act, 1969. The section 106 of the Customs Act, 1969 provides that any warehoused provisions and stores may be exported within the period of their 'warehousing under section 98 without payment of import duty for use on board any conveyance proceeding to foreign territory. The terms provisions and stores are not defined `stores' are not defined in the Customs Act, 1969. However, Indian Customs Act, 1962 has defined `stores' as `stores' means goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting (Manual of Customs Law-1999 Vol.I 2.A. Channa Page 26). Similarly, Preventive Manual, 1951 refers to section 47 of the Sea Customs Act, 1878 wherein `stores' is accepted then duty/ tax free supply of POL products to vessels proceeding to foreign territory is covered under section 106 of the Customs Act, 1969. However, duty/taxes free supplies for POL products to Pakistan Navy ships are not covered under section 106 of the Customs Act, 1969 as the Pakistan Navy are not going to foreign destinations. Therefore, supplies of POL products by Messrs PSO to Pakistan Navy ships cannot be treated as export but it is in fact a domestic supply for which Messrs PSO is liable to make payment of duty/other taxes under proper Bill of Entry. Messrs PSO was asked to justify duty/tax free supplies of POL: products to Pakistan Navy. Messrs PSO failed to justify the same and instead has started making payments of duty/taxes on current consignments. It in itself is sufficient to establish that Messrs PSO has since long hoodwinked the Department and succeeded in evading duty/taxes on large number of consignments.

(2) Thus, clearance of POL products by Messrs PSO without payment of duty/taxes for Pakistan Navy ships has no legal authority/cover and importer, Messrs PSO succeeded to avoid payment of taxes by wrong interpretation of section 106 of the Customs Act, 1969 and deprived the Government from its legitimate revenue to the tune of Rs.2,13,132. By doing so, Messrs PSO have committed an offence under section 32(1)(2) of the Customs Act, 1969, punishable under clause 14 of section 156(I)(ibid).

(3) Messrs Pakistan State Oil Company Limited, Karachi are called upon to show cause as to why penal action under the aforesaid provisions of law should not be taken against them.

(4) Hearing in this case has been fixed on 29-6-2001 at 10-00 a.m. on which date the importers, their accredited represen tative or a duly briefed lawyer may appear to defend the case.

(5) If no written reply to the show-cause notice is received or if no one appears for hearing, it will be presumed that the importers do not want to- contest the charges and the case will be decided ex parte on merits.

(Sd.)

Shahzada Tahir Zaman,

Additional Collector. "

5. Learned Collector, Customs, Sales Tax and General Excise passed an order dated 30th June, 2001, holding that duty/taxes from supplies of POL products to Pakistan Navy ships were not exempt under section 106 of the Act as the ships of Pakistan Navy do not proceed to any foreign destination, as such, supply of POL products by the respondent-Company to Pakistan Navy ships could not be treated as export, but it is, in fact, domestic supply for which the respondent-Company was liable to make payment of duties/taxes according to law. Further, it was observed that wrong was done by the respondent-Company under the cover of defence supplies since long and that after receiving information in this regard, the company started making payment of duties/taxes on the supply of said products to Pakistan Navy with effect from 1st September, 2000, which established the contention of the Customs Authorities and the amount so charged by the respondent-Company as duly paid prices have been deposited in the Government treasury and that the respondent-Company was responsible for loss of huge amount of Government revenue by withholding the same.

6. Above order was impugned before the Excise and Sales Tax Appellate Tribunal (hereinafter referred to as the Tribunal) and was maintained in the following words:--

"We had examined different shipping bills presented before us. It is evident that the word "bond" is clearly mentioned yet the rate applied is the same; which is applicable for supply to Pakistani ships other than on foreign voyage. This rate clearly includes the element of duty and taxes. It is, therefore, clear that Messrs PSO charged the same rate from Pakistan Navy, which was charged from other Pakistani ships not going abroad. These rates included element of Customs duty and taxes, which Messrs PSO was supposed to deposit in the Government Treasury and this was not done. Thus, the so-called exemption to Pakistan Navy remained useless for them and the amount of claimed exemption went- in purse of PSO, which is itself, a planned evasion. In view of this we have no alternative but to uphold the order passed by the Collector. "

7. Being aggrieved by above order, the respondent-Company challenged it before High Court and the learned High Court allowed the appeals, which orders have been impugned in these petitions.

8. Before learned Tribunal it was contended by the respondent--Company that Pakistan Navy was a defence organization and all supplies to it were exempted. Further, it was contended that Pakistan Navy was a successor to Her Majesty's Navy and there was no question of indicating final destination. Also, it was argued that the Customs Authorities had no jurisdiction to check whether a ship was proceeding abroad or not. On behalf of Customs, it was argued that present case was not of exemption of Pakistan Navy, but it is based on the ground that the respondent-Company supplied HSGO to Pakistan Navy at the rates, which were prevalent for other consumers as well. Elaborating it, it was submitted that these rates were fixed by Ministry of Petroleum through Notification dated 18th February, 1999 and the respondent-Company charged the same rates, which included duty and taxes and did not pay this amount to the Department.

9. Mr. Sohail Muzaffar, Advocate Supreme Court, appearing on behalf of the petitioners contends that the respondent-Company claimed the benefit of section 106 of the Act and no such benefit was passed on to the Customs Department. The amount, which should have been deposited with the Federal Government, was misappropriated by the Company. Learned counsel argued that it was a fraud played on the statute and loss of revenue was not only caused to the Government exchequer, but to Pakistan Navy as well for the reason that the benefit of exemption was not passed on to Pakistan Navy. He also argued that the respondent-Company took plea of `accrual of vested right', which under no circumstances was available. According to him, the respondent-Company never took the plea that show-cause notice was time-barred. According to learned counsel, the respondent-Company claimed that vested right accrued to it against statute, which is never legally recognized. Learned counsel urged that order passed by the High Court under section 196(1) of the Act is contrary to its spirit. Said section reads as under:--

"196 Appeal to High Court.--- (1) An aggrieved person or the Collector may file an appeal in the High Court in respect of any question of law arising out of an order under section 194B.

He submitted that the scope of section 196(1) of the Act is very limited. According to him, the Legislature has left no discretion with the High Court, hearing the appeal against order passed under section 194-B of the Act, to hear such appeal on factual aspect of the case or any other legal issue unless such question of law arises out of the order of the Tribunal. He laid great emphasis on the point that learned High Court, while sitting in appeal against the order of Tribunal, could not stretch its jurisdiction to include any legal ground, 'which was not raised before the forum below. He also stated that nature of jurisdiction of High Court under section 196(1) of the Act and Article 199 of the Constitution is different and in case of former the scope is very limited.

10. Learned counsel appearing for the respondent-Company strenuously argued that 83 out of 130 appeals were time-barred by one day and the delay was not explained. He also argued that the phrase "arising out of order under section 194-B" not only includes those legal issues on which the Tribunal has expressed its opinion, but also such issues on which no opinion has been expressed though pressed before it by a party.

11. Perusal of section 196 of the Act reveals that High Court can exercise its jurisdiction only in respect of questions of law arising out of order under section 194-B of the Act. It is significant to note that before the Customs hierarchy plea of limitation was not raised. It being so, the High Court was not competent to consider said plea, as it was neither raised before Collector Customs, nor before the Tribunal. There is no discussion on the point of limitation in the orders passed by the Collector Customs and the Tribunal. Question of limitation is a mixed question of law and fact and unless it was raised before the forum below, it could not straightaway be agitated before High Court. It can be concluded that such question never arose from the order passed by the Tribunal. Factual controversy is sorted out up to the level of the Tribunal. Remedy under section 196 is restricted to legal points only, which was not available to the respondent-Company before High Court.

12. It was conclusively proved that section 106 was not available to the company, which pocketed the amount of duty/taxes while selling POL products to Pakistan Navy. Besides, it is an admitted position that the respondent-Company has already started making payment of duty/taxes with effect from 1 September, 2000 on the supplies of POL products (HSGO) to Pakistan Navy, which furnishes sufficient basis to hold that the demand of Customs Authorities was correct and according to law. It also stands proved that the respondent-Company since long withheld Government revenue without any justification. The record also discloses that from September, 2000 to May, 2001 the Customs Authorities have collected an amount of 85 million rupees as duty/taxes from the respondent-Company on the supplies of POL products to Pakistany Navy.

In view of above, these petitions are converted into appeals and the same are allowed. Impugned judgment of High Court is set aside and the judgment of the Tribunal dated 2nd January, 2001 is restored.

M.B.A./C-41/SAppeal allowed.